8-31-22 As seen on Law360.com - Girardi Victims Sue Defunct Firm's Litigation Funders

Posted on August 31, 2022

Girardi Victims Sue Defunct Firm's Litigation Funders

By Brandon Lowrey · Listen to article

Law360 (August 30, 2022, 4:49 PM EDT) -- A family of Girardi Keese victims sued litigation lenders and other secured creditors in the defunct law firm's bankruptcy case Tuesday, saying the lenders improperly accepted money that belonged to the law firm's clients and challenging the validity and priority of more than $37 million in claims.

The complaint, filed in Los Angeles bankruptcy court, marks the latest threat to lenders that pumped millions into the scandal-plagued plaintiff's firm as it spiraled toward insolvency. Girardi Keese's bankruptcy's special counsel is also investigating potential claims against the companies.

"It's long overdue, as well as paramount to the victims, for the courts to address the validity of the legal lenders' claims," said plaintiff Kathy Ruigomez, whose family is trying to collect on an $11 million judgment it secured against Girardi Keese and its founder, Thomas V. Girardi.

The Ruigomez family secured its judgment against Girardi in April 2020. In December, creditors forced Girardi and his law firm into bankruptcy after a Chicago federal judge found that it had misappropriated at least $2 million from the widows and orphans of plane crash victims.

Since then, thousands of ex-clients, lenders, co-counsel and vendors have come forward with claims of missing money. In all, Girardi and his defunct firm owe more than $100 million, according to trustees' estimates.

The litigation lenders filed some of the largest secured claims in the firm's bankruptcy case: California Attorney Lending II Inc. for $6.7 million, Stillwell Madison LLC for $7.5 million, and Virage SPV 1 LLC for $11.3 million.

The large loans to Girardi Keese as it was clearly financially distressed have drawn suspicion from the firm's bankruptcy trustee, Elissa Miller of Greenspoon Marder LLP. She named Larry Gabriel of Jenkins Mulligan & Gabriel LLP as special counsel to pursue possible claims against the lenders.

California Attorney Lending II is also facing claims in a racketeering lawsuit brought by Girardi Keese's former co-counsel, which claims it gave Girardi loans in exchange for a "first cut" of settlement proceeds.

Ruigomez's complaint also sets up a potential battle among Girardi Keese's six secured creditors over who is first in line to be paid and how much. The family urged U.S. District Judge Barry Russell to rule on secured claims by the other secured lenders: Nano Banc, which said it was owed $4.3 million; and KCC Class Action Services LLC, which claims the firm owes it $7.5 million for unpaid work.

Girardi, 83, was disbarred earlier this year. He had been a prominent and politically connected plaintiffs' attorney for decades, famed for his role in winning a $333 million settlement in a groundwater pollution case that inspired the 2000 film "Erin Brockovich."

More recently, he has been known for being the husband of singer and "Real Housewives of Beverly Hills" star Erika Girardi, whose stage name is Erika Jayne.

William F. Savino, an attorney for California Attorney Lending II, said Tuesday that the new complaint "smacks of bad faith." His client reached a court-approved settlement with the trustee for Girardi's personal estate last year and has allowed the lender to collect nearly $5 million.

"That settlement was on notice to all parties, including the prior counsel to the Ruigomez claimants," Savino said. "There was a time to air all this. There was a time to address whether the claims were properly secured."

The Ruigomez family's complaint argued that it was improper for the lenders to collect its share of settlement money directly from defendants, rather than from Girardi Keese's general account. Savino, however, contended that this insulated California Attorney Lending II from any scandal; the money was never handled by Girardi Keese, ensuring it was untainted, he said.

Representatives for the other defendants could not immediately be reached for comment Tuesday.

The Ruigomez family is represented by Marc A. Lieberman and Alan W. Forsley of Fredman Lieberman Pearl LLP.

Miller is represented by Larry W. Gabriel of Jenkins Mulligan & Gabriel LLP.

California Attorney Lending II is represented by William F. Savino of Woods Oviatt Gilman LLP.

Stillwell Madison is represented by Eric Goldberg of DLA Piper.

Counsel information for Virage and KCC Class Action Services could not be determined Tuesday.

The bankruptcy case is In re: Girardi Keese, case number 2:20-bk-21022, in the U.S. Bankruptcy Court for the Central District of California.