While raising questions about the conduct of a lawyer accused by a litigation funding firm of failing to live up to his end of a deal to safeguard funds secured from a woman’s wrongful death suit, a state appeals panel has said the third-party lawsuit funder can’t press its claims against the lawyer after his client failed to pay them what they claim she owed under the bargain.
For the first time, an Illinois appeals court has addressed whether an attorney owes responsibility in a case in which a third party loans money to the attorney’s client to fund litigation and the client doesn't repay the money from a settlement or judgment.
Justice Mary Anne Mason | Illinoiscourts.gov
The issue arose in an appeal from Cook County Circuit Court regarding a dispute between Prospect Funding Holdings LLC, and lawyer Keenan J. Saulter, of the firm of Saulter Tarver PC.
Saulter was representing his client, identified in court documents as Angela Wright-Housen, in a wrongful death lawsuit, and arranged for her to borrow $25,000 from Prospect under a purchase agreement. The deal stipulated disputes would be heard in Hennepin County, Minn. Saulter was to hold his client’s settlement money in trust and pay Prospect its cut before disbursing funds. When Wright-Housen failed to repay Prospect, it sued her and Saulter in Minnesota.
The Minnesota court dismissed Saulter on jurisdictional grounds and, after Wright-Housen didn’t appear, entered a default judgment against her. When she failed to satisfy that judgment, Prospect sued Saulter in Cook County court for breach of contract and professional negligence. There, Judge Patrick J. Sherlock granted Saulter’s motion to dismiss, which the lawsuit funding firm appealed.
First District Appellate Court Justices Michael B. Hyman, P. Scott Neville and Mary Anne Mason issued their unanimous opinion on the matter March 13.
Prospect said Sherlock shouldn’t have dismissed the complaint because the default judgment in Minnesota validated the underlying purchase agreement as enforceable. However, Hyman wrote, Prospect wasn’t seeking to have that judgment enforced, but rather filed a separate suit against someone who was no longer a party to the default judgment. Further, the panel said the Minnesota court didn’t actually enter a finding on the legality of the underlying agreement.
Analysis then turned to a letter directing Saulter to hold settlement money in trust. Prospect argued the letter should be construed under Illinois law, meaning it couldn’t be invalidated as champerty, or an improper agreement between a litigant and an outside party to split the proceeds of any judgment. Yet Saulter contended the letter was an agreement only between he and Wright-Housen, leaving Prospect without recourse, and alternatively, that the agreement was indeed champertous and unenforceable under Minnesota law.
While the panel said Prospect is a third-party beneficiary to the letter, its rights are subject to the validity of the purchase agreement. The justices further said Minnesota law clearly bars third parties from assuming an interest in litigation, not only because that involvement might influence decisions to settle, but also because “it permits Prospect to make an enormous profit off of its loan by charging a usurious 4 percent interest rate, compounded monthly, without being subjected to any regulations.”
However, Prospect argued Saulter is not party to the agreement between it and Wright-Housen, preventing him from using champerty as a defense. Yet Hyman explained Saulter was “not a complete stranger to the purchase agreement because his obligations under the letter of direction are wholly dependent on the enforceability of the agreement.” Ultimately the panel agreed with Sherlock in finding the purchase agreement unenforceable under Minnesota law.
Prospect also said the Illinois Rules of Professional Conduct underscore Saulter’s professional duty to hold the funds pending a dispute resolution. The panel said Prospect doesn’t have standing to bring such a claim, although it noted that does not preclude the Attorney Registration and Disciplinary Commission from considering his conduct, and ordered a copy of the opinion sent to the ARDC for investigation.
Mason specially concurred in the opinion, raising “serious ethical concerns presented by Saulter’s conduct in the matter.” She raised the possibility Prospect would not have made the loan without Saulter’s promises in the letter of direction and suggested he only made such commitments because he believed the agreement was unenforceable. She drew a line from the Prospect loan to a larger settlement offer in the wrongful death suit, and therefore larger attorney fees for Saulter, and also noted some of the money from the Prospect loan went to pay off an earlier loan for Wright-Housen from another lawsuit lender.