A US Bankruptcy Judge, Barry Russell, has ruled against the Chapter 7 Trustee, Elissa D. Miller, in a bid to hold the litigation funders responsible for allegedly assisting Thomas Girardi in committing fraud. Judge Russell stated that res judicata resolves “virtually all” of the claims against the defendants, Counsel Financial Services, California Attorney Lending II, and lawyer Joseph D. DiNardo, and granted their bids for dismissal. DiNardo is believed to be a part-owner of both companies.
The Trustee had filed a complaint in August against the defendants, alleging that they were “implied in fact” partners or at least “insiders” of the defunct firm, thereby making them liable. The defendants, however, moved for dismissal in November and pointed to a claims release in an earlier settlement involving the Trustee and Cal II. DiNardo argued that even if the Trustee could pierce the corporate veil to hold him personally liable, the claims against him would still fail since the claims against Cal II had been settled.
During the hearing, the Trustee’s counsel, Larry Gabriel, acknowledged that they were facing an uphill battle but argued that an unlawful fee-sharing agreement meant the Trustee could retain its claim. Judge Russell stated that he would grant the dismissal bids and would not allow any leave to amend. The judge stated there was no way to prove that the defendants were partners, and he would not allow further amendments.
Larry Hutcher of Davidoff Hutcher & Citron, counsel to the Counsel Financial entities, hailed the decision of the US Bankruptcy Court for the Central District of California. He stated that the judge made it clear that the Trustee had failed to allege anything supporting their conclusory allegations that any of the defendants had acted improperly. Hutcher added that the judge said that everything that Counsel Financial did was in ordinary business.
Neama Rahmani, President of West Coast Trial Lawyers, commented that Judge Russell is one of the most experienced bankruptcy judges in the country, with 40 years of experience handling complex cases. Rahmani added that the more the US Trustee uncovers in this case, the worse it is for Girardi’s criminal case if he is found competent to stand trial.
REFERENCES:
Girardi Litigation Funders Win Exit From Bankruptcy Trustee Suit