PHILADELPHIA — The U.S. Court of Appeals for the Third Circuit upheld a Pennsylvania federal court ruling that states litigation funding contracts are enforceable and that the district court awarded the proper amount of damages in the case, according to an opinion filed on Feb. 27.
The appeal arose from a dispute over the contract enforceability question when “John West and his company Restorative Programming Inc. initiated suit against Reed Smith LLP, alleging that the firm committed legal malpractice in an unrelated matter.”
Judge Thomas Hardiman | Wikipedia
Obermayer, Rebmann, Maxwell & Hippel LLP, the plaintiff in the case, represented West in the suit against Reed Smith.
“While awaiting the outcome of the Reed Smith litigation, West, on several occasions, obtained money from (defendants) Fast Trak Investment Co. LLC and RJC Funding LLC,” the Third Circuit opinion said.
Fast Trak bought a portion of the Reed Smith litigation by partly funding it, though the agreement was non-recourse. West would not be obligated to pay back Fast Trak unless he recovered something from his case against Reed Smith.
After Fast Trak bought some of the Reed Smith litigation proceeds from West on Feb. 27, 2013 for $158,000, the Third Circuit said West asked for more of the money allegedly owed under the contracts and “Fast Trak sent West a letter on Sept. 17, 2014, which acknowledged that West owed Fast Trak a total of $331,160.24 at that time.”
The court said the Reed Smith lawsuit was resolved in December 2014, and, at that time, Fast Trak notified West “that he owed a sum of $373,885 from the settlement proceeds.”
“West refused to pay Fast Trak any portion of the proceeds from the settlement,” according to the opinion. “He claimed that the underlying agreements are unenforceable because they are usurious.”
The Third Circuit said Obermayer, Rebmann, Maxwell & Hippel “received the Reed Smith settlement proceeds as West’s counsel, commenced an interpleader action and deposited the disputed funds into the district court.”
The court said a Fast Track counterclaim alleged that Obermayer and West were in breach of contract and issues related to enforcement of liens.
“The district court subsequently dismissed Obermayer and granted Fast Trak’s motion for summary judgment,” according to the Third Circuit's opinion. “West appeals the district court’s grant of summary judgment and the amount the court subsequently awarded Fast Trak.”
In the Third Circuit opinion written by judges Thomas Hardiman, Jane R. Roth and D. Michael Fisher, the court agreed with the district court’s decision on how much Fast Trak was entitled to recover from West.
“West has failed to identify any authority demanding a different result,” the opinion said. “Accordingly, we conclude that the district court properly awarded the precise damages that were within the contemplation of the parties.”