NEWARK, N.J. (Legal Newsline) – A personal injury lawyer who took advantage of the litigation funding machine is now wondering how his bill has exploded to $18 million.
In a motion to dismiss filed Aug. 3, Sean Callagy and Callagy law says there is no way a $441,794 advance grew to more than $18 million in seven years. It is a “damages calculation that is both factually and mathematically illogical and legally frivolous,” the motion says.
Legal Capital Group’s April lawsuit said Callagy, through his firm SRC LLC, and another lawyer borrowed close to $600,000 in 2013 to fund lawsuits. Those loans had interest rates as high as 4.99% per month – or nearly 90% a year, the lawsuit claimed.
Neither Callagy, who formed SRC in 2005 and Callagy Law in 2015, nor LCG would previously comment but some of the cases appear to have been routine medical injury lawsuits. Another $150,000 went toward a legal malpractice lawsuit that Callagy originally pursued with another lawyer.
The two fell out midway through the litigation, however, and each wound up accusing the other of outlandish schemes including trying to sabotage the underlying case.
LCG’s lawsuit says Callagy and boyhood pal George Prussin of Legal Capital Group entered into a business relationship in the 1990s.
Operating under names including The Law Funder, Jaguar Strategies, Leopard Trading and LCG, Prussin lent money to Callagy and others to pursue a wide range of litigation including a tangled international battle for the proceeds of lawsuits over the 2006 crash of Siberia Airlines Flight 778 in Irkutsk, Russia, which killed 125 passengers, including several Americans.
That case involved a large cast of characters familiar to anyone who follows the world of high-stakes personal injury litigation including legendary Texas lawyer Benton Musselwhite, a Mexican law firm partly owned by a non-attorney who reportedly made tens of millions of dollars recruiting plaintiffs from plane crashes and other disasters around the world, and the Internal Revenue Service.
Also familiar is the mix of lawyers and outside funders who front them the cash they need to line up clients, hire expert witnesses and prepare for trials that can yield spectacular verdicts.
The relationship is now frayed, and LCG is seeking a return on the investment made to Callagy, whose motion to dismiss makes these arguments:
-Callagy and Callagy Law are improperly named as defendants, as they shouldn’t be grouped with SRC LLC;
-The claim for breach of the covenant of good faith and fair dealing should be dismissed because it is based on the same alleged conduct as the breach of contract claim;
-LCG is not entitled to an accounting of Callagy’s personal injury cases funded by LCG, calling an accounting a remedy and not a cause of action; and
-The “frivolous” $18 million demand must be stricken as impertinent.
“In any event, there is no mathematical world in which $441,000 becomes $18 million in seven years at a 4.99% per annum rate, compounded monthly,” the motion says.
“To the contrary, for $441,000 to become $18 million in seven years, the interest rate would have to be approximately 54%, a rate that is plainly usurious.”
The interest rate is actually called a “growth factor” for this agreement. Litigation funders claim their products are not loans because they don’t recover anything if the plaintiff doesn’t recover anything. Courts have recently agreed, despite different regulations in Colorado and South Carolina.
If the product isn’t a loan, it is not subject to usury laws, funders have argued.