MIAMI (Legal Newsline) - A litigation funder considered a pioneer in the business of investing in corporate lawsuits is accused of using offshore shell companies and improper tactics to take control of a potentially lucrative lawsuit seeking billions of dollars in abandoned life insurance payouts for the state of New York.
In the latest twist in a long-running legal battle, the Ferraro Law Firm sued Timothy Scrantom, Kenneth Elder and related entities in federal court in Florida to halt what it says is an attempt to seize control of Total Asset Recovery Services, a firm established in 2009 to pursue the insurance litigation. Huddleston Capital VIII, a firm Ferraro Law suspects is somehow associated with Scrantom and Elder, has filed an action in state court in New York to take control of the TARS cases.
Ferraro Law and TARS won a significant victory in December when a New York appeals court reversed a lower court’s dismissal of an insurance action on behalf of New York. TARS is acting as a qui tam whistleblower in the lawsuit claiming life insurers sat on unclaimed life policies instead of handing them over to the state under escheat or abandoned property laws.
Behind the current dispute is a lengthy legal battle in at least three states between Miami-based Ferraro Law, best known for its asbestos litigation; Elder, a Michigan resident who has pursued various whistleblower cases over the years; and Scrantom, an international litigator who helped found Juridica, an early lawsuit funding firm, and who now works as a litigation finance consultant.
Ferraro Law represented Elder in unsuccessful qui tam litigation involving tax claims and then two non-partners with Ferraro Law set up TARS to pursue the insurance escheat claims. Elder wanted to keep his name out of the operation, Ferraro Law says, so he formed G3 Analytics to provide “consulting services” to TARS in exchange for 70% of any recoveries. TARS then hired Ferraro Law to represent it in the insurance litigation for a 40% contingency fee.
Elder urged TARS to hire Scrantom as a consultant and in 2014 he helped negotiate a $6 million loan from Hamilton Capital VIII, which was owned by $1 billion New York hedge fund named Platinum Partners. The loan bore a 100% annual interest rate and had ballooned to tens of millions of dollars by 2017, when Platinum was thrown into receivership after its managers were accused of fraud by the Securities and Exchange Commission.
The relationship between Ferraro Law on one side and Elder and Scrantom on the other had soured by then, with the parties trading lawsuits and arbitration actions over the fate of TARS. Ferraro Law says it ultimately won a settlement including $24,000 in costs in the first round of litigation.
Things heated up again after TARS won the pivotal appeals court decision in New York on Dec. 10. The receiver for Platinum Partners put the TARS loan on the market and Huddleston, a corporation formed in 2018 on the West Indian island of Nevis, bought the loan for $13,400 four days later.
Scrantom didn’t return a phone call seeking comment on Ferraro Law’s allegations. The law firm says Huddleston has a “strikingly similar” name to Hamilton Capital and submitted a sworn statement that was executed in Huddersfield, England. Scrantom’s website biography notes he is an English barrister with a degree from the London School of Economics and Juridica traded on the London stock exchange.
Ferraro Law suggests Elder and Scrantom are somehow connected with Huddleston. The litigation finance firm has sent repeated collection letters and notices of default to TARS and on March 12 asked a New York court to order TARS to substitute its own counsel for Ferraro Law in the insurance litigation. Huddleston also asked the judge to order TARS to withdraw its most recent complaint in the lawsuit.
“Why would an unrelated, would-be assignee that allegedly obtained an assignment roughly three months ago and is not privy to the decade-long litigation or the data obtained during that litigation seek to file an amended complaint containing different factual allegations?” Ferraro law says in its complaint. “The only possible beneficiaries are” Elder and Scrantom, who seek to intervene and “misappropriate the Ferraro Firm’s contingency fee.”
Elder and Scrantom have not yet filed responses to the lawsuit in Florida.
Third-party litigation finance has ballooned into a multibillion-dollar industry but not without controversy, especially over the role of outside funders in directing lawsuits that are theoretically controlled by plaintiffs. While structured as investments, financing agreements often have interest rates that would be usurious under state laws and can balloon into enormous sums if the litigation drags on.
Qui tam litigation often features special-purpose corporations formed to serve as plaintiffs, or relators, in search of generous bounties that can amount to hundreds of millions of dollars.