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Litigation lenders bankrolled Tom Girardi despite his apparent 'proclivities' for stealing from clients, suit says

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Tom Girardi

Tom Girardi was disbarred in June. Photo by Sipa USA via AP.

The bankruptcy trustee for the Girardi Keese law firm has sued two litigation funding lenders and one of their owners for bankrolling Thomas Girardi’s law practice even as he appeared to be stealing from clients to fund his own lavish lifestyle.

The litigation funders referred clients and funded Girardi’s cases in exchange for half of the contingency fees collected, according to the Aug. 31 suit filed by Chapter 7 trustee Elissa D. Miller.

The fee-sharing arrangement violated lawyer ethics rules and California state law, the suit claims. The defendants knew or should have known that their 50% payments were actually taken from Girardi Keese clients, according to the suit.

The suit describes Girardi as a “legendary” trial lawyer who became a “rock star” of the plaintiff’s bar when he obtained the highest medical malpractice judgment in California history four years after graduating from law school in 1965. He is also known for his marriage to Erika Jayne of The Real Housewives of Beverly Hills.

The defendants are Counsel Financial Services, California Attorney Lending II and New York lawyer Joseph D. DiNardo, believed to be one of the owners of both companies.

The suit asserts the litigation funders were implied partners-in-fact with Girardi, and they owed a fiduciary duty to the law firm’s clients. The partnership began as early as 2005 and continued until the filing of the Girardi Keese bankruptcy in December 2020, the suit said.

When other litigation funders sued Girardi Keese for defaulted loans, DiNardo “personally stepped in and took control of the negotiations regarding the other litigation lenders, which led to various work out arrangements,” the suit says. DiNardo arranged a full payoff to one of the other lenders, even though California Attorney Lending II held a priority lien.

“Remarkably,” the suit says, California Lending II provided Girardi Keese with an additional $2 million.

Girardi’s alleged wrongdoing first played out in the media in December 2020 when Girardi and his law firm were accused of stealing $2 million in settlement money intended to pay plaintiffs who lost loved ones in the October 2018 crash of Indonesia’s Lion Air Flight 610.

Miller’s suit calls the missing $2 million “only the tip of the iceberg.” An investigation found that Girardi and his “cohorts” stole at least $14 million in settlement funds that should have gone to firm clients and used the law firm’s IOLTA account “as his personal piggy bank.”

As of Aug. 31, 682 claims had been filed against the bankruptcy estate totaling more than $495 million, the suit says. California Lending II filed a secured claim for more than $6.6 million while Counsel Financial Service filed a secured claim for more than $8.6 million.

The suit seeks a declaration that the fee sharing agreements between Girardi Keese and the defendant litigation funders were null and void, and that funds paid to the lending defendants should be repaid. Other counts seek to disallow or at least subordinate the litigation funders’ secured claims, and to require the return of $1.7 million paid to California Attorney Lending II in a fee-sharing arrangement in the Lion Air case.

The suit also says the defendants aided and abetted Girardi’s “looting” of $23 million from law firm IOLTA accounts.

According to the suit, the trustee believes the lending defendants “had actual and constructive knowledge of [Girardi’s] conduct, and his proclivities for not paying Girardi Keese’s clients the full amount due to them based upon the recoveries made, and not paying Girardi Keese’s co-counsel or referring attorneys, and, instead, taking those funds for [Girardi’s] personal use.”

Law360 and had coverage of the suit.

A lawyer for California Attorney Lending II told Law360 that the lawsuit was inaccurate. “This massive leap from lender to alleged co-conspirator is false, outrageous and inherently incredible,” said the lawyer, William F. Savino.

DiNardo’s lawyer, Rechard Scherer, told that his client denies any wrongdoing and plans an aggressive defense.

See also:

Risky Business: More firms embrace litigation financing, but pitfalls abound

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