HOUSTON – Next month, a district judge will hold a hearing on whether to keep the business transactions of a lawsuit lender sealed from the public as the litigation brought against it unfolds.
Earlier this month, Berg & Androphy, a Houston law firm, filed a petition and application for a temporary restraining order against Virage Capital Partners, Affiliated Solutions (LitCap) and Martin Shellist on Aug. 30 in Harris County District Court.
The firm contends the defendants have conspired to forge signatures, replacing non-recourse lending notes with recourse notes.
When Berg & Androphy filed its original petition, the firm attached several user and lending agreements, prompting LitCap to file a motion to seal on Sept. 1, seeking to protect its confidential and proprietary information, court records show.
The following day, the trial court issued a temporary sealing order.
On Sept. 13 a notice of hearing was entered, setting a hearing for a permanent sealing order on Oct. 17, court records show.
The documents LitCap seeks to seal include:
- Propritary and confidential user and lending agreements;
- Images of the proprietary electronic platform designed by LitCap; and
- Information related to the identity of users of the platform who are not parties to the case.
According to the petition, in March and April of 2014, defendant Martin Shellist, a Virage attorney, approached Joel Androphy about providing non-recourse litigation funding for the Berg & Androphy law firm’s contingency fee cases.
Shellist explained the firm would only repay loans from proceeds that it recovered on funded cases. If the firm recovered fully, Virage recovered fully. If the firm lost or recovered less than the amount owed, Virage suffered that loss. Androphy and his partner, David Berg, made it clear only non-recourse loans would be accepted.
“Even though Virage’s interest rate was very high, 18 percent, Virage’s funding was appealing because there was no recourse against the firm, only against the firm’s share of the proceeds recovered from the funded cases,” the suit states.
After negotiating loans, Virage delegates much of the responsibility to LitCap. LitCap then provides potential borrowers with an “Attorney User Agreement,” requiring borrowers to apply for loans on its platform, an online interface where lawyers describe the nature and current status of the cases that they intend to finance, as well as an estimate of litigation-related expenses.
If Virage opts to fund the loan, LitCap wires the money to the indebted lawyers.
In March, one of Berg & Androphy’s funded cases received an adverse ruling on summary judgment. Two months later, the firm settled a second funded case and wired funds to Virage.
“During the months that followed, defendants claimed that the firm borrowed pursuant to a multi-plaintiff note and that, under its terms, having had a successful result in fifty percent of its cases, was now subject to the recourse provision that rendered the firm liable for the entire balance of principal and interest,” the suit states.
Berg & Androphy contends LitCap used a forged “electronic signature” to alter the agreement.
“Androphy never created an electronic signature on the LitCap Platform or anywhere else for that matter, never affixed his signature electronically or personally to any multi-plaintiff note… and never knowingly authorized the defendants or anyone to sign his name to any note, electronically or otherwise,” the suit states.
Court records show that on Aug. 31 the trial court granted the firm’s temporary restraining order request, ordering the defendants to refrain from altering or destroying evidence.
A show of cause hearing to determine whether the TRO should be made into a temporary injunction was set for Sept. 12. However, an agreed temporary injunction was entered on Sept. 8.
A trial has been set for Jan. 30, 2017.
Berg & Androphy is represented by Marvin Nathan, attorney for Nathan Sommers Jacobs, and Rusty Hardin.
LitCap is represented by Chris Hanslik, attorney for the Houston law firm BoyarMiller.
Case No. 2016-58408