As published on Legal Newsline:

NEWARK, N.J., May 8, 2020 – A litigation finance company whose colorful history includes a federal criminal investigation and a multiyear battle over millions of dollars in legal fees stemming from a Siberian plane crash has sued a prominent New Jersey personal injury lawyer for repayment of loans that have allegedly ballooned to more than $18 million with compound interest.

Legal Capital Group, in a lawsuit filed late last month in federal court in New Jersey, says attorney Sean Callagy and another lawyer borrowed some $591,000 in 2013 to fund lawsuits. The loans bore a “growth factor,” or interest rate, as high as 4.99% per month or nearly 90% a year. One of the loans had a lower rate but the lender could also claim 33% of any fees instead.

The lawsuit reveals a frayed relationship between Callagy and George Prussin, who LCG says were boyhood friends and entered a “business relationship” in the 1990s. Numerous court filings tell the story after that: 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.

That apparently wasn’t the outcome in the cases LCG funded in 2013. Neither Callagy nor LCG would 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.

Callagy Law boasts on its website of “fundamentally changing the way people feel about lawyers” and has offices in New Jersey, New York, Texas and other states. Until their falling out, Callagy also represented his friend Prussin in lawsuits over soured litigation-finance arrangements, including the Siberia Airlines crash and a case in which a former Prussin client accused his firm of diverting $134,000 of a $1.1 million litigation advance to a broker who pleaded guilty to criminal charges of running a kickback scheme in 2013.

Another man in Arizona accused Prussin of luring him into money-losing investments in litigation finance and a thoroughbred race horse. He lost.

Critics of litigation finance note the often usurious interest rates funders charge for what are admittedly high-risk loans. An Arkansas car-accident victim won a $450,000 judgment against Prussin’s firm and other lenders in 2016 over loans with a 60% annual interest rate. To get those rates, litigation-finance operations have been accused of unsavory tactics, including paying lawyers to refer their clients to them.

The predecessor firm to LCG, The Law Funder, was drawn into scandal after Mathew Sheldon, described as a former 25% owner of The Law Funder, was indicted for skimming more than $860,000 in secret kickbacks from a broker who provided leads on plaintiffs who might be s

For sheer audacity, however, the allegations in the Siberia Airlines case (the Fifth Circuit Court of Appeals in New Orleans dubbed it a “saga”) cannot be topped. According to a lengthy 2009 account in the San Antonio Express-News, it starts with a “case runner” named Wilfredo Rogelio Garcia who amassed a $33 million fortune by soliciting clients for personal-injury lawsuits. Garcia started in the famously corrupt courts in South Texas but moved on to Mexico and then the world at large, finding family members of air crash victims and other disasters and signing them up as clients for U.S. law firms.

Garcia even formed a Mexican law firm, “Servicios Legales de Mesoamerica,” though he does not have a law degree.

Soon after the Siberia Airlines crash, Garcia somehow recruited more than 50 victims or their families as clients for SLM, then swapped the claims among a complex web of personal-injury lawyers including Musselwhite – himself well known for chasing down accident victims – Newton Schwartz and New Mexico attorney Turner Branch.

Garcia negotiated an agreement to turn over primary litigation to Podhurst Orseck, known for its aviation lawsuits, in exchange for as much as half of the 33% contingency fee. Garcia, in turn, agreed to pay out his share of the fees to other lawyers including Musselwhite, Branch and Schwartz. Financing the whole operation was The Law Funder.

The cases eventually settled, triggering a fight among the lawyers for more than $450,000 in disputed fees. The legal battle intensified after Garcia’s wife filed for divorce, and then the IRS joined the fray, seeking to seize his share of the lawsuit proceeds. Prussin’s litigation finance firm hired some Texas lawyers to try to recover their investment with SLM, only to discover one of the lawyers was close friends with the judge overseeing Garcia’s divorce.

In the resulting lawsuit against its former lawyers, The Law Funder won a default judgment for $3 million, only to have the money award reversed by the Fifth Circuit in a 2019 decision that found the trial court had calculated the amount incorrectly.

The case was remanded to federal court in Houston, where the judge has set a jury trial date for later this year.