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Successful lawsuit unravels in litigation over litigation-funding loan

The ugliest aspect of modern litigation was on display as the Court of Appeals considered the allegations made by Nancy Shanks against her attorneys, Morgan & Meyers, PLC.  Shanks was rear-ended in an auto accident and claimed that she suffered a head injury, back and neck pain and exacerbation of pre-existing depression.  After hiring the defendants to pursue her legal claim, within seven months she obtained loans from Cambridge Management Group, LLC, in a total amount of $125,000.00, bearing 4.99% interest PER MONTH, compounded monthly.  (She had managed to spend her first $100,000.00 loan between July and December.)

Ultimately, the attorneys achieved a default judgment against the auto negligence defendants who failed to answer the negligence complaint, and in October of 2008, the claim was settled, while on appeal, for $625,000.00.  By normal standards, this represented an unusually good recovery for a claimant with potentially very defensible injuries.  Nevertheless, an argument ensued over the debt owed to CMG, which claimed liens totalling $325,819.00 for loaning Shanks $125,000.00 for an average of about 10 months.  The lien claim was settled, however, Shanks then sued her attorneys arguing that they had breached a fiduciary duty to her by facilitating her loans with the litigation-funding company.

Although Shanks denied she was mentally incompetent, she faulted the attorneys for failing to secure the appointment of a Conservator for her.  She claimed that the attorneys actually directed her to the lawsuit-funding entity and encouraged the "usurious" [illegally expensive] loan.  She failed to provide the trial court with any professional psychiatric evidence justifying her claimed need of a conservator, however, and did not provide any evidence from a qualified lawyer confirming a breach by her attorneys of the standard of care.  Under the circumstances, the Court held that Shanks had failed to adequately support her claims of professional negligence.  It noted that the Defendants provided documentation of Shanks' competence during the time period in question, and that Shanks provided no evidence to the contrary.  Given that she continued to maintain that she did not want or need a guardian, Shanks had failed to meet her burden of proof on that issue.  Similarly, the allegations leveled against the attorneys' management of her litigation and financial affairs were too complicated to be pursued without some form of documentation of the appropriate standard of care.  Since none was provided, her claim was dismissed.

Thanks to the usurious loan Shanks obtained (with or without her attorneys' approval, who knows?), what should have been a very successful recovery that should have protected her future, was lost.  We despise these loan arrangements that all too often destroy the very goal the injured party and her counsel is attempting to achieve.  Thank goodness most clients avoid usurious loan arrangements when properly advised.

Thompson O’Neil, P.C.
309 East Front Street
Traverse City, Michigan 49684
Toll Free: 1-800-678-1307
Fax: 231-929-7262