Girardi Litigation Funders Win Exit From Bankruptcy Trustee Suit

The trustee for bankrupt Girardi Keese Tuesday lost a bid to hold litigation funders responsible for purportedly helping Thomas Girardi engage in fraud.

Res judicata resolves “virtually all” of the claims at issue in the adversary proceeding against Counsel Financial Services, California Attorney Lending II, and lawyer Joseph D. DiNardo, US Bankruptcy Judge Barry Russell said after a hearing in Los Angeles on Tuesday, granting the defendants bids for dismissal. DiNardo is allegedly part owner of both companies.

Larry Hutcher of Davidoff Hutcher & Citron, counsel to the Counsel Financial entities, hailed the US Bankruptcy Court for the Central District of California decision.

“The judge made it very clear that the trustee failed to allege anything that would support their conclusory allegations that any of the defendants had acted improperly,” Hutcher told Bloomberg Law in an email Tuesday. “Indeed, the judge said, just the opposite -that everything that Counsel Financial did was in the ordinary course of business.”

Chapter 7 Trustee Elissa D. Miller filed the complaint in August, claiming the defendants are “implied in fact” partners, or at least “insiders” of the defunct firm and therefore have liability. In November, the defendants moved for dismissal and pointed to a claims release in an earlier settlement involving trustee and Cal II.

DiNardo argued that, even if the trustee could pierce the corporate veil to hold him personally liable, the claims against him would still fail because the claims against Cal II were settled.

‘No Way in the World’

Larry Gabriel, counsel for the trustee, acknowledged that they were facing an uphill battle, and argued that the existence of an unlawful fee-sharing agreement meant that the trustee could retain its claim. But Russell said in a hearing Tuesday that he would grant the dismissal bids and not allow any leave to amend.

“I’m not going to allow any further amendments. I know what went on here,” Russell said. “There’s no way in the world you’re ever going to prove they’re partners. It just isn’t there.”

Neama Rahmani, president of West Coast Trial Lawyers, said that Russell “is one of the most experienced bankruptcy judges in the country.”

“He has 40 years of experience handling complex cases, and Girardi’s is one of them,” Rahmani told Bloomberg Law on Tuesday.

Rahmani also added that, the more the U.S. Trustee uncovers in this case, “the worse it is for Girardi’s criminal case, if he is found competent to stand trial.”

The trustee is represented by Jenkins Mulligan & Gabriel LLP.

The case is Miller v. Counsel Financial Services LLC, Bankr. C.D. Cal., No. 2:22-ap-01169, hearing 2/7/23.