Texas Litigation Funding Company Sues Law Firm For Debt Default

A litigation funding company sued a law firm for allegedly defaulting on a loan, in part by failing to collect a $5 million default judgment because foreign court filings were destroyed in a major hurricane.

Series 2 - Virage Master LP lent Sydow Firm PLLC $2.06 million in exchange for interest, recovered litigation expenses, and a security interest in any recovery in certain matters, according to the complaint filed Wednesday in the District Court of Harris County.

Virage and the firm executed a note which describes the collateral as each recovery, according to the complaint. After several defaults of the debt, Virage accelerated the balance to about $5.56 million and demanded full repayment, but Sydow didn’t pay, the company says.

Virage claims that the firm mismanaged its cases, which caused Virage to lose confidence Sydow would ever repay the full loan. For example, the firm received a default judgment of $5 million in a case, but had to domesticate the judgment in the Bahamas, where the defendant company’s assets were located. The firm stated that no further action would be taken to recover the judgment because the court filings were lost or destroyed during a major hurricane, the complaint said.

In another case, firm owner Michael Sydow allegedly claimed he couldn’t recover due to a dispute with co-counsel over his entitlement to attorneys’ fees because he was not the attorney of record. The company also alleged it should receive Sydow’s one-third contingency interest under a separate case involving a premarital agreement, after the client took the firm to arbitration.

Sydow has only paid about $22,000 to Virage since it took out the loan in November 2014, according to the plaintiff.

Causes of Action: Breach of contract.

Relief: Damages, fees and costs.

Response: Sydow didn’t immediately respond to a request for comment.

Attorneys: Ahmad, Zavitsanos & Mensing PLLC represents Virage.

The case is Series 2 — Virage Master LP v. Sydow Firm PLLC, Tex. Dist. Ct., No. 2023-03316, complaint filed 1/18/23.