A company that funds plaintiffs’ lawsuits in exchange for a portion of the recovery is partially liable to the estate and widow of an investor who sent it about $800,000, a federal court in Michigan ruled.

The director of Lawsuit Financial Inc., Mark M. Bello, is also on the hook for breaching the 2014 investment contract and violating a securities law, the U.S. District Court for the Eastern District of Michigan said March 20.

The total damages could amount to about $1.2 million, the court said in a rough calculation.

The alleged breach of a separate 2017 contract covering $200,000 of the total, and alleged violations of other provisions of national and Michigan state securities laws, present factual issues to be decided by a jury, Judge Terrence G. Berg said.

Bello and the investor, orthodontist Marshall S. Michaelian, never signed a “split funding agreement” in 2014. The court found Bello and Michaelian manifested assent to the contract through their course of conduct, created a valid contract, and didn’t create a different contract covering part of the funds until 2017.

After Michaelian died in a plane crash, his widow and estate demanded repayment within six months under the 2014 contract. Bello and his company have only paid or put in escrow part of that amount, putting them in breach of the contract, the court said.

Michaelian sent money to Bello and Lawsuit Financial as investments, not loans, the court found. The company’s failure to register them as a security ran afoul of Sections 5(a) and 5(c) of the Securities Act of 1933, the court said, granting summary judgment to the plaintiffs on that count.

Cooper & Reisterer PLC represented Michaelian’s estate and Judith Michaelian.

Kickham Hanley PLLC represented Lawsuit Financial and Bello.

The case is Michaelian v. Lawsuit Fin., Inc., 2019 BL 95765, E.D. Mich., No. 17-13321, 3/20/19.