(Reuters) - Litigation finance is not for amateurs. If you don’t believe me, ask Max Duncan.
The Texas businessman lost the nearly $6 million that he invested in a docket of claims against BP after the Deepwater Horizon spill. The money, as I’ll explain, evaporated into an allegedly fraudulent scheme to manufacture tens of thousands of plaintiffs. Then when Duncan and his litigation finance company, Duncan Litigation Investments, tried to recoup the lost millions by suing the plaintiffs’ firms that allegedly benefited from his investment, he ran into timeliness problems.
In the latest development in the saga, DLI filed a complaint in Harris County Court in Texas, blaming Duncan’s own former lawyers at Baker Donelson Bearman Caldwell & Berkowitz for failing to procure a tolling agreement that would have extended the statute of limitations on Duncan’s claims against the plaintiffs’ firm that got him into this mess.
No one connected with Duncan’s attempt to recoup his lost millions responded to my emails requesting comment. I reached out to his current lawyer, John Neese of Meade & Neese, and his former Baker Donelson lawyers Karen Smith and Joseph Crescenzo. Crescenzo was unavailable; Neese and Smith did not respond. I emailed Mikal Watts of Watts Guerra, who filed the fizzled BP claims funded by Duncan’s money, as well as Duncan’s erstwhile friend and Watts’ co-counsel Bob Hilliard of Hilliard Martinez Gonzales, and several of Hilliard’s defense lawyers at Beck Redden. They didn’t get back to me. This story comes from filings in Duncan’s litigation against the lawyers he blames for his $6 million fiasco.
The tale begins, according to a 2018 complaint in Texas state court, with a co-counsel agreement between Hilliard and Watts, a pair of prominent personal injury lawyers who decided to team up to amass a docket of cases after the 2010 Deepwater Horizon oil spill. Hilliard allegedly approached Duncan, a family friend, to provide funding for the litigation onslaught he and Watts had mapped out. According to Duncan’s suits against Hilliard and Watts, Hilliard led him to believe from the start that he and Watts had already signed up thousands of clients, whose claims would be handled by Watts’ firm.
Duncan said that he and Hilliard entered an oral agreement in 2010 in which he provided Hilliard with $3.875 million to back the plaintiffs’ lawyers’ BP play. Hilliard, he alleged in his complaint, was supposed to figure out a structure that would allow Duncan to share in the attorneys’ fees that Hilliard would eventually be paid. If he couldn’t devise such a structure, Duncan alleged, Hilliard promised he’d repay Duncan’s $3.8 million investment.
On Hilliard’s advice, Duncan alleges, he subsequently created Duncan Litigation Investments and entered into a written agreement with Hilliard. The deal called for DLI to invest up to $6 million to fund costs incurred by Hilliard and Watts in the BP case. In return, according to Duncan, DLI was to receive half of Hilliard’s fees. Duncan has claimed that both Watts and Hilliard assured him that he wouldn’t lose his money.
The investment certainly seemed to yield quick results, according to Duncan. He alleged that he was originally told Watts had a docket of 15,000 cases against BP. Within a month or two of Duncan’s $3.8 million infusion of cash, the count was up to 25,000. Ultimately, the Watts firm would purport to represent 40,000 deckhands and seafood industry workers with claims against BP.
As you probably recall, that number turned out to be a complete sham. In a 2011 email to Watts, Hilliard described their 40,000 clients as “ghosts in the wind.” Some were just names from the phonebook. Five were dead. One was a dog named Lucy.
Federal prosecutors indicted Watts and six codefendants – including two investigators who had run the field operation to sign up BP clients – for fabricating claims. Watts countered that he and his employees at Watts Guerra were not aware that their contractors were fabricating clients. He contended that prosecutors had cherry-picked emails to make it seem as though he knew trouble was afoot when, in fact, he was duped by the field investigators he’d hired. Watts and his law firm colleagues were acquitted after a trial. The field investigators were convicted.
Duncan claimed in his litigation against Watts and Hilliard that the lawyers misled him about the prospects of their BP cases even as their docket evaporated. Toward the end of 2010, Duncan alleged, Watts talked him out of selling his stake in the BP cases, even though BP’s claims facility was already challenging the documentation of Watts’ purported clients. “I said, ‘Should I sell out?’” Duncan recounted at a deposition. “And (Watts) said, ‘If I were you, I definitely would not do that. This is going to turn out just fine.’”
The Watts firm was able to show that Duncan was included in email traffic in which the plaintiffs’ firms discussed burgeoning problems with their docket and strategized about how to wrest a settlement from BP before the company figured out what was going on. By the time of Duncan’s last contribution to the BP litigation – $100,000 in July 2012 – Duncan had been on email chains talking about dead “clients,” “ghosts,” and BP’s assertion that there were only 5,000 deckhands working in the Gulf of Mexico at the time of the oil spill, a fraction of the 40,000 clients that Watts claimed to represent.
Duncan’s litigation against Watts ended with a whimper. In April 2018, Judge Bobby Galvan of Nueces County District Court in Texas granted Watts Guerra’s motion for summary judgment against Duncan Litigation Investments, holding that Duncan had waited too long to sue. Last month, a three-judge appellate panel in Corpus Christi affirmed the judgment. By March 2011, the appeals court found, DLI was on notice that “43 people had claimed Watts Guerra used their social security number without authorization; there were nowhere near 40,000 Vietnamese deckhands in the Gulf at the time of the oil spill; a percentage of their clients were nothing more than ‘names in a phonebook’ and duplications; and Watts Guerra had filed a claim on behalf of someone who had been dead for five years.”
Even though DLI alleged that it subsequently learned additional damning information, including an old arrest record for one of Watts Guerra’s investigators, the appeals court said that Duncan knew or should have known by early 2011 that fraud had tainted the BP docket. His 2016 negligence suit against Watts and Watts’ firm, the court held, was years too late.
Duncan and DLI sued Hilliard in February 2018. (Technically, DLI asserted its case as a cross-petition in an identity theft suit brought by purported Watts Guerra clients.) The complaint alleged that Hilliard had induced Duncan to invest in a fraudulent scheme that caused him to suffer “at least $6.35 million in economic losses and seven years of humiliation and mental anguish,” including the cost of criminal defense lawyers Duncan had to hire in connection with the government’s investigation of the sham BP docket. Among Duncan’s allegations: Hilliard had promised many times to make him whole by repaying the $6 million but never came through. In May 2018, Harris County District Judge Jeff Shadwick ordered Duncan’s case against Hilliard to arbitration.
So what happened? I believe that Duncan’s new complaint against Baker Donelson reveals the outcome of his dispute with Hilliard. To be sure, the complaint does not include Hilliard’s name or the name of his firm. The suit refers only to an unnamed plaintiffs’ lawyer and firm that entered a contract with DLI in 2010 and was sued by Duncan and DLI in February 2018. The complaint also alleges that DLI’s suit against the unnamed plaintiffs’ firm, which included claims under the Texas Securities Act, ended up in arbitration. All of those facts suggest the unnamed firm is Hilliard’s shop.
Duncan’s complaint describes a pyrrhic victory against the plaintiffs’ firm. According to his new complaint, three arbitrators ruled earlier this month that the evidence supports DLI’s claim to rescissory and consequential damages and attorneys’ fees – to the tune of between $9.2 million and $47.9 million. Unfortunately for Duncan, the arbitrators also found that DLI’s claims are time-barred. So instead of nearly $50 million in damages and fees, he’s owed nothing from the plaintiffs’ firm that allegedly induced him to sink $6 million into phony BP claims.
Duncan’s latest play is to tag Baker Donelson, which began representing him in 2013 and worked on DLI’s cases against Watts and Hilliard, with blame for the mess, asserting that although the firm obtained a tolling agreement between Duncan and the unnamed plaintiffs’ firm, it failed to toll the statute of limitations on claims by Duncan’s investment vehicle, DLI. The complaint quotes the arbitration panel: “The panel members are at a loss to understand why DLI was never included in any of the tolling agreements, particularly given that it must have been clear to DLI/Duncan’s counsel that DLI was the owner of these important potential claims.”
In the new suit, Duncan seeks at least $1 million.