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Prospect Funding Holdings, LLC v. Breen

United States District Court, D. New Jersey

February 8, 2018

PROSPECT FUNDING HOLDINGS, LCC, on assignment of CAMBRIDGE MANAGEMENT GROUP, LLC, Plaintiff,
v.
MICHAEL BREEN, ESQ. and MIKE BREEN ATTORNEY AT LAW, P.S.C., Defendants.

          OPINION

          KEVIN MCNULTY, UNITED STATES DISTRICT JUDGE

         Plaintiff Prospect Funding Holdings, LLC ("Prospect"), as successor in interest, seeks to enforce agreements it purchased from Cambridge Management Group, LLC ("Cambridge"). Those agreements have already been the subject of much litigation, including a Western District of Kentucky case where the court found (1) that Kentucky law applied to the agreements and (2) that the agreements violated Kentucky law and public policy. On May 10, 2017, Prospect initiated this new action in the District of New Jersey. Now before the court is defendants' motion to dismiss for lack of personal jurisdiction. (ECF No. 10). Sua sponte, I requested that the parties submit supplemental briefing on the applicability of issue preclusion.[1] For the following reasons, I dismiss this case on the grounds of issue preclusion.

         I. BACKGROUNDS[2]

         A. Factual History

         1. Before the Purchase Agreements

         Cambridge is a litigation-funding business incorporated in Delaware with its sole office in New Jersey. (Compl. ¶¶ 9, 17-20). Cambridge signs "purchase agreements" with plaintiffs involved in pending personal injury or related litigations. (Compl. ¶ 17). Cambridge then advances money to plaintiffs. (Compl. ¶ 17). If the plaintiff recovers, Cambridge receives a portion of the proceeds. (Compl. ¶¶ 18-20). If the plaintiff does not recover, the plaintiff generally does not owe Cambridge money. (Compl. ¶ 19).

         Cambridge has had a longstanding business relationship with defendant Michael Breen and his law firm, Mike Breen Attorney at Law, P.S.C. ("the Breen Law Firm"), which is based in Bowling Green, Kentucky. (Compl. ¶¶ 11, 21-23). (Herein, except when it is necessary to distinguish between them explicitly, "Breen" refers to both defendants.) Breen has referred clients to Cambridge for potential agreements. (Compl. ¶ 21).

         Breen represented Christopher and Holly Boling in a personal injury case against Blitz USA, Inc. ("the Boling Litigation"). (Compl. ¶ 24). (Herein, "Boling" refers to both Christopher and Holly Boling.) Breen, along with co-counsel Kirk Morgan, represented Boling. (Compl. ¶ 29).

         2. The Purchase Agreements

         Around October 23, 2009, Breen and Boling signed documents to create a third-party funding agreement regarding the Boling litigation. (Compl. ¶¶ 24-30). As to this October 2009 agreement, there are three relevant documents.

         The first document is the October 2009 Plaintiffs Agreement, which was signed by Boling. It contains the following provision:

Plaintiff acknowledges and agrees that any and all disputes that arise concerning the terms, conditions, interpretation or enforcement of this Agreement shall be determined through arbitration pursuant to the Rules and methods outlined by the American Arbitration Association in New Jersey, or in a Court of competent jurisdiction, at the election of [Cambridge] or Plaintiff. Plaintiff agrees that the laws of the State of New Jersey shall control the interpretation of this Agreement.

(Oct. 2009 Plaintiffs Agreement).

         The second document was the October 2009 Plaintiffs Irrevocable Grant, also signed by Boling. The following provision addresses the process for satisfying Cambridge's assignment:

4. The Payment amount due [Cambridge] shall be withheld from any settlements), judgments), verdict(s) or award(s) I receive, if any, as a result of my injury and claim. The Payment is to be paid immediately after attorney's fees and case preparation cost, but prior to final distribution to me [Boling] of any settlement, judgment or verdict proceeds in accordance with the Agreements....
6. In the event of a dispute between [Cambridge] and the undersigned [Boling], I instruct my attorneys to disburse no proceeds, except for attorney's fees, disbursement and recognized liens, until the matter is resolved, and that all proceeds shall remain in my attorney's escrow account.

(Oct. 2009 Plaintiffs Irrevocable Grant); (Compl. ¶ 32).

         The third document is the October 2009 Attorney Acknowledgment, which was signed by Michael Breen. It was addressed to Michael Breen and co-counsel Morgan. (Compl. ¶¶ 31, 36). The document provides, in relevant part:

Attorney represents and warrants the Plaintiffs proceeds will flow through the Attorney's Trust/Escrow account and be distributed by the Attorney to Plaintiff only after first satisfying [Cambridge]'s lien.

(Oct. 2009 Att'y Ack.); (Compl. ¶ 34).

         After these documents were signed, around October 23, 2009, Cambridge sent funds to Breen. (Compl. ¶¶ 30, 38).

         Around March 2010, Breen, Boling, and Cambridge entered into a second agreement with similar documents, instructions, and provisions. (Compl. ¶¶ 39-43); (ECF No. 10-1 (Exh. B)). Prospect also entered into two agreements directly with Boling which are not at issue in this case. See Boling v. Prospect Funding Holdings, LLC, No. 1:14-CV-00081-GNS-HBB, 2015 WL 5680418, at *1 n.3 (W.D. Ky. Sept. 25, 2015).

         3. Attempts to Enforce the Purchase Agreements

         Around August 2013, Cambridge assigned its right, title, and interest in the agreements to Prospect (plaintiff here), a New York-based litigation-funding group. (ECF No. 10-1 (Exh. CJ); (Compl. ¶¶ 10, 44). The Boling litigation resolved in favor of Boling around May 2014. (Compl. ¶ 44). Prospect then sought its share of the proceeds from the litigation, pursuant to the agreements Prospect had bought from Cambridge. (Compl. ¶¶ 46-47). (For convenience, I will generally ignore Cambridge and speak of the party to the agreements as Prospect.)

         Breen gave Prospect multiple assurances that the proceeds from the Boling litigation would be put into the Breen Law Firm's client trust account and then disbursed to Prospect. (Compl. ¶¶ 46-48). However, Breen did not hold the money in the trust account and did not disburse money to Prospect. (Compl. ¶ 49). Rather, the litigation proceeds were sent to the Attorney's Trust/Escrow Account of Breen's co-counsel, Morgan. (Compl. ¶ 49). Breen continues to withhold from Prospect the full amount due. (Compl. ¶ 51). Additionally, the amount reserved in the Trust/Escrow Account of co-counsel Morgan does not suffice to cover the full amount due under the agreement. (Compl. ¶ 54).

         B. Procedural History

         1. Prior Litigation

         Since the Boling litigation was resolved, Prospect's interest in these funding agreements has been the subject of much litigation in several courts.

         First, on June 19, 2014, Boling filed a lawsuit against Prospect seeking a declaratory judgment that the loan agreements are to be interpreted by and deemed unenforceable under Kentucky law. Boling v. Prospect Funding Holdings, LLC, No. 1:14-CV-00081-GNS-HBB, 2015 WL 5680418, at *1 (W.D. Ky. Sept. 25, 2015) (the "Kentucky DJ Action").[3]

         Then, on September 4, 2014, Prospect filed suit against Boling in the Superior Court of New Jersey seeking to compel arbitration. See Prospect Funding Holdings, LLC v. Boling, No. 2:14-cv-6169, 2015 WL 5095155, at *1 (D.N.J. Aug. 26, 2015). On October 3, 2014, Boling removed that action to the U.S. District Court for the District of New Jersey. Id. On May 11, 2015, Judge Steve Mannion of the District of New Jersey transferred that case to the U.S. District Court for the Western District of Kentucky based on the first-to-file rule. Id. at *2. Judge Mannion denied Prospect's motion for reconsideration of the transfer order. Id. at *2-3.

         Meanwhile, the Kentucky DJ Action continued in the Western District of Kentucky. Boling sought summary judgment regarding the forum-selection clause and the choice of law. Boling, 2015 WL 5680418, at *5. The court granted both motions. Id. at *5-8. First, the court held that Boling was within his contractual rights to select the Western District of Kentucky. Id. at *6-7. The Western District of Kentucky thus retained jurisdiction over the loan agreements. Id. Second, using the most "significant relationship test, " the court held that Kentucky law applied to the enforceability of these agreements. Id. at *7-8. The court denied Prospect's motion for reconsideration of those rulings. Boling v. Prospect Funding Holdings, LLC, 1:14-CV-00081-GNS-HBB, 2016 WL 1611383 (W.D. Ky. Apr. 21, 2016).

         After the Western District of Kentucky held that Kentucky law applied, Boling and Prospect cross-moved in the Kentucky DJ Action for summary judgment on Boling's claims. Boling v. Prospect Funding Holdings, LLC, 1:14-CV-00081-GNS-HBB, 2017 WL 1193064, at*l (W.D. Ky. Mar. 30, 2017). Boling argued that (1) the agreements violated Kentucky's public policy against third-party litigation financing with a profit motive and (2) the high interest rates violated Kentucky's usury laws.[4] Id. at *2. The court agreed with Boling on both issues and granted the motion for partial summary judgment on March 30, 2017. Id. at *2-7.

         In the Kentucky DJ Action, Prospect had filed with its answer counterclaims for unjust enrichment, promissory estoppel, breach of the duty of good faith and fair dealing, negligent misrepresentation, and conversion. After the court granted summary judgment on Boling's claims, Prospect's counterclaims remained pending. Id. at *8.

         On September 9, 2015, while the Kentucky DJ Action was ongoing, Prospect filed another action against Breen in the Superior Court of New Jersey. On November 6, 2015, Breen removed that case to the U.S. District Court for the District of New Jersey based on diversity jurisdiction. Prospect Funding Holdings, LLC v. Breen, No. 2:15-cv-7945-SDW-LDW (D.N.J.) (2:15-cv- 7945 ECF No. 1). Breen filed counterclaims. Prospect moved to dismiss those counterclaims and Breen moved to transfer venue to the Western District of Kentucky. (2:15-cv-7945 ECF Nos. 6, 16). On April 18, 2016, Judge Wettre issued an order to show cause why the case should not be remanded to the Superior Court of New Jersey. ...


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