Two litigation funders and a personal injury law firm are embroiled in a court fight over a series of loans and dueling demands for repayment.

Contingency Capital is suing ACAP Litigation Fund, seeking the return of more than $8.8 million that Contingency says it loaned to the Houston-based Dunken Law Firm. Contingency says ACAP and Dunken defrauded the company into lending money to the firm to pay off its debts to ACAP.

ACAP allegedly lied to Contingency that the loan would cover Dunken’s debt to ACAP. The company later declared Dunken in default of a new loan that it had agreed not to extend, according to the complaint.

Contingency and ACAP declined to comment on the suit, while Dunken didn’t respond to requests for comment.

The case highlights a growing trend in which litigation funders, known for betting on lawsuits, provide more general loans to lawyers and firms. The loans are often used to pay off existing debts.

“It’s not like the old days where one hundred percent of the capital is going to be used to pursue a case in a one-off way where the results turn into a multiple return,” said Rebecca Berrebi, a litigation funding broker and consultant. “It’s really because mass torts have become so popular, all of these funds and the new funds springing up have become much more flexible in the way that they’re giving capital.”

Dunken, which is being sued by ACAP in a separate case in Texas, has not been named as a defendant in the Contingency lawsuit. The personal injury law firm is also facing accusations of fraud and breach of contract over its handling of transvaginal mesh and talcum powder cases.

Funding Risks

Contingency, which was formed in the Cayman Islands and operates in New York, manages legal assets including law firm loans and litigation investment portfolios. It was founded in 2020 by Brandon Baer, former co-head of Fortress Investment Group .

The firm reported it deployed over $700 million as of last year.

ACAP Litigation Fund II LLC, the defendant in the Contingency suit, is a Delaware LLC listing Salem Vanderstel as the principal contact. Vanderstel is the founder of Naked Capital, an Atlanta-based real estate investment firm. He declined to comment when reached by phone.

Contingency claims it loaned the money to Dunken after receiving a written assurance from ACAP that the law firm’s entire debt to ACAP would be extinguished. ACAP allegedly later declared that Dunken defaulted on a new loan—which the company had agreed not to extend—and said the law firm owed it more than $30 million under the terms of an agreement.

This is not the first time Dunken has been accused of fraud. A review of lawsuits found Dunken at the center of multiple allegations.

In one ongoing suit, an individual who invested $100,000 in Dunken’s transvaginal mesh claims said he never received a payment. In another ongoing case, a law firm sued Dunken alleging that it purchased 200 talcum powder cases from Dunken which turned out to be low quality. Another law firm accusedDunken of attempting to steal clients, a case that ended in settlement.

Berrebi said funders face certain risks in any deal, even when they do their due diligence.

“The reality is in every kind of contract and litigation finance and otherwise, you presume good faith and fair dealing and that people aren’t lying,” said Berrebi. “There’s only so much you can do to avoid fraud.”

The case is: Contingency Capital Fund I Finance Master v. ACAP Litigation Fund II, N.Y. Sup. Ct., 651581/2023, 3/28/23