Fraudulent Conveyance Action Permitted To Proceed Against Litigation Funding Recipients Who Sold Interests In A Venture To Profit From Qui Tam Claims

On July 11, 2024, Justice Andrea Masley sustained a fraudulent conveyance action brought against the alleged “alter egos” of litigation funding recipients who breached a funding agreement. In GNHC 1703-518, LLC, v. Venari Partners, LLC, et al., Index No. 651347/2022, the defendants comprised a complex group of corporate entities and partnerships formed primarily by John Mininno and his company, Venari Partners, LLC. The entities were created to facilitate an investment scheme to profit from the investigation and litigation of qui tam claims brought against pharmaceutical companies under the False Claims Act. The plaintiff had previously obtained an arbitration award against some of the entities based on breach of a litigation funding agreement. However, because those entities had no substantial assets—beyond an interest in pending litigation—they could not satisfy the arbitral award. The plaintiff sued the remaining entities in the scheme to satisfy its award and claw back amounts that were allegedly fraudulently conveyed to them.

The Court rejected a motion to dismiss and held that the plaintiff could maintain its action against the alter egos. It explained:

[P]laintiff alleges that, as a creditor of the Nominal Defendants, it is also a creditor of Venari because Venari is an alter ego of the Nominal Defendants. . . . Plaintiff asserts that the Nominal Defendants lack a separate identity from Venari, and thus, Venari should ultimately be liable for the Nominal Defendants’ acts. . . . Here, plaintiff alleges that Venari and the Nominal Defendants were not operated as distinct and separate entities. Venari operated the Nominal Defendants without any regard to corporate form. . . . Thus, plaintiff alleges sufficient facts that, if proved, indicate that Venari exercised complete domination of the Nominal Defendants.

The attorneys at Schlam Stone & Dolan frequently advise clients concerning alter ego liability and piercing the corporate veil. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.