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Tonkon Torp Team Secures Client's Victory in Complex, Multi-Million Dollar Case Alleging Fraud

A recent dispute between a Tonkon Torp client and a Los Angeles-based finance company was the very definition of "complex commercial litigation."  The case involved a structured finance transaction documented through multiple agreements among multiple parties.  Untangling the deal gave Tonkon Torp's litigators an opportunity to demonstrate their value.


Tonkon Torp's client had entered into an agreement with the finance company, a small business lender that had agreed to sell to the client the loans it had originated and funded.  Under the parties' three year agreement, the client agreed to purchase on a revolving basis up to $25 million worth of loan receivables during the first year and then up to $50 million in the second and third years.  But it quickly became apparent that the finance company was unable to generate and fund sufficient loans to support its operations and had mismanaged and/or failed to properly forecast its working capital needs.


In December 2009, the finance company filed an action against the client in federal court in Los Angeles, blaming the client for its demise and seeking more than $20 million in compensatory damages plus unspecified punitive damages.  The finance company claimed that the client committed fraud because it did not have $50 million on hand to purchase the loans and that the client had prevented the finance company from meeting its business plans. 


In January 2010 Tonkon Torp's litigation team took the offensive, successfully seeking dismissal of the finance company's California action and, at the same time, bringing an action in Oregon against it, its affiliates and its CEO for failing to live up to the terms of the loan purchase agreement, failing to service the loans it had sold to the client and failing to repay two loans made by the client.  Tonkon Torp obtained a preliminary injunction requiring the finance company to transfer servicing of the purchased loans to the back-up servicer under the parties' agreements and, when the finance company failed to timely comply with the injunction, it obtained a judgment of contempt and a second preliminary injunction. 


The parties then spent the better part of the next year completing discovery, which unearthed thousands of emails and other documents, and arguing over the proper scope of the finance company's counterclaims in the Oregon action (in which it had again sought more than $20 million in compensatory damages plus unspecified punitive damages).  These efforts culminated in a two-week trial in August 2011.


The Tonkon litigation team, led by Steven Wilker and associate Chris Pallanch, prevailed completely on behalf of the client.  The trial judge rejected the counterclaims entirely and found that the finance company had breached the loan purchase agreement between the companies and had defaulted on a business loan agreement and related promissory note.  The judge also found the finance company's CEO liable on a promissory note for a working capital loan and under a limited guaranty related to the loan purchase agreement.  In total, the court entered a judgment for the client for more than $1.8 million (including pre-judgment interest), plus attorney fees and costs.


"Tonkon's litigation team did a great job for us," said the client's CEO after the verdict.  "They handled a complex case very effectively and efficiently."


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