A U.S. District Court judge in Cleveland has dismissed significant parts of a major lawsuit seeking to recover more than $1 billion in damages for thousands of Fair Finance Co. fraud victims.
Fair Finance Trustee Brian Bash’s lawsuit seeking as much as $950 million from Rhode Island-based Textron Financial in actual and treble damages was thrown out by Judge Patricia Gaughan. Textron Financial had provided $22 million in financing to Fair’s Indianapolis-based owners when they bought the now-bankrupt Akron business in early 2002.
As part of the same decision last Friday, Gaughan allowed most of Bash’s complaint against another significant Fair Finance lender, New York-based Fortress Credit Corp. But she ruled that the Fair Finance bankruptcy estate is not entitled to treble damages from Fortress. Bash had been seeking as much as $223 million in treble damages from Fortress, which provided millions of dollars in financing to Fair after Textron stopped loaning money to the business.
The court’s ruling could mean that Fair Finance’s victims will not recover all of their losses in the nearly three-year-old case. No money recovered to date has been distributed to the investors.
As of last month, the Fair Finance estate had assets of about $5 million in recovered money. But legal and professional fees are mounting: The Cleveland law firm of Baker Hostetler, where Bash works, filed paperwork last week saying it is owed $7,627,779.10 in fees and out-of-pocket expenses.
Judge Gaughan’s ruling “preserved substantial claims against Fortress,” Kelly Burgan, the attorney who represents Bash, said Tuesday. Both are lawyers at Baker Hostetler. The Fortress claims total about $72 million.
“We’re clearly going to pursue the claims against Fortress,” Burgan said.
Bash also has the right to appeal the Textron decision, Burgan said. She declined comment on whether an appeal will be filed.
Bash filed the lawsuits against Textron and Fortress early this year. He has filed numerous other lawsuits seeking money from others, including former Fair Finance owner Don Fair, whose father started the business in the 1930s.
Both Bash and U.S. Bankruptcy Judge Marilyn Shea-Stonum had recommended to Gaughan that she deny Textron’s and Fortress’s motions to dismiss the lawsuit.
Bash’s lawsuit had argued in part that the financing provided by Textron and Fortress allowed Fair Finance co-owners Timothy Durham and James Cochran to perpetuate a Ponzi scheme that defrauded about 5,300 people, mostly in Northeast Ohio, out of about $215 million through a complicated web of insider loans. The investors, many of them elderly, had purchased high interest-rate paying but uninsured investment certificates from Fair Finance. Prior to the 2002 sale, the certificates provided capital to family-owned Fair’s long-time business of providing consumer loans and buying other business’s accounts receivables.
Durham, Cochran and Rick Snow, Fair’s former chief financial officer, were found guilty this summer in U.S. District Court in Indianapolis of defrauding Fair’s investors and using the money for their own benefit.
The three men are scheduled to be sentenced Nov. 30 in U.S. District Court in Indianapolis. Life sentences are possible; the U.S. Attorney’s office is recommending that Durham, as the lead executive, receive a 225-year sentence.
Fair Finance never reopened its offices in Ohio following FBI raids the day before Thanksgiving in 2009. The company was forced into bankruptcy in February 2010. Durham, Cochran and Snow were indicted in Indianapolis and arrested in 2011.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org