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Cole Schotz Obtains Sweeping Victory in Private Investment Fund’s Fight to Enforce Security Rights and Entitlement to Insurance Proceeds

After over five years of hard-fought litigation and a twenty day arbitration evidentiary hearing, Cole Schotz obtained a $63 million arbitration award on behalf of its private investment fund client. Through the arbitration, our client sought enforcement of its security interests against a defaulted borrower, payment under an insurance policy designed to mitigate the loss resulting from such a default, as well as recoupment of its collateral misappropriated by the borrower’s attorneys.

By way of background, our investment fund client provided a $25 million loan to a borrower to support a patent infringement litigation program protected by comprehensive security interests in all of the borrower’s assets. An insurance policy covering the potential loss of the loan principal in the event the borrower defaulted further secured the loan. When the patent enforcement program failed to generate sufficient revenues to timely repay our client’s loan, the borrower defaulted. In addition, the law firm representing the borrower misappropriated the only recoveries obtained from the patent litigation program, paying those funds to itself for claimed outstanding legal fees, instead of surrendering those funds to our client pursuant to its security interests.

After three years of state court litigation in New York (Supreme and Appellate Division) followed by two additional years of arbitration proceedings, the Cole Schotz litigation team scored a sweeping victory on all of our client’s claims, securing an award for the full amount of the damages caused by the borrower, insurance company, and the law firm, totaling over $63 million. In addition, Cole Schotz further obtained reimbursement of our client’s arbitration expenses, as well as 65% of its attorneys’ fees and costs incurred in connection with the arbitration.

The team procuring the win for our client included Michael Sirota, Steven Klepper, Victoria Cioppettini, Lauren Manduke, Barry Schwartz, Neoma Ayala, Rachel Mongiello, and paralegals Kathleen Sermabekian and Karen Chiandusse. When the borrower filed for bankruptcy protection in Virginia in an attempt to evade the arbitration process, David Bass, G. David Dean, and paralegal Fran Pisano assisted the litigation team in procuring a full dismissal of that Chapter 11 proceeding.

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