A judge has ruled that dozens of condominium associations can collectively sue a Tampa debt-collection company, potentially a major blow to the already-troubled company's prospects.
Miami-Dade Circuit Judge John H. Thornton recently certified a class-action lawsuit that accuses LM Funding of deceptive trade practices and charging illegally high interest rates.
Founded in 2008 at the start of the foreclosure crisis by Tampa lawyer Bruce Rodgers and his wife, Carollinn Gould, LM Funding advances condominium associations money for maintenance and repairs in exchange for the right to collect delinquent fees, interest and late fees from unit owners.
But in a lawsuit filed in Miami-Dade County, the Solaris at Brickell Bay Condominium Association says that while LM Funding purports to "buy" the rights to delinquent accounts, it actually operates as a lender charging interest in excess of the 25 percent allowed by state law.
In 2011, LM Funding gave Solaris a $140,458 advance but later collected $198,410 on the accounts. When Solaris terminated the contract, LM Funding demanded an additional $395,605 for what it said was the value of uncollected accounts and the interest that had accrued on them.
"Thus a debt of less than $150,00 became a debt of nearly $600,000 in less than three years," according to the suit.
Solaris also alleges that LM Funding entered into "materially similar" contracts with other condominium associations and that their claims could best be handled on a class-action basis.
On Dec. 5, the judge agreed and certified a class that could include 325 or more condo associations.
Lawyers for Solaris will also represent other members of the class.
In a statement, Rodgers predicted that LM Funding will get the suit dismissed and continue in business "for years to come."
"The allegations in the complaint mistakenly recharacterize our business model as a loan, rather than as a business that takes on the risk of collecting delinquent dues from individual condo units," Rodgers said.
He added that the judge should remove himself from the case because his wife is partner in the law firm that filed the suit.
Class-action lawsuits are relatively common, especially in cases in which a defective product harms thousands of people. Although not familiar with the LM Funding lawsuit, one expert said that certification as a class is "a very important watershed" in any litigation and can increase the pressure on the defendant to settle.
"What you have is a single litigation with a lot of aggregated claims and potentially a fairly large damage recovery," said William H. Page, a professor at the University of Florida's Levin College of Law. "That's not to say it's good to face an enormous number of individual lawsuits, but it sounds like it may be that some of these condo associations wouldn't file at all unless in the form of a class action."
LM Funding has struggled since it went public in October 2015 and raised about $10 million in an initial public offering. In September, the company announced that it was cutting staff and slashing salaries, including those of Rodgers, who went from $385,000 to $269,500, and Gould, who went from $150,000 to $84,000. Its president left the company.
At the time, Rodgers said the company was collecting on fewer accounts.
In its third-quarter 2016 filing with the federal Securities and Exchange Commission, LM Funding said that it lost $914,180 on revenues of slightly more than $1 million. After going public at $10 a share in 2015, its shares have fallen sharply, closing Monday at $4.65 apiece.
Contact Susan Taylor Martin at [email protected] tampabay.com or (727) 893-8642. Follow @susanskate.