Partners at a boutique Manhattan law firm allege they were under “extreme duress” when they signed affidavits agreeing to pay more than $1.7 million to a litigation financing company that provided initial funding to the firm to pursue cases.

They are now seeking to have those judgments by confession vacated.

Balestriere PLLC, along with managing member and partner John Balestriere and his wife and co-partner Vittoria Fariello, are seeking injunctive relief in Manhattan State Supreme Court against Erie County-based Counsel Financial II, a litigation funder which, according to court filings, froze the firm’s operating account, its client trust account, and the couple’s personal bank account to enforce judgment on March 24.

Last Thursday, the plaintiffs obtained a temporary restraining order from Commercial Division Justice Shirley Kornreich to unfreeze those accounts, which restricts withdrawals from the personal account to $10,000 until April 14, the date of a preliminary injunction hearing.

The complaint in Balestriere PLLC v. Counsel Financial II, 650921/2014, alleges that Counsel Financial promised it would “work almost as a joint venture partner with the firm to help it develop and prosecute complex business cases.”

The Affidavits of Confessions of Judgment

Balestriere and Fariello signed the affidavits in dispute in April 2012. The documents confess judgment to $1.7 million plus interest starting April 10, 2012 and authorize Counsel Financial to enter judgment against the firm.

The plaintiffs’ March 28 complaint argues that these affidavits should be vacated based on theories of duress, overreaching, violation of trust and want of consideration.

The complaint states that the partners were “forced to agree to the terms of the document because of wrongful threats precluding the exercise of its free will” and since the firm was in “dire financial condition” at the time.

“None of the plaintiffs had any meaningful choice but to execute the [affidavits], lest Balestriere and Fariello be placed into bankruptcy, and the firm’s operations be shut down, with obligations to clients put at risk,” the complaint states.

The Financing Arrangement

According to an affidavit from Balestriere attached to the complaint, the firm and Counsel Financial II entered into a litigation financing arrangement in 2007, with $700,000 of financing extended in the first year.

Litigation funding is a type of arrangement in which a third party agrees to provide initial financing to a law firm in exchange for receiving a share of the proceeds down the road. There has been an uptick in this arrangement in recent years among commercial litigation outfits.

Balestriere’s affidavit states that his firm only decided to enter into the arrangement based on assurances the financing would exceed three years, “given how long the firm’s docket of class actions and complex business matters take to be prosecuted.”

Troubles with the arrangement began with the 2008 financial crisis, when Counsel Financial allegedly discouraged the firm from pursuing litigation against a Bank of America subsidiary in 2009. The company received a bulk of its financing from BoA and sought to avoid this conflict, the affidavit claims.

Balestriere further claims that at “multiple times” from 2009 to 2012, the third-party funder tried to interfere with the firm’s client trust account and inject itself into discussions with defendants’ counsel to divert payments directly its way.

By 2009, the affidavit continues, Counsel Financial had ceased providing further financing and demanded payment for outstanding interest, which “went as high as 24 percent, and in months could be $20,000—higher than any one payroll payment, higher than monthly rent, and higher than any payments I received to provide for my family,” Balestriere wrote.

The affidavit further states that company executives threatened to freeze the firm’s bank accounts, “boasted” about pressuring other law firms to execute affidavits of confessions of judgment, and acknowledged its communications with “an individual with a history in organized crime” who the company said would claim to be a creditor file an involuntary bankruptcy petition against the firm.

“I only signed the [affidavits] in order to avoid significant disruption or demise of the firm’s business and to preserve the firm’s ability to provide the best result to its clients as ethically and morally obligated, and simply to take care of my family,” Balestriere states.

Erie County Action

On March 17, Counsel Financial filed a separate Erie County action against the firm for fraudulent conveyance. In a statement to CLI, Dennis Vacco, partner at Buffalo firm Lippes Mathias Wexler Friedman who is representing Counsel Financial, said the company has “reason to believe that Balestriere and Fariello fraudulently transferred Counsel Financial’s collateral to another law firm, Balestriere, Fariello & Abrams, of which they are partners, in order to defraud Counsel Financial and thwart its efforts to collect on the judgments.”

“After numerous attempts to resolve the matter with them and their law firm, they ceased communications with Counsel Financial,” Vacco said. “They are in possession of absolutely no valid defenses to the payment of the judgments.”

The website of Balestriere, Fariello & Abrams shows that it’s a 10-attorney firm located in downtown Manhattan that specializes in trials, internal investigations of companies and outside investigations. The firm states it considers itself “the premier state court litigation shop in New York” and that it “almost never” is paid exclusively by the billable hour.

“Our financial incentives are aligned with our clients’—through a success fee, a ‘reverse contingency fee,’ or other benchmark based payment methods—so that our clients can trust that we are always doing what is best for them, since what’s best for them is also best for us,’ the site says.

Balestriere PLLC is representing itself pro se in the matter. Michael Bowen, partner at Kasowitz Benson Torres & Friedman, is representing the company in the Manhattan action. He did not return calls or emails for comment.

Reached by email, John Balestriere said he could not comment on pending litigation.