After Nickolas and Heather Stearns hired Brian Loncar & Associates of Dallas in 2010 to represent them in a personal-injury suit stemming from an automobile accident, they “borrow[ed]” some money from a “ lending company.”

But, according to their Nov. 27 petition filed against Dallas lawyer Brian Loncar, Loncar & Associates, Brian Loncar PC, Settlement Advance Funding Enterprises LLC (SAFE), and Fuerte Rios Funding LLC, the Stearnses did not know then that the lending company was “wholly or in part owned by the defendants.”

The Stearnses allege in the petition that the “defendants secretly, fraudulently, and deceptively, encouraged his ["Brian Loncar PC or in the other capacities listed herein"] clients (Plaintiffs herein) to borrow money from a lending company at a shockingly high interest rate, without disclosing to his clients that the lending company was wholly or in part owned by Defendants.”

They continue, “Not only did Defendants secretly and fraudulently charge his own clients essentially 4.99% per month (60% per year) in interest, but he also deducted a ‘legal fee’ and/or ‘return fee’ of 28.5%.”

In 2010, according to a “non-Recourse Investment Agreement” attached as an exhibit to the petition, SAFE would invest $420 in Heather Stearns’ pending litigation in return for a partial assignment of future proceeds from her legal claim. Stearns received a “$300 advance amount” and agreed to pay a “minimum return fee” of $120, with Stearns to pay 4.99 percent monthly interest.

“In other words, without informing the clients that Defendants owned the lending company, that was loaning money to the clients while charging the excessive fees and interest, Defendants were paying themselves out of loans given to their clients, profiting off of the undisclosed business with their own clients,” the Stearnses allege in the petition in Nickolas Stearns, et al. v. Brian Loncar, PC, et al.

Brian Loncar did not return two telephone messages left at his firm.

His attorney, Larry Friedman, a partner in Friedman & Feiger in Dallas, says Loncar is permitted to advance money to clients.

“He is relying on Texas Commission on Professional Ethics Opinion 465. It says it’s OK.”

Ross Sears, who represents the plaintiffs, says lawyers are permitted under the Texas Rules of Professional Conduct to lend money to clients for living expenses. However, Sears, a partner in Sears★Crawford of Houston, says, “You are darn sure not supposed to be getting a windfall.”

The plaintiffs allege in the petition that defendant Fuerte Rios of Austin is a funding company formed by Brian Loncar, and Fuerte Rios is a “governing person” of SAFE, which is based in Dallas.

Both were formed on May 9, 2007, according to incorporation documents filed with the Texas secretary of state.

Friedman says he cannot respond in detail to the Stearnses’ allegations because of the attorney/client privilege between the couple and Loncar & Associates.

However, he says Brian Loncar is a one-third owner in SAFE, and the Stearnses were informed of that before they got the advance.

“It was fully disclosed prior to the client entering into the transaction,” Friedman says.

Relief Sought

The Stearnses bring a breach of fiduciary duty cause of action against “the Loncar Defendants,” and they bring negligence, fraud and conspiracy to commit fraud causes of action against all defendants. They also seek a judgment against the defendants for all damages incurred as a result of the defendants’ alleged violation of Texas Penal Code §32.45 and 32.46. “Defendants, through their misrepresentations to Plaintiffs, deceived Plaintiffs by inducing them to sign the loan documents in question, when Defendants knew such was not their intent, and also misappropriating fiduciary funds,” the plaintiffs allege in the petition.

The Stearnses seek damages consisting of all attorney fees related to their case; all money, interest or fees they paid to the defendants for loans; and unspecified punitive damages, plus interest, attorney fees and costs.

The Stearnses allege that, based on the “fraud and deceptive conduct, as well as the breach of fiduciary duty,” the defendants should forfeit all repayment of the loan and interest.

“It is Plaintiffs’ belief that Defendants have done this same type of thing to hundreds, if not thousands, of other clients as well,” the Stearnses allege in the petition.

Kenneth Toudouze of Dallas, identified in an exhibit attached to the petition as the “initial member” of SAFE, could not be reached for comment. A telephone for SAFE was disconnected, and Toudouze did not return a telephone message left at another number for him obtained online.

Friedman says, “Loncar & Associates did an excellent job for these people.”

“They got good services and a great result, and their case was handled properly, and all of the documentation was done well, and it was done lawfully, was done properly, and I’m confident that this will be worked out to everyone’s satisfaction,” Friedman says.