Story originally appeared on Crain's Detroit Business.
lawsuit against Southfield-based Hantz Financial Services Inc. and
several of its senior executives is on hold until the Michigan Court of
Appeals decides whether to certify it as a class action on behalf of 300
A three-judge appellate court panel late
last month put a stay on the court case before Oakland County Circuit
Judge Leo Bowman, who had denied a request to certify a class of
investors who purchased promissory notes from Medical Capital Holdings
Inc. through Hantz.
Bowman, in his Jan. 28 dismissal
order, said he was "left with the distinct impression" that attorneys
for plaintiff-investor Anne Hanton filed her lawsuit mainly to get
around his ruling in their previous court case, where he already denied
class certification for another client.
court agreed to review that decision and put a stay on the case until it
could decide the certification question on its own. Attorneys for
Hanton have told Crain's a class of claims would exceed $20 million in
potential damages, while Hanton's case taken alone has less than a
"We've gone two for two, since this is
the second action against us where class certification was denied by the
courts," said David Shea, attorney and general counsel for Hantz
Financial. "Our position is the courts have gotten it right, and we were
never attached to any allegations that were made against Medical
Capital. This is purely a plaintiff attorney-driven action."
Cap, an Anaheim, Calif.-based medical receivables financing company, is
in receivership after raising about $2.2 billion from among 20,000
investors through nine private placement offerings of promissory notes
between 2001 and 2009.
Those sales stopped when the
U.S. Securities and Exchange Commission brought a civil action alleging
securities fraud and obtained a court injunction. The Financial Industry
Regulatory Authority has sanctioned more than 10 brokerage firms and
several individuals for selling interests in Med Cap through private
placements without a reasonable investigation -- but Hantz Financial was
not one of them.
The company did sell promissory notes
in the fifth Med Cap securities offering to about 300 customers, but
Shea said Hantz had done its due diligence and the notes were still
performing at the time it sold them. It stopped selling Med Cap in 2008
after learning one of the previous sales had defaulted.
No date is set for the appellate court to decide about class certification.
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