Hantz suit on hold; class action mulled

Story originally appeared on Crain's Detroit Business.

A 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 investors.

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.

The appeals 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 $250,000 value.

"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."

Med 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.