Accused Whistle-Stealer Can’t Fight in Federal

(CN) - A man who says that a Florida lawyer exploited his insight to obtain an $18 million settlement for herself can sue for malpractice in state court, a federal judge ruled.

Ignacio Figueroa had filed the complaint in Broward County, but the defendant lawyers later removed the case to the U.S. District Court for the Southern District of Florida.

Figueroa claimed to have provided Florida attorney Lynn Szymoniak with information in 2010 about fraudulent practices in the home-mortgage industry, and that she had led him to believe he would be the whistle-blower in a lawsuit over those practices.

Later that year, however, Szymoniak was allegedly named as the relator in two qui tam actions that Janet, Jenner & Suggs and another law firm filed.

Figueroa said the lawsuits were based on information he had provided, and that they remain pending in U.S. District Court for the District of South Carolina, where they were consolidated.

He named Szymoniak, her firm, Janet Jenner and attorney Hal Kleinman as defendants.

Figueroa said the attorneys' secret actions excluded him from an $18 million partial settlement they had reached with mortgage lenders and servicers.

He further claimed that the action belongs in state court since each count - legal malpractice, breach of fiduciary duty, unjust enrichment and fraud - relies on common Florida law, not on the False Claims Act.

What's more, Figueroa has insisted that he is not seeking a share of the whistle-blower proceeds awarded to Szymoniak; he merely alleged that the defendants had breached their legal duties and prevented him from filing a similar qui tam action.

Agreeing that Figueroa's claims rely solely on state law, U.S. District Judge James Cohn remanded the lawsuit to state court on Aug. 22.

Szymoniak and the law firms had argued that the court had federal-question jurisdiction over Figueroa's state law claims, but Cohn found that the federal issues in the case were not substantial enough to warrant jurisdiction or influence other cases.

While the United States generally has a substantial interest in litigating false-claims issues, that interest is limited in Figueroa's case, which does not address federal false claims directly, according to the ruling.

Florida, on the other hand, has a strong interest in addressing alleged misconduct by attorneys practicing in the state, the ruling adds.

Cohn noted that Florida courts are capable of resolving the federal issues in the case.

He also ruled that the state court action will not affect Szymoniak's status as a whistle-blower in the South Carolina federal actions, nor influence the outcome of those lawsuits.

Szymoniak became a foreclosure fraud activist during the battle to save her own home in Palm Beach County, Fla., from foreclosure, according to news reports.

When Szymoniak's bank tried to raise the interest rate on her mortgage in the spring of 2008, she refused to pay the higher rate and began researching the documentation practices being carried out in Deutsche Bank's name. Szymoniak, a lawyer who focuses on white-collar crime, claims that she found a pattern in tens of thousands of cases at the nation's largest banks of forged signatures and fabricated documents.

Szymoniak received the $18 million for gathering evidence that helped the United States recover $95 million from big banks that allegedly engaged in fraudulent mortgage practices.

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