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Lenny Dykstra, the ex-baseball star who went bankrupt through a combination of heavy spending and failed business ventures during the financial crisis, has tapped Legalist Inc., a litigation finance firm, to fund a pair of lawsuits he’s pressing, according to a May 31 regulatory filing, Bloomberg News reported. The former outfielder known as “Nails” is finding backing for his court fights from the growing litigation finance industry, in which investors help fund lawsuits in exchange for a share of settlements and awards. While most financing goes to commercial cases with tens of millions or more at stake, Legalist deploys computer algorithms to identify smaller potentially lucrative cases. “We can invest in deals that have more of a David-versus-Goliath story to them,” said Eva Shang, who co-founded the San Francisco-based firm with Christian Haigh in 2016 while they attended Harvard. “We are funding plaintiffs who might not have the funds to pursue cases otherwise.” Legalist raised $10.25 million from 12 investors through a fund formed in 2017, according to filings. The firm set up a second pool earlier this year, but as of mid-June it had yet to begin raising money, documents show. Dykstra, 56, has been in and out of court since retiring in 1998 from Major League Baseball, where he helped the New York Mets win a World Series. He has served prison time for bankruptcy fraud and grand theft auto and filed for chapter 11 protection in 2009. In one of Dykstra’s lawsuits, filed in January, he alleges breach of contract involving his promotion of a credit counseling business. The other is a 2017 malpractice suit against a California law firm, claiming it failed to properly represent him in a case against the Los Angeles County Sheriff’s Department.

A Texas woman can’t unload thousands of dollars in unpaid student loans through bankruptcy, a federal appeals court said, a setback for consumer lawyers hoping her case could weaken the high bar for student borrowers to discharge educational debt, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Fifth Circuit on Tuesday ruled against Vera Frances Thomas, who has struggled to maintain employment because of a degenerative nerve disease and sought relief from more than $7,800 in student debt. The ruling comes as some judges, experts and politicians re-evaluate the legal hurdles preventing individuals in difficult financial straits from using bankruptcy to leave behind student loans. The appellate court defended a legal test dating back to the late 1980s that requires borrowers seeking education-related bankruptcy relief to show they are totally incapable of repaying their student debt. Consumer advocates who filed papers supporting Thomas said that the test is outdated and came about before significant changes to modern student loan programs. “The consequence of the…test is that sympathetic debtors like Ms. Thomas are held to the same standard as debtors who are less sympathetic. But that is an outcome for Congress to address, should it desire,” wrote Circuit Judge Edith H. Jones. Read more.

For further analysis on this case, be sure to read today’s Rochelle’s Daily Wire column. 

Chief Bankruptcy Judge Laurel M. Isicoff in the Southern District of Florida has settled a long-running dispute over who really owned a string of defendant companies, siding with the trustee, who can now recover more than $600 million in assets and interest in a bankruptcy case, Law.com reported. The debtor, Leonidas Ortega Trujillo, a Miami businessman from a wealthy Ecuadorian family, filed for chapter 7 bankruptcy in June 2015. But since 1996, he had been in litigation with the Ecuadorian government, represented by K&L Gates, over the failure of what once was the country’s fourth-largest bank, run by the family. After a 10-week trial, Judge Isicoff found that although Trujillo wasn’t the named owner of the corporate defendants, he was the one who controlled and benefited from them. That means the debtor will no longer get the bankruptcy discharge he had been granted in 2017. Kozyak, Tropin & Throckmorton partner Corali Lopez-Castro, attorney for the trustee, alleged that Trujillo had only filed for chapter 7 bankruptcy protection to shake off a judgment against him in the government’s lawsuit, which was litigated in the Bahamas.

A judge declined to reopen a wireless company’s 2014 bankruptcy after it got caught up in a dispute over McKinsey & Co.’s conflict disclosures in chapter 11 cases, saying that investigating the matter is better left to the Justice Department, WSJ Pro Bankruptcy reported. During a hearing yesterday at the U.S. Bankruptcy Court in New York, Judge Shelley Chapman said that McKinsey’s sprawling legal battle with corporate turnaround industry veteran Jay Alix should be resolved through a “constructive process” outside of the courtroom and with oversight from the U.S. Trustee Program, the Justice Department division that monitors the nation’s bankruptcy system. “At a certain point, somebody who reports wronging ought to just step back and let the people whose job it is to take care of it take over,” the judge said. The ruling largely was a victory for McKinsey, which has accused Mr. Alix of using a torrent of lawsuits that now span several states to drive it out of the often-lucrative business of advising troubled companies in bankruptcy.