The Texas Business Court last week began hearing arguments in a dispute between litigation finance company Siltstone Capital and Manmeet Walia, who left Siltstone and started a new company, Signal Peak Partners.
Walia, a former lawyer at Susman Godfrey, started working at Houston-based Siltstone as general counsel in 2015 and left in May as general counsel and managing partner.
In June, Walia told The Texas Lawbook the timing was right to launch a new litigation funding firm. “With the macroeconomic fluctuations we have seen this year in the market, plaintiffs have a particular need for stable and financially secure litigation funders to help them bridge the resources gap inherent in commercial litigation,” said Walia earlier this summer. “In addition, the litigation funding market is poised to offer plaintiffs and their trial lawyers more customized solutions than ever before, including monetization and preservation options.”
The case was removed to the Texas Business Court’s Eleventh Division in Houston, where Presiding Judge Grant Dorfman denied a temporary restraining order request.
In Siltstone’s request for an emergency hearing on the temporary restraining order, it cited a webinar scheduled three days later that Signal Peak was going to present using “confidential and trade secret information stolen.”
It also stated that Signal Peak planned “to violate the Marketing regulations of the Securities and Exchange Commission by misrepresenting the performance of ‘their funds’ when the truth is that they are a startup with no track record — they are using Plaintiff’s track records and information relating to its funds that they misappropriated.”
Siltstone is also lodging its complaint against Hazoor Partners, which is the largest investor in Siltstone and is now an anchor investor in Signal Peak. The firm secured commitments of more than $40 million in investment capital with a hard-cap final close of $125 million.
Signal Peak, co-founded by Walia and former Vinson & Elkins litigation partner Lauren Harrison, responded to the request for a temporary restraining order, indicating that Siltstone viewed Walia’s departure as a business opportunity for itself and “fully blessed and agreed to” his future plans. Before Walia left the company, he negotiated a release from his noncompete agreement, and he was allowed to bring his Siltstone litigation finance team with him, the response states.
“Accordingly, Siltstone’s narrative that Walia secretly created a competing company is a false narrative,” the response reads.
The response notes that “it may seem weird” for Siltstone to allow Walia to leave and start a new litigation-financing company that appears to compete with it. But it states Siltstone’s only two affiliate litigation funds were “closed” and “fully committed,” meaning they were no longer accepting outside investments.
Representing Signal Peak and Hazoor, Mahendru P.C. founding partner Ashish Mahendru called the lawsuit “frivolous and abusive.”
“Before bringing this lawsuit, and in direct recognition of Mr. Walia’s value to Siltstone, Siltstone broadly released Mr. Walia, waived Mr. Walia’s noncompete, agreed that Mr. Walia could hire his former team from Siltstone, and sent Mr. Walia off to prosper — even hoping to get a carried interest in Mr. Walia’s new litigation finance venture,” Mahendru said. “That is how much faith Siltstone had in Mr. Walia.
“Siltstone’s suit ignores those clear contractual promises and alleges blanket trade secret status over ubiquitous information — even industry buzzwords — in an attempt to now, belatedly, interfere with Signal Peak’s and Hazoor’s lawful business, while Siltstone has openly proclaimed it will no longer be continuing in the litigation finance business other than the funds it has already invested.”
Siltstone is seeking an injunction against Signal Peak and does not specify a damages amount.
Mahendru said the case is headed to arbitration, where he and his clients believe the case belonged all along.
“Siltstone Capital has a responsibility to protect its proprietary business interests and the investments of its partners,” Jackson Lewis principal William Davis, who is representing Siltstone, told The Lawbook. “Our filings outline Siltstone’s position, and Siltstone will not be commenting further on the specifics of this ongoing legal matter.”
The case is Siltstone Capital LLC, Siltstone Capital Litigation Fund II LP and SC Litigation SPV LP v. Manmeet Walia, Signal Peak Partners LLC, JSN Ventures LLC, Hazoor Select LP, Hazoor Signal Peak SPV GP LLC, and Hazoor Signal Peak SPV LP, 25-BC11B-0053.