- Key insight: Flatirons Bank claims a rival trust company has waged a two-year campaign aimed at hamstringing its entry into the qualified settlement fund business.
- Supporting data: Qualified settlement funds are a deposit-rich niche involving big payouts for multi-claimant lawsuits.
- Expert quote: The defendant, Eastern Point Trust Co., isn’t backing down. “Eastern Point expected this maneuver and is prepared to set the record straight in due time,” the company said in a statement.
A Boulder, Colorado-based community bank is suing a rival trust company for allegedly blocking its efforts to enter the multibillion-dollar qualified settlement fund business.
The $387 million-asset Flatirons Bank filed suit Monday against Warrenton, Virginia-based Eastern Point Trust Co. — the latest twist in a public feud in which each company has accused the other of wrongdoing. Flatirons argues that Eastern Point has engaged in an “aggressive” and “heavy-handed” campaign to sabotage Flatirons’ 2-year-old Justice Escrow platform.
Flatirons is seeking punitive damages “in an amount to be proven at trial,” plus attorneys’ fees. The bank is also asking the U.S District Court in Wyoming for an injunction barring Eastern Point from sending “harassing, intimidating and-or defamatory communications” to Flatirons’ business partners.
Chris White, who oversees Flatirons’ legal banking business, told American Banker that the bank went to court reluctantly.
“We don’t believe leading with litigation is the best way to approach a market,” White said. “We think competition is the best way to solve that, and the end consumer will determine the best product. This is really a situation of last resort.”
Flatirons has been able to grow Justice Escrow despite the controversy, but Eastern Point’s opposition campaign has created significant obstacles, according to White.
“The actions over the past few months have caused us to have to do a lot of outreach and work on those client relationships, much more than we normally would,” White said. “There’s questions as publicity gets out there that we’re not driving.”
Flatirons filed its legal action nearly six months after Eastern Point sued the bank in Virginia state court, alleging that Justice Escrow was essentially an unauthorized copy of its own QSF 360 platform.
Though Eastern Point ultimately withdrew its suit on May 29, the company has in no way backed away from its claims about Justice Escrow. Indeed, in a statement Tuesday, Eastern Point described the Flatirons lawsuit as “merely a defensive maneuver by Flatirons to discredit Eastern Point’s continuing efforts to vindicate its intellectual property rights and protect its valuable intellectual property from further misuse.”
“Eastern Point expected this maneuver and is prepared to set the record straight in due time,” the nonbank trust company said in the statement. “For now, it suffices to say that Eastern Point disputes Flatirons’ allegations and stands by the allegations that Flatirons and its partners unlawfully misappropriated Eastern Point’s intellectual property, as reflected in the Virginia complaint.”
Qualified settlement funds are typically linked to multi-claimant legal cases, such as mass torts and class-action lawsuits. A defendant pays into a qualified settlement fund and receives an immediate tax benefit. Plaintiffs are permitted to delay receipt of their proceeds in order to plan for tax implications or to design a structured payout.
For Flatirons, the qualified settlement fund niche has emerged as a source of both fee income and deposits, CEO Kent Jones told American Banker. Since launching Justice Escrow in December 2023, Flatirons has seen its overall deposits jump by 36%. They totaled $358.6 million as of June 30.
“Over time, as we scale the program, we do see our average balances growing,” Jones said.
“We’re seeing a lot of interest in the program as attorneys see the real value in it,” he added. “That’s really where we’re focusing our efforts.”
According to Flatirons’ complaint, the bank began experiencing difficulties with Eastern Point shortly after launching Justice Escrow. In sum, Flatirons accuses Eastern Point of spreading a false rumor that it copied QSF 360 to create Justice Escrow, and then following up with threats of legal action against the bank’s business partners.
“The Justice Escrow qualified settlement fund platform in no way infringes on Eastern Point’s platform and the market should be left to determine which offering clients prefer,” Flatirons stated in the complaint.
For Flatirons, Justice Escrow is just a beginning salvo in a wider strategy to serve the legal industry. It plans to launch a national Justice Banking initiative to provide industry-specific banking services, as well as advice and guidance on capital decisions. “We plan to expand our reach in that vertical across the country,” White said.