By Nate Raymond 

NEW YORK, Feb 15 (Reuters) - The founder of two prominent litigation funding companies was hit with a lawsuit on Friday by a rival firm that had provided his former wife funding to finance their divorce.

Timothy Scrantom and the two firms, Juridica Capital Management Limited and BlackRobe Capital Partners, were sued in U.S. District Court in New York on claims of tortious interference and misappropriation of trade secrets. The lawsuit seeks at least $7 million.

The plaintiff, Balance Point Divorce Funding, had been providing money to Scrantom's former wife in exchange for a cut of any divorce settlement. But the lawsuit claims Scrantom persuaded her to not pay Balance Point so that he could pay less in the divorce than if she had to pay the funder.

The case provides a rare window into the growing field of litigation finance, in which hedge funds and other investors provide money to litigants in exchange for a cut of any settlements or verdicts.

Some firms, such as Balance Point, specialize in providing people with money to pay legal fees in high-end divorces. The firm, based in Beverly Hills, California, and founded by lawyer Stacey Napp, advertises that it provides spouses with financing - including legal fees and living allowances - in marital splits involving more than $2 million in assets.

Scrantom, reached by telephone, called the lawsuit "frivolous."

Richard Fields, the CEO of Juridica, had no immediate comment. Judith Lockhart, a lawyer for Balance Point, did not respond to an email seeking comment.

Scrantom has long been regarded as one of the most significant players in litigation finance. In 2007, he co-founded Juridica, a publicly traded company with more than $200 million in assets under management.

Scrantom left Juridica to co-found BlackRobe Capital in 2011 with Sean Coffey, a prominent plaintiffs' lawyer.

The case could provide fodder for industry critics such as the U.S Chamber of Commerce, which has argued that allowing investors to fund lawsuits can drive up the costs of settlements.

MONTANA ACTION

Last year Balance Point sued Scrantom's former wife, Lila Masters, in a Montana federal court. Masters' divorce from Scrantom was pending in Montana state court.

Todd Shea, a lawyer for Masters, said on Friday that his client contended the contract with Balance Point was unenforceable under Montana law because of how "pervasively involved" the firm became in managing her divorce beyond just providing funding.

Masters approached Balance Point in May 2011, according to the court papers filed Friday. The company provided more than $310,435 for her legal fees and expenses in her divorce from Scrantom in exchange for 25 percent of her marital asset claims, the lawsuit said.

But according to the complaint, Scrantom contacted Masters during the proceedings to obtain confidential and privileged communications with her lawyers and her agreements and emails with Balance Point.

Balance Point also claims that in May 2012, Masters reached out to Scrantom for advice on the enforceability of Balance Point's agreement. Scrantom allegedly advised it was unenforceable, the lawsuit said, and at one point asked if her lawyer would "have a problem" suing Balance Point.

The lawsuit said Juridica and Scrantom interfered with Masters' obligations to pay Balance Point.

By April 2012, Scrantom began negotiating a $5.17 million settlement agreement directly with Masters, unbeknownst to her lawyers or Balance Point, the complaint said.

Scrantom convinced her that doing so would mean she could get a better settlement by eliminating the $1.08 million payment Balance Point said it would be owed under the proposal, as well as money owed to her lawyers, the lawsuit said.

"Scrantom could pay Masters less in the divorce settlement if Masters did not have to pay a percentage to Balance Point," the company said in the complaint.

Balance Point contends that to the extent Scrantom convinced Masters to provide copies of her agreements with Balance Point, that constituted misappropriation of its trade secrets.

But the lawsuit contends Scrantom had made similar allegations about Balance Point and that he had threatened to sue Balance Point on claims it used Juridica's confidential information.

During a deposition, he clamed Balance Point's involvement in Masters' case constituted "unfair competition" because it was a competitor.

Balance Point denied that claim and said any information Masters had on cases Juridica funded would not matter because it competed for different cases and clients.

Scrantom's threats of litigation, though, resulted in a potential investor in Balance Point reducing its offer of a $50 million line of credit into an ability to draw on $5 million in unnumbered tranches, the lawsuit said.

While unnamed, the details of the investment match one announced in a May 2012 press release by asset management company Asta Funding Inc.

The case is Balance Point Divorce Funding, LLC, v. Scrantom, U.S. District Court, Southern District of New York, 13-1049.

For Balance Point: Judith Lockhart, Carter Ledyard & Milburn.

For the defendants: Not immediately available.

(This story has been clarified, in the first and fifth paragraphs to say that Balance Point provided funding to one of the parties in the divorce case. The previous version said that Balance Point provided a loan, but whether or not the money was a loan is a matter of dispute in the pending litigation in Montana.)

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