In this country, anyone can get sued for any reason, regardless of the merit of the claim(s). If it was wrong for the person or entity to have been named as a defendant in the first place, it can still take weeks, months or even longer to remove them from the case.
The paragraph above applies to Doug Smith, the fund, its manager, and the entities that borrow from the fund. Innocence, insurance, a solid legal team and/or access to our own capital reserves would protect us and resolve the issue in most cases.
The fund is a lender. In general, it is less likely that a lender get sued than it is for an entity that takes direct ownership of real property. An exception would be if the lender is violating lending laws, which the fund does take great care not to do.
In any case, the borrower would typically need to sue the lender, and Doug’s entities are the borrowers. Doug has no reason to sue the fund that he and his team created to serve as a “friendly lender.” In addition, any suit would almost certainly get dismissed because his entity is managing the fund.
If one of the fund’s borrowers (HL or HI) were to get sued and needed to liquidate assets that the fund had loaned against, the fund would be first in line to get paid because it has recorded first liens against those assets.