In 2012, Allen Stanford was convicted of running a Ponzi scheme and sentenced to 110 years in prison. As the New York Times reported, Stanford, “is now a shadow of the swaggering financier who only three years ago had an estimated fortune of over $2 billion, a knighthood awarded by Antigua and a collection of yachts and a fleet of jets, and even his own professional cricket team and stadium on the West Indies island.”
As often is the case, after the criminal case ends, the civil litigation continues. When Stanford’s scheme came crashing down in 2009, the federal courts appointed a receiver to control and manage what remained of his assets. Since then, the receiver’s efforts to recover Stanford’s assets have been ongoing, as have the private efforts of Stanford’s victims.
These efforts have, not surprisingly, swept up Stanford’s former lawyers. Among the civil defendants targeted by the Stanford receiver and others is the AmLaw 100 law firm Proskauer Rose, LLP.
Proskauer was sued based on the actions of a former attorney at that firm who, as alleged by the receiver, “helped Stanford’s bank hide his shady dealings from” the SEC. This lawyer then allegedly made material misrepresentations about Stanford’s business to the SEC that aided in hiding (and thus prolonging) Stanford’s scheme.
Proskauer was sued based on the actions of a former attorney at that firm who, as alleged by the receiver, “helped Stanford’s bank hide his shady dealings from” the SEC.
Proskauer raised the defense of “attorney immunity,” arguing that under Texas law, lawyers could not be liable to persons who were not their clients. According to the Fifth Circuit, “The doctrine stems from the broad declaration that attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” In short, if a lawyer is doing lawyer things, third parties can’t sue him for money damages.
You may also like, “Does the Law Allow Fraud Defendants to Blame the Victim?”
Proskauer successfully deployed this defense previously to win dismissal of a class action suit brought against it by investors who had purchased Stanford Financial certificates of deposit. Those investors sued Proskauer, arguing that the attorney, while at that firm, helped cover up Stanford’s Ponzi scheme, causing them to hold their CD’s until they were worthless. The Fifth Circuit, interpreting Texas state law, held that there was no exception to attorney immunity where the attorney aids and abets a fraud, and thus the investors could not maintain claims against Stanford’s lawyer or his former firm.
Undeterred, the receiver of Stanford’s estate, came back at Proskauer with a new set of plaintiffs. Instead of Stanford’s investors, the receiver joined with the Official Stanford Investors Committee (“OSIC”) to sue Proskauer on behalf of former Stanford entity clients of that firm.
On April 10, 2018, the federal court in Texas denied Proskauer’s motion for judgment on the pleadings, and allowed these claims to proceed. Proskauer attempted an emergency appeal to the Fifth Circuit, but at the end of April, withdrew that request. The case was scheduled to go to trial beginning April 30, 2018, but it was instead put on hold.
There have not yet been any public explanations from the Court, the receiver, nor Proskauer about why the trial did not go forward. One might guess that a settlement is afoot, but there is no direct evidence of any resolution.
You may also like, “It’s All in the Details: The Importance of Rule 9 in Fraud Cases”
Why did this last set of claims survive when the prior suit failed? There was no sleight-of-hand involved. The Fifth Circuit said that non-clients could not pursue aiding and abetting fraud claims against lawyers, which strongly suggested that clients could pursue such claims. The latter suit is based on client claims, albeit brought by a receiver and a court-created committee. This was the hand dealt by Texas law, and the receiver has played it successfully (so far).
The Fifth Circuit said that non-clients could not pursue aiding and abetting fraud claims against lawyers, which strongly suggested that clients could pursue such claims.
Compare that hand to the one dealt recently in Pennsylvania. The state’s supreme court declined to find “generalized attorney immunity from the substantive principles of tort law.” If Allen Stanford was based in Philadelphia instead of Houston, things may have played out very differently. (For one thing, he surely would have been working at Duke & Duke Commodities Brokers.)
The lesson, as always, is that everything matters. Choice-of-law matters. The name of the plaintiff matters. The venue matters. In Texas, Stanford’s investors ran into a brick wall when they tried to sue Stanford’s lawyers. A court-appointed receiver was able to bring client claims against the same law firm that got past the pleadings due to attorney immunity. Those claims now sit, unresolved, on the eve of trial. To be continued…
Then sign up to receive our weekly Financial Poise newsletter, our take on the most relevant and topical business, financial and legal issues affecting investors and small business owners.
Always Plain English. Always Objective. Always FREE.
Adam represents a wide variety of clients, ranging from individuals to small business owners to large corporations. He has a particular focus on business and investment disputes, and has experience litigating such disputes in numerous state and federal courts. He has also represented business clients in arbitration and mediation proceedings. Adam also represents employees in…
PLUP Fiction: Not All Fraud is Sales Fraud
It’s All in the Details: The Importance of Rule 9 in Fraud Cases
Puff, the Magic Defense: Is Puffery a Trump Card? A Look at Puffery as a Legal Defense
Does the Law Allow Fraud Defendants to Blame the Victim?
It’s Never RICO! What this Column Presupposes is, Maybe Sometimes it is
Please log in again. The login page will open in a new window. After logging in you can close it and return to this page.