Law Firms

Texas immunity law protects BigLaw firms that represented Ponzi schemer, 5th Circuit rules

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Law firms that represented convicted Ponzi schemer R. Allen Stanford are immune from a lawsuit by defrauded investors as a result of Texas law on attorney immunity, a federal appeals court has ruled.

The New Orleans-based 5th U.S. Circuit Court of Appeals ruled (PDF) on Thursday in a suit against Chadbourne & Parke and Proskauer Rose, law firms where Thomas Sjoblom worked as a partner while representing Stanford. Reuters covered the decision.

The plaintiffs had alleged the law firms were liable because of Sjoblom’s representation of Stanford Financial in an investigation by the Securities and Exchange Commission.

A federal district judge had held the Texas immunity doctrine did not apply because of a fraud exception. The appeals court disagreed, citing a ruling by the Texas Supreme Court issued about a month after the law firms appealed the federal judge’s refusal to toss the lawsuit.

In that 2015 decision, the Texas Supreme Court said immunity does not apply to fraudulent conduct that is outside the scope of a lawyer’s legal representation. In the Stanford case, the 5th Circuit said, Sjoblom’s actions “are classic examples” of legal representation, and the fraud exception doesn’t apply.

“Plaintiffs alleged that, in representing Stanford Financial in the SEC’s investigation, Sjoblom: sent a letter arguing, using legal authorities, that the SEC did not have jurisdiction; communicated with the SEC about its document requests and about Stanford Financial’s credibility and legitimacy; stated that certain Stanford Financial executives would be more informative deponents than others; and represented a Stanford Financial executive during a deposition,” the 5th Circuit said.

“These are classic examples of an attorney’s conduct in representing his client. That some of it was allegedly wrongful, or that he allegedly carried out some of his responsibilities in a fraudulent manner, is no matter.”

Chadbourne & Park agreed to a confidential settlement in the case in late February, though a trial judge was unlikely to approve it for several months, lawyers told the 5th Circuit.

The law firms had previously argued that the investor lawsuit was barred by a federal law designed to curb nuisance suits. The U.S. Supreme Court disagreed in 2014, and the suit returned to federal district court in Dallas.

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