DALLAS (CN) - Investors harmed in R. Allen Stanford's $7 billion Ponzi scheme cannot sue the Greenberg Traurig and Hunton & Williams law firms for breach of fiduciary duty, a federal judge ruled.
The Official Stanford Investors Committee and court-appointed receiver Ralph Janvey, with Krage Janvey in Dallas, sued both law firms and Miami attorney Yolanda Suarez in Dallas Federal Court in 2012, alleging legal malpractice, breach of fiduciary duty and fraudulent transfer, among other things.
They claimed the defendants aided the scheme's success and eventual downfall by providing deficient legal services.
They said Suarez was Stanford's chief of staff and the "protegé" of attorney Carlos Loumiet, a partner first at Greenberg and later at Hunton.
U.S. District Judge David C. Godbey granted in part the defendants' motion to dismiss on Dec. 17, finding that the investors failed to plead an independent claim for breach of fiduciary duty.
The plaintiffs claimed the law firms breached their duties by putting Stanford's personal interests over those of his entities in order to keep collecting on his business and legal fees and by representing the Antiguan government at the same time.
However, "These are not the kinds of conflicts that are contemplated by the cases interpreting Texas's breach of fiduciary duty claim," Godbey wrote in a 28-page order. "A conflict for the purposes of breach of fiduciary duty entails 'self-dealing, deception, or misrepresentations' in the attorney's representation of the client. An interest in the receipt of ordinary legal fees, while no doubt a pecuniary interest, is not an improper interest, and thus cannot ordinarily support a claim for breach of fiduciary duty."
Godbey said the cases that allow such a claim based on legal fees have more to do with improprieties with collection of fees instead of conduct in pursuit of the fees.
"The receiver alleges that Greenberg delivered substandard legal services in order to assure its continued employment by Stanford and the Stanford entities," the order states. "This does not allege an improper pecuniary interest supporting a conflict of interest; rather, it alleges the same general interest in getting paid that underlies every legal representation, an interest that Texas courts have consistently found insufficient to support a claim for breach of fiduciary duty."
But Godbey refused to toss breach of fiduciary duty claims against Suarez because she was a director for the Stanford entities.
"Suarez took on fiduciary duties independent of those arising from her provision of legal services," Godbey wrote. "An officer or director may be held liable for breach of fiduciary duty 'for acts of gross negligence, which may include the complete abdication of their responsibilities.'"
The plaintiffs claimed the defendants helped Stanford use money he raised through the sale of phony certificates of deposit to install himself as a "shadow government" in Antigua.
"[They] even helped Stanford write Antiguan laws to regulate his own business activities," the complaint stated. "Defendants provided this assistance despite Loumiet's knowledge of Stanford's illicit activities and despite Greenberg's own rampant conflicts of interest whereby it aided a private sector client (Stanford) to loan money to an impoverished, third world government (Antigua) which was the sole regulator of the client's global business enterprises, while at the same time representing the same government in writing the laws designed to regulate their client (Stanford), for which government work Greenberg was actually paid by the client: Stanford."
The plaintiffs claimed Greenberg helped Stanford buy his way into Antigua after he was forced to surrender his bank licenses for Montserrat in 1990. Stanford allegedly fled because he could not exert absolute control over Montserrat's government.
"When Stanford fled to Antigua in December 1990, Antigua had the reputation of being the most corrupt island in the Caribbean, which reputation was well known to Loumiet and his partners at Greenberg, who thereafter constantly forwarded news articles about Antigua's reputation as a cesspool of corruption, fraud and money laundering to Stanford," the complaint stated.
Godbey dismissed with prejudice the claims for aiding and abetting fraudulent transfers. He dismissed without prejudice claims against Greenberg and Hunton for breach of fiduciary duty. He refused to dismiss claims of negligent retention and supervision.Follow @davejourno
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