Law Firm Ducks Liability Over AmeriFirst Fraud

DALLAS (CN) - A federal judge refused to revive negligence claims over a prominent Texas law firm's alleged role in the $50 million AmeriFirst fraud.

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AmeriFirst and AmeriFirst Acceptance have been under the control of a court-appointed receiver since the Securities and Exchange Commission obtained a restraining order in 2007 with claims that the brokerage sold phony secured obligations to hundreds of unsuspecting retirees.

The receiver, D. Ronald Reneker, sued AmeriFirst's attorney Phillip Offill and the firm of Godwin Pappas Ronquillo, now known as Godwin Ronquillo.

U.S. District Judge Sidney Fitzwater dismissed the professional negligence claim against the lawyers in June, and he refused to reconsider that decision Wednesday. In his response to the law firm's motion for summary judgment, Reneker failed to clearly state that he intended to recover liabilities owed to the victims, the court found.

"The court concluded that Reneker lacked standing in this respect because his only evidence - the testimony of William D. Brown, temporary receiver in the Securities and Exchange Commission enforcement action - consisted of a concession that investor losses and the AmeriFirst Clients' liability to investors were mathematically equivalent," Fitzwater wrote. "Because this could only lead to the conclusion that investor losses were not distinct from investor liabilities, the court dismissed the professional negligence claim to the extent it was based on investor liabilities."

Fitzwater also failed to see a connection with a pair of cases Reneker cited to argue that malpractice claims for "liabilities negligently created to note holders are different from claims of note holders."

Reneker mostly relied on evidence related to causation, as in whether the law firm's alleged negligence caused the incurred - or increased - liabilities owed to victims, Fitzwater noted.

"The court dismissed the professional negligence claim to the extent it was based on such liabilities because they were not distinct from investor losses and therefore Reneker had failed to establish an injury to the AmeriFirst Clients," the eight-page decision states. "In other words, the issue was focused on the injury prong of standing, not the causation prong, which Reneker's evidence addresses. The court thus rejects Reneker's evidence to the extent it conflates injury with causation."

Former AmeriFirst CEO Dennis Bowden, 60, of Farmers Branch, was sentenced in December 2011 to 16 years in federal prison for his role in the fraud.

The company's former managing director, Jeffrey Charles Bruteyn, 42, of Dallas, was sentenced to 25 years in March 2011.

Follow @davejourno

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