NEW ORLEANS (CN) - Immunity shields two New York law firms from a class action over R. Allen Stanford's $7 billion Ponzi scheme, the Fifth Circuit ruled.
A group of Latin American investors led by Samuel Troice first took the lawyers to court nearly seven years ago in Dallas, shortly after the eponymous leader of the Stanford Group was indicted for selling phony certificates of deposit issued by its Antigua-based Stanford International Bank.
With Stanford serving more than a century in prison for conspiracy and fraud - he turns 66 on March 24 - investors blamed the Ponzi scheme's lengthy, 15-year run on help from attorney Thomas Sjoblom.
Sjoblom now operates a private practice based in Washington, D.C., but was a partner at Chadbourne & Parke from 2002 to 2006 and a partner at Proskauer Rose from 2006 to 2009. Before that, he was enforcement lawyer for the Securities and Exchange Commission.
Stanford's defrauded investors said Sjoblom knew about Stanford's scheme as early as August 2005 but turned a blind eye to it and even helped stall the SEC's investigation by using legal tactics to avoid releasing the company's books.
Though a federal judge advanced the lawsuit last year on remand from the U.S. Supreme Court, the Texas Supreme Court threw the case into a tailspin with an unrelated ruling last year.
Ruling on the case Cantey Hanger LLP v. Byrd, the Texas Supreme Court held that "fraud is not an exception to attorney immunity" under Texas law.
Taking this precedent into account for the attorneys' appeal, the 11th Circuit ruled last week that the investors' case must be dismissed with prejudice.
"The Texas Supreme Court has now clarified that simply claiming that an attorney's conduct was fraudulent does not allow plaintiffs to circumvent attorney immunity," Judge Edith Brown Clement wrote for a three-person panel.
Proskauer Rose applauded the reversal.
"The decision, which was based on arguments that Proskauer has made since the outset of the litigation, brings this purported class action to an end," the firm said in a statement relayed by a spokeswoman. "We continue to be confident that the remaining claims asserted against the Firm in related litigations, which are equally baseless, will also ultimately be dismissed."
After reciting the various actions Sjoblom is accused of taking on behalf of Stanford, the New Orleans-based appellate court 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," the March 10 ruling continues.
Chadbourne & Parke has not returned a request for comment.