SAN ANTONIO – Following an off-the-wall ricochet, an attorney for two plaintiffs recently prevailed
over the odds when a judge spared him a $70,000 fee initially imposed in a RICO
case in U.S. District Court in Dallas.
Brian Zimmerman of Houston-based Zimmerman Axelrad Meyer Stern
& Wise at first
was ordered to pay approximately
$70,000 in legal fees in April, when U.S. District Judge David Ezra initially ruled
his clients’ allegations against three defendants as frivolous under the
federal Racketeer Influenced and Corrupt
Organizations (RICO) Act.
Plaintiffs Steve Aubrey and Brian Vodicka lodged a
lawsuit in 2010 against Peter Barlin, Gregory Lahr and Sandra Gunn for allegedly
marketing real estate and
collateral-related investments to “countless victims” nationwide in a Ponzi
scheme. At trial in February, a jury absolved Barlin and Gunn — finding them
not legally responsible for claims against them —and cited only Lahr for
violations of the Texas Securities Act.
Ezra ruled in April, however, that the plaintiffs’ lawsuit was frivolous
under the RICO Act, which provides
for extended criminal penalties and a civil cause of action for acts performed
as part of an ongoing criminal organization. Deeming the suit gratuitous, the judge initially imposed a hefty
sanction against Zimmerman and his clients, and ordered them to fork over
$70,000 to the defendants, immediately spurring the team to file a motion for
strongly questioned the relevance of the RICO angle, arguing that although
federal law rightly
discourages frivolous securities lawsuits, the Private
Securities Litigation Reform Act (PSLRA) was not applicable in this case. He
contended that it was not clear whether the loans in question were even legally
considered securities to begin with.
defendants were arguing all the way through trial that they weren’t securities,” Zimmerman told the Louisiana Record. “If they’re not securities then you can bring a RICO
claim. If they are securities, you
can’t. Even the judge himself said that they were not securities. My argument
was, ‘how can we be in bad faith when even the judge himself said that they
weren’t securities?’ It was just unbelievable.”
Faced with review,
the court then ruled that the defendants had erred. As it turned out, the
“Barlin parties” failed to serve plaintiffs Aubrey
and Vodicka with a copy of the motion at
least 21 days prior to its court filing. This rendered the motion void, said Ezra, obligating him to “vacate” or reverse the penalties.
there is no question that the conduct warrants sanctions, this court has no
option but to ultimately deny the request,” Ezra stated, citing Federal Rule of Civil Procedure
11(c)(2), known as the “safe harbor provision.”
Aubrey said that the judge portrayed the sanction as an
administrative error in order to back down, stating “the court really
had to dig to … vacate its crazy order and make it appear that it was simply a timing
issue for the defendants.”
Vodicka added that the court “took the
easy way out” by upholding the safe harbor angle instead of addressing the
actual dispute but felt vindicated nevertheless.
my opinion it wasn’t just a technicality,” said Zimmerman. “Our claims had
merit to begin with; sanctions should never have even been contemplated.”
longer represents Aubrey and Vodicka, who cycled through at least half a dozen
changes in attorneys during Aubrey et al.
v. Barlin et al. in the U.S. District Court for the Western District of
Texas, but reiterated that the fault did not lie with his clients. Rather, he
said, “the sanction should never have been entered in the first place.”
PSLRA was enacted in 1995 to discourage
“frivolous” or unjustifiable securities lawsuits by requiring more substantial evidence
before moving forward with litigation — essentially raising the bar. While
PSLRA successfully winnows out exploitation, it also makes it more tedious for
those parties involved in authentic cases, who must bear their share of the
cost of protecting all citizens.
Were there hard
never been sanctioned before, ever,” Zimmerman said. “(It) never should have happened.
But the thing that I was impressed with was … at least (Ezra) had the
intellectual integrity to go back and vacate his order. Most judges wouldn’t do
that. So it’s hard for me to be that upset about it.”
Ezra has sat by designation on the United States District Court for the Western District of
Texas since 2012, having
served the U.S. District Court for the District of Hawaii since 1988, when
nominated by President Ronald Reagan.
represented by Daniel Byrne, Dale Roberts, Thomas Tucker and Alexandra Schmit
of Fritz Byrne Head & Fitzpatrick PLLC of Austin.