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 reconsideration.

Zimmerman 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. 

“The 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.

 “While 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.”

Plaintiff 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.

“In my opinion it wasn’t just a technicality,” said Zimmerman. “Our claims had merit to begin with; sanctions should never have even been contemplated.”

Zimmerman no 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 feelings? 

“I’ve 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.

Barlin was represented by Daniel Byrne, Dale Roberts, Thomas Tucker and Alexandra Schmit of Fritz Byrne Head & Fitzpatrick PLLC of Austin.

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