Justia Legal Ethics Opinion Summaries

In 2005-2007, Merchant purchased Michigan hotel properties from NRB and financed the purchases through NRB, using corporate entities as the buyers. Merchant sold interests in those entities to investors. The hotels had been appraised at inflated amounts and sold for about twice their fair values. When the corporate entities defaulted on their loan payments, NRB foreclosed in 2009. Merchant claimed that NRB’s executives colluded with an appraiser to sell overvalued real estate to unsuspecting purchasers, wait for default, foreclose, and then repeat the process.In 2010, an investor sued Merchant, Merchant’s companies, NRB, and 12 others for investor fraud. In 2014 the FDIC took NRB into receivership and substituted for NRB as a defendant. Merchant and his companies brought a cross-complaint, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and state laws. A Fifth Amended Cross-Complaint raised 14 counts against 10 defendants, including two law firms that provided NRB’s legal work. The district court dismissed several counts; others remain active.The Seventh Circuit affirmed the dismissal of claims against the law firms. The counts under state law are untimely under Illinois’s statute of repose. The cross-complaint effectively admits that one firm played no role in NRB’s alleged fraud perpetrated against Merchant in 2005-2007. The cross-complaint failed to allege that either law firm conducted or participated in the activities of a RICO enterprise; neither firm could be liable under 18 U.S.C. 1962(c). View "Muskegan Hotels, LLC v. Patel" on Justia Law

The Ninth Circuit affirmed defendant's conviction of wire fraud and filing false tax returns. The jury found that defendant embezzled over $300,000 from the company for which he served as managing member and president.The panel overruled its prior decisions in light of the Supreme Court's intervening decision in Shaw v. United States, 137 S. Ct. 462 (2016), and held that wire fraud under 18 U.S.C. 1343 requires the intent to deceive and cheat, and that the jury charge instructing that wire fraud requires the intent to "deceive or cheat" was therefore erroneous. However, in this case, the panel held that the erroneous instruction was harmless. The panel noted that it was deeply troubled by an Assistant U.S. Attorney's disregard for elementary prosecutorial ethics, but that the misconduct did not entitle defendant to any relief. The attorney here had a personal and financial interest in the outcome of the case. The panel wrote that as soon as the Department of Justice became aware of the impropriety, it took every necessary step to cure any resulting taint, including turning over the entire prosecution of the case to disinterested prosecutors from the Southern District of California. Finally, the panel found defendant's remaining arguments to be without merit. View "United States v. Miller" on Justia Law

Insurance executive Menzies sold over $64 million in his company’s stock but did not report any capital gains on his 2006 federal income tax return. He alleges that his underpayment of capital gains taxes (and related penalties and interest imposed by the IRS) was because of a fraudulent tax shelter peddled to him and others by a lawyer, law firm, and financial services firms. Menzies brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Illinois law. The district court dismissed all claims. The Seventh Circuit affirmed in part. Menzies’s RICO claim falls short on the statute’s pattern-of-racketeering element. Menzies failed to plead not only the particulars of how the defendants marketed the same or a similar tax shelter to other taxpayers, but also facts to support a finding that the alleged racketeering activity would continue. A fraudulent tax shelter scheme can violate RICO; the shortcoming here is one of pleading and it occurred after the district court authorized discovery to allow Menzies to develop his claims. Menzies’s Illinois state law claims were untimely as to the lawyer and law firm defendants. The claims against the remaining financial services defendants can proceed. View "Menzies v. Seyfarth Shaw LLP" on Justia Law

Beane, formerly an Air Force electrical engineer, became involved in a conspiracy theory that the government creates for each citizen a "straw man" and that the Federal Reserve holds in trust that citizen’s inherent “unlimited value.” Proponents believe that by filing the correct paperwork, they can use those funds. Beane, deeply in debt, became involved with Tucci-Jarraf, a former attorney who ran a website, contributed to talk shows, and produced faux-legal documents that purported to allow individuals to access their secret accounts. Beane found a Facebook video that purported to teach viewers how to access their accounts; it actually taught them how to commit wire fraud by exploiting a deficiency in the “Automated Clearing House” bank network. With Tucci-Jarraf's support, Beane logged onto his bank’s website, followed those instructions, and made fraudulent payments on his debts and bought $31 million in certificates of deposit with Federal Reserve funds. He started cashing the certificates and spending money. A bank froze his account. Tucci-Jarraf advised Beane to place his new assets in trust; she prepared pseudo-legal documents and made calls. Agents arrested Beane as he was driving off the dealership lot in a new motor home. Officers arrested Tucci-Jarraf in Washington, D.C., where she was requesting a meeting with the President. Beane and Tucci-Jarraf filed multiple frivolous motions and asked to represent themselves. The judge concluded that they had knowingly and intelligently waived their right to counsel but appointed standby counsel. A jury convicted Beane of bank and wire fraud, 18 U.S.C. 1343, and both of conspiracy to commit money laundering, section 1956(h). The Sixth Circuit affirmed, rejecting arguments that the court should have forced them to accept counsel. They knowingly and intelligently made their choice; self-lawyering does not require the individual to subscribe to conventional legal strategies or orthodox behavior. View "United States v. Beane" on Justia Law

Brooks, Debtor's CEO, was charged with financial crimes. In class action and derivative lawsuits, Debtor proposed a global settlement that indemnified Brooks for liability under the Sarbanes Oxley Act (SOX), 15 U.S.C. 7243. Cohen, Debtor’s former General Counsel and a shareholder, claimed that the indemnification was unlawful. The district court approved the settlement, Cohen, represented by CLM, appealed. The Second Circuit vacated, noting that the EDNY would determine CLM’s attorneys’ fees award. Debtor initiated Chapter 11 bankruptcy proceedings. The Bankruptcy Court confirmed Debtor’s liquidation plan, with a trustee to pursue Debtor’s interest in recouping its losses from the ongoing actions.Brooks died in prison. Because his appeal had not concluded, some of his convictions and restitution obligations were abated. Stakeholders negotiated a second global settlement agreement, under which $142 million of Brooks’ restrained assets were to be distributed to his victims; $70 million has been remitted to Debtor. The Bankruptcy Court awarded CLM fees for the SOX 304 claim; the amount would be determined if Debtor received any funds on account of the claim. CLM’s Fee Appeal remains pending at the district court.CLM requested a $25 million reserve for payment of its fees. The Bankruptcy Court ordered Debtor to set aside $5 million. CLM’s Fee Reserve Appeal remains pending. CLM then moved, unsuccessfully, for a stay of Second Settlement Agreement distributions. In its Stay Denial Appeal, CLM’s motion requesting a stay of distributions was denied. The Third Circuit affirmed. The $5 million reserve is sufficient. A $5 million attorneys’ fees award for 1,502.2 hours of legal work totaling $549,472.61 of documented fees would yield an hourly rate of $3,328.45 and a lodestar multiplier of over nine. In common fund cases where attorneys’ fees are calculated using the lodestar method, multiples from one to four are the norm. View "SS Body Armor I, Inc. v. Carter Ledyard & Milburn, LLP" on Justia Law

Ayers, an experienced Kentucky criminal-defense attorney, was indicted in 2008 on five counts of failing to file state tax returns. Ayers represented himself throughout the 21 months between his indictment and trial, but never formally elected to do so. He never waived his right to counsel on the record, filed a notice of appearance, or moved to be allowed to proceed pro se. The court allegedly failed to inform him at his arraignment that he had a right to counsel and never subsequently sought to determine whether Ayers’s self-representation was a voluntary, intelligent, and knowing waiver of his right to counsel. When Ayers asked for a continuance a day before trial was scheduled to begin so that he could hire an attorney with whom he attested he was already in negotiations, the court denied his request and forced him to proceed pro se. Ayers was convicted. The Sixth Circuit reversed the district court’s denial of habeas relief. The Kentucky Supreme Court acted contrary to clearly established Supreme Court precedent when it held that trial courts need not “obtain a waiver of counsel” before allowing “experienced criminal trial attorneys” to represent themselves. Applying de novo review, the court concluded that Ayers did not validly waive his right to counsel. View "Ayers v. Hall" on Justia Law

Before trial on a 77-count indictment that charged Appellants with operating a ticket-fixing scheme in the Philadelphia Traffic Court, the district court denied a motion to dismiss charges of conspiracy (18 U.S.C. 1349), mail fraud (18 U.S.C. 1341), and wire fraud (18 U.S.C. 1343). A private citizen and the Traffic Court administrator subsequently pleaded guilty to all counts, then appealed whether the indictment properly alleged mail fraud and wire fraud. Three Traffic Court Judges proceeded to a joint trial and were acquitted of fraud and conspiracy but convicted of perjury for statements they made before the Grand Jury. They disputed the sufficiency of the evidence, arguing that the prosecutor’s questions were vague and that their answers were literally true; claimed that the jury was prejudiced by evidence on the fraud and conspiracy counts; and argued that the court erred by ruling that certain evidence was inadmissible. The Third Circuit affirmed the convictions. The Indictment sufficiently alleged that the defendants engaged in a scheme to defraud the Commonwealth and the city of money in costs and fees; it explicitly states that the scheme deprived the city and the Commonwealth of money, and describes the object of the scheme as obviating judgments of guilt that imposed the fines and costs. View "United States v. Hird" on Justia Law

In the 1990s, Terzakis met Berenice Ventrella, the trustee for a family trust with extensive real‐estate holdings. Terzakis managed and developed real estate and eventually managed some of Berenice’s property. In 2007, they created an LLC to hold one of Berenice’s properties. Berenice appointed her son Nick, who had Asperger syndrome, as the Ventrella Trust’s successor trustee. After Berenice's 2008 death, Terzakis opened an account for the “Estate of Berenice Ventrella,” took Nick to banks and had him transfer funds from Berenice’s accounts into this new account, transferred $4.2 million from the estate account to the LLC account, which he controlled, then transferred $3.9 million from the LLC account to his personal accounts. Nick was the only witness with personal knowledge of Terzakis’s statements about the transfers. Prosecutors interviewed Nick. The government informed the grand jury that Nick had cognitive problems; Nick did not testify. Days before the limitations period expired, the grand jury returned a five‐count indictment for transmitting stolen money, 18 U.S.C. 2314. Before trial, the government learned that Nick had been diagnosed with brain cancer, with a prognosis of six months. The government informed Terzakis of the diagnosis. The parties resumed plea negotiations. Terzakis rejected the government’s plea offer. The government dismissed the case, citing Nick’s unavailability. The Seventh Circuit affirmed denial of Terzakis’s motion to recover attorney fees under 18 U.S.C. 3006A. View "United States v. Terzakis" on Justia Law

Plaintiffs alleged that, beginning in 1997, Swiech Group looted Krakow Business Park’s assets, diluting the value of the firm and of their shares. All of the claimed actions, including sham contracts, took place in Poland. Some of Swiech’s proceeds were allegedly funneled to Chicago‐area businesses and properties. Adam Swiech was arrested by the Polish authorities and charged with money laundering, forgery, tax evasion, and leading an organized crime ring, in connection with his conduct at the Business Park. He has been convicted on some of the charges. In a second round of litigation, plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(d) (RICO), naming multiple defendants related to Swiech, including attorneys. The district court concluded that plaintiffs were estopped from asserting certain aspects of their claim and that nothing in the complaint plausibly asserted that the lawyer-defendants stepped over the line between representation of their clients and participation in a RICO conspiracy. The Seventh Circuit affirmed, citing the scope of its appellate jurisdiction, and reasoning that any wrongdoings in the course of lawyers' representation were outside the scope of the asserted RICO conspiracy. “Although the supplemental complaints paint a dismal picture of these attorneys’ behavior, assuming the truth of the allegations of disregard for the alleged neutrality principle, misleading billing statements, and the like, these problems must be addressed in a different forum.” View "Domanus v. Locke Lord LLP" on Justia Law

Doe was president and “sole proprietor” of Company A, but a 2008 document purports to memorialize Doe’s sale of all shares to Company B for $10,000. Numerous filings and tax documents suggested that Doe maintained control and ownership of Company A after the transfer. Multiple individuals have sued Doe and his businesses in state courts. Doe and the companies were investigated by a federal grand jury. The government obtained access to Doe’s email. Doe filed an interlocutory appeal to prevent its disclosure. While the appeal was pending, the district court granted permission to present the email to the grand jury, finding that although the email was protected by the work product privilege, the crime-fraud exception applied; in 2016, the grand jury returned an indictment, charging conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act, conspiracy, mail fraud, wire fraud, and money laundering. The Third Circuit initially dismissed an interlocutory appeal, but, on rehearing, reversed, concluding that, while the grand jury investigation continues, it retains jurisdiction, and that the crime-fraud exception did not apply. The court stripped an attorney’s work product of confidentiality based on evidence suggesting only that the client had thought about using that product to facilitate fraud, not that the client had actually done so. An actual act to further the fraud is required before attorney work product loses its confidentiality. View "In re: Grand Jury Matter #3" on Justia Law