Law Firms Can't Be Sued Over Stanford Ponzi: 5th Cir.

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By Phyllis Diamond

March 10 — Two law firms that represented convicted Ponzi schemer R. Allen Stanford can't be sued by investors under Texas law for aiding and abetting his fraud, the U.S. Court of Appeals for the Fifth Circuit held March 10.

The Texas Supreme Court has clarified that simply claiming a lawyer's conduct was fraudulent doesn't allow plaintiffs to circumvent attorney immunity, Judge Edith Brown Clement said, reversing.

The ruling is a boon to lawyers representing defendants accused of a variety of wrongdoing. Under the decision, at least in Texas, attorneys can't be charged with assisting their clients' fraud.

Class Action

The plaintiff investors filed a would-be class lawsuit against Thomas Sjoblom and the two law firms he worked for, Proskauer Rose LLP and Chadbourne & Parke Ltd. They claimed that in representing certain Stanford entities, Sjoblom aided and abetted the fraudster's misconduct and lied to the Securities and Exchange Commission in a multi-year investigation.

The defendants moved to dismiss the suit on several grounds, including that it was precluded by the Securities Litigation Uniform Standards Act and that they were entitled to attorney immunity under Texas law.

Without reaching the immunity argument, the district court dismissed the suit as precluded . On question of first impression, the Fifth Circuit reversed and the U.S. Supreme Court upheld the appeals court's decision .

On remand, the defendants claimed they were protected under the doctrine of attorney immunity but the district court didn't agree. It concluded that the plaintiffs adequately pleaded a fraud exception to attorney immunity by alleging a colorable claim for fraud.

However, about a month after the defendants appealed, the Texas Supreme Court concluded that there was no fraud exception to attorney immunity. Applying that ruling to this case, the Fifth Circuit said Sjoblom's alleged conduct was the type of activity lawyers engage in while representing their client. “That some of it was allegedly wrongful, or that he allegedly carried out some of his responsibilities, is no matter.”

The plaintiffs also argued that attorney immunity only applies against party opponents, not third parties like themselves. The Fifth Circuit rejected that argument too, saying “[t]he idea is to immunize conduct, not to protect attorneys only from certain potential plaintiffs.”

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To contact the editor responsible for this story: Susan Jenkins at