In a blistering order, a Miami federal judge Friday blasted prominent law firm Greenberg Traurig as bumbling and inept and its client TD Bank for manipulating trial evidence in imposing sanctions for blatant discovery violations in a lawsuit brought by investors in one of Florida’s most notorious Ponzi schemes.
U.S. District Judge Marcia Cooke ordered the bank and law firm to pay attorneys fees and costs as sanctions and made crucial findings that will hurt the Cherry Hill, New Jersey-based bank’s appeal of a $67 million jury award. The outcome favored an investment group that alleged it was cheated by ex-lawyer Scott Rothstein in his $1.2 billion settlement financing fraud. The dollar amount to be paid by the bank and law firm will be determined later.
The judge faulted the bank’s in-house counsel for keeping Greenberg attorneys in the dark but also determined the vast trial team’s discovery work was negligent, the legal standard for professional malpractice.
Cooke issued findings that will flow with the bank’s appeal — the bank knew of Rothstein’s fraud, and its internal anti-money laundering monitoring and alert systems were deficient.
Miami attorney Warren Trazenfeld, who specializes in legal malpractice, called Cooke’s order “mind-boggling” in its scope and what it will mean for both TD Bank and Greenberg Traurig.
“I don’t think anybody in this entire district has seen something like this,” Trazenfeld said. “This is an extraordinary order. Judge Cooke took obviously a great deal of time and effort to discover exactly what occurred. I think it’s clear Judge Cooke feels none of this should have happened.”
The order was a blow to Greenberg, which grossed $1.2 billion in 2011 and ranked 10th on the Am Law 100 for U.S. law firms by revenue.
Cooke painted Greenberg’s representation as nearly farcical, invoking a Peter Sellers classic comedy movie about a clumsy and inept detective.
“It often appears that this litigation was conducted in an Inspector Clouseau-like fashion,” a clearly exasperated Cooke wrote. “However, unlike the Pink Panther film, there was nothing amusing about this conduct, and it did not conclude neatly.”
Discovery issues focused on two key documents provided in another Rothstein investor case after the trial ended in January.
TD Bank dropped Greenberg Traurig in May after the firm retracted comments to Cooke denying the existence of an anti-laundering policy on investigating suspicious account activity. Cooke decided the key document from Rothstein’s account — provided to the plaintiff, Coquina Investments LLC, without the original “high risk” warning — was not “intentionally doctored or altered.”
The lead trial counsel in the case, Donna Evans, simultaneously left Greenberg when the firm left the case.
Cooke said TD Bank shared in the blame for withholding documents that went to the heart of the case: Did the bank know or should it have known Rothstein was running his Ponzi scam through numerous TD accounts, moving millions of dollars some days? And the judge squarely faulted the bank.
“No one outside attorney was aware of the existence of all the discoverable or relevant materials. TD Bank’s general counsel’s office, on the other hand, had all the information,” the judge wrote, noting 14 people in the GC’s office were involved in the case. “TD Bank willfully concealed relevant evidence from its trial counsel.”
Rothstein said he bribed two TD Bank officials for their help. TD Bank allowed Rothstein to put on “shows” for investor at branches. Emails that emerged during trial show there was high-level concern about bank lock letters reassuring potential investors about the safety of their funds as well as suspicions by bank personnel that went ignored.
“TD Bank hides behind Greenberg Traurig’s mistakes,” Cooke wrote. “TD Bank acted willfully in failing to rectify Greenberg Traurig’s error or allowing it to endure.”
Anthony V. Alfieri, a University of Miami law professor, called Cooke’s finding “devastating for TD Bank on appeal. They are highly prejudicial to TD Bank.”
In response to the order, Greenberg Traurig spokeswoman Jill Perry said, “We will comply with Judge Cooke’s ruling. We regret the deficiencies in the discovery that gave rise to this order.”
TD Bank said it was working on a response to the ruling. Spokeswoman Rebecca Acevedo indicated the bank intends to challenge it.
“TD Bank respectfully disagrees with the court’s order and will appeal it and the underlying jury verdict at the appropriate time. We do not believe that the record before the court supports the findings that were made regarding willfulness or the sanctions that were imposed,” she said. “The bank plans to continue to vigorously defend itself.”
The ruling could have been worse. There was no finding of civil or criminal contempt, and no sanctions were imposed on individual attorneys. Cooke rejected Coquina’s request to strike TD Bank’s pleadings, which would have put an end to any appeal.
The judge, however, helped the plaintiff’s cause by finding TD Bank held information back from its counsel and knew Rothstein, who is serving a 50-year prison sentence, used the bank as a vital tool in perpetrating his scam.
“I will therefore direct that the facts that TD Bank’s monitoring and alert systems were unreasonable and that TD Bank had actual knowledge of Rothstein’s fraud be taken as established for purposes of this action,” Cooke wrote. “This sanction will prevent further prejudice to Coquina in an eventual appeal on that issue.”
Coquina attorney David Mandel said his client was “extremely pleased.”
The judge “recognized the bank’s misconduct for what it was — willful and in bad faith,” said Mandel, a partner with Mandel & Mandel in Miami. “Her sanctions ruling establishes once and for all that TD Bank knowingly participated in the Rothstein Ponzi scheme. The implications of the court’s factual findings and legal conclusions will be far-reaching.”
Cooke noted more than 200 Greenberg attorneys, or more than 10 percent of the firm, worked on the case. “In many ways, this is a case of too many cooks spoiling the broth,” she said.
Problems with discovery surfaced in April when Corpus Christi, Texas-based Coquina learned through other Rothstein investor litigation handled by Mandel that Greenberg turned over a black-and-white copy of a due diligence report that erased a red warning denoting Rothstein as a “high risk” customer.
Besides the faulty black-and-white copy, Cooke was told by mistake that a document called standard investigative protocol, a policy for dealing with suspicious account activity, did not exist.
After initially accusing Mandel of lying, Greenberg Traurig made the unprecedented move of withdrawing its statement.
Then Mandel found a mention of 2,600 account activity alerts generated by an internal investigation by TD Bank performed after the collapse of Rothstein’s Ponzi in October 2009. The alerts were part of an internal bank review conducted in anticipation of an investigation by the Office of the Comptroller of the Currency, according to court documents.
In a two-day hearing in May, new bank attorneys from Virginia-based McGuireWoods said the discovery errors were honest mistakes due to miscommunication between bank employees and counsel. Cooke didn’t buy it.
TD Bank appeared to cast blame on Greenberg at the May hearing, saying it handed over all its documents about Rothstein electronically. Greenberg Traurig executive chairman Cesar Alvarez apologized in open court for the discovery errors.
“TD Bank and Greenberg Traurig continue to maintain it was all just a big misunderstanding,” the judge wrote. “It is difficult to accept that it was a mere coincidence that the late productions on the eve or during trial contained highly relevant documents.”
The order could play in other litigation that TD Bank faces from another investor group as well as the court-appointed bankruptcy trustee for Rothstein’s defunct law firm Rothstein Rosenfeldt Adler.
“We are reviewing the opinion to consider its impact on the trustee’s claims against TD Bank,” said attorney Paul Singerman, a Berger Singerman partner who represents the trustee.
While Evans was apparently forced out of the firm, the other trial attorneys — Mark Schnapp, Holly Skolnick and Glenn Goldstein — remain.
“I’ve known and worked with both Holly Skolnick and Mark Schnapp for almost 30 years” said Miami defense attorney Jane Moscowitz, a former federal prosecutor. “They are excellent attorneys of the highest integrity and the least likely people I know to violate any rule of a court.”