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Bryan Cave off Hook in $16 Million Suit Alleging Concealment of Client Fraud
New Jersey Law Journal
September 30, 2009
Before Bernard Madoff, there was Reed Slatkin, a California investor to the stars, who bilked hundreds of clients out of more than $200 million using a Ponzi-type scheme.
A New Jersey appeals court ruled Tuesday that one of Slatkin's victims cannot pursue a malpractice claim against his law firm, Bryan Cave, which allegedly helped him conceal the fraud during an SEC investigation.
The Appellate Division, in Azeez v. Bryan Cave , A-5848, said the Atlantic County judge who dismissed the suit did not err in applying the doctrine of forum non conveniens, based in part on his view that a New Jersey fact-finder should not decide whether Bryan Cave conformed to ethics rules in California, where it represented Slatkin.
That aspect of forum non conveniens analysis was novel but allowable, Appellate Division Judges Francine Axelrad and Clarkson Fisher Jr. wrote in a per curiam, unpublished opinion.
In addition, plaintiff Michael Azeez, a New Jersey resident when he sued in 2004, no longer lives here full time. "That fact, more than amply demonstrated that a denial of Bryan Cave's motion would likely impose undue burdens on our congested courts, on our citizens who may be called to act as jurors, and on our taxpayers," the panel said.
The judges did not address whether Azeez could refile in California or some other more convenient forum. Azeez's lawyer, Rudy Westmoreland, concedes it is probably too late. He says he will ask the state Supreme Court to review the case, which "essentially immunizes out-of-state professionals from being sued for tortious wrongdoing in New Jersey."
Azeez, formerly of Egg Harbor, sued Bryan Cave to recover $9 million he invested with Slatkin and another $7 million on behalf of his father's estate. Azeez and his family lost millions more, but the $16 million sought was the amount invested during the time lawyers at Bryan Cave allegedly helped Slatkin avoid detection of his fraudulent scheme, which came to light in 2001, says Westmoreland, of West Atlantic City's Westmoreland Vesper & Quattrone.
In 1999, the Securities and Exchange Commission began investigating whether Slatkin was violating the law by acting as a paid investment adviser though was not registered as one. Bryan Cave allegedly verified for the SEC that certain Swiss bank accounts were being liquidated to refund investors' money, though the accounts later turned out to be fictitious. Slatkin's lawyer, Bryan Cave partner Gerald Boltz, now deceased, was a former head of the SEC's western regional office.
Slatkin, a co-founder of EarthLink and a Scientology minister, pleaded guilty in 2003 to charges including mail fraud, wire fraud, money laundering and obstruction of justice. He admitted that from 1986 to May 2001, he operated a Ponzi scheme involving more than $593 million and about 800 investors, which resulted in losses exceeding $240 million. He is serving a 14-year sentence at a medium-security federal prison in Lompoc, Calif.
On the date of his plea, The Los Angeles Times reported that his celebrity clients included actors Peter Coyote and Joe Pantoliano, model Cheryl Tiegs and legal commentator Greta Van Susteren, all of whom were repaid more than they invested, unlike most others.
All but one of Azeez's claims, including malpractice, negligent misrepresentation and conspiracy, were thrown out on a motion to dismiss in July 2005.
On April 11, 2008 Superior Court Judge Nelson Johnson, after allowing discovery on the issue of forum non conveniens, threw out the rest of the case, which consisted of claims for aiding and abetting.
Johnson emphasized that claims involving lawyer misconduct are best resolved where the lawyers practice and that California was a viable forum with a profound interest in regulating its attorneys' conduct, an interest New Jersey did not share. He also said Azeez, having switched his primary residence to Florida, would not be granted the deference of choosing his home forum and he could afford to litigate the case in California.
Johnson denied a motion to reconsider on June 15, 2008, and Azeez appealed.
Bryan Cave spokesman Luis Mocete declines comment, but Jennine DiSomma, who represents the firm, says the court got it right because litigation of Azeez's claims would require a decision on "how far to extend a lawyer's liability to a non-client" where the lawyers, the client and the representation were in California.
Slatkin was "pulling the wool" over his lawyers' eyes "and everyone else's," says DiSomma, of Saiber in Newark. She points out that no charges were brought against Bryan Cave. The firm did agree in 2003 to pay $650,000 to settle claims by Slatkin's bankruptcy trustee, who alleged the firm's negligence delayed the discovery of Slatkin's scheme by at least a year, increasing Slatkin's indebtedness by millions of dollars.
Westmoreland says the ruling has the incongruous result of allowing suits against out-of-state lawyers unless they did something so egregious it exposed them to discipline in their home state.
St. Louis-based Bryan Cave has 21 offices, in the United States and overseas. Though it has none in New Jersey, Westmoreland contends that lawyers from its New York office are admitted in New Jersey and "try cases here all the time." He also says the opinion pulled the New Jersey forum out from under Azeez although he lived here for more than 50 years and still owns homes and businesses in the state.
