A judge has dismissed Proskauer Rose and Greenberg Traurig from a lawsuit that accused the firms, respectively, of aiding a fraudulent scheme involving Facebook shares and a sham real estate transaction.

New Zealand resident Gerald Chambers, his wife and son sued the two law firms and about 20 other defendants last year, including Eliyahu Weinstein, Alex Schleider and Aaron Muschel in Chambers v. Weinstein, 157781/2013, in Manhattan Supreme Court.

The civil suit was filed three months after Weinstein, Schleider and Muschel were arrested in May 2013 on charges they stole about $6.7 million from Gerald Chambers in early 2012, in part by claiming special access to shares in Facebook before the social media company’s initial public offering.

New Jersey federal prosecutors said the conspirators did not use any of Chambers’ money to buy Facebook shares, and instead misappropriated it for their own benefit by moving it through various accounts.

The federal prosecutors said Weinstein used some of Chambers’ money to pay lawyers at Proskauer in his pending criminal case. They also said Weinstein, Schleider and Muschel also used Chambers’ money to invest in a number of businesses unrelated to Facebook and to make loans for their own benefit.

The Chamberses claim they are still owed $5.86 million plus interest. Their civil suit accuses Greenberg of aiding and abetting Schleider in connection to a Florida real estate deal.

Before the 2013 prosecution against Weinstein, he was previously charged by federal prosecutors in 2010. In a plea agreement, he admitted to committing wire fraud and money laundering.

For the earlier prosecution, Proskauer represented Weinstein from December 2012 through May 2013, accepting $1 million as a minimum non-refundable fee. According to both the criminal complaint and the civil suit, the $1 million was the Chamberses’ money.

The Chamberses alleged Proskauer did not perform adequate due diligence to ensure the retainer funds were not proceeds of Weinstein’s criminal activities and that Proskauer had actual knowledge that Weinstein was prohibited by the government from engaging in financial transactions of more than $1,000 without approval.

The Chamberses also alleged Proskauer spent the $1 million within two weeks of receipt and paid some of it to people for Weinstein’s benefit. Proskauer “intentionally engaged in a scheme to defraud the plaintiffs by agreeing to launder funds” for Weinstein, the suit said.

In light of the allegations in the 2013 prosecution, Proskauer withdrew as Weinstein’s counsel.

In his Aug. 22 ruling, Manhattan Supreme Court Justice O. Peter Sherwood (See Profile) dismissed all claims against Proskauer and Greenberg, including aiding and abetting fraud, conversion, fraudulent conveyance, unjust enrichment and breach of fiduciary duty claims.

Sherwood said the parties don’t dispute Weinstein committed fraud before 2011 involving victims other than the Chamberses, but the dispute in the more recent case is whether fraud perpetuated against the Chamberses is properly stated in the civil complaint and whether Proskauer had actual knowledge and gave substantial assistance.

Notably, Sherwood said, the complaint’s allegations are based on sworn statements by an FBI agent tied to the 2013 prosecution. The Chamberses said Proskauer’s actual intent can be inferred from factual circumstances, including that Proskauer knew that the $1 million retainer was “probably directly or indirectly” proceeds of the earlier prosecution.

But Sherwood said, “that a law firm represents a client accused of a prior fraud against certain victims does not support an inference that the firm knew about, much less aided and abetted, a subsequent fraud committed by the client against other victims.”

Sherwood said the complaint failed to allege that Proskauer knew and substantially assisted Weinstein in those transactions in which the Chamberses said he was defrauded.

Sherwood noted that the government’s earlier and later prosecutions against Weinstein named different victims. Thus, Sherwood said, Weinstein’s hiring of Proskauer for the earlier prosecution does not support an inference that Proskauer knew of the subsequent alleged fraud against the Chambers, the subject of the 2013 prosecution.

Sherwood said there are no allegations that Proskauer had actual knowledge of any connection between Weinstein and the Chambers at the time the retainer was paid. “Here, it is not alleged that Proskauer provided substantial assistance to Weinstein, other than routine legal representation” in the earlier action, Sherwood said.

Transactions Disputed

The Chamberses also allege Schleider retained Greenberg to represent a company he controlled to buy a Miami apartment complex. Schleider’s company, under the purchase agreement, deposited $120,000 with Greenberg as a down payment. But the money was ultimately returned in November 2011, ending the agreement, the lawsuit said.

In February and April 2012, Schleider allegedly represented to Chambers that the apartment transaction was still active and that he would be matching the family’s investment. The Chamberses wired $2.5 million to Greenberg in February 2012, which was deposited into an escrow account for Schleider and a subaccount for his company.

According to the Chamberses, Schleider then directed Greenberg to wire the $2.5 million to an investment vehicle in which Weinstein, Schleider and others conducted their fraud, but misrepresented to the Chamberses that Greenberg still held their $2.5 million.

In April 2012, Schleider allegedly induced the Chamberses to make an additional $330,000 investment, but directed Greenberg to deduct its legal fees from the $330,000 and wire the rest to the investment vehicle.

The next year, the Chamberses demanded repayment of the $2.83 million. Greenberg refused, prompting the Chamberses to accuse the law firm of aiding and abetting Schleider, Weinstein and Muschel in the fraud.

To rebut the allegation that Greenberg knew the real estate deal had been terminated in 2011, the law firm submitted as evidence emails between Schleider; Moshe Lehrfield, a Greenberg shareholder in the deal; and others. Sherwood said the emails show that the parties to the transaction were still negotiating from February to April of 2012 when the Chamberses wired the funds.

“Notably, plaintiffs have not submitted any contradictory evidence,” the judge said. “Here, Greenberg disbursed the funds as directed by its client. Plaintiffs never communicated with Greenberg nor gave any instructions or demands with respect to the wire funds until well after the disbursal of such funds.”

The judge also said there was no written or oral escrow agreement between the Chamberses and Greenberg, and their voluntary wiring of funds did not make the law firm an escrow agent or a fiduciary of the Chamberses.

Sherwood also dismissed claims against two individual attorney defendants and their New Jersey law firm, Kunstlinger Steinmetz LLP. The complaint alleged Schleider had retained the firm to represent plaintiffs’ interest in transactions perpetrated by the fraudsters. Sherwood said the firm and its members were not subject to the jurisdiction of the court.

Daniel Richland, the Chamberses’ attorney and a partner at Paykin, Richland and Falkowski, said the family is considering its options. “We’re certainly going to appeal the decision,” he said. “We think it was decided incorrectly on the facts and the law.”