The case in which the receiver of a financial services company, which turned out to be a Ponzi scheme, has sued Blank Rome in an effort to compel the production of client files the firm has related to one of the scheme's lenders is almost resolved, according to a federal judge's order.
U.S. District Judge Juan R. Sanchez of the Eastern District of Pennsylvania issued a September 4 order continuing until further notice both Blank Rome's deadline to respond to the receiver's motion to enforce the subpoena and an in-person conference scheduled for September 6 because the parties have informed the court that the "matter appears to be nearing a resolution."
The receiver's July 23 motion to enforce the subpoena in Gordon v. Blank Rome alleged that Blank Rome said it would turn over at least some of the client files, but had yet to do so.
The files at issue deal with Blank Rome clients as well as a real estate company partially owned by a former Blank Rome partner in Boca Raton, Fla., who has since moved to Greenberg Traurig.
According to the motion to enforce the subpoena, an arbitrator has already found that the documents in question from 2006 and 2007 are not protected by attorney-client privilege. Receiver Robert D. Gordon argued in the motion that he needed the documents quickly to prepare for an upcoming arbitration in a related case.
On August 12, the parties agreed to a stipulation to extend the time Blank Rome had to respond to Gordon's motion from August 9 until August 21, which Sanchez approved.
Sanchez also issued an order that same day scheduling an in-person conference for August 28.
But on August 21, the parties signed another stipulation to extend Blank Rome's time to respond to the motion until August 30 because the firm had "begun producing the responsive documents and expects to complete its production over the next week, seeking to obviate the need to file a written response to the motion, and mooting it."
Sanchez approved the second stipulation and rescheduled the August 28 in-person conference for September 6.
But on September 4, Sanchez issued an order continuing the conference and Blank Rome's response deadline until further court order, directing the parties to provide a written status update by September 30.
Neither Gordon's attorney, Christopher J. Day of Clark Hill Thorp Reed in Philadelphia, nor Blank Rome General Counsel Jeremy Rist, returned calls seeking comment Friday.
According to the motion to enforce, Gordon was appointed receiver for Gregory McKnight, Legisi Marketing Inc. and Legisi Holdings in May 2008 as part of a federal case in Michigan, U.S. Securities and Exchange Commission v. McKnight. In his role as receiver, Gordon filed a Financial Industry Regulatory Authority arbitration against Alan Goddard, Michael Lichtenstein, Eric Bloom and their former broker-dealer entity, Allen Goddard McGowan Pak & Partners, later known as Sierra Equity Group.
Gordon accused the arbitration respondents of fraudulently offering and selling more than $21 million in securities to Legisi Marketing in 2007, according to the motion to enforce. Blank Rome and former partner Bruce Rosetto represented the lenders in the deal.
According to the motion to enforce, the lenders allegedly knew Legisi was a Ponzi scheme and were warned by a third party that the company's strategy was "highly suspect."
Also in 2007, Rosetto and some of his family members created the Royal Palm Fund, in which Legisi invested more than $9.5 million, according to the motion.
In mid-to-late 2007, the Legisi scheme began to unravel as news reports questioned the company's business structure, Gordon said. According to Gordon's motion, a "run on the bank" soon followed. In 2009, Gordon filed a related lawsuit in Michigan against Rosetto, his family-member business partners and Royal Palm Investment Management Co. That complaint alleged the defendants unjustly enriched themselves in the Royal Palm real estate deal at the expense of Legisi, according to the motion. That case was stayed pending the FINRA arbitration. Gordon said in his motion that Rosetto is a party to the Royal Palm lawsuit and an "essential witness" in the FINRA case.
Gordon had argued in his motion that he needed the Blank Rome documents in order to prepare for his depositions of Rosetto and other witnesses by a September 11 deadline for such discovery in the FINRA case.
Gordon said the attorney-client privilege in the FINRA case has been waived as to the documents in question because the respondents in the FINRA case have asserted an advice-of-counsel defense. According to the motion, the respondents said they asked Rosetto for his opinion about Legisi before investing with the company. The respondents have alleged, according to the motion, that Rosetto said there was "'nothing to worry about'" in taking McKnight as a client.
In 2011, the FINRA arbitrators ruled the attorney-client privilege had been waived. The respondents and Rosetto filed a motion for reconsideration of that ruling, which was later denied, according to the motion.
"There is no good cause for Blank Rome's continued delay in commencing production of electronic files and hard copies of documents," Gordon said in the motion.
He alleged the Legisi estates have sustained more than $20 million in damages and the documents created by Blank Rome and Rosetto are directly relevant to the FINRA and Royal Palm cases.
"Blank Rome and Bruce Rosetto received significant fees for its legal services and Blank Rome's burden to produce these documents is heavily outweighed by the necessity of the receiver to gather relevant evidence for a contested FINRA arbitration and to recover damages for the receivership estate," Gordon said in the motion.
According to the motion, Gordon provided Blank Rome with search terms for emails and electronic files for the email addresses of four Blank Rome attorneys and 15 individuals. Gordon is also seeking the production of voicemail messages and faxes, telephone records, calendars and detailed billing records and invoices between Blank Rome and its clients, according to the motion. Gordon is also seeking documents related to Legisi. He said in the motion Blank Rome had identified 60 boxes of documents related to the firm's clients and Legisi.
The parties had agreed to a rolling production of the electronic documents and a description of what was in the 60 boxes without Blank Rome having to actually manually review the boxes' contents, according to the motion. After about two months of correspondence between Gordon and Rist, Rist allegedly reported to Gordon's counsel that he would start the production June 21, according to the motion.
Gordon alleged in his motion that, as of July 23, Blank Rome had not sent any documents or the list. It had emailed an index of electronic files, Gordon said in the motion.
But, according to court records, Blank Rome began producing the documents less than a month after Gordon's motion was filed.