In this edition of Litigation Roundup, the U.S. Securities and Exchange Commission is running out of patience for a duo accused of running a Ponzi scheme who have yet to retain counsel, an insurer seeks a declaration it doesn’t have to foot the bill in a $10.6 million workplace injury suit, and a Tex-Mex chain notches a win at the Texas Supreme Court.
Have a development you think is worthy of a mention in the next Litigation Roundup? Please let us know at tlblitigation@texaslawbook.net.
Northern District of Texas
SEC Says Time’s Up for Alleged Ponzi Schemer who Still Hasn’t Hired Counsel
The U.S. Securities and Exchange Commission told U.S. District Judge Sam A. Lindsay that a Texan accused of orchestrating an $8.4 million Ponzi scheme, with the help of his law firm, has had more than enough time to hire defense counsel since being hit with a lawsuit in March.
On June 7 the agency filed a response urging the court not to grant the latest request for an extension from Aaron Cain McKnight and his sister Harmony Brooke McKnight. The McKnights are accused of orchestrating a scheme that defrauded at least 28 investors out of millions between March 2018 and September 2021 via three Ponzi schemes, one of which was allegedly aided by Kenneth Miller and his law firm, Frost and Miller.
Miller and the firm are accused by the SEC of receiving and distributing about $2 million in investor funds at Aaron McKnight’s direction without knowing where the funds came from, where they were going and why they were sent to the firm.
The government alleges Aaron McKnight falsely held himself out as an experienced professional who ran financial services firms and promised investors “exorbitant returns,” but in fact he used the money he received for personal expenses, including the purchase of a home and the funding of a jazz club he partially owned.
“The commission is concerned that the McKnight defendants’ repeated requests for more time to retain counsel, coupled with various statements made over the court of the last six weeks to retain counsel ‘by this weekend’ or ‘by the end of next week’ are merely delay tactics,” the SEC told the court.
The SEC is represented by its own Anna Odella Area and David B. Reece.
Miller and Frost and Miller are represented by Jeffrey J. Ansley, Arianna G. Goodman, Katherine Marie Devlin and Samuel Marquis Deau of Vedder Price.
The case number is 3:23-cv-00641.
School District Sued Over On-Campus Sexual Assaults
Rockwall Independent School District has been sued by six families who allege their kindergarten-age daughters were sexually assaulted during school hours by a sixth-grade boy at Amy Parks-Heath Elementary School.
The John and Jane Doe families allege the school was running an “unauthorized program” where older students worked with younger students, which gave the boy “ample access to sexually assault at least six kindergarten girls in their classroom.”
The sixth-grade student has been prosecuted by the Rockwall County Criminal District Attorney’s Office, according to the suit.
The case, which also names the school’s former principal, a teacher and the parents of the boy as defendants, has been assigned to U.S. District Judge Ada Brown. The lawsuit was filed May 31.
The families are represented by Jeffrey Simon, Charles E. Soechting Jr., Iyman Strawder and JoDee Lee Neil of Simon Greenstone Panatier Bartlett and Zeke Fortenberry of Fortenberry Firm.
The defendants had not retained counsel as of Monday.
The case number is 3:23-cv-01243.
Western District of Texas
Insurer Fights $10.6M Injury Verdict Indemnification Bid
North American Capacity Insurance is seeking a court declaration that it doesn’t have to cover a $10.6 million verdict rendered in a workplace injury suit brought by Lilia Favela against Swift Transportation Co. of Arizona.
“Because Swift never asked for NACIC’s involvement before the verdict, and cut NACIC out of settlement discussions and other pretrial activity, Swift may not have the indemnity it seeks,” the insurer told the court.
The underlying lawsuit was decided by an El Paso County jury. NACIC told the court it received notice of the lawsuit in May 2019 but Swift “never asked for NACIC’s involvement, whether for defense-cost reimbursement, settlement negotiations or otherwise.”
The case, filed June 5, has been assigned to U.S. District Judge Kathleen Cardone.
The insurer is represented by Joseph A. Ziemianski and Bryan P. Vezey of Cozen O’Connor.
Swift and Favela had not retained counsel as of Monday.
The case number is 3:23-cv-00222.
Third Court of Appeals
Energy Transfer CEO’s Defamation Suit Against Beto Axed
Politician Robert Francis “Beto” O’Rourke got some good news Friday when the Austin Court of Appeals tossed a defamation lawsuit brought against him by Energy Transfer CEO Kelcy Warren based on campaign trail comments he made.
Warren alleged O’Rourke had equated his political donations to Gov. Greg Abbott with crimes. O’Rourke moved to dismiss under the Texas Citizens Participation Act, arguing that he had only colloquially used the terms “bribery” and “corruption” during the campaign.
A trial court declined to dismiss the case under the state’s anti-SLAPP law, and O’Rourke appealed in July. The appellate panel held that the statements are “non-actionable opinions and fall within the bounds of protected speech.”
“The fact that these opinions arose during the course of a political campaign as part of political speech advocating for a candidate only further cautions against interpreting them as anything other than non-defamatory advocacy by O’Rourke in support of his political aspirations,” the panel held.
Chief Justice Darlene Byrne and Justices Gisela D. Triana and Edward Smith sat on the panel.
O’Rourke is represented by Chad W. Dunn and K. Scott Brazil of Brazil & Dunn, Joseph E. Sandler of Sandler Reiff Lamb Rosenstein & Birkenstock and Sarah Holley Long of Walters Balido & Crain.
Warren is represented by Constantine Z. Pamphilis, Steven J. Owens and Daniel R. Benson of Kasowitz Benson Torres and Richard T. Miller of San Saba.
The case number is 03-22-00416-CV.
Texas Supreme Court
Justices Side with Tex-Mex Restaurant in Contract Case
The state’s high court on Friday issued a 7-2 ruling in a case that asked it to decide whether the City of League City was performing a “governmental function” or a “proprietary function” when it entered into a tax-incentive agreement with Jimmy Changas, a Tex-Mex restaurant.
Jimmy Changas sued the city alleging it breached an agreement to provide it certain tax breaks and reimbursements if it built a restaurant in League City. The city argued that entering the contract was a “governmental function,” which meant it is immune from a lawsuit stemming from that action.
A trial court and the Fourteenth Court of Appeals rejected that argument, finding that entering the contract was a “proprietary function.” The Texas Supreme Court’s majority agreed, finding that when the city contracted with Jimmy Changas it was a discretionary act that primarily benefitted the city’s residents and that the city did not act as an agent of the state when signing the deal.
“Here, the State merely authorized cities to enter into contracts to promote their local economy, and League City made the discretionary decision to enter into such a contract with Jimmy Changas,” Justice Jeff Boyd wrote for the majority. “But the contract itself confirms that it did so by choice and primarily to benefit the city and its residents. That discretionary decision was not essential to any governmental function.”
Chief Justice Nathan Hecht, and justices Debra Lehrmann, John Devine, Brett Busby, Rebeca Huddle and Evan Young, who also authored a concurring opinion, joined in the majority opinion.
Justice Jimmy Blacklock authored a dissenting opinion, joined by Justice Jane Bland.
Jimmy Changas is represented by Steven J. Knight, Larry Carbo and Kellen Scott of Chamberlain Hrdlicka White Williams & Aughtry.
League City is represented by William S. Helfand of Lewis Brisbois Bisgaard & Smith.
The case number is 21-0307.
U.S. Court of Appeals for the Fifth Circuit
Balch Springs Immune from Fatal Shooting Suit
The City of Balch Springs will not have to face a lawsuit brought by the family Jordan Edwards, a teenager who was killed by a city police officer in April 2017.
The June 9 opinion upholds U.S. District Judge Barbara M.G. Lynn’s decision to grant the city summary judgment after finding the police department’s use-of-force policy was constitutional.
“A local government’s official, written policy is itself unconstitutional only if it affirmatively allows or compels unconstitutional conduct,” the panel wrote. “The city’s policy passes muster under that standard.”
Judge Lynn in March and April presided over a civil trial against the former police officer, Roy Oliver, who is currently serving a 15-year prison sentence for the fatal shooting. The jury found Oliver civilly liable for Edwards’ death and awarded his family $10.6 million in actual damages and $11 million in punitive damages.
Edwards appealed to the Fifth Circuit in March 2022.
Judges Jennifer Walker Elrod, Catharina Haynes and Don R. Willett sat on the panel.
The family is represented by Thad D. Spalding and Shelby Jean White of Durham Pittard & Spalding and Daryl Kevin Washington of Dallas.
The city is represented by Joe C. Tooley of Rockwall.
The case number is 22-10269.