Two lawyers for a litigation management company who were accused by opposing counsel of perpetrating an “intentionally opaque” “shell game on steroids” have been sanctioned by a Harris County district court judge for their conduct.
Judge Elaine Palmer issued a total of $525,000 in sanctions against lawyers Michael D. Sydow, Chidi D. Anunobi and their client, Iron Oak, and ordered that the attorneys also take 10 hours of legal ethics education classes each year for the next five years. Iron Oak and Sydow were each hit with a $250,000 sanction and Anunobi was sanctioned $25,000.
In court filings, inventors John T. Preston, Michael E. Porter and their company Continuum Energy Technologies have told the court that Iron Oak and its principal, Rajiv Gosain, through the help of its attorneys Sydow and Anunobi, “are involved in a multi-year, nationwide effort to defraud them and the courts of at least three states.”
“The original ruse that our clients owed Iron Oak millions was a fraud and the multiple lawsuits filed to try to collect were fraud on the court,” said Shawn Bates of Ahmad Zavitsanos and Mensing, who represents Porter. “We urged the trial judge to send a message that you do not come to our courts, file a frivolous lawsuit, then try to judge shop that new lawsuit to obtain an ex parte [temporary restraining order] trying to stop the impending dismissal of yet another frivolous suit you filed in another state. And you do not sue the lawyers involved as a frivolous extra. Not in Texas.”
Judge Palmer found the lawsuit was filed for an improper purpose, namely to secure a temporary restraining order that would have hit pause on an out-of-state lawsuit that was filed in an attempt to collect $15 million from Porter and Preston. The $15 million “confessed judgment” was issued by a court in New York for an alleged debt owed by Continuum to Iron Oak. That confessed judgment was originally domesticated in Massachusetts.
Iron Oak sought domestication and enforcement of that judgment in Harris County and eventually entered into a settlement and tolling agreement with Porter, Preston and Continuum for $10 million.
“Eventually, it came to light that the legal and factual underpinnings of Iron Oak’s allegations across the various jurisdictions and lawsuits were legally and factually flawed and Iron Oak’s various attempts to collect $10 million from Preston and Porter — nonjudgment debtors — began to unravel,” Judge Palmer wrote in findings of fact and conclusions of law she signed Sept. 13.
The New York court that issued the award later vacated it on a motion from Preston and Continuum.
Judge Palmer held that the “factually impossible, legally deficient lawsuit” filed by Iron Oak was “for nothing but improper, bad faith motives.”
She wrote that the lawsuit’s purpose was “to prevent without valid basis progress in the Massachusetts lawsuit, thereby gaining a tactical advantage in that suit.” The Massachusetts lawsuit was brought by Porter and Continuum in an attempt to vacate the “confessed judgment” domesticated there.
A hearing on a motion for summary judgment to vacate that judgment was set for January, Judge Palmer wrote, “the hearing which Iron Oak attempted to delay by filing this lawsuit and seeking an ex parte TRO.”
Sydow, who on pleadings in the case indicated he was a solo practitioner but has since joined the firm of Lewis Brisbois Bisgaard & Smith as a partner, told The Lawbook in emails that “the story is not the sanctions” but instead should be focused on his efforts to get Judge Palmer recused in a separate but related case involving the same parties. He pointed to an affidavit in the record from a third party that he claims shows “that the court is biased in favor of opposing counsel.”
Sydow filed a motion on Nov. 30, 2022, to recuse Judge Palmer on the basis of an email sent from the appellate attorney representing Porter, Preston and Continuum recommending Porter hire Geoffrey Berg of Berg Plummer Johnson & Raval.
“My recommendation is that you hire Geoff Berg, a friend and very talented lawyer. I don’t know Judge Palmer and haven’t appeared in her court,” Mark Trachtenberg of Haynes Boone wrote to Preston in the August 2021 email. “Geoff knows her well and is undefeated in her court. Her reputation is that she plays favorites. I’ve spoken to Geoff and he has more time than I do this week to get up to speed. You would be in very good hands.”
In a Dec. 7 response to the motion to recuse, Continuum argued the email did not constitute evidence of Judge Palmer’s partiality.
“It is a snapshot of the impressions of a lawyer who has never appeared before Judge Palmer and is based on what he may have heard from others,” the response reads. “The undersigned’s track record in Judge Palmer’s court — whether accurately related to Preston in the email or not — would in no way even suggest bias on Judge Palmer’s part. If the undersigned has only ever prevailed in Judge Palmer’s court, it may well be that all cases handled there were meritorious. It may also be that there was only one such case. It may also be that the statement is untrue.”
“If the fact that a lawyer has never lost in a particular court were a basis for recusal, that would necessarily mean that the first time a lawyer prevails in any judge’s court, all subsequent cases handled by that lawyer in that judge’s court would be subject to motions to recuse — an absurd result.”
The presiding judge of the eleventh judicial region, Susan Brown, denied the motion to recuse Judge Palmer on Dec. 20.
Sydow said in an email he would be appealing the denial of the recusal motion “at the appropriate time.”
“My position with regard to recusal is set forth in the motion, and I do not think it appropriate to debate legal positions regarding a pending case outside of that case. That is the reason my comments are limited as they have been,” he wrote. “However, there are a large number of attorneys in Harris County who hold strong opinions about that court, and there is controversy surrounding it beginning with Judge Palmer’s initial election.”
Anunobi did not respond to a request for comment.
The lengthy and complicated underpinnings of the dispute date back to 2014, when Preston met Gosain, a nonlawyer who allegedly represented himself as a litigation consultant and told Preston he could facilitate recovering $93 million for Continuum via a claim against a third-party entity.
That recovery never came to fruition, but Iron Oak began making demands, alleging Continuum, Porter and Preston owed the company millions for its work.
Berg, who represents Preston, told The Lawbook that he filed a breach of fiduciary duty and legal malpractice lawsuit against Sydow in Harris County District Court in December on behalf of Continuum.
He characterized the litigation tactics of Iron Oak’s principal, Gosain, in pursuing his clients for the allegedly unpaid debt as “scorched earth” and alleged the strategist had woven an “intentionally opaque” web of litigation to make it difficult to follow and understand.
“There is everything in this case, from impermissible [Uniform Commercial Code] filings, to security agreements drafted and put in front of our clients by the adversary over a period of years, intended to create a veneer of legitimacy, all the while the result is that our clients end up funneling money to people who don’t deserve it,” Berg said, referencing allegations before a court in New York that Iron Oak wrongly siphoned $30 million from Continuum and its investors. “It was a stickup. They saw some deep pockets and the opportunity to profit at the expense of a good company and a good man.”
Gosain, Berg alleges, was running “a shell game on steroids” to dupe his client.
“This is three-card monte where the dealer is using six hands,” he said. “It’s an extremely sophisticated, complicated series of events. There’s so much to tell, but we want to save something for the jury.”
The case number is 2022-80846.