In this edition of Litigation Roundup, we share the announcement that a new magistrate judge will be serving in the Northern District of Texas, and share details about both the federal government’s antitrust lawsuit against Richardson-based RealPage and the punishment doled out to a former controller for Simon Greenstone Panatier who bilked the plaintiff’s firm out of nearly $1.5 million.
The Litigation Roundup is a weekly feature highlighting the work Texas lawyers are doing inside and outside the state. Have a development we should include next week? Please let us know at tlblitigation@texaslawbook.net.
Eastern District of Texas
Proposed Securities Class Action Filed Against Orthofix Medical
A group of investors have lodged a proposed class action lawsuit against the spine and orthopedics manufacturer Orthofix Medical, alleging its January 2023 merger with SeaSpine has caused stock prices to drop and forced a shuffling of top executives.
The lawsuit, filed Aug. 21 by lead plaintiff Matthew Bernal, has been assigned to Chief U.S. District Judge Rodney Gilstrap. The investors allege that the January 2023 merger led to the subsequent decision to change top leadership at Lewisville-based Orthofix.
“Throughout the class period, defendants issued false and misleading statements and/or failed to disclose adverse facts about the company’s management team. When the truth about the company’s management team was revealed, the price of Orthofix common stock suffered sharp declines,” the lawsuit alleges, citing a 30 percent drop that happened in September 2023. “As a result, plaintiff and other class members have suffered significant losses and damages.”
The proposed class would include those who owned Orthofix common stock between Oct. 11, 2022, and Sept. 12, 2023.
Bernal is represented by Thomas L. Laughlin IV, Jonathan M. Zimmerman and Nicholas S. Bruno of Scott+Scott Attorneys at Law, Brian J. Schall of The Schall Law Firm and Andrea L. Fair of Ward, Smith & Hill.
Counsel for Orthofix had not filed an appearance as of Monday.
The case number is 2:24-cv-00690
Western District of Texas
Another Proposed Class Action Filed Against CrowdStrike
The worldwide outage that resulted in thousands of canceled flights and impacted millions of Microsoft Windows users has resulted in another proposed class action lawsuit against Austin-based cybersecurity software company CrowdStrike.
A group of Delta Air Lines passengers, led by Christopher Harlan, filed suit against the company on Aug. 19. Earlier this month two other class actions were filed in response to the July 19 global outage — one from a trio of airline passengers and one from the Plymouth County Retirement Association.
Delta had to cancel more than 5,000 flights from the time the outage began until July 25, according to the lawsuit. Harlan and his wife, Sara Harlan, allege they were stranded in the Dominican Republic after their return flight home was canceled, causing them to incur expenses for hotels and meals while they waited to make alternative arrangements.
The case has been assigned to U.S. District Judge Robert Pitman.
The plaintiffs are represented by Warren T. Burns and Korey A. Nelson of Burns Charest, Robert L. Shelquist of Lockridge Grindal Nauen, Brendan S. Thompson and Charles J. LaDuca of Cuneo, Gilbert & LaDuca and Brian O. Marty of Shindler, Anderson, Goplerud & Weese.
Counsel for CrowdStrike had not filed an appearance as of Monday.
The case number is 1:24-cv-00954.
Northern District of Texas
Ex-Law Firm Controller Gets Prison for $1.5M Fraud
The former controller for Simon Greenstone Panatier in Dallas was sentenced to 50 months in federal prison last week after pleading guilty to embezzling about $1.5 million from the law firm.
Christiane Kathleen Irwin, 44, was sentenced by U.S. District Judge Brantley Starr on Aug. 21. The judge also ordered Irwin to pay $1.48 million in restitution. Two days later, Irwin filed notice that she was appealing her sentence to the U.S. Court of Appeals for the Fifth Circuit.
According to court documents, Irwin’s job duties included submitting biweekly payroll for herself and the firm’s other employees to Automatic Data Processing Inc., also known as ADP. Irwin’s annual salary was about $140,000, but she took home an unearned $1.48 million between Jan. 1, 2018, and Feb. 9, 2021, according to the indictment.
Irwin is represented by Joshua Lowther and Katryna Spearman of Lowther Walker and Austin F. Pennington of The Pennington Firm.
The government is represented by Jenna Rudoff and Nashonme Johnson of the U.S. Attorney’s Office for the Northern District of Texas.
The case number is 3:22-cr-00104.
New Magistrate Judge Sworn In
Brian McKay, who since 2019 had served as the deputy chief of the appellate division at the U.S. Attorney’s Office in Dallas, has been sworn in to serve as the newest magistrate judge in the Northern District of Texas.
Judge McKay was sworn in on Aug. 23 by Chief U.S. District Judge for the Northern District of Texas David C. Godbey, but a formal investiture ceremony will follow on a to-be-determined date. McKay earned his bachelor’s degree from Baylor University in 1994 and holds a master’s degree in criminology and criminal justice from Sam Houston State University, where he served as editor-in-chief of the law review and graduated in 1996.
McKay didn’t turn to law school right away, instead working for five years as a probation officer in Hunt County, northeast of Dallas. He graduated from the University of Tulsa College of Law in 2004 and then worked for one year as a law clerk to U.S. District Judge Sidney A Fitzwater.
From there, McKay worked as an associate in Haynes Boone’s Dallas office until 2011, when he entered public service as an assistant U.S. attorney. He briefly worked as chief compliance officer at Trinity Industries in Dallas before returning to the U.S. Attorney’s Office.
Federal Trade Commission
FTC Files Administrative Complaint Against DFW Dealerships
The company that operates David McDavid Ford in Fort Worth, David McDavid Honda of Frisco and David McDavid Honda in Irving has been accused by the Federal Trade Commission of routinely charging customers “hidden fees” without their knowledge.
The five commissioners who head the FTC voted unanimously on Aug. 16 to issue the administrative complaint against Asbury Automotive Group and its related entities. Ali Benli, who served as general manager of the dealerships targeted by the FTC, also was named in the complaint.
In particular, the FTC accuses Asbury of targeting Black and Latino customers with the excess fees. Asbury would allegedly use a practice called “payment packing,” whereby customers agreed to larger-than-necessary monthly payments that would include the hidden or “packed on” fees.
The complaint accuses Asbury of three violations of the FTC Act: misrepresentations regarding charges, misrepresentations regarding add-on charges and unfair practices relating to unauthorized charges. The company is also accused of violating the Equal Credit Opportunity Act and of discriminatory financing practices.
Asbury CEO David W. Hult issued a statement rejecting the allegations.
“We will not allow the FTC to coerce fines from us or subject us to onerous requirements that negatively impact the car-buying experience for our customers, would not apply to others, and would place us at a competitive disadvantage in the industry,” he said. “We are confident that we will prevail in the litigation.”
Counsel information for the parties wasn’t available Monday.
The docket number for the case is D-9436.
Middle District of North Carolina
RealPage Facing Federal Antitrust Lawsuit
The Department of Justice has accused Richardson-based property management software company RealPage of unlawfully using pricing algorithms to inflate the rents of millions of Americans, according to an antitrust lawsuit filed Aug. 23.
RealPage is accused of colluding with landlords to decrease competitive pricing of apartment units. The government alleges RealPage carried out the scheme by contracting with landlords who agree to share nonpublic, competitively sensitive information about their rental rates that the company would then use to “train” its pricing algorithm software.
The software then generates pricing recommendations for landlords, stifling the type of competition that would normally exist between landlords who are trying to attract tenants, according to the lawsuit.
The case has been assigned to U.S. District Judge Loretta C. Biggs. The plaintiffs include the United States and the states of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee and Washington.
“Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law,” said U.S. Attorney General Merrick B. Garland. “We allege that RealPage’s pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them.”
The government also accuses RealPage of maintaining an illegal monopoly over commercial revenue management software for multifamily dwellings with an 80 percent market share.
Counsel for RealPage had not filed an appearance as of Monday.
The case is being prosecuted by Henry C. Su of the U.S. Department of Justice and Kunal J. Choksi of the North Carolina Department of Justice.
The case number is 1:24-cv-00710.
U.S. District Court, North Dakota
Hess Gets Royalty Payment Class Action Trimmed
Hess Bakken Investments II will not have to face claims from a subset of royalty owners who accused the company of paying royalties too late, and without tacking on an 18 percent interest rate, after a judge earlier this month struck that claim from the litigation.
U.S. District Judge Daniel L. Hovland issued the order trimming the class action on Aug. 13.
“An individual inquiry into every class member would be time-consuming and inefficient,” he explained in a 12-page order. “The individualized issues in this case predominate over the common claim for relief by the proposed class. Accordingly, the Court grants the defendant’s motion to strike the statutory interest class allegations.”
Hess drew two lawsuits from royalty owners in June 2022, both filed in North Dakota, that Judge Hovland consolidated in December. Judge Hovland’s Aug. 13 order leaves in place the claims of two other subsets of plaintiffs seeking class certification.
The royalty owners are represented by George A. Barton and Stacy Burrows of Barton and Burrows, Joshua A. Swanson of Vogel Law Firm and Taylor Foye and Joseph Kronawitter of Horn Aylward & Bandy.
Hess is represented by Paul Forster and Zachary R. Eiken of Crowley Fleck and Daniel T. Donovan, Gabrielle Durling, Ross Powell and Ragan Naresh of Kirkland & Ellis.
The case number is 1:22-cv-00097.
U.S. Court of Appeals for the Fourth Circuit
Husch Blackwell Team Sees Distribution Plan in $550M Ponzi Scheme OK’d
A three-judge panel recently gave approval to a court-appointed receivers plan to “divide the pie” and split funds among investors who were victims of a $550 million Ponzi scheme.
In a ruling issued Aug. 6, the court rejected arguments from two sets of investors and approved the plan put forth by receiver Gregory S. Milligan on the heels of the securities fraud perpetrated by Kevin B. Merrill of Maryland, Jay B. Ledford of Westlake, Texas, and Cameron R. Jezierski of Fort Worth.
The trio was found to have defrauded more than 230 investors out of hundreds of millions by operating a Ponzi scheme from 2013 through September 2018 that promised significant returns on the purchase and resale of consumer debt portfolios.
The district court initially approved Milligan’s distribution plan, which would return nearly 50 percent of the victims’ invested capital, in November 2022, prompting this appeal. Milligan issued a statement crediting the perpetrators’ fondness for “luxury goods” with aiding in his recovery efforts, which included 11 real estate assets, 34 vehicles, an airplane and millions of dollars worth of fine art and jewelry.
“This matter allowed our firm to really flex its muscles due to the breadth and depth of skill required to pursue such a large recovery across multiple asset classes, dealing with numerous corporate entities, and then litigating the resulting plan,” Husch Blackwell partner Lynn Butler said in a statement. “This was the largest such recovery we have handled, and I couldn’t be prouder of the way our team responded across all areas of practice, including bankruptcy, litigation and corporate, with a special shout-out to appellate specialist Danny Solomon for his work on the briefing and handling of the oral argument. Ultimately, we are pleased that all of this work yielded a significant recovery for the victims.”
Judges Robert B. King, DeAndrea Gist Benjamin and Barbara Milano Keenan sat on the panel.
The receiver is also represented by Buffey Klein, Jameson Watts, Danny G. Solomon, Ryan A. Burgett, Lauren E. Hayes, Dieter J. Juedes and Brian P. Waagner of Husch Blackwell.
The investors are represented by Monica Evan Miller of Cuneo Gilbert & LaDuca and Rachel M. Clattenburg of Levy Firestone Muse.
The case number is 22-2256.