In this edition of Litigation Roundup, a professional gambler is accused of running a $9 million Ponzi scheme, a few cities challenging the Texas Regulatory Consistency Act are dealt a loss on appeal, and the Kentucky attorney general taps a Dallas law firm to help bring a consumer protection lawsuit against shopping website Temu.
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.
Western District of Texas
San Antonio Gambler Charged in $9M Ponzi Scheme
The U.S. Securities and Exchange Commission has filed a civil lawsuit against a “self-identified professional gambler” who the agency says falsely represented himself as a trader to dupe clients out of about $9 million.
The SEC filed a 15-page lawsuit July 14 against Imer Gomez, K&G Investment Solutions, Helios Venture Fund, Eric Claxton and Heather Claxton.
According to the government, Gomez, the professional gambler, has “no known experience investing or managing money on behalf of clients,” but in August 2021 he began soliciting clients to sign up for his investment management services. He originally used K&G, the company he was president and chief financial officer of, as the investment advisor, but in 2022 he began using a different name to open advisory accounts, Helios Venture Fund.
The Claxtons are alleged to have received a total of $666,000 “of comingled client funds … some of which were characterized as loans.”
“Eric and Heather Claxton have: not repaid any of the amounts purportedly loaned by Gomez and did not provide any services or other value in exchange for such funds,” the complaint reads.
Gomez is alleged to have recruited clients by promising double-digit returns by trading securities, but prosecutors allege he never traded securities and sent his clients doctored paperwork purporting to show the gains on their advisory accounts. Instead, the money was used for personal expenses and to further the alleged Ponzi scheme, the government alleges.
In September 2023, Gomez informed his clients via letter that his company “was impacted by a sudden and unrecoverable liquidation” but did not explain the reasons for the liquidation because of a “strict non-disclosure agreement.”
“Defendants’ bank records show that what Gomez described as a liquidation event was simply Gomez running out of money from new clients to continue his scheme,” the SEC alleges.
The case has been assigned to U.S. District Judge Xavier Rodriguez.
The SEC is represented by its own Tyson Lies.
Counsel for the defendants had not filed an appearance as of Monday.
The case number is 5:25-cv-00805.
Commonwealth of Kentucky, Woodford Circuit Court
Dallas Firm Partners with Kentucky AG in Temu Lawsuit
Nachawati Law Group has signed on to help the Kentucky attorney general’s office bring a consumer protection lawsuit against Chinese-owned shopping company Temu.
The 80-page lawsuit accuses Temu of selling counterfeit goods and of using its app as a means to collect users’ personal data in violation of consumer privacy laws. Temu attracted users to its platform by selling goods at low prices and has become one of the most popular shopping apps in the country.
“This app was designed to get data from the customer who use it, and the owners use it as a lure for that purpose,” Majed Nachawati said in a statement. “The worst part is that these breaches of privacy are all being done without the customers’ knowledge or consent.”
Kentucky alleges some of the allegedly counterfeit goods sold on Temu’s platform include fake Louisville Slugger bats and fake collegiate-branded and whisky-branded merchandise.
Nachawati Law Group trial lawyer Brian McMath called Temu’s app “a hub for consumer fraud — from advertising items that look nothing like what eventually arrives, to faking customer reviews, to using consumer payment information to order items the customer never asked for.”
The lawsuit names as defendants PDD Holdings, formerly known as Pinduoduo, and Whaleco, doing business as Temu.
Kentucky is also represented by David F. Slade of Wade Kilpela Slade in Arkansas.
The case number is 25-CI-00232.
Third Court of Appeals, Austin
Lawsuit Challenging ‘Death Star Bill’ is Tossed
The Austin appellate court has undone a trial judge’s ruling that declared unconstitutional the Texas Regulatory Consistency Act, called the Death Star Bill by detractors.
Lawmakers in 2023 passed the act that preempts municipalities from passing any ordinances or rules in the areas of agriculture, business, commerce, finance, insurance, labor, natural resources, occupations and property “unless expressly authorized by another statute.”
On Friday, Chief Justice Darlene Byrne and Justices Chari L. Kelly and Maggie Ellis issued a 17-page opinion holding “that there was reversible error” in the final judgment Travis County District Judge Maya Guerra Gamble signed in August 2023. The justices agreed with the state of Texas that the pleadings from the cities challenging the Act “affirmatively negates their standing to sue.”
For starters, the panel found the cities “failed to show an injury-in-fact,” meaning they failed to allege the act caused them injuries.
“Instead, they allege that the Act is unconstitutional on its face and that they will have to review their charters, repeal preempted regulations, and suffer other such generalized injuries if forced to comply with its terms. These injuries lack sufficient concreteness and particularization for standing purposes,” the panel wrote.
The cities also “failed to show that their alleged injuries are fairly traceable to the state,” the panel held.
“The cities do not allege that the state has threatened to enforce the Act against them,” the panel wrote. “And the various pre-enforcement injuries the cities have alleged are traceable not to anything the state has done but to the coercive impact of the Act itself (coercive in that it exposes the cities to civil litigation brought by parties injured by preempted regulations).”
Houston filed suit after passage of the Act, seeking a declaration that it was unconstitutional. San Antonio and El Paso intervened, making similar arguments. Texas argued the suit should be dismissed on jurisdictional grounds.
Judge Gamble denied the state’s motion to dismiss, granted Houston’s motion for summary judgment, declared the Act unconstitutional and determined that ruling also resolved claims brought by San Antonio and El Paso.
Houston is represented by Collyn A. Peddie and Lydia S. Zinkhan of the city’s legal department. San Antonio and El Paso are represented by Jane Webre, Kennon L. Wooten and Lauren Ditty of Scott Douglass & McConnico and city attorneys Deborah Klein and Evan D. Reed.
Texas is represented by Rance Craft of the attorney general’s office.
The case number is 03-23-00531-CV.
Fifth Court of Appeals, Dallas
Dallas Loses Appeal in Short-Term Rental Fight
A three-justice panel Friday determined that its original February ruling upholding an injunction barring the city of Dallas from enforcing certain short-term rental ordinances should largely stay in place.
While litigation between the Dallas Short-Term Rental Alliance and the city proceeds over the ordinances that would ban about 95 percent of short-term rentals in the city limits, specifically those in “single-family residential” areas, the temporary injunction will stay in place.
The court did amend its earlier ruling in one notable way, agreeing with Dallas that one of the four individual plaintiffs bringing the constitutional challenge is not entitled to injunctive relief because she runs a business providing cleaning and maintenance services to those who operate rental properties.
“We assume without deciding this constitutes an occupational property interest,” the panel wrote. “To be constitutionally protected, a property interest must be ‘vested.’ Interests are not vested when they are predicated upon the anticipated continuance of an existing law and subordinate to the Legislature’s right to change the law and abolish the interest.”
When Dallas County District Judge Monica Purdy entered the injunction, she wrote that she was unpersuaded by a study the city claimed it relied on in passing the restrictions.
Senior Justice Yvonne T. Rodriguez, sitting by assignment, and Justices Dennise Garcia and Craig Smith delivered the opinion.
Dallas is represented by Andrew G. Spaniol, Nicholas D. Palmer, James B. Pinson, Jennifer C. Huggard and Tammy L. Palomino of the city attorney’s office.
The Dallas Short-Term Rental Alliance is represented by Michael K. Hurst and David Coale of Lynn Pinker Hurst & Schwegmann.
The case number is 05-23-01309-CV.
Highland Park ISD’s Win Against Texas Public Policy Foundation Upheld
Highland Park Independent School District will not have to hand over a report regarding financial operations of its Seay Tennis Center after an appellate court recently agreed the document is protected by the attorney-client privilege.
The Texas Public Policy Foundation had argued that the report wasn’t covered by the attorney-client privilege, and even if it was that the district had waived the privilege. The report was completed by the accounting firm Whitley Penn and provided to the law firm Thompson & Knight, which the district hired to “investigate and provide legal advice” about the district’s operation of the tennis center and its employees’ “handling of the financial operations of the center.”
When TPPF filed a Texas Public Information Act request for the report, the district asked the attorney general for an opinion that it was covered by the attorney-client privilege. The attorney general agreed with the district, and TPPF took its fight to court.
The Dallas appellate court issued a 21-page opinion July 16 upholding Dallas County District Judge Eric V. Moyé’s ruling that the report is privileged and that the district did not waive privilege.
“In the present case, there is nothing to suggest that attorney [Bryan] Neal was acting in any capacity other than as an attorney retained by the school district to provide professional legal services,” the panel wrote. “Those legal services included investigation. The record reflects that Neal’s communications with his attorney representative, Whitley-Penn, were made for the purpose of facilitating the rendition of those legal services. Accordingly, the WP report falls within the scope of the attorney-client privilege. The trial court did not err in concluding that the report was privileged and not subject to disclosure.”
Justices Dennise Garcia, Maricela Moore Breedlove and Jessica Lewis sat on the panel.
TPPF is represented by its own Robert Henneke, Chance Weldon and Christian Townsend.
Highland Park ISD is represented by Meredith Walker of Walsh Gallegos Kyle Robinson & Roalson.
The case number is 05-24-00813-CV.
Craving more Texas Lawbook litigation coverage? Don’t worry, we’ve got you covered. Take a look at these stories you may have missed in the past few days.
A lawsuit that pitted cousins against one another over a soured deal to buy and operate Cicis Pizza was decided by a jury in Dallas County last week. Jurors awarded $46 million in damages, but the defense will argue the prevailing cousin will have to pick which $23 million claim to recover damages on.
The U.S. Court of Appeals for the Fifth Circuit last week instructed U.S. District Judge Reed O’Connor to conduct a more thorough analysis before deciding whether to grant a motion from Media Matters to move a lawsuit brought against it by X Corp. to the Northern District of California.
Jackson Walker and the U.S. Trustee announced last week that attempts to settle a multimillion-dollar fee dispute through mediation had failed. Jackson Walker subsequently demanded a jury trial, and the U.S. Trustee responded that the firm “has no substantive right to a jury trial.”
Two out of the three federal judges in Texas who recently completed the master of laws program at Duke University spoke to The Lawbook about their experiences, what they got out of the program and the challenges they had to overcome to see it through. U.S. District Judge Jason Pulliam of the Western District of Texas, U.S. District Judge Robert Schroeder of the Eastern District of Texas and U.S. District Judge Ada Brown of the Northern District of Texas all completed the program.
Vartabedian Hester & Haynes hired away longtime Thompson & Knight partner Richard Roper, the former U.S. attorney for the Northern District of Texas, who will launch and lead the firm’s white collar and investigations practice group. Roper took time while cruising the Mediterranean to discuss the move with The Lawbook.
The liquidating trustee of Sorrento Therapeutics filed an adversary proceeding last week accusing the company’s officers and directors of breaching their fiduciary duties and causing creditors at least $100 million in damages.