One of the banks being sued for billions of dollars for allegedly aiding and abetting Houston financier R. Allen Stanford and his investment firm in a massive Ponzi scheme has asked a federal appeals court to stop the 13-year-old case from going to trial later this month.
Lawyers for Toronto-Dominion Bank have asked the U.S. Court of Appeals for the Fifth Circuit to issue a stay preventing U.S. District Judge Kenneth Hoyt from moving forward with a Feb. 27 trial in which TD Bank and three other banks – HSBC Bank, Independent Bank (formerly Bank of Houston) and Societe Generale Private Banking (SG Suisse) – face billions of dollars in damages.
“The district court’s orders at issue in this mandamus proceeding are rife with clear and indisputable errors,” Norton Rose Fulbright partners Jonathan Franklin and David Kearns, lawyers for TD Bank, wrote in the petition last week.
Attorneys for the plaintiffs, in briefs filed late Wednesday, told the Fifth Circuit that TD Bank is wrong on the law, wrong on the facts and does not deserve a favorable mandamus ruling, a remedy reserved for “drastic and extraordinary” circumstances.
“Petitioners’ purported injury arose long ago,” Baker Botts partner Kevin Sadler, who represents the court-appointed receiver, Ralph Janvey, and the Official Stanford Investors Committee, wrote in a 27-page response. “Only now — well past the eleventh hour with the trial less than 20 days away — do petitioners claim an emergency.”
“[The banks] have created a self-inflicted emergency by letting this issue linger until the eve of trial,” Sadler argues in the brief.
Sadler said the legal issues raised by the banks can be properly addressed on appeal after the trial is over.
The original lawsuit was filed in November 2009, which was nine months after the U.S. Securities and Exchange Commission filed its complaint accusing Stanford, the Stanford Financial Group and other executives of defrauding investors out of $5 billion between 1999 and 2008.
Stanford was charged criminally, found guilty of fraud and is serving a 110-year prison sentence.
Hundreds of civil lawsuits were filed by investors. Nearly all were consolidated into a Multidistrict Litigation before U.S. District Judge David Godbey in Dallas. All of those except one have been resolved. The case against the four banks is the final remaining dispute.
The federal court appointed Janvey, a Dallas lawyer, to help investors recover as much of their losses as possible. The receiver was later joined by the Official Stanford Investors Committee, which is also represented by James Swanson and Lance McCardle of Fishman Haygood in New Orleans.
To date, the receiver and the committee have recovered $1.2 billion for the victims.
The receiver’s case has spent a dozen years in litigation, including multiple trips to the Fifth Circuit for various legal disputes.
Along the way, scores of defendants settled. The most recent was Mississippi-based Landmark Bank, one of five banks scheduled to stand trial on Feb. 27.
Lawyers on both sides say the trial will likely last six to eight weeks.
On Jan. 31, lawyers for TD Bank asked the Fifth Circuit to stop the trial from proceeding.
In court documents, the bank’s lawyers argue that Judge Hoyt’s orders rejecting their positions “engaged in little to no analysis on any of the issues presented, misread the record, and selectively relied on prior rulings by the MDL Court that do not control.”
TD Bank argues that Judge Hoyt has “unlawfully expanded [the court’s] jurisdiction” by allowing the plaintiffs to pursue damages for knowing participation in the fraud and abetting violations under the Texas Securities Act, which the defendants claim are “indisputably barred by Texas’s applicable statute of repose.”
Lawyers for the bank said that the plaintiff did not assert a TSA claim within the five-year repose limit and so the counts must be dismissed.
TD Bank lawyers also argue that Judge Hoyt is refusing to allow the defendants to “designate responsible third parties” for the jury to judge where the blame belongs.
“The designated [responsible third parties] include the central actors in the Ponzi scheme, who clearly bear responsibility for it and were convicted for their conduct, as well as other individuals and entities with far closer ties to Mr. Stanford’s operations, such as the Antiguan auditor and the Antiguan regulator whom Mr. Stanford bribed to keep his fraud secret,” Franklin and Kearns argue in the brief.
TD Bank lawyers point out that the plaintiffs “have identified many of these very parties as culpable actors in the Ponzi scheme,” including the SEC and other governmental agencies.
“TD faces a months-long trial seeking potentially billions of dollars to adjudicate liability for a Ponzi scheme that all agree was at least primarily perpetrated by others,” TD Bank lawyers argued.
“Even if this Court grants the petitions only in part, TD and the other defendants would then face still another months-long trial to correct the errors that infected the trial currently scheduled,” the bank argues. “In these circumstances, proceeding with a trial subject to substantial doubt would irreparably harm TD.”
“No party faces harm from a short delay to give this court time to properly address the district court’s orders at issue,” TD Bank states.
In response, Sadler told the Fifth Circuit that the banks do not make “a credible case for designating more than 400 responsible third parties.”
“Indeed, many of the entities and individuals that petitioners seek to designate cannot be responsible third parties because petitioners fail to identify a legal duty these actors violated that would make them responsible for the harm of the Stanford Ponzi Scheme,” the receiver’s brief states.
Sadler told the Fifth Circuit that TD Bank “failed to allege any legal duties that the named government entities have violated — nor could they.”
“If a defendant could designate the government as a responsible third party for its negligence in failing to detect a fraud, fraudsters the world over would escape liability for at least a portion of the harm they caused,” Sadler wrote. “And because of governmental immunity, the victims of the fraud would be unable to recover any amount allocated to such a governmental responsible third party that failed to detect a fraud.”
The Fifth Circuit gave TD Bank until the end of business Monday to file its response to the receiver’s brief.
Other Baker Botts lawyers representing the receiver and the investors committee are former Texas Supreme Court Chief Justice Tom Phillips, Scott Powers, Stephanie Cagniart and David Arlington.
TD Bank’s legal team also includes Norton Rose Fulbright’s Rodney Acker, Ellen Sessions, Warren Huang and Gary Gould. Simpson Thacher & Bartlett lawyers Lynn Neuner, Peter Kazanoff, Linton Mann II and Alicia Washington are also representing TD Bank.
The case is In re: Toronto-Dominion Bank and the case number at the Fifth Circuit is 23-20033.