This past week was just peachy for Houston lawyer Jared Levinthal. He celebrated 20 years of marriage to his wife. The Bayou City got its one week of Spring with perfect, sunny-but-not-hot-as-hell weather. And he got to be with his three daughters again after spending eight days inside Houston’s federal courthouse for a mortgage fraud trial.
To top it all off on Tuesday he won a $15 million jury verdict for his client in a mortgage-based fraud and conspiracy trial.
Levinthal’s client, North Carolina-based SED Holdings, had accused a real estate broker and several other defendants of selling a portfolio of 1,235 non-performing mortgages, many of which turned out to be empty folders or loans not owned by 3 Star Properties, which struck the deal with SED.
After completing the sale agreement, which included a down-payment of $4 million, SED discovered that none of the properties included paperwork establishing the loans as legitimate or viable, much less marketable. Moreover, the company that had sold the loans as their own proved to be little more than a shell company with no actual ownership of the assets.
“I think these guys are a bunch of crooks,” Levinthal told The Texas Lawbook on Thursday afternoon. “Until two days ago, they faced no liability. This is a generally despicable group.”
After deliberating for three hours, the federal jury awarded SED $10.68 million in actual damages. The jury also slapped $1 million each in punitive damages against real estate broker Mark Hyland, who Levinthal described in court as the “architect of the fraud”; lawyer Mark Dykes, who served as the escrow agent for the loan deals; and two companies owned by Hyland, TM Property Solutions and Biltmore Funding.
The jury awarded SED an additional $300,000 in damages it believed would “fairly and reasonably compensate” SED for its damages from the breach.
Jurors found each Dykes and 3 Star 20 percent liable for SED’s damages. They found Hyland 10 percent liable and tacked 15 percent of the liability on both TMPS and Biltmore.
Jurors assigned the remaining 20 percent liability to Brown & Associates, which served as the document custodian for the deal, but came short of hitting Brown & Associates with any punitive damages.
“We were just the document custodians… we weren’t involved in any fraudulent transfer or anything underhanded,” said Houston Thompson Coe partner Gary Pate, who was Brown & Associate’s lead attorney at trial. “As a matter of fact, we still are the current loan custodian for the same loans, even today. We believe the evidence showed we had no liability whatsoever. All of these issues will be taken up on appeal.”
The lawsuit originally named Dykes’ former firm, The Nations Law Firm, as a defendant, but it was dismissed from the litigation before trial.
Houston attorney Sean Reagan of Leyh, Payne & Mallia, who represented Hyland, Dykes, TM Property and Biltmore, said the $10.68 million that Levinthal asked the jurors to award during closing arguments came as a total surprise, considering that figure had never been previously discussed and SED only paid $4.3 million upfront for the loans.
“There’s no evidence to support anything close to that number,” Reagan told The Texas Lawbook.
He also said he wasn’t surprised of the liability side of the outcome, considering the fact that U.S. District Judge Vanessa Gilmore issued an order before trial that banned him from revealing certain facts that would have helped paint his clients in a better light.
Among those facts, Reagan said, was collusion between SED and a separate Biltmore entity in a state case in Tarrant County that involved some of the same issues as the Houston trial.
“I don’t know that the outcome would have been different but it would have been a bit of a fairer fight,” Reagan said.
But Levinthal said he was shocked at trial by how adamant the defendants were about denying any wrongdoing – especially considering the fact that Hyland, TMPS, and 3 Star had violated a TRO and preliminary injunction from a separate case that banned them from selling, allowing short payoffs of, foreclosing on, transferring or otherwise making any dispositions of any of the loans sold to SED. The TRO and preliminary injunction were issued in a court in North Carolina, where the case originated.
“[The fact that] they continued to violate those orders and continued to act in a manner that caused SED continued financial damage was something I’ve never seen before,” said Levinthal, a partner at Levinthal Wilkins. “It wasn’t just lack of remorse, lack of contrition but indignation. The fact that they believed they were in the right… I could not believe it.”
Asked what it was like to cross-examine the defendants, Levinthal kept his response brief: “It was an absolute treat. That’s all I can say.”