Lawyers for Unity Resources asked the Fifth District Court of Appeals in Dallas to reverse decisions by lower courts and have Texas Attorney General Ken Paxton declared a “designated responsible third party” in a highly sensitive securities lawsuit in Collin County.
If the appellate court grants the petition, lawyers for Unity would be able to question Paxton under oath in a deposition that would require Paxton to provide sworn testimony about his role in the alleged securities fraud or force him to plead his Fifth Amendment right against self-incrimination – a less than desirable position for the state’s highest-ranking prosecutor.
Paxton is currently under indictment on three charges of securities fraud involving the facts in this case, but he is not a defendant in this civil case.
The lawsuit, brought by Calco Land Development, claims that Unity and some of its managers committed securities fraud in 2014 and 2015, which was before Paxton was elected to be Texas Attorney General.
Calco’s lawyers at Scheef & Stone convinced the Collin County trial judge that Paxton should not be designated as a responsible third party because they, the plaintiffs, made no allegations of fraud against him.
Scheef & Stone is not representing Paxton in this case, but the firm has represented Paxton in other matters, including securities charges brought by the U.S. Securities and Exchange Commission against Paxton – allegations that were later tossed by a federal judge.
Lawyers for Unity want Paxton’s testimony because they say it will show that they depended on his advice as a lawyer and manager. By being able to blame Paxton for part of the fraud, Unity hopes to avoid paying a large damage fee.
When the Collin County judge rejected the request of Unity to include Paxton as a responsible third party, Unity lawyers filed a mandamus petition with the Fifth Court of Appeals. A three-judge panel last year split: Two appellate justices sided with Calco, but one justice dissented, saying the trial judge erred.
The full Fifth Court of Appeals agreed to hear oral arguments, which took place Thursday.
Ken Carroll, an appellate partner at Carrington Coleman, told the court that “Unity relied on Mr. Paxton for securities advice.”
“Mr. Paxton owed duties to Unity and others,” Carroll said, adding that his clients believe that Paxton “committed legal malpractice.”
Byron Henry, a partner at Scheef & Stone, argued that the trial judge did not abuse his discretion and was following the law in denying Unity’s request that Paxton be named a responsible third party.
The most interesting moment of the hearing came at the end when Justice Craig Smith asked why the record in the case was sealed – a question that The Texas Lawbook is also asking.
Carroll started to respond, but Chief Justice Robert Burns cut off the discussion and asked the two sides to address the issue in writing.