Articles Posted in Litigation

Ponzi schemes ultimately come to an end and unfortunately cause a lot of pain, suffering, and litigation. The Stanford Ponzi scheme is no exception. As demonstrated in the following case, the complex nature of such schemes demonstrates the need for excellent legal representation if you are the victim of an unscrupulous Ponzi schemer.

In this case, Pershing, L.L.C. (“Pershing”) sued to enjoin the (“Bevis Investors”), a group of investors who allegedly sustained losses as a result of the Stanford Ponzi scheme, from arbitrating their claims against Pershing before the Financial Industry Regulatory Authority (“FINRA”). The Stanford Ponzi scheme brought down many businesses who did not know the depths of Stanford’s dealings.

Pershing is an FINRA-regulated clearing broker that provides clearing and administrative services to financial institutions. Because of Pershing’s FINRA membership, its customers have the right to compel Pershing to arbitrate their disputes under FINRA Rule 12200. The Stanford Ponzi scheme was created by Stanford and associates where they would sell a certificate of deposits (“CDs”) that promised a fixed rate, and instead of purchasing lucrative assets, Stanford used the money to pay old investors. Stanford went on to use the money to finance a lavish lifestyle and real estate ventures. Bevis Investors allege that they purchased CDs issued by Stanford International Bank (“SIB”). Pershing executed a Clearing Agreement to provide clearing services to the Stanford Group Company (“SGC”) between 2005 and 2009. Pershing had no relationship with any other Stanford entity. Because of the Stanford Ponzi scheme, investors came to Pershing and initiated arbitration.

This post continues our discussion on the United States Fifth Circuit Court of Appeal’s analysis of the public policy exception in Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). As discussed in the previous post, Article V(2)(b) of the New York Convention permits a signatory country to refuse the recognition or enforcement of a foreign arbitral award if “recognition or enforcement of the award would be contrary to the public policy of that country.”

To reset the stage, a brief review of the facts is warranted. Lito Martinez Asignacion, a Filipino sailor was injured aboard a German vessel docked in the Port of New Orleans. He sued in Louisiana court, but the court ruled that the dispute should proceed to arbitration in the Philippines. A Philippine arbitration panel applied the Philippine law and awarded Asignacion the lowest grade of compensable disability under the Standard Terms in his contract. Asignacion sought to have the Philippine arbitral award set aside in the United States under the public policy exception in Article V(2)(b) of the New York Convention.

Asignacion’s public policy argument rested on the adequacy of remedies available under Philippine law. Asignacion pointed out that United States public policy provides “special solitude to seamen” and requires that foreign arbitral panels give seamen an adequate choice-of-law determination. He argued that the Philippine arbitral panel erred by relying exclusively on the choice-of-law provisions in his contract, which dictated that Philippine law apply.  

The world we live in today is more interconnected than ever before. International commerce has led to rapid economic development in the United States and abroad. As more and more firms participate in international commerce, complex legal disputes arise. International disputes involve a multitude actors of different nationalities, implicating various national and international legal frameworks. In the mid-20th century, the United States and countries around the world sought to harmonize international commerce by codifying rules governing the resolution of international disputes. As a global commercial hub, United States courts have been pivotal in interpreting these international rules and more generally, contributing to the development of private international law. In 2015, the United States Fifth Circuit Court of Appeal interpreted the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York convention”), adding clarity as to when a court may refuse to recognize foreign arbitral awards on public policy grounds.

In this case, Lito Martinez Asignacion, a citizen of the Philippines was hired by Rickmers, a German corporation to work aboard its vessel, which sailed under the flag of the Martial Islands. While docked in the Port of New Orleans, Asignacion suffered injuries in an accident aboard the ship. After receiving medical treatment in Baton Rouge and the Philippines, Asignacion sued Rickmers in Louisiana state court. However, the Louisiana court ruled that the dispute should proceed to arbitration in the Philippines. The Philippine arbitration panel refused to apply the law of the Marshall Islands, the law of the flag state (a potential legal error), applied the Philippine law and awarded Asignacion the lowest grade of compensable disability under the Standard Terms in his contract, a lump sum of $1,870.

Asignacion returned to Louisiana state court seeking to have the Philippine arbitral award set aside for violating United States public policy. Rickmers removed the case to the United States District Court for the Eastern District of Louisiana. The District Court held that the Philippine arbitral award violated United States public policy because it effectively denied Asignacion the opportunity to pursue damages he would be entitled to as a seaman. The Fifth Circuit reversed and remanded the case to the District Court to enforce the award. It held that even with regard to seamen – who are normally accorded special remedies under United States law – the provision of lesser remedies under the foreign law does not violate United States public policy.

In Louisiana, the plaintiff initiates a civil lawsuit by filing a petition with the Clerk of the Court and serving the defendant with a copy of the petition and citation. The defendant must answer the plaintiffís petition or risk a default judgment. A default judgment is a binding judgment in favor of one party based on the other party’s failure to take action in a case. If the defendant fails to properly respond to a plaintiff’s petition or appear before the court, a skilled litigation attorney will timely move for a default judgment to quickly end the case in plaintiff’s favor without going to trial. However, the defendant is not without recourse. In a 2015 case, the Louisiana Supreme Court held before striking a defendantís deficient answer from the record and entering a default judgment, a Louisiana Trial Court must give both parties an opportunity to be heard, and allow the defendant to correct any deficiencies in his or her answer.

The plaintiff, in this case, Citadel Builders, L.L.C. sued Dirt Worx of Louisiana, L.L.C. for breach of a contract to provide work for its construction project. After serving its citation and petition initiating its case, Citadel obtained a preliminary default judgment. Dirt Worx then filed a letter to the Clerk of Court denying all of Citadelís claims. The Clerk of Court filed Dirt Worx letter as an Answer to Original Petition. A few months later, Citadel sent a letter to Dirt Worx, stating that it intended to file a motion to confirm the default judgment. Citadel explained that it did not receive Dirt Worx’s letter; Dirt Worx’s letter did not meet the requirements of an answer under the Louisiana Code of Civil Procedure; and even if it did meet the requirements of an answer, Dirt Worx’s letter was filed by a non-lawyer in violation of the Louisiana Revised Statutes.

Citadel followed up on its letter by filing two pleadings with the court: a motion to strike Dirt Worx’s answer, and a motion for final default judgment. The Trial Court granted Citadel’s motion to strike Dirt Work’s answer, ordered Dirt Worx’s answer to be stricken from the record, and rendered a default judgment of $1,256,205.39 plus interest in Citadel’s favor. The Trial Court ruled on Citadel’s motion ex parte (without Dirt Worx being present or allowing it to be heard on the matter).

Good news for professionals; potentially bad news for consumers. Affixing a professional seal to a document does not alone expose a professional to liability if the professional does not directly offer any services to the consumer. The Louisiana Fourth Circuit Court of Appeal recently heard a case that dealt with this very issue.

Martha Hohensee wished to build a new home in New Orleans, Louisiana.  She discussed her plans to construct a residential home with Raymond Bergeron of Raymond C. Bergeron, Jr., Architects, LLC (“Bergeron Architects”). Mr. Bergeron informed her that he did not provide residential architectural services and referred Ms. Hohensee to an architectural designer, Sean Turner of Turner Design Collaborative (“TDC”), who was not a licensed architect. After consulting with Mr. Turner, Ms. Hohensee hired him to design her house. Turner drew up plans for the new home, but the plans could not be submitted to the City of New Orleans without the seal of a licensed architect.

As a favor to Mr. Turner, Raymond Bergeron affixed his seal to Turner’s plans regarding Ms. Hohensee’s home and the plans were submitted to the City for approval. Mr. Turner was told by city officials that certain modifications to the plans needed to be made for City before approval could be given.  Accordingly, Mr. Turner made the necessary modifications but never consulted with Mr. Bergeron. As it turns out, the changes to the plans both increased the cost of construction and produced a structurally unsound home.  Parts of the house were not up to code and the floor buckled from the addition of a crawlspace under the home.