In re: Deepwater Horizon ( 2016 )

Case: 15-30265 Document: 00513531548 Page: 1 Date Filed: 06/02/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-30265 FILED
June 2, 2016
Lyle W. Cayce
IN RE: DEEPWATER HORIZON Clerk
------------------------------------------------------------------
LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED,
Plaintiff,
v.
BP EXPLORATION & PRODUCTION, INCORPORATED, ET AL.,
Defendants.
GLEN J. LERNER; JONATHAN BEAUREGARD ANDRY; ANDRY
LERNER, L.L.C.,
Movants – Appellants,
v.
LOUIS J. FREEH, Special Master,
Appellee.
Appeals from the United States District Court
for the Eastern District of Louisiana
Before DENNIS, ELROD, and GRAVES, Circuit Judges.
PER CURIAM:
Case: 15-30265 Document: 00513531548 Page: 2 Date Filed: 06/02/2016
No. 15-30265
Glen Lerner and Jonathan Andry appeal the district court’s sanction
order disqualifying them from further participation in the Court-Supervised
Settlement Program related to the Deepwater Horizon oil spill, and Andry
Lerner, L.L.C. appeals the denial of its motion to alter or amend the
restrictions imposed on related attorneys’ fees that were escrowed in
connection with the sanction. Because the district court acted within its
inherent authority to supervise the settlement program and did not abuse its
discretion in imposing the sanction, we AFFIRM the district court’s sanction
order. In light of Freeh’s representation that the parties intend to agree to
appropriate amendments to the restrictions on the escrowed fees, we hold that
the district court did not abuse its discretion in denying Andry Lerner, L.L.C.’s
motion to alter or amend and we leave open to the district court the possibility
of amending its orders upon submission of a properly supported motion.
I.
This case arises from an investigation into improprieties in the Court-
Supervised Settlement Program (CSSP) responsible for a class of claims
related to the Deepwater Horizon oil spill. The focus of the investigation was
attorney Lionel Sutton, who together with his wife, Christine Reitano, worked
as a staff attorney with the CSSP. Before Sutton and Reitano worked for the
CSSP, they represented clients with CSSP claims through their firm, Sutton
& Reitano. They transferred those clients to other firms before becoming CSSP
staff attorneys.
Among the firms receiving these clients was Andry Lerner, L.L.P.
(AndryLerner), a New Orleans law firm focused on representing CSSP
claimants. Appellants Jonathan Andry and Glen Lerner were equity
shareholders in AndryLerner. Lerner, a Nevada attorney, also had an ongoing
business relationship with Sutton in a water reclamation company called
Crown LLC (Crown), which paid Sutton $10,000 per month. Sutton referred
2
Case: 15-30265 Document: 00513531548 Page: 3 Date Filed: 06/02/2016
No. 15-30265
one of his CSSP clients, Casey Thonn, to AndryLerner. Andry, a Louisiana
attorney, became counsel of record for Thonn. From January to June 2013,
while Sutton was employed by the CSSP, Andry and Lerner paid Sutton just
over $40,000 in three referral fee payments for the Thonn case. AndryLerner
circuitously sent these payments to Lerner’s Las Vegas law firm, which in turn
transferred the money to a Crown corporate account to which Sutton had
access and from which he withdrew the payments.
Sutton subsequently resigned from the CSSP, and in July 2013, the
district court overseeing the CSSP appointed appellee Louis Freeh as a special
master and charged him to “perform an independent external investigation
into the facts and circumstances that led to the resignation of [Sutton]” and
“conduct fact-finding as to any other possible ethical violations or misconduct
by the CSSP.” Three months later, Freeh produced an 89-page report detailing
misconduct by Sutton, Andry, Lerner, and others. This report was based on a
66-day investigation in which Freeh conducted more than eighty interviews
and reviewed extensive written records. Freeh recommended that Andry and
Lerner be prevented from representing claimants in the CSSP.
The district court ordered Lerner and Andry to show cause why they and
AndryLerner should not be disqualified from representing CSSP claimants
under the unclean hands doctrine. After receiving discovery from Freeh’s
investigative records, Lerner, Andry, and AndryLerner filed responses in
opposition to Freeh’s report. The district court held an evidentiary hearing
and made findings on the record at the hearing, followed by a written order
several months later.
The district court applied the Louisiana Rules of Professional Conduct,
finding that Andry and Lerner had violated multiple rules. The district court
found that Andry had violated the ethics rules by aiding and facilitating the
payment of improper referral fees to Sutton and by lying during the
3
Case: 15-30265 Document: 00513531548 Page: 4 Date Filed: 06/02/2016
No. 15-30265
investigation. The district court found that Lerner knew that it was improper
to pay referral fees to Sutton and knew or should have known that it was a
conflict of interest for Lerner to be a business partner with Sutton, and that
Lerner could not escape responsibility by relying on Sutton’s statement to him
that there was no conflict of interest. Based on these findings, the district court
disqualified Sutton, Lerner, and Andry from participating in the CSSP.
The court also prohibited Lerner and Andry from collecting attorneys’
fees in connection with CSSP claims, except that it allowed AndryLerner to
collect fees for previous legal work performed on legitimate CSSP claims.
However, all such fees were escrowed pursuant to an earlier court order, and
the court ordered that “[t]he remaining escrowed fees shall not be released to
AndryLerner, Jon Andry, or Glen Lerner until all remaining AndryLerner
claims have been resolved and the Court orders the release of the remaining
fees.” AndryLerner subsequently moved to alter and amend the district court’s
order to allow for payments to third-party creditors and further protect the
escrow account from the risk of bank failure. The district court denied the
motion in relevant part.
Lerner and Andry both appeal the sanction order. Lerner argues that:
(1) the district court exceeded its inherent power to sanction Lerner because
his conduct did not constitute direct defiance of the court; (2) Lerner was
denied due process by not being given the opportunity to challenge the
appointment of Freeh or to review all the evidence relied on by Freeh; (3) the
district court erred in determining that Lerner violated Rule 1.5(e) of the
Louisiana Rules of Professional Conduct; and (4) the district court erred in
sanctioning Lerner for violations of Rule 8.4(a), (c), and (d) of the Louisiana
Rules of Professional Conduct on the basis of its finding that he knew or should
have known that he was in violation of the rules. Andry argues that: (1) the
court abused its discretion in sanctioning Andry for aiding and abetting the
4
Case: 15-30265 Document: 00513531548 Page: 5 Date Filed: 06/02/2016
No. 15-30265
payment of an improper referral fee; (2) the district court abused its discretion
in sanctioning Andry for knowingly making a false statement to the tribunal
in violation of Rule 3.3 of the Louisiana Rules of Professional Conduct; (3) the
district court abused its discretion in sanctioning Andry for violating Rule
8.4(a), (c), and (d) of the Louisiana Rules of Professional Conduct; and (4) the
district court’s sanctions were excessive. 1 AndryLerner adopts Lerner and
Andry’s arguments and also appeals the denial of its motion to alter or amend
the sanction order.
II.
A federal court may hold attorneys accountable to the state code of
professional conduct. Resolution Trust Corp. v. Bright, 6 F.3d 336, 341 (5th
Cir. 1993). “Sanctions imposed against an attorney by a district court are
reviewed for abuse of discretion.” United States v. Brown, 72 F.3d 25, 28 (5th
Cir. 1995) (citing Chambers v. NASCO, Inc., 501 U.S. 32 (1991)). “That
discretion is abused if the ruling is based on an ‘erroneous view of the law or
on a clearly erroneous assessment of the evidence.’” Id. (quoting Chaves v. M/V
Medina Star, 47 F.3d 153, 156 (5th Cir. 1995)). Questions regarding the
applicability of ethics rules are reviewed de novo. See id. (“[T]he question of
whether [appellant’s] conduct was subject to sanction under [Rule 8.2 of the
Louisiana Rules of Professional Conduct] is a legal issue which must be
reviewed de novo.”).
1 Andry also argues for the first time in his reply brief that the procedure employed in
this case, which restricts his access to previously earned attorneys’ fees, constitutes an
unconstitutional taking in violation of his due process rights. This argument is not
responsive to any argument raised by Freeh and therefore is untimely and will not be
considered. See United States v. Ramirez, 557 F.3d 200, 203 (5th Cir. 2009) (“This court does
not entertain arguments raised for the first time in a reply brief.”). Andry’s passing argument
that “the district court unconstitutionally prohibited [him] from confronting his accuser” is
also raised only in his reply brief and is therefore untimely.
5
Case: 15-30265 Document: 00513531548 Page: 6 Date Filed: 06/02/2016
No. 15-30265
We generally review a decision on a motion to alter or amend judgment
for abuse of discretion, although to the extent that it involves a reconsideration
of a question of law, the standard of review is de novo. Ross v. Marshall, 426
F.3d 745, 763 (5th Cir. 2005).
We review the district court’s decisions regarding discovery and motions
for disqualification for abuse of discretion, as discussed in more detail below.
Moore v. Willis Indep. Sch. Dist., 233 F.3d 871, 876 (5th Cir. 2000); Sensley v.
Albritton, 385 F.3d 591, 598 (5th Cir. 2004).
III.
Lerner first argues that the district court lacked inherent power to
sanction him because his actions “were not before the District Court and cannot
be said to have constituted the requisite disobedience or ‘direct defiance’ within
the District Court’s purview to sanction.” 2 Lerner argues that his conduct “all
occurred in conjunction with the administration of the CSSP” and notes that
the district court determined that it “did not cause or result in any corruption
of the claim evaluation process.” Lerner relies on F.D.I.C. v. Maxxam, Inc., in
which this court explained that inherent power sanctions for conduct not
occurring in trial are limited to situations in which “a party engages in ‘bad-
faith conduct’ which is ‘in direct defiance of the sanctioning court.’” 523 F.3d
566, 591 (5th Cir. 2008) (citation omitted). The Maxxam court reversed a $50
million sanction where the improper conduct was in “a proceeding that was not
before the district court and did not challenge the district court’s authority.”
Id. at 593.
Freeh argues that Maxxam is distinguishable because “the sanctions
here addressed misconduct that threatened the integrity of a court function
2 Andry also mentions this point in passing but does not identify it as an issue on
appeal.
6
Case: 15-30265 Document: 00513531548 Page: 7 Date Filed: 06/02/2016
No. 15-30265
under the district court’s direct supervision” as well as “misconduct during the
district court’s investigation of the matter.” We agree. Indeed, the district
court noted in its order that “the Court retains continuing and exclusive
jurisdiction over the administration, implementation, and enforcement of the
Settlement and over each class member and their counsel for any suit, action,
proceeding, or dispute arising out of or relating to the Settlement.” This is
materially different from the situation in Maxxam, in which the misconduct
occurred in an unrelated tribunal—an administrative proceeding in
Washington, D.C.—not overseen by the district court in Texas. Here, we
conclude that the district court’s inherent authority to police serious
misconduct before it extended to the CSSP over which it retained continuing
and exclusive jurisdiction. 3
Furthermore, the district court strongly rejected Appellants’ argument
that no harm had been done to the CSSP. In announcing its oral findings, the
district court explained that:
[Andry’s attorney] said one thing that I have to strongly disagree
with here when [he] said despite all of this there was no harm
done. The harm that’s been done by all that’s occurred in this case
here is to the integrity of this Court Supervised Settlement
Program, to the integrity of the legal system.
The fallout from what started with Mr. Sutton’s misconduct and
mushroomed from there has caused or created a tremendous injury
3 We have relied on Maxxam to reverse inherent power sanctions imposed for conduct
during arbitration, holding that because the conduct “was neither before the district court
nor in direct defiance of its orders, the conduct [was] beyond the reach of the court’s inherent
authority to sanction.” Positive Software Sols., Inc. v. New Century Mortg. Corp., 619 F.3d
458, 461 (5th Cir. 2010). The Positive Software court was especially concerned that “the
sanctions order threaten[ed] unduly to inflate the judiciary’s role in arbitration,” explaining
that the Federal Arbitration Act “provides for minimal judicial involvement in resolving an
arbitrable dispute; the court is limited to only a few narrowly defined, largely procedural
tasks.” Id. at 462. Here, in contrast, the district court retains continuing and exclusive
jurisdiction over the administration and implementation of the CSSP and all disputes arising
therefrom.
7
Case: 15-30265 Document: 00513531548 Page: 8 Date Filed: 06/02/2016
No. 15-30265
to what we are doing here. It ultimately led to much of what’s
happened since then in the sense of claims being delayed, the
claims program being shut down for a period of time, a tremendous
amount of adverse publicity, criticisms of Mr. Juneau, of the claims
facility, of the Court, of everybody concerned with this.
We reject Lerner’s argument that the district court was powerless to address
this serious harm to the CSSP. In light of the district court’s direct, continuous,
and exclusive supervision of the CSSP, we hold that the district court acted
within its inherent authority when it sanctioned misconduct threatening the
integrity of the CSSP.
IV.
Lerner next argues that his due process rights were violated because he
was not given notice or an opportunity to be heard before the district court
appointed Freeh to investigate his conduct, and because Freeh had conflicts of
interest that should have disqualified him.
Rule 53 requires that “[b]efore appointing a master, the court must give
the parties notice and an opportunity to be heard.” Fed. R. Civ. P. 53(b)(1). As
Freeh points out, the rule says nothing about non-parties, and Lerner does not
claim to be a party. Cf. Glass v. UBS Fin. Servs., Inc., 331 F. App’x 452, 455–
56 (9th Cir. 2009) (affirming appointment of special master in class action suit
where named plaintiffs and defendant consented, even though unnamed
plaintiff was not provided with notice and an opportunity to object).
Assuming, arguendo, that Lerner had a right to notice, he waived his
right to object to Freeh’s appointment because he raised no objection until after
Freeh’s adverse report was issued. See Adriana Int’l Corp. v. Thoeren, 913 F.2d
1406, 1410 (9th Cir. 1990) (“[A]n objection to the appointment of a special
master must be made at the time of the appointment or within a reasonable
time thereafter or the party’s objection is waived.”); cf. McLeod, Alexander,
Powel & Apffel, P.C. v. Quarles, 925 F.2d 853, 857 (5th Cir. 1991) (“A party
8
Case: 15-30265 Document: 00513531548 Page: 9 Date Filed: 06/02/2016
No. 15-30265
waives his objection when he participates in a proceeding before a magistrate
and fails to make known his lack of consent or fails to object to any other
procedural defect in the order referring the matter to the magistrate until after
the magistrate has issued her report and recommendations.”); Phillips v.
Amoco Oil Co., 799 F.2d 1464, 1472 (11th Cir. 1986) (“Counsel, knowing the
facts claimed to support a § 455(a) recusal for appearance of partiality may not
lie in wait, raising the recusal issue only after learning the court’s ruling on
the merits.”). 4
Furthermore, Lerner has not shown that the district court abused its
discretion by denying his motion to disqualify Freeh. Rule 53 requires that a
special master “must not have a relationship to the parties, attorneys, action,
or court that would require disqualification of a judge under 28 U.S.C. § 455,
unless the parties, with the court’s approval, consent to the appointment after
the master discloses any potential grounds for disqualification.” Fed. R. Civ.
P. 53(a)(2). “A motion to disqualify brought under 28 U.S.C. § 455 is
‘committed to the sound discretion of the district judge’” and is reviewed for
abuse of discretion. Sensley, 385 F.3d at 598 (citation omitted). Lerner
complains that Freeh is a partner and executive chairman in a law firm that
has ties to Kirkland Ellis, the primary attorney for BP in this matter, and that
Freeh formerly partnered with a judge who has served as an ombudsman for
BP. 5 Lerner cites no authority establishing that these relationships are
Lerner argues for the first time in his reply brief that he did not waive his objection
4
because Freeh “did not reveal his relationship with the Williams & Connolly law firm until
January 8, 2014, months after he filed his Report” and Lerner joined Andry’s objection to
Freeh’s continuance as special master two weeks later. However, Freeh’s relationship with
Williams & Connolly was not identified among the purported conflicts of interest of which
Lerner complained in his initial brief, and Lerner does not contend that any of the other
purported conflicts on which he did rely were discovered after Freeh issued his report.
5 On the other hand, Freeh’s firm is also adverse to BP in six matters.
9
Case: 15-30265 Document: 00513531548 Page: 10 Date Filed: 06/02/2016
No. 15-30265
sufficient to disqualify Freeh from serving as a special master, nor does he
dispute that Freeh properly disclosed these purported conflicts at the time of
his appointment and that Lerner did not object until months later, after the
adverse report was issued. Under these circumstances, the district court did
not abuse its discretion when it declined to disqualify Freeh.
V.
Lerner argues that “[d]ue process demands that [he] be afforded a
meaningful opportunity to contest the alleged factual underpinnings of the
Special Master’s Report,” and that the district court denied him this right by
denying him complete access to the investigative record relied upon by Freeh
in compiling his report and by rejecting his requests to interview or depose
employees of the Claims Administration Office. Specifically, Lerner contests
the withholding of some of the “alleged co-conspirators’ communications,”
complaining that “only those emails identified through an extremely narrow
search field were made available” to him.
Rule 53 requires that in acting on a special master’s report, “the court
must give the parties notice and an opportunity to be heard; may receive
evidence; and may adopt or affirm, modify, wholly or partly reject or reverse,
or resubmit to the master with instructions.” Fed. R. Civ. P. 53(f)(1). Parties
may file objections to the report, which the court generally reviews de novo. Id.
53(f)(2), (3). Lerner argues that “[i]mplicit in these rules is the requirement
that a party affected by a Special Master’s report be given an opportunity to
examine all of the evidence relied upon by the Special Master in making his
recommendations, absent compelling circumstances to the contrary.” The sole
case on which Lerner relies—for the proposition that “traditional notions of
due process apply to the reports of special masters”—does not state that
proposition, much less that due process requires full access to all evidence. See
10
Case: 15-30265 Document: 00513531548 Page: 11 Date Filed: 06/02/2016
No. 15-30265
Ruiz v. Estelle, 679 F.2d 1115, 1162–63 (5th Cir.), amended in part, vacated in
part, 688 F.2d 266 (5th Cir. 1982).
Instead, Rule 53 allows the district court to determine “the nature of the
materials to be preserved and filed as the record of the master’s activities.”
Fed. R. Civ. P. 53(b)(2)(C); see also id., Advisory Committee Notes (2003
Amendment) (“The materials to be provided to support review of the report will
depend on the nature of the report. The master should provide all portions of
the record preserved under Rule 53(b)(2)(C) that the master deems relevant to
the report. The parties may designate additional materials from the record,
and may seek permission to supplement the record with evidence. The court
may direct that additional materials from the record be provided and filed.”).
Thus, the district court was not required as a matter of course to give Lerner
access to all materials on which Freeh relied.
Nor did the district court abuse its discretion in setting limits on the
information produced to Lerner. “We review a district court’s discovery
decisions for abuse of discretion and will affirm such decisions unless they are
arbitrary or clearly unreasonable.” Moore, 233 F.3d at 876. “This court will
disregard a district court’s discovery error unless that error affected the
‘substantial rights of the parties.’ The burden of proving substantial error and
prejudice is upon the appellant.” Marathon Fin. Ins., Inc., RRG v. Ford Motor
Co., 591 F.3d 458, 469 (5th Cir. 2009) (citations omitted). Here, the district
court ordered Freeh to provide Lerner “access to information relevant to
portions of the Special Master’s Report concerning [him]” and to redact
portions of discovery not relevant to a particular party. When AndryLerner
requested further production, the court granted the motion in part and referred
any further discovery issues to a magistrate judge, who then conducted an in
camera review and made further discovery available to Lerner. Lerner has
neither shown that the district court’s decisions were arbitrary or clearly
11
Case: 15-30265 Document: 00513531548 Page: 12 Date Filed: 06/02/2016
No. 15-30265
unreasonable nor demonstrated any prejudice to his substantial rights.
Accordingly, his due process claim fails.
VI.
Lerner and Andry each challenge the district court’s finding that they
violated Rule 1.5(e) of the Louisiana Rules of Professional Conduct when they
paid $40,000 in fees to Sutton for the Thonn claim. Rule 1.5(e) provides:
A division of fee between lawyers who are not in the same firm may
be made only if:
(1) the client agrees in writing to the representation by all of the
lawyers involved, and is advised in writing as to the share of the
fee that each lawyer will receive;
(2) the total fee is reasonable; and
(3) each lawyer renders meaningful legal services for the client in
the matter.
La. R. Prof’l Conduct 1.5(e). The district court, after quoting the rule,
explained the violation as follows during its oral findings:
It’s a pretty obvious ethical rule -- I know in Louisiana, I suspect
in many other states -- that you can’t get a referral fee or whatever
you call it unless you have actually done some work. You can’t just
get a fee for referring a case to another lawyer without doing some
work. The work has to be meaningful and it has to be in proportion
or based on an assessment of the work you have done.
In this case none of that occurred, as I see it. The 50 percent,
rather obviously, wasn’t based on any kind of assessment of how
much work Ms. Reitano had done compared to how much
AndryLerner had done. It was simply their usual or rather typical
referral fee to a referring lawyer.
The district court reiterated in its written order that “the Court finds that
Sutton, Andry, and Lerner violated Rule 1.5(e) regarding the division of fees
between lawyers who are not in the same firm.”
Lerner argues that the district court abused its discretion because: (1)
the evidence showed that the work actually performed on the Thonn claim by
12
Case: 15-30265 Document: 00513531548 Page: 13 Date Filed: 06/02/2016
No. 15-30265
Sutton & Reitano before referral was substantial; (2) Rule 1.5(e) is satisfied if
an antecedent 50-50 fee sharing agreement turns out to reflect the
proportionate division of labor; and (3) there was no evidence that the division
of labor in this case between Andry and Sutton & Reitano was not 50-50.
Andry argues that Rule 1.5(e) is inapplicable because “[t]his was not a referral
fee case as a matter of fact and law, but, instead, was a quantum meruit fee
agreed to by Sutton and Lerner,” making this “a case of successive law firms
as opposed to a situation involving a referral fee agreement.”
The district court properly applied Rule 1.5(e) and characterized this as
a referral fee arrangement after it found that AndryLerner “sent a letter to Ms.
Reitano enclosing a referral fee agreement, which she says she sent at the
request of Jon Andry, and it provided for a 50/50 split or a 50 percent referral
fee, which as it turned out is exactly what occurred in this case.” The district
court did not err in finding that the 50-50 division of fees “wasn’t based on any
kind of assessment of how much work Ms. Reitano had done compared to how
much AndryLerner had done.” Nor was the district court’s implicit conclusion
that the actual work performed by Reitano and AndryLerner was
disproportionate based on a clearly erroneous assessment of the evidence. 6
Accordingly, the district court did not abuse its discretion in determining that
Lerner and Andry violated Rule 1.5(e).
VII.
Andry challenges the district court’s finding that he violated Rule 3.3 of
the Louisiana Rules of Professional Conduct, which provides that “[a] lawyer
shall not knowingly: (1) make a false statement of fact or law to a tribunal or
6 Freeh’s counsel pointed out at oral argument that the CSSP had authorized a
payment to Thonn of approximately $1,000 when Reitano referred the claim to AndryLerner,
and after AndryLerner’s appeal of the claim, Thonn received more than $150,000 for his
claim.
13
Case: 15-30265 Document: 00513531548 Page: 14 Date Filed: 06/02/2016
No. 15-30265
fail to correct a false statement of material fact or law previously made to the
tribunal by the lawyer.” La. R. Prof’l Conduct 3.3(a)(1). The district court
found that Andry violated Rule 3.3 by making false statements during the
investigation into the improper fee payments:
When initially questioned by Michael Juneau of the Claims
Administrator’s staff, Andry flatly denied knowledge of any
payments to Lionel Sutton. Later, when questioned under oath by
the Special Master on July 30, 2013, Jon Andry made several
statements that were inaccurate or untrue. Specifically, Andry
denied that Sutton had any interest in AndryLerner’s cases.
Andry stated to the Special Master, “I never had any idea about
payments to Sutton until recently,” and he claimed that he did not
know anything about the fees being paid to Sutton “until all this
broke out publicly.” Based on the emails and other evidence
submitted, these statements were obviously false, as Andry knew
that Lerner intended to pay Sutton with the same monies that
Andry sent to Lerner in Las Vegas.
Andry disputes this finding, arguing that the e-mails on which the district
court relied to determine that Andry had knowledge of the fee agreement were
hearsay and that the district court misunderstood those e-mails.
The district court found that Andry knew about the payments to Sutton
based on a December 2012 e-mail in which Andry told Lerner to pay Sutton
out of Lerner’s share of the Thonn fee and a March 2013 e-mail in which Andry
was copied on discussions of the payment:
So what I conclude from those messages is that although Mr. Jon
Andry knew that it was improper for Andry Lerner to pay these
monies as a referral fee to Mr. Sutton while he was employed
inside the program, nonetheless he sends the money to Mr. Lerner,
washes his hands of it and says [in the December 2012 e-mail],
“You just got the money. Pay it out of there.”
Andry argues that the e-mails are hearsay. Because Andry did not object
to their consideration by the district court, we review his challenge for plain
error. See Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635, 648
14
Case: 15-30265 Document: 00513531548 Page: 15 Date Filed: 06/02/2016
No. 15-30265
(5th Cir. 1991) (“When a party fails to object to the admission of evidence, we
review for plain error.”) (citing Fed. R. Evid. 103(a)). 7 To establish plain error,
Andry must show that: (1) the district court erred, (2) the error was clear or
obvious, (3) the error affected his substantial rights, and (4) this court should
exercise its discretion to correct the error because the error seriously affects
the fairness, integrity, or public reputation of judicial proceedings. Puckett v.
United States, 556 U.S. 129, 135 (2009). Andry has not even attempted to
argue that he can establish plain error, and accordingly, we decline to exercise
our discretion to correct any error. See, e.g., United States v. Rivera, 784 F.3d
1012, 1019 (5th Cir.) (“We have . . . refused to correct plain errors when, as
here, the complaining party makes no showing as to the fourth prong.”), reh’g
denied, 797 F.3d 307 (5th Cir. 2015). Accordingly, Andry’s hearsay argument
fails.
Andry next argues that the district court misunderstood his statement,
“You just got the money. Pay it out of that,” in the December 2012 e-mail to
Lerner. Andry argues that this statement “was the opposite of an instruction.
It was a statement of his position, that he was not going to pay Sutton, and
that if Lerner wanted to pay Sutton he could pay him out of his half.” Andry’s
counsel pressed this point at oral argument, arguing that Andry had always
been opposed to the payment of any fees to Sutton and ultimately told Lerner
to pay Sutton out of Lerner’s share of the fee because he believed Lerner would
not pay Sutton unless he could take the money out of Andry’s share of the fee.
7 Andry argues that the issue was preserved because a co-defendant objected to
Freeh’s report and evidence “to the extent that both were hearsay,” but he does not cite to
any objection in the record. Even assuming, arguendo, that such an objection was made and
that it excuses Andry’s failure to object, a general objection to all of the evidence “to the extent
that [it is] hearsay” is insufficient to preserve the issue on appeal. See United States v. Lewis,
796 F.3d 543, 546 (5th Cir. 2015) (“A loosely formulated and imprecise objection will not
preserve error.”) (citation omitted).
15
Case: 15-30265 Document: 00513531548 Page: 16 Date Filed: 06/02/2016
No. 15-30265
Even though Andry’s proposed interpretation of the e-mail is plausible, the
district court’s alternate interpretation of “Pay it out of that” as an instruction
to Lerner is also plausible and does not reflect a clearly erroneous view of the
evidence. In any event, the December 2012 and March 2013 e-mails at the
very least demonstrate that Andry had knowledge of the improper payments
to Sutton, such that his subsequent statements to the contrary were false.
Andry’s attempts to explain away several false statements are
unavailing. The district court found that Andry made false statements to the
CSSP’s special counsel in June 2013 when he was asked whether Sutton had
any financial interest in any of Andry’s claims and replied that Sutton had no
financial interest of any kind, including shared fees or referral fees, in any
claim of Andry’s, including Thonn’s claim. This conversation occurred after
the December 2012 and March 2013 e-mails discussing payments to Sutton for
the Thonn claim. In light of these e-mails, the district court also found that
Andry was untruthful when he told Freeh in July 2013 that he had not known
about the fee being paid to Sutton until it broke publicly and that he “never
had any idea about payments to Sutton until recently.” On this record, the
district court did not abuse its discretion in determining that Andry knowingly
made false statements in violation of Rule 3.3.
VIII.
Lerner and Andry each challenge the district court’s determination that
they violated Rule 8.4(a), (c) and (d) of the Louisiana Rules of Professional
Conduct. Those provisions state that:
It is professional misconduct for a lawyer to:
(a) Violate or attempt to violate the Rules of Professional Conduct,
knowingly assist or induce another to do so, or do so through the
acts of another;
...
16
Case: 15-30265 Document: 00513531548 Page: 17 Date Filed: 06/02/2016
No. 15-30265
(c) Engage in conduct involving dishonesty, fraud, deceit or
misrepresentation; [or]
(d) Engage in conduct that is prejudicial to the administration of
justice[.]
La. R. Prof’l Conduct 8.4.
Lerner argues that the district court erroneously conflated his conduct
with that of Sutton and Andry and held him liable for Sutton’s violations
merely because Lerner did not make further inquiry after Sutton told him that
there was no conflict of interest in the fee-sharing arrangement or in their
separate business arrangement. Relying on criminal law, Rule 5.1 (which
governs when supervising attorneys are liable for their supervisees’
misconduct and is therefore irrelevant here), and case law from other
jurisdictions, Lerner argues that he cannot be held liable for Sutton’s conduct
on the basis of negligence alone. He argues that the record shows that he
inquired of Sutton whether a conflict or other problem existed, Sutton lied to
him and told him there was no conflict, and it was reasonable for Lerner to
believe Sutton, who had been his friend for decades.
Lerner’s argument fails because the district court did not sanction
Lerner for negligently failing to inquire about Sutton’s ethical violations, but
rather for his own knowing violations of Rule 8.4:
With respect to Mr. Lerner, again there’s no question that Mr.
Lerner was well aware that it was improper for these payments to
be made to a lawyer working inside the claims facility while Mr.
Lerner and his firm were representing approximately a thousand
claimants before the same program, the same facility.
He also knew or had to know that it was a huge conflict of interest
for him to be a business partner of Mr. Sutton in this outfit called
Crown, LLC and to be making substantial monthly payments to
Mr. Sutton while, again, he was asking Mr. Sutton from time to
time to help him move his claims along.
17
Case: 15-30265 Document: 00513531548 Page: 18 Date Filed: 06/02/2016
No. 15-30265
The conflict of interest here was so blatant and so obvious that we
had a paralegal that recognized these conflicts of interest and
these lawyers didn’t. It’s just mind-boggling to me. So I think they
knew exactly what they were doing. I don’t believe that they didn't
know that these were big conflicts of interest.
As far as Mr. Lerner, Mr. Lerner claims that, “Well, I just asked
Mr. Sutton if it was a conflict of interest and he said no, so I
thought it was okay.” Well, you know, Mr. Lerner is a lawyer too.
He can’t just rely on what Mr. Sutton tells him as far as whether
the circumstances, the knowledge he has, creates a conflict of
interest. He apparently does nothing else. He doesn’t ask Mr.
Sutton to get anything in writing to waive any kind of possible
conflict. He doesn’t approach Mr. Juneau. Apparently he doesn’t
get an ethics opinion from anybody. He just does it. He just makes
the payment. Again, he assists Mr. Sutton in using this circuitous
routing of these payments.
Again, Mr. Lerner had multiple conflicts he was aware of. When
Ms. Reitano goes to work there, he knows now his business
partner’s wife is working inside the program. The second conflict
is that he knows Mr. Sutton is demanding and requesting --
pressuring him, really, for payment of these referral fees on the
Thonn claims.
Lastly, importantly again, he knows that they are also doing
business simultaneously in this other outfit called Crown, an
ongoing business relationship with a lot of money passing back and
forth while all this is going on.
(emphasis added). These findings are consistent with the court’s written order.
Accordingly, although the district court chastised Lerner for not investigating
further, it held him liable for knowingly violating the ethical rules and
assisting Sutton in violating the ethical rules, not for negligence. Because the
district court’s ruling was not based on a clearly erroneous assessment of the
evidence, the district court did not abuse its discretion in finding that Lerner
violated Rule 8.4.
As for Andry, the district court found that he too knew that the fee
sharing was improper and knowingly violated Rule 8.4:
18
Case: 15-30265 Document: 00513531548 Page: 19 Date Filed: 06/02/2016
No. 15-30265
Andry knew it was improper to pay a referral fee to Lionel Sutton
while Sutton was employed as an attorney in the CSSP. While
attempting to wash his hands of the matter, Andry in fact aided
and facilitated the payment of the improper referral fees to Lionel
Sutton by routing the money to his law partner Glen Lerner’s office
in Las Vegas, knowing full well that Lerner would use this money
to pay Sutton. Still more troubling is Jon Andry’s conduct and
false statements during the investigation.
Andry disputes the finding that he knowingly or willfully violated Rule 8.4,
arguing that he “was adamant about and objected to Sutton receiving any fee”
and that there is no evidence that he violated any section of Rule 8.4. Andry’s
argument is premised on the assertion that he did not violate Rules 1.5(e) or
3.3 and that the e-mails on which the district court relied were inadmissible
hearsay.
We have already rejected the arguments on which Andry relies. Without
the exclusion of the December 2012 and March 2013 e-mails, Andry cannot
show that the district court relied on a clearly erroneous assessment of the
evidence in determining that Andry knew about the improper payments and
told Lerner to pay Sutton. Nor did the district court rely on a clearly erroneous
assessment of the evidence in finding that Andry routed money to Lerner’s
office knowing it would be paid to Sutton or that Andry made false statements
during the investigation. Accordingly, the district court did not abuse its
discretion in finding that Andry violated Rule 8.4.
IX.
Finally, Andry argues that the district court’s sanctions were excessive
in light of the limitations on a district court’s use of its inherent power to
sanction. See Chambers, 501 U.S. at 44 (“Because of their very potency,
inherent powers must be exercised with restraint and discretion.”). In his reply
brief, Andry argues for the first time that “[g]iven the fact that Appellant and
his firm were only representing claimants before the CSSP, the district court’s
19
Case: 15-30265 Document: 00513531548 Page: 20 Date Filed: 06/02/2016
No. 15-30265
sanctions amount to a professional death sentence.” 8 Andry argues that the
sanction is especially severe in light of the fact that his misconduct only
involved one out of the 600 claimants he represented.
Andry has not shown that his disqualification from participation in the
CSSP was an excessive sanction. “In imposing a sanction after a finding of
misconduct, a court should consider the duty violated, the attorney’s mental
state, the actual or potential injury caused by the attorney’s misconduct, and
the existence of aggravating or mitigating factors.” In re Sealed Appellant, 194
F.3d 666, 673 (5th Cir. 1999). The district court found that Andry engaged in
misconduct and deliberately made false statements in response to the resulting
investigation, and that these actions caused “tremendous injury” to the CSSP,
including “claims being delayed, the claims program being shut down for a
period of time, a tremendous amount of adverse publicity, [and] criticisms of
Mr. Juneau, of the claims facility, of the Court, of everybody concerned with
this.” The district court narrowly tailored its sanction to prohibit Andry only
from further participation in the CSSP, rather than disbarring or suspending
him. Thus, the sanction does not restrict Andry’s practice of law in any context
other than the CSSP. Under these circumstances, the district court did not
abuse its discretion in fashioning an appropriate sanction for Andry.
X.
AndryLerner seeks relief from the district court’s two orders denying
AndryLerner access to funds earned in connection with prior CSSP claims.
AndryLerner moved to alter or amend these orders, which motion the court
denied. On appeal, AndryLerner argues that the orders should be amended in
8To the extent that Andry’s argument was not presented in his original brief, so as to
allow Freeh the opportunity to respond, it is not properly before the court. Ramirez, 557 F.3d
at 203.
20
Case: 15-30265 Document: 00513531548 Page: 21 Date Filed: 06/02/2016
No. 15-30265
three ways: (1) the district court should clarify what the condition “all
remaining AndryLerner claims have been resolved” means; (2) the orders
should be revised to allow payments to outside creditors; and (3) additional
escrow accounts should be authorized for the deposit of legal fees earned in
excess of the $250,000 for which the escrow account is insured, in order to
protect against possible bank failure. We review the district court’s ruling on
a motion to alter or amend judgment for abuse of discretion. Ross, 426 F.3d at
763.
AndryLerner raises important concerns about protecting the escrowed
funds, and at oral argument, Freeh’s counsel represented that these concerns
can be resolved by agreement. The problem, according to Freeh’s counsel, is
that AndryLerner did not adequately identify the relevant account balances to
the district court in support of its motion. In light of the apparent deficiencies
in AndryLerner’s presentation of its motion to amend, the district court did not
abuse its discretion in denying the motion. However, we emphasize that
nothing in our opinion prevents the district court from reexamining the terms
of the sanction if presented with a new and properly supported motion to alter
or amend its orders restricting the escrowed funds, and, in light of Freeh’s
representation at oral argument, we expect that the parties will work together
in good faith to propose reasonable modifications to which they can all agree.
XI.
The district court acted within its inherent authority to supervise the
settlement program and did not abuse its discretion in finding that Andry and
Lerner violated the Louisiana Rules of Professional Conduct or in fashioning
an appropriate sanction. Accordingly, we AFFIRM the district court’s sanction
order. We hold that the district court did not abuse its discretion in denying
Andry Lerner, L.L.C.’s motion to alter or amend its prior orders, and we leave
21
Case: 15-30265 Document: 00513531548 Page: 22 Date Filed: 06/02/2016
No. 15-30265
open to the district court the possibility of amending its orders governing the
escrowed funds upon submission of a properly supported motion.
22