In April, Judge Ungaro ordered sanctions against Labaton Sucharow of New York, as well as Kessler, Topaz, Meltzer & Check of Radnor, Pennsylvania, who represented shareholders who sued BankAtlantic Bancorp. The shareholders’ suit alleged that executives had lied to investors about sketchy loans to real estate developers.
On August 2, the judge tossed the verdict citing inconsistencies and granted a defense motion on the improper use of confidential witnesses.
“In a complete reversal of fortune, the plaintiffs in this rarely tried securities class action won a favorable summary judgment ruling and prevailed at trial, only to have the district court judge take away the verdict, enter judgment in favor of the defendants, and sanction the plaintiffs’ attorneys for recklessly relying on confidential witnesses to initiate the lawsuit. This is the best example of the dangers facing class action lawyers – the court first ruled that several material statements made by the defendants were patently false, and ultimately sanctioned the plaintiffs’ lawyers for bringing the lawsuit. There are no winners in this case,” says Matthew Seth Sarelson, Esq. of Sarelson Law Firm. “This case is far from over – the plaintiffs have already taken an appeal to the Eleventh Circuit. The Eleventh Circuit is super conservative on these types of cases, but the defendants still have to deal with the fact that the trial judge ruled that several statements made by BankAtlantic’s officers were patently false. This high-stakes, bet the company lawsuit just got millions of dollars riskier.”
Eugene Stearns of Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson argued that class counsel failed to make reasonable inquiries to determine if the assertions of confidential witnesses were true. In agreement, Judge Ungaro gave the defense until August 19 to name the attorneys who should be held liable for paying the sanctions and allowed the two firms to respond.
The original verdict found BankAtlantic liable and ordered it to pay shareholders $2.41 a share in damages. The overturned ruling now orders plaintiffs’ counsel to pay BankAtlantic’s attorneys’ fees and other expenses incurred in deposing a witness and a tenth of the fees and costs of preparing and filing the motion for sanctions.