Court Rejects Ponzi Scheme Conspiracy Theories Against Burnham Brown Clients

October 2015

Court Rejects Ponzi Scheme Conspiracy Theories Against Burnham Brown Clients

Burnham Brown attorneys Robert Bodzin and Alison Greene spent the past two years seeking dismissal of a complaint which arose out of the Mortgage Meltdown and Great Recession of the late 2000s. RE Loans and Mortgage Fund ’08 were thriving multi-million dollar mortgage investment funds based in Contra Costa County, which were principally, owned by businessmen Kelly Ng and Walter Ng. After allegations of multiple improprieties, including improperly using investor money from Mortgage Fund ’08 to prop-up the failing RE Loans, the businesses and principals were the targets of investigations by the FBI, DOJ and the SEC. Multiple criminal prosecutions, civil suits by investors, class actions and bankruptcies occurred as a result of these investigations. After Mortgage Fund ’08 filed bankruptcy, its Trustee filed suit to recover damages against banks and other entities who allegedly wronged the company.

The clients of Mr. Bodzin and Ms. Greene were attorneys for the companies who were neither members nor owners of RE Loans or Mortgage Fund ’08 and had no involvement in the investment decision-making at the companies. Under the doctrine of in pari delicto, a bankruptcy Trustee essentially stands in the shoes of the principals and principal decision-makers at the companies and as such, can only recover damages against those company employees who either committed acts that were as bad or worse than the principals or had the power to stop the improper actions and failed to do so.

The Bankruptcy Trustee’s complaint was originally filed in September 2013 and sought damages based on theories of legal malpractice and breach of fiduciary duty. After Burnham Brown filed two demurrers seeking dismissal of these claims, the Trustee’s amended complaint was dismissed based on the doctrine of in pari delicto. In early 2015, the Trustee was given one more opportunity by the Court to re-file the complaint as long as the lawsuit omitted all claims barred by in pari delicto. The Trustee’s second amended complaint asserted theories of fraud and breach of fiduciary duty against Burnham Brown’s clients, but omitted the legal malpractice claims.

In early October 2015, Judge Fannin of the Contra Costa Superior Court in California issued a decision that strongly rejected all theories of liability against the former company attorneys who were neither owners nor principals of RE Loans of Mortgage Fund ’08. Judge Fannin rejected the Trustee’s efforts to delay ruling on the demurrer to allow late-requested depositions of Burnham Brown’s clients to take place.

Significantly, Judge Fannin sustained the demurrer to the second amended complaint without leave to amend and held the claims were barred by the doctrine of in pari delicto and the respective statute of limitations on each claim.

As this write-up is being posted Burnham Brown is preparing to seek costs against the Trustee on behalf of its clients. Mr. Bodzin and Ms. Greene are very pleased that their clients did not have to endure full-blown litigation brought by the Trustee.

Robert M. Bodzin is a partner/trial attorney at the law firm of Burnham Brown in Oakland. He is one of the Chairs of the firm’s Commercial Litigation Practice Group. He is a recent past Chair of the Litigation Section of the California State Bar and advisor on its Executive Committee. Mr. Bodzin has been an author and editor for numerous DRI publications and is currently Vice-Chair of the DRI Retail & Hospitality Committee. Mr. Bodzin has been practicing law since 1992 and is admitted as an attorney in California, New York and New Jersey. Mr. Bodzin can be reached at 510-835-6833 and

Alison Greene is Senior Counsel at Burnham Brown and has been practicing insurance coverage, complex business litigation, and insurance defense litigation for over twenty years. Ms. Greene can be reached at 510-835-6724 and

For More Information, Contact: Robert Bodzin
(510) 835-6833

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