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Sistrunk v. Haddox

United States District Court, W.D. Louisiana, Shreveport Division

February 26, 2019


          FOOTE JUDGE


          Mark L. Hornsby U.S. Magistrate Judge


         Glynn and Lawana Sistrunk (“Plaintiffs”) filed this civil action against an investment advisor and a related firm for the alleged churning of their account and fraudulent activity. Gregory Lamar Haddox, the advisor, responded to the complaint with a Rule 11 Motion for Sanctions (Doc. 22) on the grounds that the facts alleged lack evidentiary support. For the reasons that follow, it is recommended that the motion be denied.

         Summary of the Allegations

         Plaintiffs allege in their Amended and Restated Complaint (Doc. 9) that they are unsophisticated investors who maintained investments with USAA prior to 2005. With Mr. Sistrunk's retirement approaching, Defendants allegedly persuaded them to liquidate most of the USAA investments and allow for the creation of an annuity account with Allianz Life Insurance Company of North America. Plaintiffs allege that their objectives were conservative annuities that would not risk losing the funds invested.

         Plaintiffs allege that Defendants moved money into multiple Allianz accounts, without disclosing pertinent conditions or fees, as part of a systematic churning of Plaintiffs' money at great expense to them. Plaintiffs allege that Mr. Haddox improperly misdirected various statements from Allianz or others investment companies to his home address to cover up how the funds from the USAA account had been substantially bled down.

         Plaintiffs also allege that Defendants obtained “fraudulent” loans that were assessed to their annuities without Plaintiffs' knowledge and without them receiving any benefit. Plaintiffs allege that a number of forged endorsements were involved in these transactions. They allege that Mr. Haddox's license to sell variable contracts in Louisiana was cancelled by the Department of Insurance in March 2012, but neither defendant ever told Plaintiffs of that action. These allegations, often in a transaction-by-transaction explanation, are set forth in the 166-paragraph Amended and Restated Complaint (Doc. 9).

         The Motion for Sanctions

         Rule 11 requires that every pleading be signed by at least one attorney of record. By presenting to the court a signed pleading, an attorney certifies that to the best of his knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, that “the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.” Fed. R. Civ. Pro. 11(b)(3).

         Counsel for Mr. Haddox served a draft of a motion for sanctions on attorney David Szwak, counsel for Plaintiffs, that invoked Rule 11(b)(3). The motion noted that none of the allegations in the complaint were identified as ones that will likely have evidentiary support after further investigation and discovery, so counsel for Mr. Haddox demanded that Mr. Szwak produce evidentiary support for most of his key allegations. Haddox contended that there were several allegations made in the amended complaint that had no evidentiary support and were contrary to facts disclosed in documents signed and approved by Plaintiffs.

         Mr. Haddox challenged Plaintiffs' allegations that (1) Plaintiffs had no knowledge of or did not approve several transactions set forth in approximately 30 different paragraphs and (2) Haddox caused financial statements to be misdirected to his home address, as Plaintiffs alleged in approximately 30 paragraphs. Haddox specifically challenged Plaintiffs' ability to provide evidentiary support for the contentions that their signatures were forged, that loans made to them by the annuity issuers were fraudulent, or that Haddox falsified statements.

         Haddox's draft motion was accompanied by a letter from defense counsel in which he stated that he had seen documents signed by Plaintiffs that requested “exactly the transactions which they are complaining about and which they claim they knew nothing about.” Counsel invited Mr. Szwak to provide any evidence that he may have that supported his claims. Szwak did not respond within Rule 11(c)(2)'s 21-day safe harbor period, so Haddox filed his motion.

         The motion begins by attacking Szwak's certification of the facts alleged. It ends with a request for unspecified sanctions and attorney fees against Szwak and Plaintiffs. In his reply (Doc. 31), Haddox states that he lacks insurance to fund his defense and clarifies that he “filed the Rule 11 motion in an effort to narrow considerably the volume of allegations which he must defend.” He asks that the ...

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