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Lawyer Must Return $630,000 In Fees Due To Breach Of Fiduciary Duty

Arbitrator finds breach of fiduciary duty by San Antonio lawyer due to fraudulent billing practices in townhouse development lawsuit.

While representing plaintiffs in a lawsuit against the now-defunct First National Bank of Edinburg, attorney Ernesto Martinez Jr. submitted false invoices, double-billed his clients, and charged attorney fees for work of a nonlawyer, according to findings of arbitrator Phylis Speedlin.

“Certainly, Mr. Martinez doesn’t agree to any of those findings,” said San Antonio lawyer Jesse Castillo, who represented Martinez in the arbitration. “There is not an appeal process, so you’re stuck with the (results).”

Castillo was critical of the arbitration process, saying he had no opportunity to question Martinez’s former clients who had signed “copy-cat affidavits” that were admitted into the arbitration. “It’s kind of difficult for a lawyer to defend claims from people who aren’t sitting in front of (him),” he said.

Christopher Hellmich, who represented Martinez’s former clients in the arbitration, had no comment.

The arbitration stems from Martinez’s actions in a lawsuit filed over the Tundra Town Home Village project, a failed South Side townhouse development near the Toyota plant.

Developer Mauro T. Padilla III developed the property without an approved plan — or a master plan for the development. Building permits were never pulled for some of the 37 never-completed four-unit buildings. Some of the development is currently listed for sale even though no roads, electricity or water lines ever were installed.

The project’s investors, many from California, hired Martinez to sue the now-defunct First National Bank of Edinburg, its officer and directors, Padilla and various other parties in 2009. Among other things, the investors allege the bank was aware that Padilla was not applying a large percentage of the construction draws to the project and that it continued to lend money despite serious construction deficiencies.

In 2011, Padilla was sentenced to 12 years in federal prison for lying to the bank to secure construction funding. In 2013, the bank was shut down by federal regulators at a cost of $637.5 million. The Federal Deposit Insurance Corp. stepped in as receiver for the bank and has been defending the lawsuit brought by the investors.

The litigation is ongoing in U.S. District Court in San Antonio. On Friday, the investors — most of whom are now represented by other lawyers — filed their seventh amended complaint in the case.

Before some of the investors switched attorneys, they began questioning Martinez’s bills. Clients asked for an audit of his billing, but it was never done, according to the Nov. 13 arbitration ruling. Hellmich was retained to investigate excessive billing by Martinez.

Martinez failed to provide invoices and ultimately was terminated by 19 clients in October 2014, the ruling states. The clients then brought the arbitration against him, essentially alleging fraud, violations of the Deceptive Trade Practices Act, breach of contract and

breach of fiduciary duty. Arbitration proceedings were held over four days in August and September.

Speedlin — who has served as a state district judge and on the 4th Court of Appeals — ruled Martinez breached his fiduciary duty to the clients. Speedlin, with the law firm Dykema Cox Smith, handles alternative dispute resolutions, including arbitration.

An accountant who reconstructed Martinez’s billing testified that he billed the exact same hours to two groups of investors. For example, he charged 17.5 hours to each group on June 24, 2010 — meaning he would have put in 35 hours of work in a 24-hour period. That happened on at least six other occasions, the arbitration ruling indicates. The accountant concluded clients were overbilled $135,963.

Speedlin’s ruling also states that Martinez submitted false invoices that show work done by attorney Ricardo Rodriguez was credited to Martinez.

Rodriguez estimated he put in 500 to 1,000 hours in the case but was only paid $4,500 for the work, the ruling says. Martinez told Rodriguez that clients had stopped paying him, so in 2012 Martinez agreed to share any contingency award equally, it adds. In June, Rodriguez discovered numerous billing statements, or pre-bills, that included work that he had done from October 2010 through April 2013. Rodriguez had never approved them, however.

“I just can’t make a comment on this right now because of the possible claims that I’ll be having against Ernest with regards to all this,” Rodriguez said.

Martinez’s clients also paid him $88,000 to cover costs related to mediation with one of the defendants in the Tundra Village lawsuit. After the mediation was canceled, some of the remaining money was used for “expenses,” the ruling notes. In a footnote, Speedlin wrote that Martinez agreed not to spend the remaining $15,000. Yet Martinez later denied any money remained.

As part of the award, Martinez was directed to turn over all documents and bank statements related to the disposition of the $88,000.

Asked if Martinez has the money to pay back the clients, Castillo said, “I don’t believe so because I was kind of helping him at no charge. He was having difficulty even paying the arbitrator’s fees.” Those are almost $26,000.

Meanwhile, Castillo said the arbitration led him to remove arbitration provisions from his law firm’s fee agreements.

“I’ve spoken with other lawyers, and every one of them had the same reaction: That it’s much better to have a judge or jury decide your fate,” he said. “At least those proceedings follow the rules of procedure.”

Originally posted by Patrick Danner on

Breach of Fiduciary Duty Representation - Ball & Bonholtzer Trial Attorney - Los Angeles

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