Robert L. Brace (“Rusty”) began his legal career by joining his father’s Santa Barbara law firm (Hollister & Brace) in 1985 soon after graduating from the University of Colorado, Boulder and passing the California bar exam.  Before going to law school Rusty went to UC Berkeley and then worked for a few years as a marine crane operator on oil drilling platforms in the Santa Barbara Channel and on a semi-submersible (the Sedco 708) in the Bering Sea, Alaska.

Hollister & Brace started operations in the mid-1960s with a partnership between John James Hollister and William A. Brace.  William A. Brace was an accomplished plaintiffs contingency fee lawyer. For example, see his case Weirum v. RKO General, Inc., 15 Cal. 3d 41 (1975) cited in torts textbooks on the foreseeability of injury to others creating a duty to avoid your own conduct that may trigger the dangerous actions of third parties.

Rusty started as an associate working for his father on contingency fee cases involving commercial disputes. Rusty’s first case out of law school was litigation against a law firm for helping a judgment debtor cover-up a fraudulent conveyance. Rusty’s client was a judgment creditor.

From 1985 to 2021 Rusty has continued to work on a contingent fee basis assuming the risk of success to get paid a reasonable fee. Rusty’s practice has evolved to cover larger, multi-party class actions in federal and state courts located throughout the United States. Rusty has earned the distinction of being an AV rated Preeminent Lawyer by Martindale-Hubbell.

Most of Rusty’s cases are filed as class actions, but he also represents federal court receivers and bankruptcy trustees of entities that were used by their owners to steal money from third parties.  The court appointed successors of the adversely dominated companies hire Rusty to seek to recover monies from institutional defendants to be paid to distinct groups of creditors, like the victims of Ponzi schemes. Most of his cases ultimately lead to working on insurance coverage issues.

Since 1990 Rusty has been involved in recovering money lost by investors in Ponzi schemes. Rusty has represented the buyers of phony health and casualty insurance, the sellers of real property who deposited their sales proceeds with fraudulent “Qualified Intermediaries”, and investors buying worthless promissory notes signed by fraudsters to sell and lease back non-existent ATMs or to purportedly finance the manufacture of medical gloves in Asia to be sold to the US government.

In these financial frauds, the primary tort feasors are not viable candidates for meaningful financial recovery because the money is gone, and they are confined to jail.  Rusty regularly visits the Lompoc Federal Penitentiary to ask the lead actors what their exit plan was.  Many had no plan and are glad they were arrested because it is very stressful to lie each day all day long. The primary perpetrators usually offer inside information about their complex crimes and the existence, if any, of lawyers or bankers who may have materially assisted them.  If the facts warrant, Rusty pursues civil litigation against professionals who knowingly assisted the Ponzi scheme and, at the same time, he concentrates on perfecting or at least not destroying possible insurance coverage.

As a general matter, institutional defendants do not decide to knowingly participate in Ponzi schemes making judges hesitant to invoke accessory liability.  Courts know that it is much easier for banks and lawyers to make money providing legitimate clients with ordinary services at standard rates. Courts also understand that banks and law firms are not the police or the guarantors of their customers’ business activities. If they were held to such a high standard, the wheels of commerce would grind to a halt. For the most part, institutional defendants become embroiled and potentially liable for aiding and abetting liability because they fail to timely exit a suspect relationship by firing the client as soon as they discover the customer’s business makes no business sense.

Rusty has found that the key to successfully prosecuting aiding and abetting cases is to show some financial motive in keeping the scheme alive for some time after discovering the client is operating a fraud. The investors who were injured between the date of discovery by the institutional accessory and the collapse of the Ponzi scheme are the members of the class.

Rusty has litigated enough Ponzi schemes to be able to identify the common motives that cause bankers and lawyers to fail to immediately fire clients. The most common problem is errant employees having prior relationships with and a financial interest in the criminal enterprise. The errant agents push the dubious relationship deep inside the four corners of the business making extraction difficult.

A common mistake for banks as lenders is the failure to properly underwrite loans made to Ponzi operators. Once the Ponzi is discovered, banks will forego termination to avoid adversity and detection, “letting sleeping dogs lie.” Rusty has seen banks allow the Ponzi scheme to continue to generate new investors’ deposits as income to pay off the debt owed the bank. Another mistake is the fear of future litigation. When the customer’s inhouse file has blemishes showing multiple “red flags” that should have alerted the bank to the Ponzi scheme, the bank will decide to do nothing with the newly discovered facts and let the client continue in business.  Looking backwards in time with 20/20 hindsight, the idea of avoiding anticipated litigation with silence just leads to certain litigation with newly incurred and significant damages for those who invested. The recommended course of action is the immediate termination of the client relationship.

Most of Rusty’s cases have come before the Multi-District Litigation Panel (MDL), which will transfer multiple cases pending in various district courts to one court to be heard by one Judge. These transfers, or “centralization orders,” are conducted for the sake of efficiency of time and costs and to promote consistency in rulings.

The class action procedures under Rule 23 have not been a factor in determining the value of Rusty’s cases. His cases have involved fewer class members suffering sizable claims instead of larger class cases with numerous plaintiffs with smaller valued claims. There have been victims in Rusty’s cases that lost millions of dollars, yet they participate as members of the class represented by Rusty instead of hiring their own counsel to file individual actions.

In these smaller class actions, class certification by way of a contested motion does not drive the value of the case. If the motion for class certification is denied the multiple plaintiffs who comprise the class of similarly situated victims may simply be joined as named plaintiffs and listed in the caption on one complaint. Generally, the defendants know that permissive joinder will keep the litigation alive, so they desire that the cases be prosecuted as class actions. In class actions, the settlements maybe negotiated with only the named representatives binding all the victims who do not opt out. If the settlement is fair there will be no opt outs. The alternative is multiple individual cases in multiple forums throughout the country. The efficiency of Federal Rule 23 makes these class action cases attractive to voluntarily settle and certify, even if certification would be problematic in a contested motion.

One consistent disputed issue for Rusty is the standing of his client to sue. The class members suffered the economic injury, but they are not in privity with the professionals working for the entity which lost their money. The entity may be a proper plaintiff with privity, but is most likely in pari delicto with the criminals acting as the entity’s agents. Because of the standing and causation problems associated with “dirty shoes” we try to combine the entity in bankruptcy or receivership as a co-plaintiff with the class as co-plaintiffs so that the combined defenses of standing and in pari delicto do not defeat the case.

Attorney fees are, in general, based on a percentage of the recovery obtained. These large fraud cases are expensive to manage and prosecute, but not as expensive as other types of commercial litigation. Generally, the plaintiffs’ money has disappeared, and we follow the money to identify the defendants. The early forensic accounting work does not need to be perfect because the money is gone. Tracking transfers of funds greater than $100,000 gives the same information as tracking $1 transactions – and costs much less to develop.

In Rusty’s class cases, most defense attorneys are from large national firms. There is a high degree of civility, as the defendants are substantial entities with valuable reputations to protect. The risk managers are not gamblers and are resolution-orientated if the case gets past the pleading stage. The overall litigation environment is very professional. Client approval is also rewarding. Taking large complex cases which appear to be unmanageable and returning a substantial percentage of the clients’ losses is satisfying.