In fallout from First NBC, lawyer suspended after failed bid to stave off a widow's foreclosure

The $1 billion implosion of First NBC Bank in 2017 resulted in collateral damage across New Orleans, with businesses losing lenders, development deals going kaput and several executives and borrowers heading to jail.

Its most recent casualty is Henry Klein, a longtime New Orleans attorney whose law license was suspended by the Louisiana Supreme Court for alleged misconduct during a six-year battle trying to stop a distressed debt investor from foreclosing on the assets of his law partner's widow.

The Supreme Court last week curtailed Klein's ability to practice for a year and a day. In its 16-page order, it painted a picture of Klein's frenetic attempts in six different courts, including the U.S. Supreme Court, to stave off the foreclosure.

But the seven justices in Louisiana's top court determined that Klein had overstepped, becoming more than simply a nuisance to a lower court and opposing lawyers. He had breached ethics rules by falsely accusing lawyers and the lower court judge of corruption.

Klein says that he was only trying his best for his client, Regina Heisler, wife of Klein's deceased partner Fred Heisler, who he claims was unwittingly entangled in the vast First NBC fraud when she pledged much of her inherited assets as collateral to cover millions of dollars in loans to Mississippi developer Gary Gibbs.

"Regina Heisler did not receive any money in this note kiting scheme and was one of the victims in the fraud," Klein said in a phone interview after the suspension.

Gibbs pled guilty to fraud and testified in January in the federal trial of former First NBC CEO Ashton Ryan, saying that he had built up a giant "black hole" of debt by colluding with Ryan to borrow money that both he and Ryan knew he couldn't repay.

In his testimony, Gibbs said that at one point Ryan had urged him to use loan proceeds to cover up the fact that two land projects Regina Heisler had inherited — and for which Gibbs was the developer — were in default. Klein also had been an investor in both.

On the hook for millions

By the time of the bank's collapse, Heisler was on the hook for more than $10 million, while Gibbs had racked up more than $130 million of bad loans.

Ryan was found guilty in February of 46 counts of bank fraud and is scheduled to be sentenced in August if his July appeal for a new trial fails. Gibbs and eight other borrowers and bank officials who pled guilty and testified are expected to be sentenced after Ryan.

Heisler was never accused of involvement in the fraud. When federal regulators seized First NBC in 2017, her notes were among the $1 billion of bad loans sold off for pennies on the dollar to distressed debt investors, who are often called "vulture funds" by their critics for their specialization in collecting on such debts.

Girod LoanCo, a subsidiary of giant private equity firm TPG, bought the Heisler loans and began pursuing her assets, which included a $2.1 million investment account with money manager Charles Schwab, an office building on Baronne Street in New Orleans' Warehouse District and a strip mall on Williams Boulevard in Kenner.

Klein's efforts to keep foreclosure at bay included, among other things, attempts to move proceedings from Judge Scott Schlegel's 24th Judicial District Court in Metairie to federal court in New Orleans and asserting that Girod LoanCo was a foreign corporation not registered to do business in Louisiana.

All of Klein's efforts failed and the case kept getting sent back to Schlegel's court.

Heisler was not the only one to try and keep Girod from collecting on First NBC debt. Frank Haines Jr. also went through bankruptcy in New Orleans to stave off Girod REO, another TPG subsidiary, from taking his assets to settle First NBC loans.

Haines' businesses included Scuttlebutts Nightclub in Slidell, the only gentleman's club in St. Tammany Parish until it closed in 2021. That bankruptcy ended last year with the sale of his real estate and other business assets to pay off Girod and other creditors.

Over the edge

But Klein took the fight too far, the Supreme Court found. In their suspension order, the justices said he had sent "threatening and disrespectful correspondence" to Schlegel's court clerk and made inappropriate attempts to have the judge make favorable decisions for his client.

When Schlegel refused to hear Klein's bid alleging that Girod LoanCo was a fraudulent corporation, Klein tried to have Schlegel recused from the case. He also accused Girod's law firm, Kean Miller, of aiding in a Girod fraud and Schlegel of being in the law firm's pocket because it had made contributions to his election campaign.

The Supreme Court said Klein "stated that the relationship between the district judge and Girod's counsel was 'nothing short of shocking' because counsel had made a campaign contribution to the district judge, and that the district judge's integrity had been compromised with counsel's participation." But Klein, the court concluded, "had no evidence for these allegations."

The Klein investigation, which began in 2019 and went through two formal hearings, also found that he had sent harassing emails to Kean Miller's managing partner and several of the firm's senior managers, accusing them of aiding in criminal activity. He demanded they dismiss the case and pay $3 million in a settlement.

Kean Miller's managing partner, Linda Perez Clark, said nobody at the firm could comment.

A vigorous defense

In the interview, Klein, 79, said he felt like he was being persecuted because of his zealous defense of his client, who died in late December at age 79.

"Once the court saw Regina Heisler's signature was on a piece of paper they saw nothing else," he said. "Because I fought hard, I'm getting killed."

Two of the Supreme Court justices, Scott Crichton and Jay McCallum, dissented from the suspension decision, but only to say they felt the penalty should be harsher because of Klein's record (two previous suspensions and several reprimands) and his lack of remorse.

They pointed to the fact he had continued to file motions even after the suspension order. Klein said he will appeal the suspension.

"Do I look like a quitter?" he said.