Bay County condo bust: Judges lawyered their way out of bad real estate investment

It sounded like one hell of a deal. A relatively small “preconstruction” investment in Gulf-front condos on Florida’s Emerald Coast, where, in exchange for a $75,000 letter of credit, minimal interest charges and a few years of patience, stakeholders would be rewarded with as much as $500,000 in profit.

It was 2005 in Panama City, where the developers of the 23-story Ocean Reef condominiums were seeking capital investment. At the height of the building boom, Ocean Reef accounted for just 162 of the nearly 5,000 new condo units approved for construction in Panama City that year, but the real estate market indicated demand would remain high and prices would continue to climb.

Optimistically, the completed units could be listed for as much as 100 percent more than their value in concept, at a time when new condos remained on the market for an average of 180 days.

Habib Yazdi, a ubiquitous defense and divorce attorney in Government Plaza’s north tower, was a cheerleader for the scheme. Along with his lucrative domestic practice and large criminal defense caseload, Yazdi boasted last week about his reputation around the courthouse as a “very successful” real estate investor who “had made millions.”

Yazdi explained that with the blessing of former Circuit Court Judge Robert Kendall, who died months later, he extended the offer to every judge in the county.

“I knew a good developer with a good development and good prices, so I offered to bring in a few investors,” he said. “I bought two for myself, I encouraged friends and cousins and judges to commit, so I got maybe 20 units in all and [the developer] gave me a good price.”

If his name sounds familiar, perhaps you’ll recognize Yazdi as often the highest-paid indigent defense attorney in Mobile County in the years before reform was passed in 2010. Between 2006 and 2011, a previous Lagniappe investigation reported, he was reimbursed by the state for nearly $1 million to represent defendants too poor to afford an attorney of their own.

Perhaps you’ll remember Yazdi as the “ineffective trial counsel” named in an order overturning the capital murder conviction of former death row inmate William Ziegler, who was released last year after serving 15 years behind bars for allegedly stabbing a man to death. He told the jury in that trial, in a baffling defense of not sentencing his client to death, that if not for their hard work convicting criminals, “every one of us would be stabbed every day.”

Or maybe his name will ring a bell if you recall he was once “Habib Yazdtchi,” an attorney disciplined by the state bar while practicing law in Montgomery County, before he changed his name in Baldwin County Probate Court and established his practice in Mobile.

As Yazdtchi, perhaps you’ll recall he once brandished a loaded semi-automatic pistol during divorce proceedings with his own wife, waving it and making threatening remarks toward her and her attorney.

But in spite of the occasional blemishes on his resume, Yazdi is also known for being dependable — not hesitating to defend any indigent case, whenever one is assigned by Alabama’s 13th judicial circuit. Between 2006 and 2007, for example, he was retained in 445 indigent cases, earning $174,339. In fiscal year 2008, he had become the highest-paid indigent defense attorney in the state, earning $267,193 from 523 appointments. In 2009, Yazdi reported $239,158 in reimbursements from 356 cases.

As someone who frequently appointed Yazdi to cases, former Mobile County Circuit Court Judge Rusty Johnston said it was “odd” to receive an investment offer from the prolific attorney in 2005.

“I believe I heard every judge either express fear of the real estate bubble popping or concern about ethics as we all appointed Habib,” Johnston wrote in a Facebook post Jan. 22, exposing the deal Yazdi eventually secured on behalf of Presiding Judge Charlie Graddick, Circuit Court Judges George Hardesty and Herman Thomas, and District Court Judge Judson Wells.

Since his retirement from the bench amid an ethics investigation last April, Johnston has remained largely out of the spotlight, teaching gun safety and defense courses at a South Mobile County shooting range, but also participating in occasional legal forums in person or over the airwaves. But at approximately 4 a.m. on Jan. 5, Johnston broke his silence, posting the first in a series of screeds alleging impropriety in the Mobile County courthouse, and by Graddick in particular.

The condo deal wasn’t exactly secret; Habib extended the offer to every judge in the county, promising the $500,000 units would be worth as much as $1.1 million when construction was complete in two years. Graddick and the others secured letters of credit and signed purchase agreements in March 2005, a few month before a CNN Money article listed Panama City above all others as “Top 10 cities: Where to buy now.”

Citing the $350 million public-private partnership that eventually opened the Northwest Florida Beaches International Airport in 2010, the article stated, “Locals expect the new facility to open up the region the way Southwest Florida International Airport in Fort Myers helped drive a housing boom along Florida’s southwestern coast in the 1980s.”

An economist was quoted as saying, “Panama City is an economy waiting to break out.”

But then the bubble burst.

A New York Times article dated Jan. 5, 2007, quoted another real estate agent offering, “[Investors] who bought a condo in the preconstruction stage two years ago … are closing on their property now and paying more than what it’s worth.”

According to the article, the agent also reported “sales of existing condo units were down 45 percent in 2006 … but sales of new condos were up by 3 percent.”

Around February 2008, just before the statute of limitations on their purchase agreements was about to expire, 13 investors using the same attorney, including the four Mobile County judges, filed suit against the developer, seeking relief from the agreements and the return of their letters of credit.

“Everything was fine at first and in two [to] two and a half years, the condos would be there and we would sell for $1 million and everyone makes money,” Yazdi recalled. “But then real estate got crushed and we said we didn’t want it anymore, so we ended up going to court.”  

Johnston claimed in order to invalidate his $75,000 letter of credit and renege on the deal, Graddick attacked the developer and the terms of the agreement in Panama City, then filed a separate lawsuit in Mobile County, requesting the Chief Justice of the Alabama Supreme Court to “appoint a friendly judge to issue an injunction keeping the developer from getting [the letter of credit].”

Records show that in addition to the complaint filed in Bay County, Florida, Graddick also sought an injunction in his own circuit against the letter of credit. Claiming all other county judges recused themselves from the action — a claim Johnston denies —  Graddick then asked acting Chief Justice Sue Bell Cobb to appoint someone. Washington County Judge Thomas Baxter answered the call, and immediately issued a temporary restraining order against Graddick’s creditors. Meanwhile, in Bay County, the plaintiffs eventually succeeded with their contractual complaint, arguing the purchase agreement was invalid because of a federal statutory oversight.

Graddick was presiding over a capital murder trial last week and didn’t return calls seeking comment, but Wells, who has since returned to private practice and only serves as a judge when appointed, assured Yazdi’s recruitment of judges for financial gain wasn’t a conflict of interest.

“Habib had a good track record and condos were hot at the time,” he said. “I wouldn’t characterize it as a ‘business relationship’ … it was more like an ‘investment opportunity.’ I didn’t see anything improper about it.”

Wells said he secured a letter of credit independently through Regions Bank, and had to pay a small annual fee to keep it open in accordance with the purchase agreement. Even though he and the other judges were released from their obligations, Wells said he still lost thousands of dollars in legal fees.

“I don’t remember being paid back or ever recovering anything from the developer,” he said.

Meanwhile, both Yazdi and Wells denied allegations Yazdi received favorable treatment in exchange for the investment opportunity, regardless of its termination or the frequency with which Yazdi was appointed to indigent case work.

“I didn’t treat Habib or his clients any differently because [of the deal],” Wells claimed. “If you look at the number of times Habib was appointed in my court … you wouldn’t see any effect on his clients or appointments.”

While a request for information related to Wells’ tenure is pending, data previously published by Lagniappe showed that in 2009, most of Yazdi’s 516 appointed indigent cases were awarded by District Court Judge Bob Sherling, Wells’ successor. That same year, Graddick also awarded Yazdi 49 cases, while Hardesty awarded Yazdi 41 cases. Former Judge Herman Thomas resigned from the bench two years earlier and was eventually disbarred amid allegations of sex abuse, attempted sodomy and assault that stemmed from a criminal trial in which another judge appointed by Cobb threw out all charges against Thomas after the jury hung over his guilt.

“[The judges] treat me like everybody else,” Yazdi said last week. “They didn’t make any money. They got their letter of credit back. Nobody gained any money and nobody lost $250,000 either.”

But Johnston remains unconvinced, claiming he discussed it with one other judge, which Lagniappe could not confirm.

“I discussed it,” Johnston said. “[Another judge] told me a good line. He said ‘You know, Habib, if we did this we’d have to stop appointing you because we’d be in business with you.’  

“You know, I always thought that if you have to look it up in an ethics book, it’s too close to the line,” Johnston continued. “You know, I wouldn’t do it. I tried not to be acquaintances with people buying me anything, even lunch, if I wasn’t friends with them before I was a judge. That was my idea of ethics.”

Rusty Johnston defends himself against critical JIC testimony

By Dale Liesch/REPORTER

Mobile’s legal community has been abuzz for the past few weeks since former Circuit Court Judge Joseph “Rusty” Johnston took to social media in a series of lengthy diatribes exposing what he believes to be unethical behavior by some former colleagues, and claiming he was railroaded out of office by current Presiding Circuit Judge Charlie Graddick.

Johnston retired from office last year after being hauled into an Alabama Judicial Inquiry Commission investigation to examine what his critics described as bizarre and unprofessional behavior on the bench. Johnston resigned following the hearing, but nearly two years later says the inquiry was little more than a kangaroo court designed to remove him as a political obstacle to Graddick, as the latter sought to bend rules against succeeding himself as presiding judge and as chairman of the county’s Judicial Nominating Committee.

The Judicial Nominating Committee is tasked with choosing candidates whose names will be sent to the governor when a judicial appointment is necessary.

While few witnesses questioned Johnston’s fairness and professionalism on the bench, the JIC investigation was convened to examine a number of complaints against him about his behavior when he wasn’t presiding over trials. According to hundreds of pages of testimony from confidential hearings, JIC was attempting to validate complaints rooted in Johnston’s sporadic absenteeism and tardiness, an allegation of misconduct during an assault trial, and also his vocal gun advocacy and other courthouse rumors. Johnston provided Lagniappe with the JIC testimony, which is typically not a matter of public record.

Johnston says any claims about tardiness or sometimes odd behavior are explained by the fact he has been diagnosed with narcolepsy, an extreme sleep disorder that went undiagnosed for some time and one he has struggled to control. Johnston also questions why if there were tardiness issues that he wasn’t confronted by other judges on the circuit.

Johnston says he believes his departure from the bench was an orchestrated effort by Graddick, with whom he butted heads behind the scenes over certain procedural matters — primarily Graddick’s desire to continue serving as head of the Judicial Nominating Committee. Johnston says in that case he believes Graddick wanted to hold onto the power the position offered, and Johnston challenged the legality of him doing so, at one point even being abruptly called back from a vacation at the beach for a meeting about who would be the next member of the committee. Graddick did not respond to several efforts to interview him for this story.

In addition to his complaints about the way the JIC investigation was handled, Johnston has also taken to Facebook to denounce Graddick’s involvement in a failed real estate deal put together by Mobile County’s top indigent defense attorney that would have allowed four local judges to “flip” preconstruction condominiums in hopes of each making $500,000. Johnston maintains the deal was at least unethical and should have been avoided by any judge. (See accompanying story.)

Johnston’s own legal troubles, however, came about as a result of actions during an assault case that ended with Johnston declaring a mistrial. In the months following the trial, Johnston took to Facebook to denounce the behavior of father-and-son defense attorneys Donald and Jonathan Friedlander during the trial. That was eventually followed by the Friedlanders filing complaints against Johnston with JIC.  

The complaints resulted in hundreds of pages of testimony, ordered by subpoena throughout the summer and fall of 2014. In the wake of the JIC investigation, Johnston would take a leave of absence in February 2015 and officially retire about two months later.

The Friedlanders’ complaint was based upon Johnston’s management of the 2013 trial of Rudolph Agnew, who was charged with assault after causing a traffic accident in which a Mobile police officer was injured. Years after the incident and following several delays, the Agnew trial was abruptly stopped after Johnston argued with the Friedlanders — who were defending Agnew — over the merits of a question involving the victim’s separate civil case against the defendant.

In his testimony to JIC, Jonathan Friedlander said the question was valid because “there was about a $400,000 uninsured motorist policy there. And we felt that [the officer] had changed his story once he found out he could get a substantial amount of money and we thought that was relevant and we thought it should be able to be brought out.”

Recalling the argument in a subsequent interview last week, Johnston said he disagreed, then helped the Friedlanders craft a non-prejudicial question for the jury.

“The jury comes back in, and [the Friedlanders] ask the exact question that had been objected to,” Johnston claimed. “So, [they] violated the court order [and] prejudiced the officer. He [Donald Friedlander] denies it, but he did it.”

Afterward, Johnston said he intended to write an order, but it “was taking longer than I thought.” What happened next resulted in the JIC investigation.

“We had people in the hall waiting for motion dockets,” he explained. “So, the note was sent out and said … ‘I’m granting a mistrial.’”

Donald Friedlander said neither he nor Jonathan ever saw “the note” Johnston passed to a court reporter, who passed it to the prosecutor in the case, Assistant District Attorney Matt Simpson, but argued the note represented an “ex-parte conversation.”

Donald Friedlander further accused District Attorney Ashley Rich of passing the note to Presiding Judge Charles Graddick, who finally shared it with the Friedlanders after Johnston granted the mistrial. Donald Friedlander said it left them “blindsided.”  

But whether or not the Friedlanders were aware of the note, Johnston told Lagniappe it didn’t constitute an ex-parte conversation.

“If [the note] said, ‘What do you think of me granting a mistrial? Yes or no?’ that would be an ex-parte communication,” Johnston argued. “But I said what I [already] had done.”

The note was central to several witnesses’ JIC testimony, including that of Rich, who said she reluctantly met with the Friedlanders after the mistrial to discuss it. Testifying to JIC, Rich said the Friedlanders approached her afterward and demanded she award “good behavior” for their client, or else they would file bar complaints against Simpson and Chief Assistant District Attorney Deborah Tillman for the ex-parte communication.

“I did not say the words that I wanted to say to them, but I quickly told them that they needed to get out of my office … that is not how we operated the Mobile County District Attorney’s office, and that no one is going to threaten the District Attorney to get a plea in one of their cases …,” Rich testified. “… It was obvious to me that they were trying to force me to plead their client, and we didn’t. And I told them to get out of my office.”

Late last week, Donald Friedlander referred to the meeting with Rich as “plea negotiations.” But Johnston accused the Friedlanders of bribery.

In her testimony, Rich admitted the note put her assistant district attorneys in “an extremely difficult position.”

After Johnston recused himself from Agnew’s appeal, Graddick was assigned the case and dismissed it. In testimony to JIC, Graddick said he found the dismissal to be appropriate on the grounds of double jeopardy.

Meanwhile, Donald Friedlander said Graddick encouraged him to let complaints about Johnston and the DA’s office go, testifying he had decided against filing the JIC complaint until several months later, when Johnston blasted the attorneys on his public Facebook page.

According to testimony, Donald Friedlander ran into Graddick at a University of Alabama fraternity house and told him of his plans in light of the Facebook post. Graddick said he again advised Friedlander against it, but Friedlander was convinced to proceed after the post received media coverage.

“I said ‘well … Roll Tide,’” Graddick told JIC.

Although the Agnew trial was the genesis of the JIC complaint against Johnston, testimony from the investigation showed a pattern of tardiness stretching years for the veteran judge.

One witness, then-Mobile Bar Association President Michael Upchurch, told JIC beginning around 2011 he heard many complaints involving Johnston’s “dockets not starting on time,” along with speculation about Johnston’s mental condition.

“[It was] lawyers frustrated with showing up for court and having to wait hours sometimes and trying — having a hard time getting cases to trial and sometimes, in trial, having abrupt recesses and that kind of thing,” Upchurch said. “Those were the complaints made to me.”

In the testimony, Upchurch said he and Ian Gaston met with Johnston early in 2013 to discuss the judge’s schedule because it was breeding other rumors.

“I told him that there was a lot of talk,” Upchurch said. “People were asking, ‘What’s wrong with Judge Johnston? Is he under the influence of something? Is he addicted to something? Something has to be going on because he’s not showing up for court.’”

Upchurch said Johnston denied rumors of drug use and explained that he was having trouble sleeping. In separate testimony, Gaston said Johnston characterized it as “sleep issues.” Both Upchurch and Gaston joined other JIC witnesses in testifying Johnston had never displayed signs of drug or alcohol use, with slurred speech or noticeable impairments.

Johnston confirmed last week his “sleep issue” has since been diagnosed as narcolepsy, a disorder that not only disrupts his sleep/wake cycle, but also inhibits his sense of the passage of time.

Donald Friedlander said Monday he does not believe Johnston has narcolepsy and suggested the former judge is simply “as crazy as a bedbug.” Friedlander also said he made the JIC complaint on his own and was not put up to it by anyone.

Johnston said during an episode of narcolepsy he can neither hear an alarm nor be awakened. He blamed the disorder for forcing him, at least once, to sleepwalk and drive to the courthouse, with no memory of doing so.

Other attorneys, including Rich, testified to Johnston’s tardiness. Rich was so concerned about it, she required prosecutors working in Johnston’s courtroom to keep a log of when Johnston took the bench or canceled a docket altogether, according to testimony.

“It was because of the complaints of victims, as well as business owners who had been victims of criminal cases, that were coming forward saying, ‘Why is my case being continued? Why has my case not been tried?’ I made the decision, as the district attorney, that I would keep a record of when court was held and when court was not held, so that if anybody ever challenged what we were doing at the [DA’s] office, I would have documentation that their cases being reset was through no fault of my office,” Rich testified.

Former Assistant District Attorney Kristy Dugan testified Johnston carried a caseload 300 deep. She told JIC other judges would, on average, carry around 150 cases.

But during his last year on the bench, Johnston claimed he had a disposition rate of 117 percent for civil cases and 137 percent for criminal, meaning he reduced his caseload by 17 percent and 37 percent, respectively.

“I pared them down,” he said. “It’s hard to believe that someone who’s either goofing off, or in my case has narcolepsy, could do that.”

Members of JIC also seemed very interested in Johnston’s gun advocacy and asked witnesses about it. Upchurch acknowledge that Johnston “likes guns,” but told JIC he never felt threatened by it.

“I know people joke about that, but I don’t have any concern about that,” Upchurch said. “It is South Alabama, I mean.”

Johnston admitted to carrying a concealed firearm to the courtroom for extra protection. He also said he would show videos of himself firing weapons to interested parties, after court was adjourned for the day.

“Oftentimes people who are involved, the cops especially, involved in the shooting and training or whatever will ask ‘have you see the new blah, blah, blah, blah’ and I’ve actually shot that,” he said. “Now, if nobody was there I’d show it on one of the screens so they could see, but never while anyone was there.”  

Jason Johnson contributed to this report.