ComputerLand Tale: A Delight for Plaintiffs

Barbara Millard, the embattled 27-year-old president and chief operating officer of ComputerLand Corp., jabbed a ruby-red fingernail at a classified ad that appeared recently in the San Francisco Chronicle’s business opportunities section.

“Look at this,” sighed the stylish daughter of the company’s reclusive and strong-willed 52-year-old founder, William Millard.

The advertisement that had drawn her attention was succinct and to the point. “Joint venture partners wanted to finance ‘sure thing’ $6-million lawsuit against major SF bank,” it read. “Micro/Vest did it to ComputerLand. Now you can do it to the bank.”

What Micro/Vest did was to sell partnership interests in a lawsuit against ComputerLand and the Millards to finance a stunning courtroom victory over them. Earlier this month, a jury here awarded Micro/Vest a 20% stake in ComputerLand and several other Millard enterprises to satisfy a 9-year-old debt. The jury also awarded Micro/Vest $125 million in punitive damages.

Micro/Vest’s victory, even if reversed on appeal, could cost the Millard family control of its $1.4-billion-a-year global computer-retailing empire, Barbara Millard says. That’s because the Millards must post a $210-million bond--at least 10% of it in cash--to appeal the judgment. “If we can’t bond it, then every asset we own is available to satisfy the judgment,” she says, “and that includes our ComputerLand stock.”

The case has drawn national attention in legal and financial circles both because of the size of the award--thought to be the largest in California’s history--and the possibility that the Millards might be forced to sell some of their ComputerLand shares to the public to pay the judgment.

What has received less notice is the novel way in which Micro/Vest pursued its claim. The company, founded in 1981 by a former ComputerLand official named John Martin-Musumeci, had the financial wherewithal to do battle against the better-heeled Millards only by peddling stakes in the lawsuit to about 60 investors. The case may have set a precedent for the syndication of major lawsuits against big, economically powerful defendants.

By selling off stakes in the litigation, Micro/Vest was able to turn a David-versus-Goliath struggle into something more akin to a Battle of the Titans. On one side of the struggle is William Millard, a devotee of Werner Erhard’s est self-help training and the assertive head of ComputerLand who once boasted to Forbes magazine: “I am the biggest winner of all in the microcomputer industry.” Forbes estimates the net worth of Millard, a college dropout, to be at least $600 million.

On the other side is the Micro/Vest group, which includes such heavy hitters as William Agee, former chairman of Bendix Corp.; Mary Cunningham, his wife and former Bendix strategy chief; Clancy W. Spangle, retired chairman of Memorex Corp., and Daniel Searby, deputy assistant secretary of state in the Nixon Administration.

Agee and Cunningham, who have emerged as key strategists for Micro/Vest since they purchased their 1% stake in the lawsuit last year, are publicly urging Millard to settle the matter quickly. “The court has established that we own 20% of ComputerLand,” Agee says. “Millard’s continued refusal to acknowledge this truth can only have deleterious effects on an organization we all own.”

The combatants are represented by some of the best attorneys around. On Millard’s side is the Washington law firm of Edward Bennett Williams. Micro/Vest’s lead lawyer is Herbert Hafif, a Claremont trial lawyer known for his ability to coax multimillion-dollar verdicts from juries.

(Hafif once persuaded a jury to award $6 million to a client who suffered serious injuries when he dived into the water at Newport Beach and hit his head on a sand bar. The city of Newport Beach was found to have been liable for not posting warnings. As a result, Hafif is jokingly referred to in legal circles as the only lawyer who has successfully sued God and the ocean.)

Still, despite Hafif’s success this time, it may be years before the Micro/Vest partners ever receive any stock in ComputerLand. “I’m not counting any chickens yet,” says Spangle, who owns 0.1% of the Micro/Vest lawsuit and expects many years of continued legal maneuvering.

Nevertheless, the early investors in Micro/Vest have seen the value of their stakes skyrocket. A 1% interest in the lawsuit that sold for $10,000 in 1981 fetched $375,000 last year. Last week, after the verdict, a group headed by a San Francisco investment banker exercised an option to purchase a 1.4% interest for nearly $1.1 million.

Genesis of Case

The case has its genesis in 1976, when Marriner & Co., based in the Boston suburb of Lynnfield, Mass., lent $250,000 to IMS Associates Inc., a struggling manufacturer of microcomputers set up by Millard a few years earlier. IMS “was long on promise but short on cash,” recalls P. Loring Reed, Marriner’s president.

IMS was in dire need of the cash, court records show, so Millard agreed to depart from his usual practice of retaining total control: He accepted Marriner’s demand that it be permitted, at its option, to convert the debt into 20% of his family-owned company. A 1977 modification agreement specifically extended the conversion privilege to other Millard-owned companies, including Computer Shack Inc., the name of which was later changed to ComputerLand.

Almost from the start, however, relations between Millard and Marriner were stormy. In 1976, for example, Marriner got wind of and blocked Millard’s attempt to reincorporate in Panama. Although Millard insisted that the move was merely a way to avoid taxes, Marriner’s Reed suspected Millard of trying to move assets away from Marriner’s grasp. Two years later, Marriner sued Millard to get financial statements from Millard’s companies.

“We’d had nothing but fights with Millard,” Reed recalls. In an effort to end the relationship, he said, he offered Millard several chances to buy back the note at a small premium. Millard refused.

Knew Note Existed

Enter John Martin-Musumeci, a franchising expert who in 1976 and 1977 had helped set up ComputerLand’s franchise system. He was one of the few outsiders who knew that the Marriner note existed.

Martin-Musumeci also had firsthand knowledge of the value of ComputerLand’s stock. In 1977, Millard had given him a 1% stake in the stock for his role in setting up the company. Three years later, Martin-Musumeci had sold his ComputerLand stake to San Francisco produce magnate Bruno Andrighetto for $250,000.

In 1981, Martin-Musumeci formed Micro/Vest and bought the Marriner IOU for $300,000, plus a $100,000 bonus if Micro/Vest succeeded in obtaining an interest in ComputerLand. He financed the purchase by selling a 25% stake in the litigation to Andrighetto for $250,000. Marriner also agreed to cooperate with Micro/Vest’s attempt to convert the IOU into stock.

With Marriner’s cooperation secured, Martin-Musumeci began doling out pieces of the litigation. For example, he made a gift of a 27% interest to Philip Loring Reed III, a former Millard associate who is also the son of Marriner’s P. Loring Reed. Philip Reed had been a go-between for his father and Millard at the time that Marriner had come to Millard’s rescue with the $250,000 loan.

Martin-Musumeci gave an additional 2% to a former ComputerLand lawyer.

Millard’s attorneys charge that the gifts were a blatant attempt to buy testimony. “That isn’t to accuse the other side of perjury,” says Steven M. Umin, a Millard attorney. “But when you have a financial interest in litigation, you’re inclined to shade the truth.”

Denies Attorneys’ Charge

Martin-Musumeci insists that he made the gifts to compensate the recipients for their roles in unrelated business transactions. “Nobody can buy my testimony,” adds Philip Reed, who says he testified on behalf of Micro/Vest because Millard had reneged on the Marriner agreement.

Martin-Musumeci and Reed also defend their subsequent sales of stakes in the litigation. Given Millard’s wealth, Martin-Musumeci says, “we would have been crushed without the ability to sell shares in the Marriner note.” (He acknowledges, however, that he has also “put some money in the bank” by selling interests in the lawsuit.)

Millard’s defense against Micro/Vest hinged on his contention that Marriner’s conversion right was never meant to be transferred. “Phil Reed and I always discussed the conversion right in terms of ‘Marriner exercising its conversion right,’ and no other possibility was ever discussed or suggested,” Millard said in a declaration that is included in the court record. “If one had been, I would have rejected it.”

Whole Different Business

Millard, in the declaration, also contended that P. Loring Reed’s “oral assurances and promises protected me from having IMS stock owned by anyone other than my family and Marriner without my consent.” Millard’s lawyers also argued that ComputerLand “is wholly different from the business of IMS” and thus isn’t subject to the conversion right.

But the jury rejected those arguments. The jurors, who were treated to a party by Micro/Vest the weekend after their verdict, were so swayed by Micro/Vest’s arguments that during their deliberations they requested copies of a poem a Micro/Vest lawyer had recited as his closing argument.

The poem, by attorney Harold Nachtrieb, reads in part:

You’ve sat there and listened for days upon days.

Now it’s your turn to speak.

You will have found that a writing is sound,

Or sprung by a vague, oral leak.

So here are the facts, all of which have been proved,

To establish the things that I say.

In essence Millard is stonewalling real hard,

What he promised, in writing, to pay.

Micro/Vest’s case is simple and true.

Three written contracts were signed.

ComputerLand stock, in sizable block,

Belongs to the plaintiff, in kind.

I ask for your verdict against this man,

With his billions and stonewall defense,

The truth hoists Millard on his selfish petard.

All the proof in his case makes no sense.

Sometimes in life the tables are turned

So the evil themselves learn the blues.

The evidence here is abundantly clear

That the fate for Millard is to lose. That’s not the fate the Millards expect, according to close associates. “Bill Millard is one of the world’s greatest positive thinkers,” one associate says. And Barbara Millard vows that the family will pursue every possible avenue of appeal. “I have confidence that the system will not allow us to lose this company,” she says.

But Martin-Musumeci, 38, a veteran of several failed business ventures, says he isn’t worried about being reversed on appeal.

“I live on risk,” he says, ushering a guest into his telephone-equipped Alfa Romeo. “It flows through my veins. There is no upside in the world unless there’s a downside to emphasize it.”