2 Insurance Firms Accuse Lawyers of Fraud in Suit

Two major insurance carriers Wednesday filed a multimillion-dollar damage suit against 26 Los Angeles-area lawyers, law firm employees and clients, alleging that the group defrauded the insurers by manipulating litigation.

The 104-page lawsuit, filed by Fireman’s Fund and Allstate Insurance Co. in federal court in San Diego, accuses the attorneys and their associates of fraud and racketeering under the federal RICO law, or Racketeer Influenced and Corrupt Organizations Act, increasingly used in cases of white-collar fraud.

Several of those named in the suit have already pleaded guilty in San Diego to mail fraud charges as a result of a long-running criminal investigation of the attorneys, whom prosecutors have called the “Alliance.” In letters last week, prosecutors informed about 15 to 20 lawyers and others who have not been charged in the criminal case that they may be indicted for RICO violations.

Gary Black, executive vice president of Fireman’s Fund, said the attorneys appeared together in complex litigations as insurance-paid counsel to various defendants and “conducted hundreds of needless depositions, filed specious pleadings and generally churned the cases, running up billing fees well into the millions of dollars.”

Black said the suit was filed because “the cost of needless and fraudulent litigation is staggering to the judicial system, to the consumer and to the insurance industry.”

A lawyer for Lynn B. Stites, who was named in the suit and has been described by federal prosecutors as the mastermind of the group, said Stites had done nothing improper.

“We deny any wrongdoing whatsoever,” said Stites’ attorney, Thomas A. Mesereau Jr. “Mr. Stites was an aggressive, dedicated lawyer on behalf of his clients.” Stites has not been charged in the criminal case.

The lawsuit focuses on the lawyers’ conduct in four investment fraud cases, known as the Willow Ridge and Tax and Financial litigations in Los Angeles, and the Amgo and Syndico cases in San Diego. The insurers claim that they paid the lawyers $6.3 million in defense fees in the four cases and are seeking treble damages, or $18.9 million. The suit also seeks punitive damages for fraud.

The suit had long been rumored, and some insurance industry lawyers privately questioned the wisdom of the action, pointing to the high cost of pursuing it and the shrinking assets of the defendants as they pay their own defense lawyers.