Lawyers Indicted on Fraud Charges : Legal system: Of 18 people named, 14 are attorneys. The government says they conspired to run up fees on complex insurance lawsuits.

A federal grand jury Tuesday indicted 14 Southern California attorneys and four other people on charges of defrauding insurance companies of huge legal fees by manipulating complex lawsuits.

Legal experts have characterized the case as one of the largest criminal prosecutions of lawyers in U.S. history.

The indictment, charging the defendants with mail fraud and racketeering, caps a lengthy investigation by postal inspectors and assistants to U.S. Atty. William Braniff, who said the lawyers had inflicted “a money hemorrhage” on insurers and “a malignancy on the legal system.”

One of those indicted was San Diego attorney Leonard Radomile, who worked secretly as a government informant during the investigation of the lawyers’ network, which prosecutors called the “Alliance.” Radomile was portrayed on “60 Minutes” last year as a crime-buster who “infiltrated the Alliance.”

Radomile was the only lawyer charged in the 37-count indictment who is not from the Los Angeles area. Three law-firm employees and one client also were charged.

Authorities said all defendants but one were charged with some of the 36 mail fraud counts, and all but two were accused of violating the federal racketeering, or RICO, statute. Each mail fraud count is punishable by up to five years’ imprisonment and a $250,000 fine. A RICO conviction can bring up to 20 years’ imprisonment, plus forfeiture of any illegally obtained assets.

The lawyers were accused of conspiring to prolong civil litigations in Los Angeles, Orange and San Diego counties, defrauding insurers of up to $50 million in the process, the government said. Federal officials in San Diego conducted the investigation because some of the lawsuits involving the Alliance were there.

Prosecutors allege the lawyers fattened their fees through a variety of legal maneuvers, filing spurious suits against each others’ clients and paying kickbacks to clients for the right to conduct their insurance-paid defense.

The defendants are all expected to surrender except for the alleged mastermind of the scheme, Lynn B. Stites, 45, whose whereabouts are unknown, Assistant U.S. Atty. George D. Hardy said. A bench warrant has been issued for his arrest, Hardy said.

In recent years, Stites has divided his time between Switzerland and a home in eastern Ventura County that he sold last fall. Stites’ sister, Cheryl Dark, who worked for him as a paralegal, was also among those charged Tuesday.

Tom Mesereau, an attorney for Stites, declined to say where he is, but denied “any wrongdoing on the part of Mr. Stites.”

Richard Noyer, a Calabasas lawyer who was among those charged, said the case was “instigated” by insurers to suppress lawyers who stand up to them.

Many of those charged had long expected to be indicted, and had seen their law practices nearly vanish due to publicity and refusal of insurers to pay their legal bills.

“I want it to happen already,” Lewis Koss, a Calabasas lawyer indicted Tuesday, said in an interview earlier this month. “They’ve killed my business,” Koss said, adding that he expects to be acquitted of all charges.

Before Tuesday’s indictment, four other Los Angeles area attorneys and three other people pleaded guilty to mail fraud and agreed to assist the government in the case, which has attracted nationwide attention.

With 18 attorneys now charged or having entered pleas, experts said they could recall only a couple of criminal cases in the past that targeted as many lawyers.

One was the Watergate political corruption case, in which about a dozen lawyers in the Nixon Administration and reelection campaign were prosecuted for crimes unrelated to the practice of law. The other was the “Operation Greylord” judicial corruption case in Cook County, Ill., in which about 60 judges and lawyers have been convicted, but in many separate cases over a period of years.

The case is “extremely unusual and probably precedent-setting,” said Robert Fellmeth, who monitors the State Bar discipline system under an appointment by the state Attorney General.

The case raises questions about when certain legal tactics cross the line from zealous, but acceptable, advocacy to fraud. The lawyers are expected to contend that they faithfully served their clients, some of whom were involved in coverage disputes with insurers.

The lawyers worked together in a particular type of case in which insurers have to pay for policyholders’ legal defense, but cannot choose the policyholders’ lawyers or decide legal strategy.

Such cases come up when policyholders are accused of causing damages covered by insurance--such as property damage--and of causing damages not covered by insurance, such as those incurred through fraud.

Under the law, the insurer can refuse to pay damages the policy didn’t cover. This creates a potential conflict for the policyholder, because a lawyer hired by the insurer might vigorously defend the covered claims but do less to fight the uninsured claims.

Courts have ruled that, in such situations, insurers lose the right to pick the lawyers and tell them what to do.

The result can be unusually high legal fees because the policyholder doesn’t pay the bill and wants a Cadillac defense.

The government said the Alliance lawyers did more than vigorously defend their clients. They allegedly milked and expanded cases, conducting scores of unnecessary depositions to run up hourly billings and revenues for a court-reporting firm in which Stites had a secret ownership interest.

According to the indictment, Stites essentially franchised litigation to some of the other lawyers. Some allegedly were no more than salaried workers, whose “independent” law firms were actually owned by Stites.

Once in a case together, the lawyers often filed cross-claims, or secondary lawsuits, against each others’ clients, increasing the workload and defense bills for all.

In some cases, clients being defended at insurance company expense were paid large sums by the attorneys, the government said. The attorneys have said these were consulting fees, but the government alleged they were kickbacks to keep clients from seeking dismissal of cases against them.

In several cases, Braniff said, “the Alliance choreographed both sides” of the lawsuit, assigning one of its own to represent plaintiffs against clients of the other lawyers.

Also indicted Tuesday were Alan Arnold, Gregory Bodell, Douglas Caiafa, B. George Dezes, Mark Geyer, Barry Krasner, Monty Mason II, Kathleen Phipps, Roberto Rufino, Donald Sternberg and Steven Waisbren, all of Los Angeles County. Jan Sonken of Scottsdale, Ariz., and James McBeth of Salt Lake City were also named in the indictment.