Testimony Tells Role of Ex-Judge : Grand jury: Former L.A. jurist failed to disclose ties to the alleged mastermind of a multimillion-dollar insurance scam, according to a deposition and secret declarations before federal panel.

Former Los Angeles Superior Court Judge Robert H. London failed to disclose his ties to attorney Lynn Boyd Stites, the alleged mastermind of the “Alliance” insurance scam, before awarding Stites more than $100,000 in legal fees in an arbitration dispute with an insurance company, according to testimony before a federal grand jury.

The 1987 episode is detailed in a civil deposition and secret grand jury testimony in the Alliance insurance fraud and legal corruption case. The case involves allegations that a ring of lawyers, led by Stites and referred to by prosecutors as the Alliance, manipulated civil litigation to bilk insurance companies of tens of millions of dollars in legal fees.

Closing arguments began Thursday in the fraud and racketeering trial of eight attorneys who allegedly took part in the Alliance scheme. London was not charged or called before the grand jury and Stites, who was indicted, is a fugitive.

London, who works as an arbitrator, declined to be interviewed. But London’s attorney described allegations about his role in the fee dispute as “absolutely unfair” and “a bum rap.”

London, 58, formerly was supervising Superior Court judge in Van Nuys and, at the time of the Stites’ fee dispute, a partner in the law firm of Finley, Kumble, Wagner, Heine, Underberg, Myerson & Casey.

During the 1980s, the fortunes of Stites and Finley, Kumble--the nation’s fourth-largest law firm until it was dissolved in 1988--were closely intertwined, according to grand jury testimony and other evidence. They shared representation of a defendant in the huge Willow Ridge case in Los Angeles, reaping about $18 million in insurance-paid defense fees.

During part of this time, the Stites Professional Law Corp. operated out of Finley, Kumble’s Beverly Hills offices. Stites was also a generous source of referrals to Finley, Kumble, sending the firm defendants in several of the lucrative civil cases that figured in the Alliance indictment.

According to grand jury testimony, Stites liked involving Finley, Kumble because its presence helped legitimize the suspect litigations. The firm could be counted on to bill huge fees, witnesses said, and Stites believed insurance companies, reluctant to contest Finley, Kumble’s bills, would be unable to challenge those of the small-fry firms.

At the time Stites and Finley, Kumble were appearing together in several lawsuits, London agreed to arbitrate a fee dispute between Stites and Lumbermen’s Mutual Insurance Co.

The dispute arose over Stites’ defense of a Lumbermen’s policyholder--a contractor accused of botching the remodeling of a Beverly Hills home once owned by Elvis Presley. Lumbermen’s challenged $115,000 of Stites’ bills as “excessive and unreasonable.” Eventually, both sides agreed to binding arbitration.

Greg Bodell--a lawyer with the Stites firm who last year pleaded guilty in the Alliance case--suggested that the arbitrator be Robert London. Lumberman’s agreed.

But attorney Fred Rucker, who worked for Finley, Kumble and later for Stites, told the grand jury that London “had apparently forgotten to notify” Lumbermen’s “that he had a bit of conflict of interest. . . . As far as the carrier knew this was just a retired judge who didn’t know Stites from Adam,” said Rucker, who was granted immunity in the Alliance case.

But London angered Stites by failing to rule for several months, Rucker testified. Rucker and Robert Clarkson, another lawyer at the Stites firm, “were meeting with London from time to time about other stuff,” and Stites told them “to start putting some pressure on London to get a decision out,” Rucker said.

Delays continued, and Stites finally sent word that he wanted “a hundred cents on the dollar and he better get it now or that’s going to be the end of London’s referrals,” Rucker testified.

“A couple of weeks later we got a written decision of London giving Lynn a hundred cents on the dollar,” Rucker said referring to London’s January, 1987, ruling that directed Lumbermen’s to pay 100% of the contested fees.

London’s role in the fee dispute was first explored in 1988 in a civil fraud suit filed against Stites by another insurance company, USF&G.; In a sworn deposition in August, 1988, a lawyer for Lumbermen’s, Bruce Palumbo, said the firm had “absolutely no knowledge of any relationship” between London and Stites when it accepted London as arbitrator.

Asked again this week if London had disclosed a connection with Stites, Palumbo replied: “The answer is absolutely not.” He said he does not recall whether he asked at the time if there was a relationship between the two.

Lawyers for USF&G; also took London’s deposition to get his version of events. But London declined to answer questions, citing his Fifth Amendment right to avoid self-incrimination.

London’s lawyer, Jack Quinn, said this week that prosecutors and insurers were aware of the claims against London and had taken no action against him.

“Those are unsubstantiated allegations,” Quinn said. “Bob London takes the position there was a revelation to the Lumbermen’s lawyers.” Asked how or to whom the disclosure was made, Quinn said he did not know the details.

London now works for Judicial Arbitration & Mediation Services Inc., which supplies retired judges to referee settlement conferences and arbitrate disputes. The organization’s board chairman, John K. Trotter, a former justice with the state Court of Appeal, said he had never heard of of the Lumbermen’s case. “This is absolutely brand-new to me,” he said.

California has no statute requiring arbitrators to disclose potential conflicts to parties in a dispute, although ethical codes require disclosure and state courts have held that failure to disclose can be grounds for overturning an arbitrator’s decision.

A code of ethics adopted by the American Bar Assn. and the American Arbitration Assn. requires arbitrators to “disclose any interest or relationship likely to affect impartiality or which might create an appearance of partiality or bias.”

The Alliance case is one of the largest criminal prosecutions of attorneys in United States. Before it went to trial, 14 other people--eight of them attorneys--pleaded guilty to a variety of charges.

The government contends that the lawyers defrauded insurance companies of at least $50 million in fees for frivolous or phony litigation.

From about 1984 to 1988, they allegedly infiltrated or initiated at least 10 civil litigations in San Diego, Los Angeles and Orange counties in which insurance companies were obliged to pay defense fees for policyholders who had been sued. In some of the cases, Alliance lawyers, at Stites’ direction, allegedly recruited plaintiffs’ attorneys to sue their own clients.

The lawyers are also accused of resisting settlements and creating work for each other by conducting needless depositions and filing cross-claims for damages against each other’s clients. Some allegedly paid kickbacks to clients so they would be content to remain defendants, rather than settle claims against them.

According to prosecutors, Stites, who dropped out of sight shortly before his indictment last year, essentially franchised the litigation, providing several of the other lawyers with start-up funds, insured clients and legal advice in return for a cut of their insurance billings.