Trial to Start for Key Figure in ‘Alliance’ Fraud Case

Nearly a year after a speeding ticket ended his fugitive odyssey, the central figure in “the Alliance” insurance fraud and legal corruption case goes on trial today on charges of masterminding a scheme that used the court system to bilk insurance companies of millions of dollars in legal fees.

Lynn B. Stites, who formerly practiced law in Woodland Hills and West Los Angeles, faces a long prison term if convicted of involvement in the scheme, which allegedly cost the insurance industry $50 million to $200 million.

Stites, 48, is charged with racketeering and 36 counts of mail fraud. The charges involve his alleged leadership of a secret ring of lawyers known as “the Alliance”--a term coined by one of the lawyer’s clients.

A dozen lawyers--most of them from the San Fernando Valley--previously pleaded guilty or were convicted in the case, making it one of the largest prosecutions of lawyers in U. S. history. Six other law firm employees and clients also pleaded guilty.

Stites, who has been held without bail since his arrest in November, refused interview requests, and his main defense lawyer, Jennifer Keller, also declined comment last week.

But in court papers and previous interviews, Keller said Stites was guilty only of seeking the best results for his clients, which angered insurers by costing them money.

She called his prosecution politically inspired--a case of the government helping insurance companies crush a lawyer who had frequently, and successfully, opposed them.

The trial is expected to last three months and to involve scores of witnesses and hundreds of exhibits. The only remaining defendant in the six-year-old case--Stites’ former bookkeeper Roberto Rufino--disappeared along with Stites when they were indicted in 1990, but he has not been caught.

Stites was arrested last Nov. 21 on a lonely stretch of interstate in Southern Illinois after his sports car was clocked at 80 m.p.h. Using assumed names and phony driver’s licenses, Stites had been ticketed for speeding in at least four other states, and sent on his way.

This time, however, a state trooper grew suspicious when he saw several envelopes full of cash in the car. A search of the car turned up $30,000 and identity papers under various names--including Lynn Boyd Stites. A computer check brought up the federal arrest warrant. Stites--who had been renting an oceanfront condominium in Miami Beach--was soon ensconced in the Metropolitan Correctional Center in San Diego, the federal lockup a block from the federal court.

One of the first rulings awaiting U. S. District Judge Clarence C. Newcomer today is whether colorful details of Stites’ life in hiding should be admitted as evidence in the trial.

Prosecutors want it admitted, hoping to portray Stites as a master deceiver and erode the credibility of his defense.

According to court papers and interviews with people he encountered during two and a half years underground, Stites proposed marriage to two women under two different names--promising a life of wealth and luxury but never explaining the furtive existence he wanted them to share.

He bought a string of yachts in Florida--and conducted the transactions under two names to create the impression of two buyers.

Prosecutors also hope to present evidence that Stites, under a different name, submitted a phony insurance claim involving the theft of a van, powerboat and trailer that were not really stolen.

Keller contends in court papers that the particulars of Stites’ flight are irrelevant to the charges against him--which involve his litigation activities during the 1980s.

Stites admittedly used assumed names and tried to evade capture, Keller said, because he believed that the deck was stacked against him. But beyond that, “testimony about his yachts, sailboats, cruisers, cash, engagement rings, and aggrieved/deceived beauteous chanteuses would have an inflammatory effect on the jurors,” Keller wrote--adding that the insurance claim was valid because Stites “suffered a legitimate loss.”

Newcomer also has been asked by prosecutors to prohibit Keller from taking on as co-counsel a lawyer whom Newcomer accused of improper contact with a juror during a previous trial of eight Alliance defendants. The lawyer’s “conduct has previously been found to be unethical and improper in this very case,” prosecutors said.

In a document filed two weeks ago, Keller said she would be assisted at trial by Los Angeles lawyer Thomas A. Mesereau Jr., who had incurred Newcomer’s wrath in May, 1991, during the previous trial.

Stites was in hiding when Mesereau, who had represented him in civil matters, showed up one morning to watch the trial, and talked with a juror in the hallway.

Newcomer questioned the juror and Mesereau about the episode. The juror testified that Mesereau sought his opinions on the case and told him that “the U. S. Attorney attorneys aren’t always . . . telling the truth.”

Mesereau told Newcomer that he wasn’t initially aware that the man was a juror, and “when I finally realized he was a juror, . . . I said don’t talk to me about your conclusions or anything in this case.”

Newcomer later held a formal hearing on the matter, ultimately concluding that there was insufficient proof of jury tampering.

“This was by anybody’s version unethical, improper and possibly criminal,” Newcomer said of the incident. But “I can’t say in good conscience that I am persuaded beyond a reasonable doubt” that Mesereau intended “to obstruct justice . . . or to in some way influence the jury.”

Neither Mesereau nor Keller could be reached for comment.

Once the preliminaries are out of the way, jurors will be faced with competing images of Lynn Stites: as a talented, hardball litigator--unorthodox, but devoted to his clients; or as a greedy, Machiavellian character bent on plundering insurance companies.

The racketeering charge carries a maximum 20-year prison sentence and each of the 36 mail fraud counts is punishable by up to five years in prison.

The government contends that Stites was the brains behind the Alliance scheme, involving a network of lawyers who churned complex civil lawsuits in which insurance companies were obliged to pay legal fees. The government says the scheme went on from 1983 to 1988 and involved litigation filed in Los Angeles, Orange and San Diego counties.

These lawsuits involved insurance customers--such as business firms and their executives--who were being sued over deals gone sour, and who were fighting with plaintiffs, and each other, over who was to blame.

Unlike garden variety insurance schemes involving phony medical claims or staged auto accidents, the disputes in these cases were real. But Alliance lawyers worked together to prolong and expand the litigations--resisting settlements and manufacturing new legal controversies to extract exorbitant fees, according to prosecutors and participants who pleaded guilty.

Among other tactics, the lawyers helped to finance their litigation opponents and even to draft lawsuits filed against their own clients.

Some of the lawyers even paid kickbacks to their clients so they would be content to remain defendants, rather than settle claims against them.

According to the government, Stites essentially franchised the litigation, assigning insured defendants to the lawyers in return for large chunks of their insurance billings.

These payments allegedly came not only in cash--but in precious metals, tuition for Stites’ children at private schools, and expensive improvements to his former home in Bell Canyon in Ventura County.

Witnesses testified that Stites even had a secret interest in a court reporting firm that made a fortune by transcribing hundreds of witness depositions--many allegedly conducted for the sole purpose of enriching the court reporting firm and piling up legal fees.

Some of the lawyers allegedly took their instructions from various Stites lieutenants, and were not told the identity of the man at the top.

While conceding that some of the lawyers may have behaved improperly, Keller said Stites did nothing wrong.

She is expected to argue that Stites, severely injured in an auto accident in early 1987, was incapacitated and could not have directed the scheme during part of the period covered by the indictment.