Jury Hears Sharply Contrasting Views of ‘Alliance’ Case Lawyer : Trial: Prosecution calls Lynn B. Stites mastermind of ‘corrupt organization of lawyers.’ Defense says he’s a victim of the insurance industry.

Jurors at the criminal trial of Lynn B. Stites were offered starkly different portraits Monday of the former fugitive attorney, who was described by a federal prosecutor as the brains behind “the Alliance” insurance scheme, and by his defense lawyer as an innocent victim of an insurance industry vendetta.

Stites, 48, who practiced law in Woodland Hills and West Los Angeles, faces 36 counts of mail fraud and a racketeering charge in a trial expected to last three months. Racketeering carries a maximum term of 20 years and each mail fraud count is punishable by up to five years in prison. A dozen lawyers--most of them from the San Fernando Valley--and six other persons previously pleaded guilty or were convicted in the case, one of the largest prosecutions of lawyers in U. S. history.

In his opening statement to jurors, Assistant U. S. Attorney William Q. Hayes said the case “is about a corrupt organization of lawyers that was formed and run by” Stites, and which bilked insurance companies out of millions of dollars in legal fees.

The government says the network of lawyers during the 1980s infiltrated complex civil litigations in Los Angeles, Orange and San Diego counties in which insurance companies were obliged to pay legal fees for those who were sued.

Once in the cases, the lawyers allegedly did all they could to resist settlements and manufacture new legal controversies so they could mine the cases for exorbitant defense fees.

“They dragged cases out, they prolonged cases, . . . they made secret agreements among themselves,” Hayes said.

“You make work for me, I’ll make work for you,” Hayes said was the motto of the ring, which prosecutors have called “the Alliance.”

Hayes said the lawyers even paid kickbacks to their clients so they would be happy to be defendants--including payments of $50,000 per month to a defendant in a Los Angeles case that generated tens of millions of dollars in legal fees.

As purported leader of the scheme, Stites allegedly assigned insured clients to members of the ring, who were then required to pay him large amounts of their insurance billings. Hayes said Stites received what he called kickbacks in various forms, including cash, precious metals and payment of credit card bills.

But defense lawyer Jennifer Keller called the case “the story of the American insurance industry’s attempt to crush” one of its most successful opponents.

Stites was indicted in April, 1990, but remained in hiding until November, when he was arrested in Illinois after being stopped for speeding. He has been held without bail at the Metropolitan Correctional Center in San Diego.

On Monday Stites wore a conservative, charcoal gray suit to the courtroom of U. S. District Judge Clarence C. Newcomer.

Several times Stites grinned broadly during Keller’s spirited attack on the charges against him.

Keller told jurors how Stites worked for insurance companies early in his career, but was dismayed at how they abandoned customers in legal peril.

In effect, Keller said, the insurers told policyholders: “Go fish. We’re not going to pay. We’re not going to defend you. You’re on your own.”

Stites “became more appalled by what he saw . . . He viewed . . . the insurance companies as defrauding their insureds,” Keller said.

Ultimately, he decided that “if the insurance companies won’t live up to their obligations, I’m going over to the other side.”

Keller said Stites became an insurance coverage specialist, helping policyholders force insurers to defend them from lawsuits. Then he “did something worse,” said Keller--teaching other lawyers to do the same.

Eventually, Keller said, the industry “decided to use the power of the U. S. government” against Stites. She said that insurance companies hired the late William French Smith, former attorney general in the Reagan Administration, in an unsuccessful effort to persuade the U. S. attorney in Los Angeles to bring criminal charges. Later, the U.S. attorney in San Diego agreed to take the case.

While denying the existence of a clandestine alliance of corrupt attorneys, Keller said there was a “loose association” of lawyers whom Stites advised on insurance coverage issues and from whom he received referral fees.

She said some of these lawyers were involved in wrongdoing, and decided to pin the blame on Stites in plea bargains with the government.

Keller said that during much of the time covered by the indictment, Stites was either living in Switzerland or recovering from a severe auto accident.

Thus, she argued, he was out of the country or incapacitated during most of the time he was “supposedly . . . masterminding the criminal enterprise.”