Prosecution Charges Stites Rigged, Prolonged Litigation

Former fugitive attorney Lynn B. Stites directed a ring of corrupt lawyers in an elaborate scheme to cheat insurance companies “and defraud the judicial system” by rigging and prolonging litigation, a federal prosecutor said Friday at Stites’ mail fraud and racketeering trial.

Assistant U.S. Atty. William Q. Hayes told a federal court jury the government had presented “overwhelming evidence of the existence of a criminal enterprise” that cost insurers at least $50 million and that involved Stites and a network of Los Angeles-area lawyers known as “the Alliance.”

But during more than four hours of closing arguments, a defense lawyer called Stites the victim of a vendetta by insurance firms who prevailed on the government to prosecute one of their most successful opponents.

“The only evidence that you have is (that) Mr. Stites was a terrific lawyer,” said his attorney, Jennifer Keller. “We’ve proved beyond a reasonable doubt” that his actions “weren’t fraudulent . . . and we don’t have to prove anything--the government does.”

Jurors will begin deliberations Monday morning.

Stites, 48, who formerly practiced law in Woodland Hills and West Los Angeles, is charged with one count of racketeering and 25 counts of mail fraud and could get a long prison term if convicted. Eleven other mail fraud counts were dismissed after the trial began Sept. 13.

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

Stites, accused of masterminding the scheme, went into hiding before his indictment in April, 1990, and was a fugitive until last November, when he was picked up for speeding in Illinois. He has since been held without bail at the Metropolitan Correctional Center in San Diego.

His acquittal would be a remarkable event in the marathon case because the prior convictions of 18 people stemmed from their involvement in the fraud ring he purportedly led.

The lawyers appeared during the 1980s in complex civil litigations in Los Angeles, Orange and San Diego counties in which insurance companies were obliged to pay legal fees for customers who were sued.

Hayes told jurors that Stites secretly funded and supervised about a dozen satellite law firms that worked together to prolong and expand the cases, and that these satellite firms kicked back to Stites a large share of the money they were paid by insurance companies.

Hayes said their “most basic and least imaginative” tactic was to submit fraudulent bills for work not performed.

More often, he said, the lawyers took steps to resist settlements and manufacture new legal controversies, so the cases would grow in size and cost. He said that among other things, they paid litigation opponents to sue their clients, and paid kickbacks to clients so they would be happy to remain defendants.

Hayes said the other lawyers paid kickbacks to Stites not only in cash, but by buying him precious metals, a car, a motorcycle, a boat and paying for private school tuition for his children and for expensive improvements to his house.

The payments apparently were made in these ways “to disguise the existence of this group and the purpose of its existence,” Hayes said.

Hayes said evidence had shown that Stites as a fugitive filed a phony insurance claim under an assumed name for the theft of a boat that was not stolen. And he reminded jurors of testimony that Stites once asked an employee to take a job in a mortuary to find bereaved families who might be induced to file lawsuits over the mishandling of remains.

Neither episode figures in the charges in the case, but Hayes said they showed Stites’ intent to defraud insurers.

But Keller said insurance companies had enlisted the government to crush Stites--who did not testify--because he had been successful in forcing them to pay for the legal defense of customers in trouble. Even worse, she said, he advised other lawyers involved in coverage disputes with insurance companies.

She said these lawyers paid Stites referral fees--not kickbacks--but sought to hide the payments because the industry’s enmity toward Stites had made him “radioactive.”

Acknowledging that running away “was not a good thing (for Stites) to do,” Keller asked: “Is it so unreasonable . . . to panic and run” when “it’s pretty clear to you . . . the fix is in?”