Law Firm Alleges Former Client TMI Concealed Evidence
A law firm once retained by troubled Teachers Management & Investment Corp. said it quit representing the company after only six days because the operators concealed evidence that “could give rise to criminal liability.”
The Irvine office of Reavis & Pogue made the allegation in responding to a lawsuit filed by TMI operators Maurice B. Shuman and James R. Martin. Jones, Day accused the pair of concealing “fraudulent conduct” from the lawyers.
Cleveland-based Jones, Day, the nation’s third-largest law firm, said it turned over its entire retainer fee of $100,000 to a criminal defense lawyer, at Shuman and Martin’s request.
The law firm didn’t explain in court papers filed Monday in Orange County Superior Court what it found in TMI records or why it considered the company’s activities fraudulent. A lawyer for Jones, Day lawyers would not elaborate or comment on the litigation.
The allegations are nothing more than a “very convenient excuse to abandon my clients,” said Ramon R. Lopez of Irvine, a lawyer for Martin and Shuman. Jones, Day, he said, simply realized it could make more money by representing a court-appointed receiver for nearly three dozen money-losing TMI partnerships.
TMI, a Newport Beach investment company that catered to teachers statewide, is under criminal investigation by the California attorney general’s office in connection with the loss of more than $100 million in teachers’ retirement funds.
Teachers filed a class-action lawsuit 20 months ago on behalf of about 20,000 investors, accusing privately owned TMI and its operators of fraud and negligence and seeking $100 million in damages for their losses. TMI, founded in 1968, used teachers’ funds to invest in real estate, mainly raw land.
The teachers allege that Shuman and Martin, who took over TMI in 1988, diverted funds for their own use. Shuman and Martin assert that the recession eroded property values, inhibiting sales, and that property taxes and other costs to maintain the properties caused most of the losses.
When the teachers sued, TMI hired Jones, Day in late August 1994, to defend it. But after a six-day review of confidential TMI information, the law firm backed out.
A month later, investors won a court order installing Dennis B. Schmucker of San Diego as receiver over TMI partnerships. Jones, Day, which had represented Schmucker in other receiver cases, then obtained a written waiver from TMI to allow it to work for Schmucker on TMI partnership matters. However, the waiver prohibited the firm from helping the receiver in suing TMI or getting involved in the teachers’ lawsuit.
Last fall, Shuman and Martin sued Jones, Day, saying it had breached both its retainer and its waiver agreements. They also accused the firm of fraud and malpractice.
Lopez said that Shuman and Martin never asked for a criminal defense lawyer. Jones, Day simply brought one into a meeting with them and endorsed the uncashed retainer check to the new lawyer, Lopez said.
The law firm knew when it quit that Schmucker was likely to be appointed receiver by the court, he asserted.
“Since then, Jones, Day has billed the receiver for more than $2 million,” much more than the firm would have received defending TMI and its operators in the civil lawsuit, Lopez said.
