Metropolitan News-Enterprise


Monday, August 6, 2001


Page 1


Court Upholds $20 Million Fraud Judgment Against Lawyer


By a MetNews Staff Writer


A racketeering conviction is determinative of civil liability to the victims of the criminal conduct, the Ninth U.S. Circuit Court of Appeals ruled Friday in upholding a judgment against a former Canoga Park attorney.

The panel affirmed a judgment awarding three major insurance companies $20 million in legal fees lost to a ring of corrupt lawyers and others who came to be known as The Alliance. The defendant, Lynn Stites, was convicted as the leader of the group and sentenced to 121/2 years in prison in 1994.

Friday’s ruling came nearly six years after a different Ninth Circuit panel upheld Stites’ conviction under the Racketeer Influenced and Corrupt Organizations Act. Stites resigned from the State Bar while the criminal case was pending.

The lawyers appeared together in numerous civil cases in San Diego, Orange and Los Angeles counties between 1984 to 1988. Although supposedly battling each other on behalf of individual clients, Alliance members were convicted of churning claims, enabling other members to appear on behalf of insureds who asserted their right to retain independent counsel under the Court of Appeal’s 1984 decision in San Diego Federal Credit Union v. Cumis Ins. Society, Inc.

That decision, allowing insureds to retain their own lawyers at their insurers’ expense based on the carriers’ conflict of interest, was subsequently modified by statute, the Legislature declaring its intent to eliminate the kinds of abuses illustrated by the Alliance case.

Four attorneys were convicted of racketeering and fraud and four were acquitted at a 1990 trial. Stites was tried later because he was a fugitive at the time, prior to being apprehended as a result of a routine traffic stop in Illinois.

Eight lawyers and six non-lawyers—including Stites ‘ sister, Cheryl Dark—pled guilty before trial. Some clients were paid kickbacks for their cooperation in resisting settlements and prolonging cases, according to some of those who pled guilty.

In Friday’s appeal, Judge Stephen Trott agreed with the insurers that Stites was collaterally estopped from denying the fraud. His counsel, Lawrence Schoelch of Encino, had argued that the doctrine didn’t apply because the insurers were not parties to the criminal case.

The RICO Act, Schoelch noted, explicitly applies collateral estoppel where the government sues following a conviction, but is silent as to the effect of a conviction on private-party suits. The implication, Stites’ lawyer argued, is that Congress intended that the doctrine not apply to suits by private parties.

Several district judges, Trott noted, have rejected similar arguments.

“We doubt that Congress intended affirmatively to deny offensive non-mutual collateral estoppel to private plaintiffs seeking to recover losses caused by RICO enterprises,” the appellate jurist wrote. “The most likely explanation for the lack of an explicit statement permitting private parties to use such estoppel is simply that it was unavailable when RICO was enacted.’

The case is Fireman’s Fund Insurance Company v. Stites, 99-56622.


Copyright 2001, Metropolitan News Company