Trial to Start in ‘Alliance’ Lawyer Scam : Courts: Prosecutors say insurers were cheated out of at least $50 million. It is one of the largest criminal prosecutions of attorneys ever. The alleged mastermind remains a fugitive.

The story of Marc I. Kent, San Fernando Valley lawyer turned felon and federal witness, goes from rags to riches to ruin.

That of fellow lawyer Lynn Boyd Stites involves flight to avoid prosecution.

Details of their part in a scheme that became a major federal prosecution of attorneys are found in grand jury testimony and other evidence that will surface in a trial starting Monday in federal court in San Diego.

Kent, scheduled to testify against eight former associates charged with fraud and racketeering, was a lawyer with a modest practice after earning his law degree from the Mid-Valley College of Law in the mid-1970s. Business was so slack that he would wait around the courthouse to be appointed counsel for indigent defendants.

Kent’s practice picked up, but he didn’t hit the big time until 1984, when his former secretary introduced him to Stites, her boyfriend.

With his caseload of wills and fender-benders, Kent could keep a client’s papers in a Manila folder. Stites spoke of a case in which the paperwork filled entire rooms and the lawyers flew to Europe for depositions. Stites talked of billing twice as much per month for a single lawsuit as Kent made in a year. And he proposed an arrangement whereby Kent could join him in a glamorous and lucrative area of law.

Soon, Kent too was billing huge sums and directing a staff of lawyers and paralegals. He bought himself a candy-red Porsche and sometimes rode in limousines until the gravy train derailed.

Kent and Stites have since emerged as key figures in the “Alliance” fraud and legal corruption case that prosecutors say cost insurers at least $50 million. It is one of the largest criminal prosecutions of attorneys in U.S. history.

Kent, 42, of Granada Hills, has pleaded guilty to mail fraud and is expected to be a star prosecution witness.

Stites, a fugitive, will be conspicuously absent from the trial. The purported mastermind and chief beneficiary of the Alliance scheme, Stites and his former bookkeeper, Roberto Rufino, dropped from sight shortly before they were indicted last April along with 16 others.

Fourteen people, including eight Los Angeles-area lawyers, have pleaded guilty in the case. Among the eight scheduled to go on trial Monday, five are from the Valley. Prosecutors declined comment on rumors circulating among those close to the case that more lawyers will be charged after the trial, which is expected to last up to four months.

Prosecutors claim the lawyers cheated insurance companies and undermined the judicial system by needlessly prolonging litigation and secretly maintaining close financial ties while posing as independent lawyers.

In court papers and interviews, the defendants contend they did nothing wrong and are being punished for standing up to the insurers, who had urged prosecutors to investigate them.

Defendants also say much of the evidence against them is unreliable, having come from former associates, like Kent, who plea-bargained with the government and who now, they contend, will say anything to get a lenient sentence.

The lawyers are accused of taking part in an elaborate scheme to manipulate civil damage suits to make them as expensive as possible. From 1984 to 1988, the government says, the lawyers initiated or infiltrated at least 10 litigations in Los Angeles, Orange and San Diego counties in which insurance companies had to pay defense fees for policyholders who had been sued.

The lawyers allegedly resisted settlements and “churned” the cases by conducting needless depositions and filing cross claims for damages against each other’s clients. Some clients allegedly were paid kickbacks by the lawyers so that the clients would be content to remain defendants rather than settle claims against them.

In some litigations, Alliance members allegedly served as lawyers for both plaintiffs and defendants. According to the government, the plaintiff attorneys were paid by defense lawyers to bury them in motions and discovery requests, in order to justify huge defense bills. In one instance, the group is said to have punished a wayward member by having his client dismissed from a lawsuit, thus denying the lawyer defense fees.

Stites, the government says, was the brains behind it all.

An amateur pilot with a taste for Grandma Moses paintings, the 46-year-old Stites divided his time between homes in Switzerland and Bell Canyon west of Canoga Park before he disappeared.

Grand jury testimony and other evidence portrays Stites as a master manipulator with a penchant for secrecy and intrigue and a command of the arcana of insurance law. In many ways, he comes across less as a lawyer than as an entrepreneur with a novel business idea: the franchising of litigation.

With the help of several lieutenants, Stites allegedly created a network of lawyers, often recruiting those who had marginal practices or were young and starting out. Among them were several West Valley attorneys--sometimes known within the group as the “Gremlins” or the “Ventura Boulevard boys.”

Stites allegedly advanced money to some of the lawyers to open their own offices and also assigned them insured clients who had been or were about to be sued. He employed an administrator to hire lawyers and paralegals to assist them, and a bookkeeper to audit their books to make sure Stites was getting his cut of their insurance billings.

According to testimony by several witnesses, at least two lawyers ostensibly running their own law firms were merely salaried employees of Stites. Essentially, all of their insurance billings went to Stites--billings they generated, in part, by defending claims filed against their clients by Stites himself.

Some others, including Kent, allegedly agreed to pay Stites 60% of their profits from insurance billings.

These payments weren’t always in cash. Kent, for one, paid tuition at private Swiss schools for Stites’ children. At least two other defendants, Lewis M. Koss and Donald E. Sternberg of Woodland Hills, allegedly paid Stites in precious metals. Other payments took the form of renovations to Stites’ home.

According to grand jury testimony, Stites also had a financial stake in court reporting firms used by the lawyers for hundreds of depositions.

Even so, Stites apparently kept certain of his dealings--and even his identity--secret from some of the recruits--a fact defendants may cite as proof they weren’t knowingly involved in wrongdoing.

Stites’ secretiveness even extended to close associates like Gregory S. Bodell, formerly a loyal Stites lieutenant who pleaded guilty to mail fraud last May. In an interview last year with a federal investigator, Bodell said he worked for Stites six years before realizing that Stites’ paralegal Cheryl Dark was Stites’ sister.

Or consider Monty G. Mason II, a Sherman Oaks lawyer allegedly recruited by the Alliance to be the plaintiffs’ attorney in two San Diego cases known as the Amgo and Syndico litigations.

According to the statement taken from Bodell, Stites thought Mason spent too much time on the phone and too little time creating work for the defense attorneys. So Stites decreed that Mason have use of his phone only until noon, when an answering machine began taking his calls.

This made Mason angry, but he didn’t know whom to blame, according to the Bodell statement. Mason felt that “whoever was in charge of what was going on did not know what they were doing,” Bodell said. But Mason was reduced to using “the term ‘Mr. Big’ or some cartoon-like name when referring to whoever was running the show . . . Stites sometimes bragged that no one ever knew who he was and that he was controlling everybody,” Bodell said.

But were any of the lawyers’ actions criminal? The defendants maintain they were merely zealous and thorough advocates for their clients. Naturally, they say, this didn’t come cheap. Some have acknowledged paying Stites, but say these were referral fees that are commonly paid when one lawyer sends a client to another.

Jurors at times will be required to decide what is improper and what is more or less accepted legal practice, however unusual it may seem to non-lawyers. For example, the lawyers have been accused, among other things, of overcharging or billing for work they didn’t do. Yet law firms typically are not overly concerned that their bills reflect actual time worked on a case. A recent survey of attorney billing practices by California Lawyer magazine failed to find a single law firm that even requires its lawyers to use a clock in figuring how many hours to bill.

Asked by the author of that article if time in the shower thinking about a case was billable, the managing partner of one of the 20 largest firms in San Francisco said this would be “a judgment call by the attorney.”

Defendants also have accused the government of selective prosecution of small-fry attorneys, pointing out that only solo practitioners or lawyers from tiny firms were indicted. The defendants maintain they weren’t the only lawyers who billed huge fees in the suspect litigations. Often appearing with them, for example, were lawyers from the firm of Finley, Kumble, Wagner, Heine, Underberg, Myerson & Casey--a former legal powerhouse that is now defunct.

Kent testified that Stites considered it important to involve the Finley, Kumble lawyers--describing them as “Queen Bees” whose presence legitimized the cases “so that we could more easily bill for these astronomical” amounts. At least two former Finley, Kumble lawyers were granted immunity, yet no member of the firm was indicted.

Bradley W. Brunon, Koss’ lawyer, said his client “didn’t do anything different than lawyers with the big, prestigious firms that weren’t indicted . . . If their conduct is not illegal, his is not illegal,” Brunon said. Prosecutors have declined comment on the matter.

Also in dispute is the government’s decision to try the lawyers together with San Diego attorney Leonardo T. (Leonard) Radomile, the only non-Los Angeles lawyer to be charged in the case. Radomile brought the lawyers to the government’s attention in 1987 and secretly began informing on them. In 1989, he was featured on CBS’ “60 Minutes” as the undercover hero who busted the fraud. But Radomile never sought immunity for his prior involvement with the lawyers. He ended up indicted with the others--a victim, he said, of government “trickery and deceit.”

Defense attorneys argued strenuously, but unsuccessfully, in pretrial motions that the lawyers should not be tried with Radomile nor he with them. They said Radomile, in support of his claim of innocence, would portray the others as guilty--in effect acting as auxiliary prosecutor and buttressing the government’s case.

The defendants, each charged with at least 14 felony counts, face the possibility of long prison terms if convicted. Regardless of the outcome, they will have paid a heavy price. Their law practices have been essentially destroyed and, in some cases, their personal lives are a shambles.

The lawyers each face legal bills that will probably reach the six figures, several criminal defense attorneys said. And if they win acquittal, they still face the prospect of disciplinary action by the California Bar. Moreover, insurance companies are pursuing civil fraud suits against them in hopes of winning judgments against future earnings.

‘ALLIANCE’ CHRONOLOGY

July, 1987: U.S. attorney in Los Angeles begins investigation of Los Angeles-area lawyers. Probe begins after San Diego attorney Leonardo T. (Leonard) Radomile reports suspicions about the group, with whom he was associated in several civil cases.

Summer-Fall, 1987: Radomile and two of his clients secretly tape conversations with alleged “Alliance” members, but U.S. attorney suspends probe for reasons that have never been disclosed.

Early 1988: Prosecutors briefly reopen but again suspend investigation of lawyers.

September, 1988: Representatives of Radomile and at least three insurance companies approach U.S. attorney in San Diego, who agrees to investigate the lawyers.

February, 1989-March, 1990: Seven people enter guilty pleas in the Alliance case and agree to cooperate with the government in its continuing investigation. Four are San Fernando Valley lawyers and the other three law firm employees or clients.

April, 1990: Eighteen people--14 of them lawyers--are indicted by federal grand jury in San Diego on mail fraud and racketeering charges. Among those charged are alleged Alliance mastermind Lynn Boyd Stites and his former bookkeeper Roberto Rufino. Both flee and remain fugitives. Also charged is Leonard Radomile, who first brought the case to the government.

May, 1990-April, 1991: Guilty pleas entered by seven more people--four lawyers and three law firm employees or clients.

April 15, 1991: Trial of eight lawyers scheduled to begin. Defendants are Lewis M. Koss, Donald E. Sternberg and Steven D. Waisbren, all of Woodland Hills; Richard B. Noyer, Calabasas; Leonard Radomile, La Jolla; Douglas Caiafa, West Los Angeles; and B. George Dezes, currently residing in Maryland. Two other defendants, Lynn B. Stites and Roberto Rufino, are fugitives.