Sandra Eve Kardos
CERTIFIED PUBLIC ACCOUNTANT

Added 10-6-98

This is a transcript on a CBS News 60 minutes Show aired on 5-21-89. Fred Rucker was a member of the Stites law firm. Most were indicted and prosecuted. Fred Rucker testified as to his improper activities under a grant of Immunity in this criminal case.

Stiltes with Rucker as the managing attorney was  Disterdicks attorney. When Rucker left Stites he continue to be Disterdicks attorney. In order to settled our case against Disterdick Rucker  required the Aardvark partnerships to retain him. This story (and his overbilling and  poor performance) lead to me firing him as the Partnerships attorney.

The Alliance

WALLACE: The Alliance is a group of California lawyers and law firms who have made millions, perhaps hundreds of millions of dollars by defrauding some of the nation's top insurance companies by charging them phony and inflated defense fees. At least, that is the allegation of a number of individuals who have been involved with the Alliance. And that is what is being investigated currently by the U.S. attorney in San Diego. It's a complicated scheme, but one that has been richly lucrative so far. Our story begins in Switzerland.

[voice-over] The Swiss Alps are a playground for the international set, where a chalet like this one can set you back a million dollars. this is the home of the man whom sources say controls the Alliance, Los Angeles attorney Lynn Stites. He is silent in these pictures and he'll be silent in this report, for he declined to be interviewed.

LEONARD RADOMILE: Mr. Stites, when you first meet him, is a very charming, a very affable man. You would never suspect that he was doing the things that he was doing.

WALLACE lvoice-overl: San Diego attorney Leonard Radomile, who infiltrated the Alliance eventually as an undercover government agent, says that Stites found a way to bill insurance companies for millions of dollars in bloated defense fees.

Mr. RADOMILE: We knew that the Alliance got away with somewhere between $250 and $300 million. Out of that, Mr. Stites's take of that particular operation was 60 percent.

WALLACE: Now, how did the Alliance get that kind of money from insurance companies? Well, if you own a business and you're insured against personal liability, property damage, things like that, your insurance company has to defend you if you are sued. But in California, if your insurance company argues that you are being sued for something not covered in your policy, like fraud, then a judge can rule that you have the right to pick your own lawyer and that the insurance company still has to pay the bill. And that is where the Alliance saw a chance to make a lot of money. In order to get in on those big fees paid by your insurance company, Alliance attorneys would offer to represent you for nothing. In fact, they even paid you to let them take your case. And in some cases, they represented the people who were suing you in the first place.

voice-over John Naslund is a good example. He's a financial planner who was sued by investors when an investment deal that he was selling went sour. This Alliance attorney, named Mark Kent, an associate of Lynn Stites, offered Naslund $1,500 a month in cash if he'd retain him so he could bill Naslund's insurance exorbitant defense fees.

JOHN NASLUND: My position, if I cooperated with them, would be that they would pay me, cash, however I wanted to receive it, on a monthly basis, to be nothing more than their defendant.

WALLACE: And why did you think they were so interested in your business?

Mr. NASLUND: The money.

WALLACE: Because they could set the fees, and generate the fees, and churn the fees, and the insurance companies were going to pay it?

Mr. NASLUND: Yes.

WALLACE >[voice-over]: Kent told Naslund that he controlled one of the other side's attorneys as well, and that together they could drag out the case and run up big defense fees that would be paid by the insurance company. Radomile says failed investment deals were a favorite target of the Alliance.

Mr. RADOMILE: What the Alliance would do is, they'll get one of their lawyers to find a couple of victims, a couple of plaintiffs, and they'll say, "Look, you've been really defrauded. I'll take your case on a contingency. It won't cost you a nickel." They will then file a lawsuit

WALLACE: Right.

Mr. RADOMILE: In the lawsuit, they will do an investigation of everybody that had insurance who was within 100 miles of what happened, whether they had any culpability at all, and they'll name everybody.

WALLACE: The defendants.

Mr. RADOMILE: As defendants. Now, out of that 100 people, they will get their Alliance lawyers to go up to the defendants and say, "Gosh, what happened is really terrible, to you, you know, you had nothing to do with this."

WALLACE: "We'll defend you."

Mr. RADOMILE: "Let—we're insurance experts. Let us defend you. I'll tell you what. We're so sure that we can get paid from the insurance companies, that if we don't get paid from the insurance companies, we won't charge you anything personally." That's a great deal. And then all of a sudden—

WALLACE: So they own the plaintiffs, and they own the defendants.

Mr. RADOMILE: And they have—and they own all the defendants' lawyers.

WALLACE: And who pays the bills?

Mr. RADOMILE: The insurance companies.

WALLACE [voice-over!: Radomile says that he found out about Lynn Stites' scheme only after he retained Stites and another attorney to defend him in a lawsuit known as the Willowridge case. When that case got more and more complicated and drawn out, he says he got suspicious and confronted Lynn Stites, who laid out some of the ground rules.

Mr. RADOMILE: And he looked at me and he said, "You know, me and my friends always stick together. We always agree on the things that we have to agree on." He then said—he looked at me, and he actually started to laugh, and he said, "You know, I set you up in the Wilorich case."

WALLACE: Set you up?

Mr. RADOMILE: I said—and I looked at him. He said, "The plaintiffs—I own those people. They're all on my payroll." And then he did something that I'll never forget. He not only laughed, but he actually leaned back and patted himself on the back, and he said, "You know, I've done a really good job on you." He said, "Do you have any kind of idea of the testimony that I have?"

WALLACE [voice-over]: He says that Stites told him that he had paid for false testimony saying that Radomile had been involved in some fraudulent dealing.He then looked at me and he just said, "Well, you know, you've got a choice. Either you play ball and you make some money, or by the time we're done with you, who's going to believe you?"

WALLACE Voice-over]: Leonard Radomile's wife, Marcelle, still remembers her husband's reaction.

MARCELLE RADOMILE: And I'll never forget the day when he came home, after his meeting with Mr. Stites. He's an incredibly strong person, Leonard. It would take a strong person to break this. But he came home, and I've never seen him look quite that way. He was crestfallen. He was crushed, and he was pale. And he was really in a quandary. But—

WALLACE: Quandary because he knew that they had him.

Mrs. RADOMILE:—they had him. He was backed into a corner.

WALLACE Voice-over]: That's when Radomile decided to fight back. After telling Stites that he would join the Alliance as a lawyer for them, he went to the U.S. attorney's office and volunteered to work undercover. At one point, Radomile says, Alliance members thought he was holding back business, and he began to get threatening phone calls.

Mr. RADOMILE: At first I didn't know what he was talking about. He then started talking to me about having some of his friends from Chicago visit me. And a member of the Alliance brought a message to me that if I didn't start playing ball with these guys, that I was going to be in a lot of trouble, and things were going to happen to me and my family.

Mrs. RADOMILE Every time Leonard would have a meeting with one of these guys undercover, there was always the possibility that they would find out what was going on. And you have to think, with tens of millions of dollars at stake, that they might get a little emotional about it.

WALLACE 1voice-overl: Case in point: John Naslund. He says he got this threatening message at his office.

TELEPHONE CALLER [answering machine!: Saturday, 7:30 p.m.1 Hello, there's going to be a bomb at 1:30 tomorrow morning. Bye. /End of message]

WALLACE 1voice-overl: The threat fumed out to be a hoax, but Naslund, too, was working undercover against the Alliance at the time. He says attorney Mark Kent threatened to ruin him if he did not allow Kent to defend him.

/interviewingl Were you scared?

Mr. NASLUND: Yes, I was in certain ways. I wasn't afraid of these men, but I was afraid of what they could do. They could ruin me financially. If I did not cooperate with them, they would cause the plaintiffs' attorneys to pursue me in every way possible. They would financially break me.

WALLACE: And they controlled the plaintiffs' attorneys.

Mr. NASLUND: Yes, they did. On the other hand, if I would cooperate with them, I'd have all these dollars sent to me, I would have this representation, I would have total control over the outcome of this case.

WALLACE: But you'd be a criminal.

Mr. NASLUND: But I would be a criminal.

WALLACE 1voice-overl: Besides offering money to defendants like Naslund, Radomile says, Stites told him that he was bankrolling and controlling the whole network of Alliance attorneys. Stites also told Radomile that this atttorney, Monte Mason, was being paid $30,000 a month to sue people, so that other Alliance attorneys could defend those people and bill the insurance companies.

Mr. RADOMILE: In just one case that Monte Mason was involved in, Monte Mason was getting paid $30,000 a month, but there were 12 Alliance firms generating an average of $150,000 to $200,000 a month in fees each So it was costing them $30,000 a month for Mason—

WALLACE So that was cheap.

Mr. RADOMILE:—but he was making about $2 million a month from the defense side. So it was—from that point of view, it was a pretty good investment.

WALLACE: Not only did the Alliance often represent both sides of a case, in at least one case Radomile says that Stites boasted he had influence over a judge as well. He says Stites admitted it cost him $15,000 to $20,000 a month for the services of a judge he described as "a small-time player."

What was this judge expected to do for his small-time $15,000 or $20,000 a month?

Mr. RADOMILE: Rule favorably, to help them keep the discovery and the court motions as complicated as possible, so that they could bum up as much time as possible to generate very large legal fees.

WALLACE: Stites controlled this judge?

Mr. RADOMILE: Yes.

WALLACE: The judge says that he never met Lynn Stites, and he denies any wrongdoing. But he did play a role in a case that is still active, a case where insurance companies have already paid millions of dollars in defense fees, most of those fees paid to alleged Alliance law firms. Here's an example: $1.8 million in legal bills for just one six-month period for just one client, paid to attorney Alan Arnold, an associate of Lynn Stites. According to those close to the investigation, Alliance bills of over $200,000 a month per client were common.

Mr. RADOMILE: They probably padded their bills by about 90 percent.

WALLACE: How 'd they get away with it?

Mr. RADOMILE: I don't know. You know, you look at this and you just wonder why the insurance companies keep on cutting those checks.

WALLACE [voice-over!: Brad Miller represents an insurance company that has already paid tens of millions to the Alliance. He says that without absolute proof of fraud, insurance companies in California are reluctant to challenge defense attorney's bills, for fear that the insurance companies will be sued for bad faith and will have to pay heavy damages.

[interviewing] How long has this been going on?

BRAD MILLER: We believe the group got started in maybe '83, at the earliest, and—

WALLACE: So it's five, six years.

Mr. MILLER: Till now? Yes.

WALLACE: And it took the insurance companies five, six years to catch on?

Mr. MILLER: Took them four or five years to start to accumulate some proof with which to act.

WALLACE: I'm told that in some of these cases, the bills are still being paid by certain insurance companies.

Mr. MILLER: That's true.

WALLACE [voice-over!: But many of the insurance companies, finally fed up by the millions they've paid the Alliance, are fighting back now, suing Stiles and other alleged Alliance members for fraud. When we asked at his home in Switzerland for comment on the allegations in this report, Lynn Stiles declined, citing pending litigation, but he did say he plans to return here to his home near Los Angeles. But some of Lynn Stites's former associates are talking to the U.S. attorney in San Diego. Attorney Mark Kent has agreed to plead guilty to two counts of mail fraud and the U.S. attorney is said to be nearing the end of his investigation.

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