Claims of business misconduct — from misrepresenting insurance premiums to running shady stock deals — resulted in the top recoveries in 2003, according to the Lawyers Weekly survey of large verdicts and settlements.
Extending a trend first seen in 2002, commercial, corporate and contractual disputes dominated the high end of the latest roundup, with seven of the top ten recoveries reported last year.
Unlike the last survey, business-related cases didn't just lead the top of the list. In a dramatic change from past years, they made up more than a quarter of all the entries for 2003, with 14. That's more than double the number of business recoveries reported to Lawyers Weekly in 2002 — and matches the tallies in medical malpractice and auto negligence.
Another telling statistic: In 2003, six business-related cases resulted in recoveries of $7 million or more, according to the survey. There were only three reported in that range in 2002 — and only one in 2001. In contrast, no contested personal injury recoveries reached $7 million in 2003.
That trend could continue, according to Fuquay-Varina attorney Donald Hunt Jr., who won a $2.24 million treble damage award last September in a business tort case.
"In my view, in terms of making a living, business misconduct cases in today's environment are becoming almost as profitable as personal injury, where you traditionally have had more high-end verdicts and settlements," said Hunt.
The record-setting list of recoveries from 2003 includes 54 in excess of $1.6 million — 44 of them settlements. That's 15 more than were reported in that range in 2002 and 23 more than in 2001.
The total number of verdicts and settlements over $1 million reported to Lawyers Weekly last year was more than 90 — 20 more than in 2002. Only those above $1.6 million made the list.
'Vanishing' life insurance premiums. Leading the survey was a $55.3 million settlement in a class action against Greensboro-based Jefferson Pilot Insurance Company. The case involved the sale of whole life and participating life policies to 165,000 customers in the 1980s and early 1990s.
The plaintiffs claimed they were told investment returns on their initial premiums would eliminate the need for payments after a certain date. Instead, they allegedly kept being charged for premiums after they were paid up.
The lawsuit in Romig v. Jefferson Pilot Life Insurance Company, filed in Guilford County in 1995, is one of a host of "vanishing premium" claims around the country that have tagged insurers for millions of dollars in verdicts and settlements.
Jefferson Pilot denied any allegations of wrongdoing in the North Carolina settlement, which was approved last June by Superior Court Judge Melzer Morgan Jr. The settlement included $7.3 million in attorneys' fees.
Numerous discovery fights in Romig only ended after an appeal to the North Carolina Supreme Court, where the plaintiffs eventually prevailed, according to one of their lawyers, L. Bruce McDaniel of Raleigh.
"About the time we were ready to go to court, everybody knocked heads for a while and then we finally settled," McDaniel said. Wolf Haldenstein of New York was co-counsel in the case.
Asked about the rise of business cases on the survey, McDaniel, a former SEC staff attorney, said his practice has seen a "considerable" increase in corporate and commercial misconduct litigation in recent years.
"It's increasing in terms of numbers and in terms of notoriety," said McDaniel. "We're seeing more of these cases in the news now, but that's just because more are being found out. It's been going on ever since there were big corporations.
"For a long time the conservative establishment said big corporations don't do anything wrong," McDaniel said. "They said it's just the little guy who grabs a loaf of bread from the 7-11 who should be put in jail. Well, not only does it turn out the emperor doesn't have any clothes — a lot of times he's a crook.
"You can charitably call it corporate misfeasance or malfeasance, but it's just white collar crime, is what it is," McDaniel said. "Not all corporations are bad. I represent some myself, and I try to keep them straight. But some of these numbers are just obscene."
Forged broker documents. A $17.8 million securities arbitration award from Charlotte took the third spot on the survey. The award by NASD arbitrators in Castelstein v. Bear Stearns & Co. includes $12.3 million in punitive damages, the maximum under state law.
The plaintiff, a retired Belgian businessman, was represented by attorneys David Rudolph and Thomas Maher. According to a firm press release and news reports, the plaintiff invested $12.5 million with a man who falsely represented himself as a Bear Stearns broker. He had Bear Stearns business cards and that company's name in his office, but in fact worked for Corporate Securities Group — which became Wachovia Securities Financial Network after a series of acquisitions and mergers.
The broker led the plaintiff to believe his account was with Bear Stearns when it was actually with CSG. During a three-month period, the broker forged trading documents, engaged in heavy trading, made unauthorized transfers and racked up excessive commissions.
The arbitrators called the broker's conduct "reprehensible" and said CSG's willful disregard of its supervision duties "shocked the conscience of the panel."
According to news reports, the broker has pled guilty to fraud and money-laundering.
Under the award, Wachovia Securities and the broker were jointly liable for $4.1 million in compensatory damages, plus punitives and interest. Bear Stearns was hit with $200,000 in compensatory damages.
"It really boiled down to what the panel understood to be a pattern of practice on the part of these security firms to close their eyes to misconduct by brokers and brokerages that were, quote, 'independently owned,'" said Rudolph. "That may have changed now, but at least historically these firms that had a bunch of independent contractors got a cut of the business and saw supervision as an overhead cost they didn't much want to incur. I think we were able to show the panel that our case was another example of that pattern."
The arbitration award was not appealed, according to Rudolph.
Employee raids. Taking the fourth spot on the survey was a $16.2 million award to an equipment leasing company that bought a scaffold rental business — only to see it crippled when former officers lured scores of employees to a competitor.
Business Court Judge Ben Tennille said treble damages of $15 million were proper — even though the former officers and defecting employees weren't covered by non-competes and didn't violate fiduciary duties. The reason: the defendants used branch managers of the plaintiff to accomplish the raids — and specifically timed them to hurt the plaintiff's business while giving the defendants a big boost.
"Undermining the entire structure of a branch by secretly soliciting key employees at various levels of the organization to leave en masse … with the inevitable consequence of crippling the branch, and then using the same employees to blitz … customers for business … is not ethical competitive behavior," wrote Judge Tennille.
Judge Tennille also tacked on $1.2 million in attorneys' fees for the plaintiff under Chapter 75.
The case is Sunbelt Rentals, Inc. v. Head & Engquist Equipment, L.L.C. The plaintiff was represented by Charlotte lawyers Edward Davis, Deborah Edney, William L. Rikard Jr. and Eric Welsh.
"I think Judge Tennille was right on the mark," Rikard said. "We've got to do better in the marketplace."
The defendants have appealed the award, according to Rikard.
Vitamin price-fixing. Placing fifth on the list was the $13 million class-action antitrust settlement in Nicholson v. Hoffman LaRoche Ltd. The class plaintiffs, comprised of consumers and businesses, claimed manufacturers engaged in a price-fixing conspiracy to overcharge them for vitamins and vitamin products.
According to plaintiffs' counsel, the settlement calls for $8.2 million to be distributed to various organizations that provide medical, health and nutritional care for North Carolina residents. Another $4.8 million goes into a multi-state fund for commercial claimants.
Although the settlement was approved by a Mecklenburg trial judge in 2001, appeals in the case weren't dismissed until last September.
The plaintiffs' counsel were Charlotte attorney James F. Wyatt III; state Attorney General Roy Cooper and assistant attorney general K.D. Sturgis; and Washington, D.C. lawyers David Boies, Tim Battin and Ian Otto.
Click here to view the entire list of 2003's largest verdicts and settlements.
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