23 Lawyers Arrested in Insurance Scheme
New York Law Journal, September 22, 1995
Inflating of Settlements in Tort Cases Charged
By Matthew Goldstein
The parade of men in suits, including 21 personal injury lawyers, walked toward the criminal courtroom in lower Manhattan, looking as if they were on their way to work, not to their arraignment on bribery and fraud charges.
Occasionally, one of them would see someone he knew in the crowd filling the hallway and reach out to shake hands, exchanging pleasantries as if both were attending a professional function of another kind.
All had been ordered to report to Manhattan District Attorney Robert M. Morgenthau's office earlier that morning of Sept. 21 to be fingerprinted, photographed and to otherwise prepare for the pleas they were about to enter.
Attorneys Among 45 Indicted
While the lawyer defendants completed their paperwork for the D.A.'s office, Morgenthau held a press conference announcing their indictment, along with 24 others, including 16 insurance adjusters, six middlemen and two law firm employees. All 45 were accused of participating in a widespread payoff scheme designed to expedite the settlement of some $19 million in insurance claims filed on behalf of unsuspecting clients.
In his announcement, Morgenthau said that from 1991 to 1994, the lawyers paid out of their contingency fees more than $300,000 in bribes to the adjusters and more than $500,000 to the middlemen. He also said the alleged scheme was more pervasive than the indictments might indicate, adding that more than 100 additional lawyers still were under investigation.
All of the lawyers were charged with various counts of commercial bribery and scheming to defraud, some of which are felonies punishable by jail terms of up to four years. In New York, lawyers found guilty of felonies are automatically disbarred.
A second set of indictments charged two of the defendants - one lawyer and one adjuster - with making fictitious claims in five cases, allegedly netting settlements totaling more than $800,000.
Appearing before state supreme court justice Leslie Crocker Snyder, all but one of the defendants pleaded not guilty and were released on bond. Lawyer Edward Sacks, when asked how he pleaded, shouted out defiantly, "Innocent."
In court, Assistant District Attorney John McNamara accused one of the defendants, Long Island attorney Joseph Reynolds, of using his law license as a front, sharing co-counsel fees with other lawyers on cases in which he did no work.
The indictment alleged that Reynolds, among others, was a middleman between lawyers seeking speedy settlements of their clients' claims and the adjusters whose jobs it was to handle those claims.
Reynolds' well-known attorney, Gerald B. Lefcourt, argued during the hearing that Reynolds' actions were akin to a customer in a restaurant slipping the maitre'd a $5 bill to get a table more quickly.
"That five dollars is not the restaurant's, your honor," he said. "The restaurant was not harmed."
But the judge - who had authorized some of the wiretaps that were used in the case - evidently was not impressed, telling Lefcourt, curtly and without elaboration, that his analogy failed.
Yet clearly that will be the defense's theme: that prosecutors must prove the insurance companies were harmed by the defendants' alleged wrongdoing.
Even Morgenthau conceded that most of the claims would have been paid anyway, although he said that "in some cases" the alleged bribes may have resulted in inflated settlements and higher fees for the attorneys. He acknowledged, though, that it would be hard to prove the settlements were inflated, and said such charges are not included in the indictments.
Lawyer Tips Off Prosecutors
Prosecutors said their investigation began more than three years ago, when a middleman approached a former lawyer for the city, Jay B. Itkowitz, demanding payment to broker a quick settlement of two insurance claims in which the middleman was not involved. Itkowitz called the prosecutor's office instead.
Morgenthau praised Itkowitz, and called him an "honest lawyer," a term that induced laughter among the press corps, as well as mumblings about oxymorons.
But Itkowitz said there was nothing humorous or incongruous about being an honest lawyer. "It's not a question of being an honest lawyer," he told The New York Times. "It's a matter of being an honest citizen and I don't think that's unusual. I think there are a lot of people who are honest."