Former lawyers, clients allege unethical activity
By Greg Moran
UNION-TRIBUNE STAFF WRITER

November 25, 2007

With its highly visible, nonstop advertising, the four-year-old Pacific Law Center in La Jolla has made itself one of San Diego’s best-known law firms.
By the firm’s estimate, it has represented 10,000 clients in drunken-driving and other criminal cases, bankruptcy, and personal injury lawsuits since opening here in 2003.

PROFILE: PACIFIC LAW CENTER
The law firm’s high-profile advertising campaign promises aggressive representation and often features testimonials from satisfied clients. Its Web site claims the company’s lawyers have more than 250 years of combined legal experience.

Established: 2003

Main office: La Jolla

Lawyers: 25

Clients served: 10,000 since opening

Types of cases: Criminal, DUI, personal injury, bankruptcy, medical malpractice, pharmaceutical.

SOURCE: Pacific Law Center

The advertising campaign promises aggressive representation and “little or no money down” and features testimonials for the center and its lawyers.

But in recent months, that picture has been clouded by lawsuits, a judge’s ruling and action by the Better Business Bureau.

Former clients say it was difficult to get enough time with an attorney. Some say they were given unrealistic assessments about their cases.

Lawyers formerly employed by the firm have alleged in lawsuits and in sworn statements that Pacific Law Center uses unethical practices, such as allowing unlicensed clerks to sign up clients and give out legal advice. Two attorneys sued, claiming that they were fired after objecting to that.

Lawsuits filed by former Pacific Law Center attorneys depict a business where lawyers have caseloads so large that it is difficult for them to provide the kind of representation the firm advertises. Instead, they say, the emphasis is on settling cases as quickly as possible.

The Better Business Bureau, a business ethics and consumer protection agency, downgraded its rating of the firm from satisfactory to neutral after fielding 38 complaints over the past three years.

A judge ruled in June that the firm appeared to be “gouging” local taxpayers by seeking public funds to hire experts in two cases for which the firm already had collected thousands of dollars in fees from the clients.

Advertisement Senior attorneys for the firm defend their practices and reject the various allegations. They insist that their caseloads are manageable and that they have time and resources to give clients personalized attention.
Robert Arentz, the managing partner, said that clerks act as fact gatherers and that no final agreement is ever signed without a lawyer first being brought in to talk to the clients. Arentz said all clients are told that the people they first speak to are not lawyers.

“We have a lot of attorneys and a lot of clients,” Arentz said. “It’s easy to find individuals who have individual complaints about their individual situation.

“Overall, the majority of our clients are extremely happy with their representation.”

Arentz spoke from the Phoenix office of the law firm Phillips & Associates, which is affiliated with Pacific Law Center, where he often works.

Jeffrey Phillips, an attorney with the Phoenix firm that bears his name, is listed on the articles of incorporation for Pacific Law Center filed with the California secretary of state. Phillips is not licensed to practice law in California.

Arizona state bar records show that Phillips was censured in September 2002 and placed on two years’ probation because he “failed to adequately supervise subordinate attorneys and non-lawyer specialists.”

The records say non-lawyers who first met with prospective clients failed to say they were not lawyers and did not adequately describe the firm’s “little or no money down” payment plan.

Phillips completed his probation in January 2005. Complaints of aggressive intake clerks and hard-sell tactics are now being made against Pacific Law Center.

Phillips said potential clients are told repeatedly that the intake clerks are not lawyers, but assistants.

“We don’t believe there is any way any of our people are doing anything wrong here,” Phillips said during a recent interview.

Assistants faulted
Court documents, as well as interviews with nearly a dozen lawyers who left the firm but did not sue, describe tactics by “legal assistants” who are not lawyers, who raise clients’ expectations about what can be accomplished to get them to hire the firm.
“There were a significant number of clients who didn’t get what they thought they bought,” said Charles Luckman, who worked as a criminal defense lawyer there from March 2004 to August 2006. “The best analogy I can give you is it was a law firm run like a used-car dealership.”

Often, according to court records and interviews with former lawyers with the firm, clients became angry when told that their cases were likely to turn out differently than what they were told when they signed up.

“I had to spend my first conversation with clients backpedaling like crazy from what the intake clerks said,” recalled one lawyer who wanted to remain anonymous because he feared retaliation from the firm.

Arentz declined to comment on the lawsuits or the specific allegations in them.

Luckman was one of three lawyers who sued after being fired last year. He reached a quick settlement with the firm, as did the other two lawyers.

He spoke to The San Diego Union-Tribune after the suit was filed but before the settlement, which contained a confidentiality clause, was reached.

In December 2005, Luckman wrote a memo to his superiors that the intake clerks were giving out “unlicensed, unqualified and erroneous legal advice” to clients, according to his lawsuit.

One client was told by a clerk that Luckman was a former judge, which was not true. Luckman said he handled 50 to 80 cases at a time, representing all the firm’s East County clients.

In August 2006, after raising more complaints about the firm’s practices, Luckman was fired.

Attorney Colin Cossio filed suit in September 2006, alleging he was fired after making numerous complaints about the business practices of the firm and saying he would complain to the State Bar of California.

Cossio said his caseload was enormous.

“When you have 800 files, how can you give each client the attention they deserve?” Cossio said in an interview before he settled his case.

His lawsuit said that non-lawyers routinely dispensed legal advice at the firm, in violation of bar rules and state law.

The complaints detailed by Cossio and Luckman were strongly rebutted by lawyers who now work at the firm. Ten lawyers sent unsolicited e-mails to the Union-Tribune, all saying that their caseloads were not overwhelming and that they had the resources and time to represent their clients well.

Michael Stuart, a lawyer handling criminal cases in El Cajon, said he had 55 active cases and that was manageable. Stuart wrote that he was “proud to be part of an organization that prides itself on ensuring the constitutional rights of its clients through excellent legal representation.”

Most of the letters lauded Alan Spears, named the head of the firm’s criminal division in 2007. Spears’ name has been in the news lately because he is the lawyer for Seth Craven, one of five men charged with murder in the death of a La Jolla surfer in the “Bird Rock Bandits” case.

Spears, who joined the firm this year, defended his lawyers.

“Do I think I have experienced and aggressive lawyers who vigorously defend people?” Spears said. “If that is the question, the answer is an unequivocal yes.”

In a later e-mail he said it was “absurd” to say his lawyers are overworked.

Judge criticizes lawyers
How the firm bills for services is another area of contention.
Superior Court Judge Jeffrey Fraser criticized the center in June for seeking public funds for indigent defendants in two cases in which the clients already had paid the firm for representation.

In one case, the defendant had paid the firm $12,000 of a $35,590 bill for a sex crimes case in which he pleaded guilty relatively quickly.

In another case, the firm charged $25,590 to represent a man who, after pleading guilty, changed his mind and wanted to withdraw his plea. The man had paid $19,500 of the $25,590 bill in advance.

In both cases, the firm wanted to hire psychological experts to examine their clients – and asked that they be paid from taxpayer funds administered by the court.

Fraser reasoned that some of the retainer fee could be used to pay the experts and rejected the request. It’s important that “the public treasury is protected from greedy attorneys,” he wrote.

It is not only former lawyers and a judge with complaints against the firm.

The San Diego Better Business Bureau gives the firm a neutral rating, rather than the more common “satisfactory” or “unsatisfactory” rating. The reason: the large number of complaints consumers have lodged with the BBB.

Most of those complaints concern “service issues,” defined as delays in providing services, inferior quality of service, or not providing a promised service.

“We saw a pattern that causes concern,” said BBB President and CEO Sheryl Bilbrey. “They weren’t bad enough to lose membership, but they are not good enough to get a satisfactory rating.”

Several former clients of the firm contacted for this story were bitter about their experiences.

One of those complaining to the Better Business Bureau was Genevieve Ruggles, 71, of Rancho Bernardo, who paid the firm $11,330 to represent her adult son in a drunken-driving case in Ventura County. When her son rejected Pacific Law Center’s representation, it took Ruggles nearly six months to get her money refunded. She said that at her first visit to the firm to discuss the case she was immediately pressured to sign up.

Another former client paid the firm $5,500 to represent her on a drunken-driving charge. She said she and her husband spoke to “an aggressive kind of sales guy” when they went to the firm’s La Jolla office, who told her the charges easily could be reduced. She said the representative later warned her she could spend 10 days in jail.

Neither turned out to be correct.

The woman, who wanted to remain anonymous because she did not want her arrest widely known in the industry she works in, eventually fired Pacific Law Center and settled the case with a new lawyer.

“They just really pressured us,” she said of the firm’s sales tactics.

Arentz and Phillips both said they have worked with the Better Business Bureau and the clients to resolve the complaints. Moreover, Arentz said in a statement, considering the 10,000 clients the firm has represented since opening, the number of complaints to the BBB represents one out of every few hundred clients.

Marsha Hall, a former client who lives in Imperial County, did not complain to the BBB but sued the firm in July, claiming malpractice, fraud and false advertising. The lawsuit contends that the firm botched her case by missing the deadline to file a claim against Pioneer Memorial Hospital in El Centro – a necessary and routine step when suing a public agency.

Instead of admitting the error, the suit said, lawyers persuaded Hall to drop the case after referring her to experts who said she had no chance of winning.

Hall said two members of Pacific Law Center, Michael Clarke and John Schill, told her that her case had no merit – but did not tell her the firm failed to file a government claim on time.

John Schill was identified as the executive director of the firm on the BBB Web site file in May, but he no longer is listed there. He is licensed to practice law in Arizona, but not California.

Clarke has a discipline record from the State Bar of Arizona. He was suspended for six months in 2002 for misusing client funds. He was reinstated in September 2002.

Hall’s malpractice lawsuit alleges that it was illegal to allow Schill to work on Hall’s case in any way, because he is not a member of the State Bar of California. The suit also contends that Clarke’s wife was one of the experts who told Hall the case had no merit.

The firm has denied Hall’s allegations and insists it does quality work for clients.

“We have dozens of excellent lawyers, and we are proud of achieving client satisfaction and good results,” Arentz said in a statement.

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Greg Moran: (619) 542-4586; greg.moran@uniontrib.com

Wal-Mart Paid Bills
For Mrs. Shank, Then
Sued for Money Back
By VANESSA FUHRMANS
November 20, 2007; Page A1

JACKSON, Mo. — A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank’s care.

Instead, all of it is now slated to go to Mrs. Shank’s former employer, Wal-Mart Stores Inc.

Vanessa Fuhrmans, the family
Above, Deborah and Jim Shank. Right, a photo of the family before the accident.
Two years ago, the retail giant’s health plan sued the Shanks for the $470,000 it had spent on her medical care. A federal judge ruled last year in Wal-Mart’s favor, backed by an appeals-court decision in August. Now, her family has to rely on Medicaid and Mrs. Shank’s social-security payments to keep up her round-the-clock care.

“I don’t understand why they need to do this,” says Mr. Shank on a recent visit to the nursing home, between shifts as a maintenance worker and running a tanning salon. “This girl needs the money more than they do.” Mrs. Shank, who needs help with eating and other basic tasks, spends more time alone since Mr. Shank had to let her private caregiver go. At some point, he says, she may have to be moved from a private to a semi-private room in the nursing home where she lives.

The reason is a clause in Wal-Mart’s health plan that Mrs. Shank didn’t notice when she started stocking shelves at a nearby store eight years ago. Like most company health plans, Wal-Mart’s reserves the right to recoup the medical expenses it paid for someone’s treatment if the person also collects damages in an injury suit.

Until recently, many employers didn’t vigilantly enforce the provision, and some states and federal courts didn’t think the claim held water. But as the cost of covering workers continues to escalate, employers and health plans are getting more aggressive about going after the money. A Supreme Court ruling last year also has given them a clearer legal map to suing employees and winning.

In insurance circles, the recovery practice is called “subrogation.” Employers and insurers say it’s necessary to ensure that medical expenses aren’t paid twice. By recovering those costs from someone who’s been compensated elsewhere, they argue, they’re saving money for everyone on the plan.

Sharon Weber, a spokeswoman for Wal-Mart, declined to discuss the details of the Shanks’ case, but said the company was obliged to act in the interest of the health benefits of its employees as a whole. “While the case involves a tragic situation, our responsibility is to follow the provisions of the [company health] plan which governs the health benefits of our associates,” she said.

“Employers are trying to make sure these plans run as efficiently as possible,” says Jay Kirschbaum, a senior vice president at global insurance broker Willis Group Holdings. “They also have a fiduciary duty to the plan and the entire group of employees that are covered by it.”

The Recovery Practice

Already, the recovery practice is one of the variables that plaintiffs lawyers are considering as they decide whether it’s in their clients’ interests to participate in the $5 billion offered by Merck & Co. to settle lawsuits over its painkiller Vioxx. Health plans recovered sizable amounts for medical expenses from other big product-liability settlements, such as for the “fen-phen” diet-drug combination and Sulzer Orthopedics’ hip implants. Many insurers and the employer plans they administer are expected to pursue a piece of the Vioxx settlement.

In cases like the Shanks’, where injuries and medical costs are catastrophic, accident victims sometimes can be left with little or none of the money they fought for in court. Health plans are increasingly adopting language such as Wal-Mart’s, which dictates that it is to be paid first out of any settlement, regardless of what remains for the injured person. Moreover, the victim is responsible for all legal costs in pursuing the suit.

“It’s especially in the catastrophic cases that people are almost never fully compensated,” says Roger Baron, a professor of law at the University of South Dakota and a specialist in health-plan law. “And then their health plan, that’s been collecting premiums from them all this time, wants to take it away?”

Tempting Savings

Such recoveries represent a tempting savings for insurers, employers and union-administered plans. The American Benefits Council and America’s Health Insurance Plans, the health-insurer lobby, estimate health plans recoup some $1 billion a year in medical claims from accident settlements and other third parties. A cottage industry of auditing firms, benefit-recovery specialists and subrogation lawyers help them. They estimate that between 1% and 3% of health-care spending is potentially recoverable from such claims.

“In the past, employers used to think of this as an afterthought,” says Tom Lawrence, chief executive of Memphis-based Benefit Recovery Inc., whose clients include Southwest Airlines Co. and hospital chain HCA Inc. HCA says it saw annual savings from recouped claims rise to $1.8 million in 2006 from just under $800,000 in 2000 after hiring the firm.

Benefit Recovery contracts directly with employers. It says it’s able to recover between $12 and $15 per health-plan member a year — up to $1.5 million for a big plan with 100,000 members — by recovering medical expenses from injury-suit settlements.

Until recently, employers and insurers generally didn’t go after small claims. But more-sophisticated claims tracking has made it easier. Recovery companies systematically search claims for certain medical codes — say, a sprained ankle or head trauma — that flag a potential accident. Claims examiners then mail a questionnaire and often follow up with calls. If the injured person confirms it was an accident, the firm tracks whether the patient files an injury suit.

If there is a lawsuit settlement, employers may seek to recoup money they paid for medical expenses. In many cases, it’s relatively cut and dried: Often medical expenses are just a portion of the overall damages award, or the accident victim’s attorney reaches a compromise with the health plan ahead of any settlement.

Some plans are taking a further step, refusing to pay claims in the first place, unless the person filing the claim signs an additional form promising to reimburse the plan from settlement proceeds.

Don Burgett, an engineer on an offshore oil-drilling ship, from Texas, has been waiting for his health plan to pay $89,000 in medical claims since his daughter’s accident two years ago. Magan Burgett, then 18, was thrown from the back of an all-terrain vehicle in October 2005, tearing her liver, breaking her jaw and fracturing her back.

Soon after Magan’s parents submitted the bills for her two-week stay in an intensive-care unit, her father’s health plan — the Maryland-based MEBA Medical and Benefits Plan — mailed him a reimbursement agreement that restated the plan’s rights to a potential settlement.

“To consider claims related to your accident,” it said, Mr. Burgett had to sign it first. When he didn’t, MEBA stopped paying claims after reimbursing several hundred dollars in Magan’s medical expenses.

Neal Korval, MEBA’s outside counsel, says that asking a plan member to sign a reimbursement agreement in such cases is standard procedure and a policy outlined in its health plan rules. It helps prevent accident victims and their attorneys from trying to “freeze out” the plan from a potential settlement, he says, and also reminds or advises the plan member of his or her obligations.

In September, the U.S. District Court for the Eastern District of Texas sided with the Burgetts, ruling that MEBA’s health plan summary, which it considered the prevailing document, didn’t stipulate such conditions to pay a claim. The Burgetts’ attorney says they secured a $75,000 accident settlement — a net of $50,000 after legal expenses — though that isn’t enough to cover Magan’s medical expenses. Mr. Korval says MEBA has recently reached a settlement with the family over the unpaid medical claims, but declined to disclose terms.

How much power health plans have to enforce subrogation is based on a hodgepodge of federal and state law still being tackled in the courts. A pivotal Supreme Court ruling last year gave health plans a leg up. In that case, a Maryland couple, Joel and Marlene Sereboff, were injured in an accident while returning a rental car to an airport in 2000; they required $75,000 in medical care. The couple later received a settlement of $750,000, from various parties, related to the accident.

Mid Atlantic Medical Services, now owned by UnitedHealth Group Inc., administered the health plan of Mrs. Sereboff’s employer and sued the couple when they refused to pay the company out of their settlement.

Money Set Aside

In a unanimous decision, the court upheld that Mid Atlantic had the right to enforce its claim, in large part because it could point to the settlement money set aside in an easily identifiable fund. The couple had placed the money in a separate account when the issue went to court. The decision has made it easier for plans to go after settlements, legal experts say.

Few such cases have attracted as much attention in legal circles as the Shanks’. Mrs. Shank took a job in 1999 stocking shelves at a Wal-Mart store in Cape Girardieu, Mo. She jumped at the shift from 11 p.m. to 6 a.m. so that she could spend days at home with her three sons, Mr. Shank says. After a probation period, she qualified for benefits under the Wal-Mart health plan in February 2000.

One day about three months later, as she and a girlfriend were touring local yard sales, a semi-trailer truck plowed into the driver’s side of her minivan. Her friend’s injuries were minor, but Mrs. Shank suffered major brain trauma and spent the next several weeks in intensive care. She drifted in and out of a coma, and the hospital, for months.

“One doctor didn’t give her any chance,” says Mr. Shank, a maintenance worker at Southeast Missouri State University. Her medical bills climbed past $460,000. The health plan paid them promptly. “They were terrific in that respect,” he says.

It also sent Mr. Shank several notices that he was to inform Wal-Mart’s health plan before he settled any suit. In 2002, the Shanks did sue and won a settlement from G.E.M. Transportation Inc., owner of the truck. The firm had only $1 million in liability coverage, though. For his own losses, Mr. Shank received $200,000, of which $119,000 remained after legal expenses. He says he spent most of it toward a one-story house fitted with ramps and wider doors, which is more accessible than the family’s previous three-level home.

Mrs. Shank’s own settlement was $700,000. After legal expenses and attorney fees, the remaining $417,477 was placed in a court-created special trust designed specifically for Mrs. Shank’s future care. The Shanks’ lawyer, Maurice Graham, wrote the Wal-Mart health plan informing them. Mrs. Shank had received no funds directly, he said, and therefore had nothing to pay Wal-Mart back.

Nearly three years went by, Mr. Shank says, before they heard again from Wal-Mart. Mrs. Shank struggled a year rotating in and out of the hospital and rehabilitation programs. She could no longer use her right arm or three fingers on her left hand because of neurological damage. She couldn’t feed or dress herself and conversations with her family were limited to all but simple questions. Eventually, her husband moved her to a nursing home for around-the-clock care. Medicare and Medicaid pay for the nursing home. Mr. Shank used some of the trust’s proceeds to continue paying a private aide to care for her there.

‘A Decent Quality of Life’

“We wanted her to have a decent quality of life, and we still had the money,” he says. He hoped he could also use it to pay the roughly $130,000 in bills for Mrs. Shank’s rehabilitation and a return hospital visit after her coverage expired.

But in August 2005, Wal-Mart re-emerged with a lawsuit against the Shanks demanding repayment for $469,216 in medical costs out of their settlement. It charged that the Shanks had violated the terms of the health plan by not reimbursing it. The company also demanded payment of legal fees and interest for the cost of suing the Shanks for the money.

Mr. Graham, the Shanks’ attorney, says he approached Wal-Mart’s attorneys about negotiating a compromise, but was told the health plan wanted to proceed with the lawsuit. “We’re not contending that Wal-Mart isn’t entitled to a payment. We’re saying they’re entitled to one based on equity,” he says. Since Mrs. Shank wasn’t fully compensated for her damages in the first place, he argues, Wal-Mart should also expect only partial reimbursement.

Administrators of employer-financed health plans “have an obligation to participants to be impartial,” the Wal-Mart spokeswoman says. “Virtually all health plans include subrogation provisions as a way to control health plan costs.”

In August last year, U.S. district judge Lewis Blanton sided with Wal-Mart, ruling that when Mrs. Shank signed on to Wal-Mart’s health plan she was obligated to abide by its terms.

The ruling came six days before the Shanks’ 18-year-old son, Jeremy, was killed in September last year in Iraq shortly after he arrived in the U.S. Army’s 25th Infantry Division.

“I wanted to give up at that point, tell Wal-Mart they won,” Mr. Shank says, but his lawyer, Mr. Graham, said he’d continue with appeals.

Mrs. Shank went to Jeremy’s funeral. But because of memory problems due to her injuries, she gets confused about what happened. On a recent morning, she cried several times and asked what had happened to her middle son. Mr. Shank says that he obtained a divorce from Mrs. Shank this year, partly because of advice from a health-care administrator that she might be more eligible for public aid as a single woman. Mrs. Shank, who has been declared incompetent by a court, hasn’t been informed of the divorce by her family.

The Shanks lost an appeal before a three-judge panel in the 8th Circuit Court of Appeals in August and last month were denied a request for a hearing before the entire court. They plan to appeal to the U.S. Supreme Court, though only a small percentage of cases are chosen to be heard.

“Sometimes I want to tell Wal-Mart, ‘Ok, you won on the principle. But just let us keep the money,” Mr. Shank says.

It’s the kind of story that makes Europeans look at the American health care system and shake their heads.

The Los Angeles Times reports that one of California’s largest health insurers set goals and paid bonuses based in part on how many individual policy holders were dropped and how much money was saved.

Times reporter Lisa Girion writes that Health Net Inc. avoided paying $35 million in medical expenses by rescinding about 1,600 policies between 2000 and 2006. During that period, it paid the senior analyst in charge of cancellations more than $20,000 in bonuses based in part on her meeting or exceeding annual targets for revoking policies.

The Times had to get its lawyers involved to pry the documents backing up these claims out of Health Net’s clutches, even though the company had to produce them for a law suit brought by one of those dumped policy holders.

Health Net tried to keep them secret, arguing that they would embarrass the company. (Perhaps they should have thought of that before complimenting their analyst for her “banner year” in 2003 when she exceeded her performance goal and helped the company avoid “$6 million in unnecessary health care expenses.”) But in the end, the newspaper won, and so was able to show, for the first time, how an insurer linked cancellations to employee performance goals and to its bottom line.

The suit was brought by Pasty Bates, a 51-year-old hairdresser whose coverage was rescinded by Health Net in the middle of chemotherapy treatments for breast cancer, leaving her with $200,000 in medical bills.

Three years later, she still has a catheter embedded in her chest where the chemo was pumped in and is unable to afford tests to determine whether the cancer is gone.

Health Net contended that Bates failed to disclose heart problems and shaved 35 pounds off her weight on her application.

Bates’ lawyer, William Shernoff, claims that the analyst’s performance goals show that Health Net was bent on finding any excuse to cancel the coverage of people like Bates to save money.

“I haven’t seen this kind of thing for years,” Shernoff said. “It doesn’t get much worse.”