Fear of Girardi No Excuse in Lawyers’ Contempt Proceedings (1)

A federal judge in Chicago said he wouldn’t entertain arguments that Thomas Girardi was so powerful that his former colleagues feared taking action when they learned of his failure to immediately forward millions of dollars of client settlement funds.

“A coercion defense isn’t persuasive to me. I don’t care who Tom Girardi was,” Judge Thomas M. Durkin said, after one of two former Girardi Keese lawyers defending themselves in contempt proceedings testified that he remembers being “very scared” of Girardi.

Girardi was politically well connected and vindictive, Keith Griffin said. Both Griffin and David Lira had been practicing for at least 20 years when confronted with the question of what to do when they learned that their boss was mismanaging their clients’ money, according to testimony.

They’ve argued that they were merely W-2 employees with no authority over the firm’s finances, and that a court order involving finances, which was issued to the firm, didn’t extend to them.

Girardi—whose representatives say he is suffering from dementia and who has since been declared mentally incompetent by a state court—said in an affidavit that if called to testify, he would assert his constitutional right to remain silent.

Former firm CEO Chris Kamon did the same.

Lion Air

The contempt proceedings began with a motion to show cause filed in December 2020 by Chicago-based law firm Edelson PC, which is serving as a friend of the court in the contempt proceedings.

Edelson was Girardi Keese’s co-counsel in litigation against Boeing, representing family members of people killed in the 2018 crash of Lion Air Flight 610.

Email correspondence among Lira, Griffin, and Girardi’s long-time assistant shows that both Lira and Griffin knew by May 2020 that Girardi was planning to send fabrication-filled letters to their clients to buy the firm more time on delivering the funds, and that Girardi had only made partial payments, despite no authorization or legitimate reason to pay in installments.

At least two of the letters were sent despite the attorneys’ efforts to stop them, they say.

Neither of the attorneys told their clients that Girardi was lying to them, or reported Girardi’s handling of the client funds to any disciplinary authority. Griffin said he eventually consulted ethics counsel, but it wasn’t until November—just two weeks before Edelson put the court on notice that the money was missing.

Griffin said he never imagined that Girardi wouldn’t pay their clients, and that he didn’t know he was in financial trouble.

The firm received the money from Boeing in March 2020, and was required to wire the money within 30 days. Instead it made partial payments, and they were late.

Griffin, who was on the stand for most of the day Wednesday, said he urged Girardi to comply with the court’s orders and pay the clients their full settlements immediately, but was relying on Lira to intervene. Griffin said he believed that Lira, who was more senior, was in a better position to influence Girardi.

Lira said he tried.

“I told him he was risking 50 years of legal work, that this was wrong, it wasn’t his money, and it had to be paid,” Lira testified Thursday.

Reputation, Family

Lira said he specifically remembers reminding Girardi that his family name was on the advocacy center at Loyola Law School.

He said Girardi listened, nodded, and told him he’d take care of it.

Lira is also Girardi’s son-in-law, but they weren’t close, Lira said. Girardi had “zero” relationship with Lira’s children and had only visited his home a handful of times in the last few years, he said.

When he resigned in June 2020, Lira said he called Girardi a “thief.” Girardi begged Lira to stay, saying that he would resolve everything soon after, Lira said. He said he learned a few weeks later that Girardi hadn’t followed through.

Lira admitted, when pressed by Durkin, that there were other things he could have done when he learned that only half of the money had been paid to the Lion Air clients.

He was a signatory on the trust account and acknowledged that he could have gone directly to the bank to demand the trust records that he said Kamon refused to give him. He had authorization to sign checks without a second signature, but he said he didn’t realize it at the time.

Girardi, the firm’s sole owner, was found in contempt last December.

After Girardi told Durkin that he didn’t have the balance of $2 million he owed his clients, Durkin referred him to federal prosecutors. He has yet to be charged with any crime.

Exactly how much the clients were supposed to receive is unknown because the underlying settlement agreements with Boeing are confidential.

Edelson has accused Girardi of operating a kind of Ponzi scheme, and evidence shows that Girardi paid some of the Lion Air clients with attorneys’ fees from another case when it came in, in September.

Settlement Bucks

In the afternoon, Durkin called Griffin back to ask about another Girardi Keese client, not covered by the court’s order, who also failed to receive his settlement money from Boeing.

He then called Rafey Balabanian, Edelson PC’s managing partner and general counsel, to probe whether Edelson had its own obligation to notify the court prior to December 2020.

In their briefs, Griffin and Lira argued that inasmuch as they had an obligation to do more than they did, so did the Edelson lawyers. And Durkin appears to agree.

Durkin wanted to know whether Edelson had—at any point before Sept. 30, when Balabanian says Girardi told him unequivocally that the clients had been paid—contemplated coming to the court to report that there were problems with the court’s orders being followed.

Balabanian said they had considered it but ultimately decided the explanations were reasonable “in terms of Mr. Girardi’s ailments, in terms of it being the result of a mistake.”

Durkin interrupted to ask, “Isn’t that really for me to decide, though?”

“Clearly if you knew that half got paid, then you knew, and if you didn’t know, then Sharg did because he knew what the settlement agreement said,” Durkin said, referring to Edelson partner Ari Sharg. “You had to have known as a firm that there had been a violation of the order,” Durkin said. Sharg appears to have done a lot of the communicating with Griffin.

“You may be in the soup, too,” Durkin said later.

Durkin continued the hearing to a yet-to-be-determined date, so he can question further both Sharg and Jay Edelson, the firm’s founding partner, about what they knew and when.

Balabanian said at one point that some of the conversations with Girardi felt like the movie “Groundhog Day,” as though their previous conversations had never happened. Girardi seemed unwell and out of sorts at points, he said. But when asked directly by Durkin, Balabanian said he had no reason to doubt Girardi’s mental competency.

Lira is represented by Robie & Matthai PC and Swanson, Martin & Bell LLP.

Griffin is represented by Rosen Saba LLP and Cassiday Schade LLP.

The former clients, who live in Indonesia, are represented by Wisner Law Firm.

Girardi is represented by Monico & Spevack.

The case is In re Lion Air Flight JT 610 Crash, N.D. Ill., No. 11:18-cv-07686, 12/8/21.