Bloomberg Law
Free Newsletter Sign Up
Login
BROWSE
Bloomberg Law
Welcome
Login
Advanced Search Go
Free Newsletter Sign Up

Edelson Sues Girardi Firm Alleging $100 Million Fraud Plot (3)

July 7, 2022, 1:34 PMUpdated: July 7, 2022, 8:08 PM

The now-defunct Girardi & Keese law firm operated a continuing criminal enterprise that stole more than $100 million from its clients, co-counsel, vendors, “and many others unfortunate enough to do business with the firm,” the Edelson PC law firm said in a federal lawsuit.

Girardi & Keese allegedly siphoned off settlement payments to family members of plane-crash victims, women who developed breast cancer after taking hormone replacement therapy, and others who hired the plaintiffs’ firm, according to the lawsuit, filed late Wednesday. Instead of turning over awards to clients, millions of dollars went to fund lavish lifestyles of Thomas Girardi and his “Real Housewives of Beverly Hills” wife, Erika Girardi, the filing said.

“When the curtain was finally pulled back, it became clear that Girardi Keese operated in a manner similar to a Ponzi scheme, but much worse,” according to the US District Court for the Northern District of California lawsuit.

Edelson served as Girardi & Keese’s local co-counsel for clients in the litigation over the 2018 crash of Lion Air flight JT 610. In December 2019, Edelson sued Girardi, Girardi Keese, and others to recoup its share of attorneys’ fees and to track down Boeing Co. settlement funds Girardi & Keese still owes to several clients. Girardi creditors filed an involuntary Chapter 7 bankruptcy petition against the firm.

Girardi & Keese collapsed within days of Edelson filing a contempt petition for money stolen from Lion Air families, the lawsuit said. Tom Girardi was disbarred in June, and the California Supreme Court ordered him to pay $2.28 million plus 10% interest for funds stolen from clients.

Edelson alleges Girardi & Keese stole from clients; falsified case expenses to justify stealing money from clients; commingled stolen client funds; laundered stolen funds through the firm’s payroll account and American Express cards; commingled money from Tom Girardi and lenders into the client trust account to pay off long-delinquent payments to clients; and paid non-attorneys, like case runners, illegal cash bonuses for referring clients, in addition to committing to pay them illegal shares of the ultimate recovery.

“They used to be a law firm but at some point, they turned into a criminal enterprise,” state Sen. Tom Umberg (D), California Senate Judiciary Committee chairman, said Thursday.

Celebrity Lawyer

Girardi was the firm’s founder and a celebrity inside and outside the courtroom. He was viewed by many as the most prominent plaintiff’s lawyer in the country, the lawsuit said. “But inside the firm’s doors, the story was completely different.”

Edelson accuses Girardi & Keese of bribing former judges who allegedly allocated settlement money between plaintiffs to produce a result Girardi & Keese wanted. The lawsuit alleges Girardi Keese lied to, threatened, and/or bribed clients and attorneys “to keep them quiet and prevent the scheme from collapsing.”

Edelson redacted the amount of money it seeks, including treble damages, restitution, attorneys’ fees, and punitive damages of at least $55 million.

RICO claims in the past have been filed against law firms, “but this is, of course, a unique case,” Jay Edelson said in a Thursday email. “We are unaware of any suit that alleges that the firm was essentially a criminal enterprise acting as a law firm. We are confident that Tom orchestrated the largest Ponzi-scheme in the history of the plaintiff’s bar, stretching back well over a decade (and likely much longer) and involving hundreds of millions of dollars.”

David Freeman Engstrom, co-director of Stanford Law’s Center on the Legal Profession said Thursday that for years, “corporate defendants have tried, mostly unsuccessfully, to deploy RICO against plaintiffs’ lawyers for initiating allegedly bogus litigation. Most such suits were dubious, at best, and suggested RICO had no good place in the civil justice system. But if the allegations against Girardi prove true, this RICO lawsuit seems to hit closer to the mark.”

Girardi is reportedly mentally incapacitated.

Other Defendants

The lawsuit also names David Lira, a former Girardi Keese partner who now is a member of Engstrom, Lipscomb & Lack, and is Girardi’s son-in-law. Lira didn’t respond to an email seeking comment, nor did Keith Griffin, a Girardi & Keese attorney who now is an associate at Dordick Law Corp.

Erika Girardi and EJ Global LLC, a California limited liability company whose sole member is Erika Girardi are also named defendants. “EJ Global was created for the purpose of funneling money from Girardi & Keese to benefit Erika,” the lawsuit said.

Evan C. Borges, a partner with Greenberg Gross LLP in Costa Mesa, Calif., Erika Girardi’s bankruptcy counsel, on Thursday called the lawsuit “another misguided attempt to blame Erika for actions of Tom Girardi and others of which she had no knowledge and in which she had no involvement.”

Attorneys with Levene, Neale, Bender, Yoo & Brill LLP representing the firm’s bankruptcy trustee declined comment on the lawsuit. Representatives for Girardi couldn’t immediately be identified.

Also sued were Christopher Kamon, Girardi & Keese’s chief financial officer; George Hatcher, a non-lawyer “consultant” who was responsible for referring the families of air crash victims; Hatcher’s Wrongful Death Consultants; Joseph DiNardo; and Nardo’s California Attorney Lending II, which allegedly lent money to Girardi & Keese and got a first cut of settlement money coming into the firm.

The filing alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act; conspiracy; mail fraud; wire fraud; money laundering; engaging in monetary transactions in property derived from specified unlawful activity; obstruction of justice; transporting stolen goods; and violating the California Unfair Business Practices Act and California Penal Code for receipt of stolen property and aiding and abetting concealment of stolen property.

Bar Faulted

Despite years of complaints and allegations of fraud and mismanagement, “Tom maintained a spotless record before the State Bar. The fraud thus continued, with only the occasional glimpse of the rot inside the Girardi & Keese firm,” the lawsuit said.

Edelson alleges Girardi “cultivated the impression that not only was he a successful and powerful attorney, but he actually controlled the relevant authorities, including the agency charged with disciplining attorneys, the State Bar of California.” Girardi entertained bar officials at lavish parties “and reportedly went so far as to bribe a longtime investigator at the State Bar,” the lawsuit said.

The bar had no comment on the lawsuit, said Bar Executive Director Leah Wilson.

The State Bar Court in March ordered Girardi on inactive status and he was disbarred effective July, Wilson said in a Thursday emailed statement. “The investigation, including details of past closed complaints and investigations, must remain confidential to comply with the law and to give this investigation the greatest chance of success.”

California lawyers are overseen by the California Supreme Court, which ultimately disciplines and admits attorneys to practice on the bar’s recommendations, and the California Legislature under the state’s Business and Professions Code.

Lawmakers for years have fought with the bar to improve oversight. The bar “is responsible for discipline against Girardi and any attorney engaged in this enterprise,” Umberg said, adding that the Girardi affair is a lesson for complaints made over 20 years that “only recently came to light and only recently investigated.”

“This is a case study in how not to protect consumers,” Umberg said.

The case is Edelson PC v. Lira, N.D. Cal., No. 3:22-cv-03977, complaint filed 7/6/22.

(Added quote from Evan C. Borges, attorney for Erika Girardi, and no comment from attorneys for estate's bankruptcy trustee in paragraphs 16 and 17.)

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Carmen Castro-Pagán at ccastro-pagan@bloomberglaw.com; Bernie Kohn at bkohn@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com