Judge nixes punitive damages from Buchalter fraud trial

SANTA ANA -- Jurors in the fraud trial against Buchalter APC will no longer consider punitive damages when they deliberate next week, an Orange County judge ruled Wednesday.

Superior Court Judge William D. Claster granted a motion by Buchalter defense lawyer Alan A. Greenberg of Greenberg Gross LLP after determining plaintiffs' attorney Robert E. Barnes of Barnes Law LLP had not established firm officials knew J. Wayne Allen was unfit but hired him anyway or that they approved of his wrongful conduct.

Barnes represents the Stueve family of the Alta-Dena Dairy fortune in the eight-year-old lawsuit against Buchalter, which includes claims of fraud, negligent hiring and violation of the Racketeer Influenced and Corrupt Organizations Act.

"The evidence, as I heard it, was that as soon as Buchalter realized what they considered to be Mr. Allen's misconduct, they fired him right away. So that is the opposite of ratifying in my view," Claster said Tuesday in a tentative decision. "It seems to me that they did exactly what employers are supposed to do when they find misconduct, perhaps even going overboard."

The judge finalized his ruling Wednesday afternoon.

"I still haven't heard anything that suggests Buchalter took actions that would evidence their ratifying of Allen's wrongful conduct," he said.

However, Claster denied Greenberg's direct verdict motions for conversion and RICO claims. So while his decision regarding punitive damages tightens the case, if jurors don't grant a defense verdict, Buchalter could still be ordered to pay more money because RICO claims carry treble damages.

Barnes has estimated actual damages at about $200 million. Jurors are expected to begin deliberating late Monday or early Tuesday with closing arguments scheduled Monday.

Allen settled the claims against him shortly before trial for $1.25 million. Berger Kahn LLP, where Allen worked before Buchalter, also settled as did the Stueves' longtime lawyer Raymond "Ran" Novell, a sole practitioner who partnered with Allen on the Stueve estate plan at the center of the lawsuit. Stueve v. Novell, 10-00411651 (Orange Super. Ct., filed Sept. 24, 2010).

Regarding the elimination of punitive damages, Claster said there's no evidence Buchalter officials knew of misconduct or suspicious activity by Allen, only that they noticed unpaid bills and questioned him about it.

Barnes argued Buchalter didn't audit Allen's work or honor a request to preserve records, which is equivalent to ratification. But to support his argument that Buchalter knew the Stueves asked Allen to save records, Barnes cited emails and letters that were never entered as evidence.

When Claster said he couldn't consider them, Barnes asked if he could reopen his case to enter the evidence because "apparently I made a mistake," but Claster said it "really seems late in the game to be doing this."

The judge said the omitted documents were "not merely an oversight."

"It would, in effect, open up a whole new angle on the case, and in the court's view, there's nothing about the conduct that I've heard in the evidence that supports a ratification theory," Claster said.

The conversion claim centers on Buchalter receiving approximately $3,000 in attorney fees from the Stueves as well as Allen loaning himself $270,000 from their estate while employed at Buchalter, Barnes said.

Greenberg said he doesn't believe taking a loan is conversion. Claster said the jury might agree, "but on a directed verdict motion I think I have to give every inference potential to the plaintiffs' case."

"So I could see the jury concluding since apparently the money wasn't paid back and some of the other evidence that although it was titled a loan, it was not really a loan," Claster said.

Regarding the RICO claim, "it's not clear to me what the conspiratorial agreement is in this case," Claster said, including whether a conspiracy began when Allen worked at Buchalter.

"If there's evidence that there was a conspiracy entered into between Novell and Allen during the Buchalter period, then I think that supports a RICO claim," Claster said. "I don't know that there was or wasn't one is what I'm telling you, but I think there's enough evidence for the jury to find that one was possibly entered into."