Facts

Plaintiff, Schlinger Foundation, ("Foundation") is a IRC §501(c)(3) California non-profit foundation.

Defendant, Evert I. Schlinger, Sr., ("Evert"), was founder of the Foundation and from 1996 through 2004 was its President. Defendant, Blair Smith, aka Blair Lawrence ben Gerald bar Abba, House of Smith, ("Smith") a former partner of Evert's was the Foundation's investment advisor from 1997 through 2001. Defendant, Geoffrey Thayer, aka Geoffrey Craig ben Richard bar Abba, House of Thayer ("Thayer") a pastor that was once a licensed attorney (disputed), was general counsel for the Foundation from 2000 through 2001. Defendant, Timothy Pettinger, aka Timotheus James benHarold barAbba, House of Pettinger ("Pettinger") was on the Board of Directors of the corporation in which the Foundation owned stock. Defendant, Evert I. Schlinger, Jr., aka Pete Schlinger ("Pete") was CFO and a member of the Board of Directors of the Foundation from 1996 to 2002.

Defendant, Bill Lockyer as the Attorney General of the State of California, ("AG"), was named as an indispensable party in order to obtain jurisdiction to pursue certain claims. No relief was sought or obtained against the AG.

The Foundation was created in 1986 and funded by large holdings of UPS stock. In 1997 plaintiff Foundation hired Smith as its investment advisor. Smith was paid commissions by the entities with whom he placed Foundation loans and investments. Smith, with the encouragement of Evert, favored a strategy of borrowing against the Foundation's UPS holdings and investing in IPOs and making unsecured loans. The AG learned of these investments and immediately commenced an audit of the Foundation.

In 1999, UPS went public and the value of the Foundation's holdings in UPS skyrocketed. In July 1999, Smith introduced Evert to Thayer. Thayer, a former attorney, gave seminars on the use of corporations sole as religious, tax-free entities. The Foundation hired Thayer as its corporate counsel in or about March, 2000. According to defense counsel, Thayer was not licensed to practice law in California at the time. According to plaintiff's counsel, Thayer was not licensed anywhere in the country. Thayer advised Evert, Pete and Smith that the Foundation could avoid AG oversight and the individuals could control the Foundation's monies themselves if they would cause the Foundation to "donate" its assets to a series of "churches" that they would own and control.

In April, 2000, Thayer, Smith and Evert orchestrated the dismissal of the Foundation's board of directors. The directors, all of whom had agreed to sit on the board as a favor to Evert, chose to allow themselves to be dismissed, rather than fighting to retain their seats against the wishes of the Foundation's founder, Evert.

Relying on Thayer's advice that it was legal to set up corporations and transfer charitable foundation monies to them, the Foundation started to transfer its assets to various corporations sole owned by Evert, Pete, Thayer, and Smith. The corporations sole were given religious names, and the articles of incorporation for each contained religious doctrine (supplied by Thayer) to make them appear to be tax-exempt religious organizations. Pursuant to this arrangement, Evert and Pete transferred in excess of $8,645,000 to corporations sole owned by Evert, Pete, Thayer and Smith. Some of the monies were used to buy a farm from Evert and his ex-wife with the intention that Evert, a world-renowned entomologist with a background in organic farming, would continue living on the farm and engage in organic farming to provide food for the needy in Santa Barbara County.

Additionally, beginning in 1996, the Foundation at the direction of Evert and Pete, and later of Thayer, Pettinger and Smith, started making highly speculative investments in start-up companies. Between 1996 and 2003, the Foundation lost in excess of $23 million on those investments. Smith, Thayer and Pettinger received in excess of $1.5 million from the companies in which the Foundation had invested, much of it paid in gold and disguised as "honorariums."

According to defense counsel, Evert, representing the Foundation, engaged Rogers Sheffield & Campbell LLP ("RSC") as its general counsel in January 2002, to defend the Foundation against an action certain to be filed by the AG. Pete resigned as a director in 2002. Upon RSC's advice, Evert resigned as a director in 2004. RSC recommended a new board be appointed, which upon RSC's further advice, recommended an action be filed against the Foundation's former directors. Both Evert and Pete moved to disqualify RSC from representing the Foundation against them as they disclosed confidential information to RSC, but their motions were denied. Plaintiff counsel disputes defense counsel's characterization of this.

According to plaintiff's counsel, the Foundation, engaged Rogers Sheffield & Campbell LLP ("RSC") as its general counsel in January 2002. Pete resigned as a director in 2002 after the Foundation demanded the return of the monies Pete's "church" had received from it. Based on information provided by Evert, the Foundation filed suit against Pete, Smith and Thayer in June 2003. Pete immediately moved to disqualify RSC claiming he had disclosed confidential information to RSC and thought himself to be represented by RSC. The court denied the motion, relying in part on Evert's declaration in which Evert stated that RSC had made it clear from the beginning that it represented only the Foundation and not the directors.

According to plaintiff's counsel, during discovery, Pete and Thayer produced documents proving that Evert had orchestrated the looting of the Foundation in part as a means of funding his divorce. Upon learning of Evert's key role in the plunder of the Foundation, RSC advised the Foundation (whose President and founding director was still Evert) that Evert had to resign or be terminated and that the complaint had to be amended to name Evert as a defendant. Evert, on advice of his independent counsel, resigned and the Foundation amended its complaint. Evert thereupon made a motion to disqualify RSC. The court denied the motion, again relying on Evert's earlier declaration which stated RSC had never represented him and had always been clear that it represented only the Foundation.

When, at trial, the defendants once again raised the alleged conflict issue, the court instructed the jury that it had decided the alleged conflict issue previously and that the jury was not to consider it.

Damages

Plaintiffs sought $11,235,566 loss to Foundation through self-dealing and $40,978,573 losses caused by incompetence and breaches of fiduciary duty.

Result

Jury verdicts against all defendants resulting in a judgment against Evert and Thayer in the amount of $35,026,131, against Pete in the amount of $34,214,025, against Smith in the amount of $14,759,520 and against Pettinger in the amount of $2,220,909. The jury returned a verdict in favor of defendants on the causes of action for liability based on RICO.

Deliberation

5 days

Length

23 days