About four years ago, a team of lawyers and investigators inside Ford Motor Co. noticed something unusual in the books and started to dig.
As they delved deeper into their investigation, which would span years and cost millions of dollars, they unravelled what Ford is calling in a legal complaint a “magical mystery tour” of fictitious bills from various attorneys and law firms over several years that covered thousands of cases.
Ford said it found evidence that these California-based lawyers falsely submitting timesheets to the courts that recorded well over 24 hours in a single day or, in one case, a lawyer who claimed to have attended two different trials in two different courtrooms that were hundreds of miles apart on a single day, totaling 29 hours of billing in that 24-hour day.
The Dearborn-based automaker filed a complaint in Los Angeles federal court against nine defendants, all lawyers, on May 21 accusing them of violations of the Racketeering Influenced and Corrupt Organizations Act. Ford said it lost at least $100 million from the scheme and is seeking some $300 million in damages.
The defendants were lawyers representing consumers who had sued Ford under Lemon Law cases in California. Under the Lemon Law regulations, if the party suing the automaker wins, the lawyers fees are rolled in as part of the award against the automaker. That’s why Ford’s lawsuit also alleges the courts were defrauded because they pass the fees through to Ford, said Ford spokesman Richard Binhammer.
Ford may not be the only automaker duped
Ford counsel Doug Lampe said the lawsuit is a result of the company’s investigation that “uncovered what’s alleged to be a massive scheme to submit phantom invoices filled with ‘ghost hours’ for work that was never performed to deceive California judges, dupe their own clients and to defraud auto manufacturers.”
Lampe said in a statement that the scheme was a highly lucrative and illegal enterprise built on “deceiving and abusing” the judicial system by tricking clients and defrauding automakers out of “many tens of millions of dollars .”
That’s right, Ford alleges that other automakers might also have been duped out of money for the bogus work.
“While this filing is by Ford, it appears that Ford may not be the only automaker that has been in the RICO defendants’ crosshairs,” Binhammer told the Detroit Free Press.
Binhammer said Ford’s investigators discovered that the defendants had filed numerous cases on behalf of consumers against General Motors, Stellantis, Volkswagen/Audi and BMW, among others.
“Based on review of a sample of such fee applications, it appears that there is information or evidence supporting the allegation that many of these automakers may also be victims of the RICO defendants’ alleged scheme to defraud,” Binhammer said.
In its complaint, Ford named Knight Law Group in California as having headed the scheme, saying the firm routinely brought in other law firms to overstaff cases, sometimes with 10 to 15 lawyers, so as to overcharge Ford and split the proceeds.
The Detroit Free Press reached out seeking comment on behalf of the defendants, but none responded.
Ford’s uncivil civil lawsuit
Before getting into the details of the civil suit, it should be noted that usually automakers are the defendants in cases, facing hundreds of lawsuits a year, legal experts said.
“A civil RICO suit is pretty uncivil,” Erik Gordon, a lawyer and a University of Michigan Ross School of Business professor, told the Detroit Free Press. “It’s at the intersection of two unusual occurances: An automaker suing somebody instead of being sued and suing for a RICO violation. When you allege a RICO violation, you are allegeing something reprehensible, something way beyond an everyday contract dispute and something that is difficult to prove.”
The Racketeering Influenced and Corrupt Organizations Act is a federal law initially passed so that authorities could go after the assets of mafia families, Gordon said. But over the years, there have been other organizations that are just as criminal as the mafia and the courts have held that a group does not have to be a gangster to be subject to RICO. Economic crimes are covered under RICO too, Gordon said.
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RICO has a criminal and a civil component. The criminal part allows the goverment to seize the assets of racketeer-influenced corrupt organizations and put people in jail, Gordon said. The non-criminal part, or civil case, allows a private person or company, such as Ford, that has been victimized by another organization to sue for damages. The most common RICO crime is mail fraud or email fraud, but for RICO law to apply it has to be an “organized and ongoing scheme” not a one-off incident, Gordon said. In short, he said a civil RICO lawsuit “is like a crime, but worse.”
If true, defendents are in ‘real trouble’
In the case laid forth by Ford, the automaker alleges the defendents were organized and that it was not the actions of one rogue lawyer, Gordon said, after reviewing the complaint. Ford makes specific allegations that accuse the defendants of “an organized scheme,” Gordon said.
“If those allegations are true, the defendants are in real trouble,” Gordon said. “It’s one thing to say we misbilled you or we miscoded a bill. Ford alleges a widespread pattern of it and if the allegations are true, the ‘Oops we made a mistake’ excuse is unlikely to work.”
RICO is also so serious because it allows for treble damages, Gordon said.
“If you show $10 million in damages, you get $30 million and you get your attorney fees paid for, which in this case will be in the millions of dollars,” Gordon said.
The ‘physically impossible 57.5 hour workday’
The 27-page complaint is called Ford Motor Co. vs Knight Law Group, Steve B. Mikhow, Amy Morse, Roger Kirnos, Dorothy Becerra, The Altman Law Group in California, Bryan C. Altman, Wirtz Law and Richard M. Wirth. It was filed in U.S. District Court, Central District of California.
Binhammer told the Free Press that about four years ago, Ford’s legal team sensed that these law firms were submitting to the courts timesheets with too many hours, in too many cases, covering the same time period.
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“Therefore, Ford started demanding complete timesheets in every case before it would pay for the fees of the lawyers suing Ford,” he said. “The law firms initially refused to provide timesheets, so Ford asked the trial judges to make the time sheets available.”
The trial judges determined that Ford had a right to receive complete timesheets before ordering Ford to pay Knight Law Group, Binhammer said.
“With the timesheets in hand, Ford could see the fraud and undertook a more detailed investigation of additional public filings,” Binhammer told the Free Press.
In the complaint, Ford said its case arises out of a “massive and years-long scheme” by the defendants todefraud Ford and other carmakers out of money and property by inflating their legal fees under California’s Lemon Law. Ford accuses the defendents of carrying out a sophisticated criminal enterprise “that ingeniously spread their fraudulent billings across thousands of cases against many auto manufacturers so that their fraudulent scheme would go undetected.”
Specifically, Ford alleges that Amy Morse billed more than 20 hours per day on 66 occasions, more than half of which exceeded 24 hours, including “an ostensibly heroic but physically impossible 57.5-hour workday in November 2016,” the complaint read.
The complaint read that Richard Wirtz and his associate said they attended two different trials on the same day. One was in Los Angeles and one near San Francisco, about 400 miles apart, in a single day, totaling 29 hours of work.
Steve Mikhov, who Ford alleges was the “ringleader” of the organization, supposedly billed several duplicate entries describing identical tasks on the same day for numerous clients with only slight differences in wording, the complaint said. It accuses other lawyers of also billing for the same repetitive tasks across several cases on the same day.
Binhammer said the work to uncover the alleged scheme is continuing and is expected to cost Ford many millions of dollars.
“The allegedly illegal scheme itself, has cost Ford tens of millions in false and inflated fees — it is alleged that at least $100 million of legal bills were unlawfully sought and collected from Ford in hundreds of cases over nearly 10 years,” Binhammer said. “The evidence presented in this complaint represents thousands of hours of work by Ford, its attorneys, its expert consultants, and its investigators, and has been assembled at significant cost.”
The case could move from unusual to ‘bizarre’
As to if Ford has a good shot of winning, Gordon said, “it depends on the facts.” But he said Ford has very good in-house legal counsel and is unlikely to file a complaint as serious as a RICO violation if it did not have evidence.
“This is going to depend on the facts. “Anybody can allege anything, but they have to have their day in the court. Sometimes people will file a RICO in the midst of a contract disupt, just to scare the other side and the RICO case gets thrown out,” Gordon said.
But this doesn’t appear to be one of those cases, he said, because Ford appears to be specific enough in showing its evidence to indicate “we have facts.”
Harley Shaiken, a professor emeritus at the University of California, Berkeley, said that in some ways, the lawsuit creates more questions.
“If the charges are anywhere near true the case moves from unusual to bizarre,” Shaiken told the Detroit Free Press. “Billing a client for more than 24 hours in a single day seems to violate the laws of physics let alone legal jeopardy. If true, how did this happen in the first place let alone at this scale?”
Edward McNally, a former federal prosecutor in Washington and New York and a lawyer for Ford at the Kasowitz firm, said the scheme was hidden well.
“When you look at any single legal bill for a single case it might show only one or two hours for a given lawyer on a given day — nothing to draw suspicion,” McNally said in a statement. “However, when Ford searched across public filings, as alleged in the complaint, the conduct in this case was carried out through a sophisticated and unlawful enterprise of attorneys and law firms that spread their fraudulent and inflated bills across thousands of cases and against many automakers.”
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Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
This article originally appeared on Detroit Free Press: Ford files suit against law firms over alleged fraud
