Federal investigators have subpoenaed at least one insurance company to testify about uninsured/underinsured motorist arbitrations in Luzerne and Lackawanna counties in Pennsylvania before a grand jury, The Legal Intelligencer has learned, indicating for the first time that the corruption probe has expanded geographically.
The investigators' move comes on the heels of a report in Wilkes-Barre, Pa., newspaper the Citizens' Voice that ties an attorney, whose name has turned up in The Legal Intelligencer's examination of allegations of case fixing in UM/UIM arbitration cases in Luzerne County, to Luzerne County Common Pleas Court Judge Michael Toole.
Toole, as The Legal Intelligencer first reported last week, is being looked at by federal investigators, sources have confirmed. According to the Citizens' Voice article, Toole presided over two cases in 2005 -- including one that resulted in a $2 million settlement for the plaintiffs -- handled by John Nardone, even though he listed the Law Office of John Nardone as a source of income on financial disclosure forms for 2004 and 2005. According to the article, nothing in the court records indicates that opposing counsel was made aware of the financial relationship between Toole and Nardone, and it says that an attorney in the case that settled for $2 million said he was "unaware of the relationship."
In speaking with several white-collar lawyers, it appears that if the Citizens' Voice article is accurate, the U.S. Attorney's Office for the Middle District of Pennsylvania may wind up investigating Toole for possible honest services fraud. There is no evidence that Nardone did anything wrong.
When asked, in light of the article, if federal investigators might pursue that angle, one white-collar attorney replied: "Absolutely. It appears to be a problem if he didn't disclose to counsel the financial relationship. It's not enough to disclose on the form. I think they [U.S. Attorney's Office] absolutely will be investigating it. They almost have to. They probably will interview opposing counsel."
Nardone did not return a call seeking comment. Neither did Toole. A call to an attorney rumored to be representing Toole was not returned. A call to Martin C. Carlson, the U.S. Attorney for the Middle District of Pennsylvania, was not returned.
When contacted Friday, Luzerne County President Judge Chester B. Muroski referred a reporter to an earlier conversation in which he would not discuss specifics of his conversation with federal investigators, but did say investigators requested documents related to "civil matters." Muroski said at the time that he instructed court officials to provide investigators with the information they requested.
While what is publicly known about the ongoing corruption probe in Luzerne County has been focused on the courthouse there, a subpoena obtained by The Legal Intelligencer is the first indication that federal officials are broadening their investigation to include neighboring Lackawanna County.
The subpoena requires officials from Harleysville Insurance to contact Assistant U.S. Attorney William S. Houser to "discuss compliance" and appear before a federal grand jury in Scranton, Pa., with a bevy of documents on March 24.
Houser was Assistant U.S. Attorney Gordon Zubrod's co-counsel at former Judges Mark A. Ciavarella Jr. and Michael T. Conahan's plea agreement hearing in February. Federal authorities charged both men with accepting $2.6 million in kickbacks from an owner and the builder of a private juvenile detention facility in exchange for sending kids to the facility. They pleaded guilty to honest services fraud and conspiracy to defraud the United States.
According to an attachment to the subpoena, insurance company officials are required to bring "any and all records in your possession or under your control relating to uninsured/underinsured motorist arbitrations in Luzerne County and/or Lackawanna County, Pennsylvania ... [for] the time period extending from January 1, 2003 to the present."
The attachment then requests six separate record sets. They are:
1. Any and all records identifying plaintiff's attorney, defense arbitrator, plaintiff's arbitrator, neutral arbitrator, policy limit, amount of award and/or settlement involving uninsured/underinsured motorist arbitrations in Luzerne County and/or Lackawanna County, Pennsylvania.
2. Any uninsured/underinsured motorist arbitration in Lackawanna County and/or Luzerne County, Pennsylvania in which the plaintiff's attorney, or any attorney affiliated and/or associated in any way with the same law firm as the plaintiff's attorney, acted as either a plaintiff's arbitrator or neutral arbitrator in any other uninsured/underinsured motorist arbitration.
3. Uninsured/underinsured motorist arbitrations in Lackawanna County and/or Luzerne County in which, as a result of arbitration award and/or settlement, property damage was determined to be $2,000 or less and personal injury and/or other damage was determined to be in excess of $50,000.
4. Underwriting records relating in any way to the setting of premiums for uninsured/ underinsured motorist coverage in Lackawanna County and/or Luzerne County, Pennsylvania.
5. Records relating in any way to internal company and/or insurance industry investigations relating to uninsured/underinsured motorist cases in Luzerne County and/or Lackawanna County, Pennsylvania.
6. Any and all uninsured/underinsured motorist cases in which a petition for appointment of a neutral arbitrator was filed in Luzerne County and/or Lackawanna County, Pennsylvania.
The subpoena is dated March 5. In February, The Legal Intelligencer first reported rumors that federal authorities were investigating alleged case fixing in UM/ UIM arbitration cases. Sources later confirmed the investigation was ongoing. A Luzerne County lawyer who has handled UM/UIM arbitration cases there said plaintiffs attorneys involved in the alleged scheme rarely approached defense counsel to compromise on a neutral arbitrator -- a practice common in many other counties. Instead, defense counsel would often receive a phone call, informing him or her that the plaintiffs attorney had already filed a petition for a neutral arbitrator. And that is where connections allegedly came into play.
The judge handling the petition was left to pick a name, the lawyer said, because there was no list from which UM/UIM arbitrators are pulled. A plaintiffs attorney previously told the The Legal Intelligencer the local rules did not prohibit the practice.
It was an arrangement that allowed for a system in which plaintiffs attorneys could receive an arbitrator who would lean his or her way and raise the value of the case, the source alleged. In exchange, the plaintiffs attorney allegedly returned the favor.
"It's the same players getting the same people appointed," the lawyer said. A second attorney, who has been involved in UM/UIM arbitrations and whose firm has an office in Luzerne County, said the issue can be compounded if a plaintiffs attorney tells his arbitrator what the plaintiff's policy limits were.
In arbitration cases, each arbitrator is supposed to start the process with the same amount of information, the attorney said. But if the policy limit information is then leaked to the neutral arbitrator as well, the plaintiff is playing with a stacked deck, the attorney said. "It's a question of fairness," the attorney said. "A lot of times, the defense [arbitrator] doesn't know what the limits are. Either everybody has to know or nobody has to know."
"In the perfect world, nobody would know anything," the attorney continued. "[The arbitrators would just] pick the number."
Though court records seem to back up allegations that plaintiffs lawyers took turns serving as neutral arbitrators in each other's cases, the Luzerne County lawyer said only a fraction of the arbitration conducted in the county would have been linked to the names of insurance companies.
Some petitions for a neutral arbitrator are filed with the third party as the defendant and others don't get docketed at all, the lawyer said.
Most often, though, the threat of a petition is enough to convince a defense attorney to agree to an arbitrator without involving judges. The Luzerne County lawyer said it can be better that way.
"[You think to yourself,] 'I know I'm not going to do very well with the court, so you agree to somebody who's not going to screw me completely," the lawyer said. "You're not going in there thinking you're getting somebody who's a decent arbitrator."
According to court records examined by The Legal Intelligencer involving a selected group of 10 major auto insurance companies, plaintiffs lawyers filed petitions to appoint neutral arbitrators on 43 occasions between 1995 and 2008.
Nardone's name surfaced more than any other attorney's -- 18 times out of 43 cases. No other lawyer appears on the list as a plaintiffs attorney more than three times. There is no evidence that Nardone did anything wrong.
In two of the 43 cases examined by The Legal Intelligencer, there were no records for plaintiffs attorneys.
Conahan or Ciavarella served as the judge in 22 of the 43 cases, with no record documenting the judge in two of them.
The two judges also appointed a neutral arbitrator for Nardone nine times. Toole was the judge on one occasion. That case was filed in 2005.
The outcome of arbitration in those cases is not a public record.
According to Toole's campaign contribution records, Nardone donated a total of $5,100 to the judge's 2003 election campaign. He also donated a total of $5,000 to Conahan's 2003 retention campaign and a total of $1,250 to Ciavarella's 2005 retention campaign, records show. Sources have confirmed to The Legal Intelligencer that federal authorities are looking at Toole as part of their investigation into alleged corruption at the Luzerne County Courthouse. The focus of the investigation appears to stem from an allegation that Toole may have received a payment from attorney Robert Powell.
The amount allegedly paid to Toole is believed to be substantially less than what Conahan and Ciavarella received, sources said. Those sources either would not, or could not, identify the reason for the alleged payment or the amount. When asked Wednesday if Toole had taken a payoff from Powell, one of Powell's attorneys, Mark B. Sheppard, formerly of Sprague & Sprague and now a partner at Montgomery McCracken Walker & Rhoads, said he could not comment. "It would be inappropriate for our client or I to comment at this time, except to say that Mr. Powell continues to cooperate fully with any investigation," Sheppard said. Powell's lawyers have previously claimed that the money paid by their client to Conahan and Ciavarella didn't amount to kickbacks, but instead said that Powell was the victim of a judicial shakedown.
While the initial charges in the federal probe centered around the allegations that Conahan and Ciavarella accepted kickbacks in exchange for sending kids to PA Child Care, sources have confirmed that the investigation has since grown to include allegations of case fixing in motor vehicle arbitration cases, alleged case fixing between Conahan and two admitted felons -- including reputed mob boss William D'Elia -- as well as scrutiny of other Luzerne County judges.
Sources have previously confirmed that D'Elia and his friend, admitted felon Robert Kulick -- also a friend of Conahan's, sources have confirmed -- have been cooperating with law enforcement authorities in their investigation into alleged corruption in Luzerne County.
D'Elia has issued a statement through his attorney distancing himself from Kulick and Conahan.
"I in no way was involved with the judges and juvenile detention center and the Thomas Joseph lawsuit," D'Elia has said, according to his attorney, James Swetz.
And sources have confirmed to The Legal Intelligencer that federal investigators are looking into a zoning case in which the owners of a hotel frequented by D'Elia challenged a zoning variance that would have allowed the county to build a new county-owned juvenile detention facility.
Before his election to the bench in 2003, Toole was a partner with Ciavarella at Lowery Ciavarella Rogers and Toole. Court records show that, on at least one occasion, Toole represented The Woodlands Inn & Resort -- a hotel on the outskirts of Wilkes-Barre that has ties to D'Elia and that also received a pair of favorable rulings from Conahan in 2000 and 2003. There is no evidence to suggest that the plaintiffs improperly influenced either case.
The resort received another favorable ruling in 2003 from Judge Peter Paul Olszewski Jr. that blocked the construction of a county-owned juvenile detention facility near its property, because it might have scared away prospective guests. The decision essentially paved the way for the construction of PA Child Care.
That is a case federal investigators are looking into, sources have told The Legal Intelligencer. There is no evidence to suggest that the plaintiffs improperly influenced the outcome of the case.