High Court Ruling Aids Settlements

High Court Ruling Aids Settlements

High Court Ruling Aids Settlements

Decision cements some of the benefits, drawbacks of multiple settlement offers.

By Emily Green, Daily Journal Staff Writer
June 11, 2013

The state Supreme Court on Monday endorsed the expansive application of a unique settlement offer that raises the stakes for civil defendants who go to trial, with the stated purpose of encouraging cases to resolve early.

Plaintiffs’ attorneys cheered the decision, which they said would encourage their use of so-called Section 998 offers. Such tenders differ from regular settlement offers in that they operate as a carrot and stick tool.

If a plaintiff makes a 998 offer which the defendant rejects, and then wins more money at trial than the offer amount, the defendant is on the hook for 10 percent annual interest on the judgment extending back to the date of the offer, as well as the plaintiffs expert fees.

Defendants also use 998 offers, but they tend to do so less frequently because the payoff is smaller. If they come out ahead on a 998 offer rejected by the plaintiff, they can have the cost of their expert fees covered.

The question before the state Supreme Court concerned an issue that had split the state courts of appeal: What happens when litigants make more than one settlement offer? Which one should apply – all of then, or just the last offer?

The answer: It depends.

Justice Marvin R. Baxter wrote the opinion for the unanimous court. Martinez v. Brownco Construction Co. Inc., 2013 DJDAR 7341

He said that if the party that makes more than one Section 998 offer wins a judgment less favorable than the first offer, but more favorable that the later offer, the controlling offer is the last one. That is to say, if a plaintiff makes an offer for $100,000, and then a second offer for $50,000 – both of which the defendant rejects – and then the plaintiff wins $75,000 at trial, the plaintiff can win 10 percent interest on the judgment extending back to the date of the second offer.

That calculation changes, however, if the plaintiff makes two offers and then beats both offers at trial. Then, the court said, the plaintiff is eligible to receive interest and the cost of expert fees extending to the date of the first offer.

“Not only do the chances of settlement increase with multiple offers, but to be consistent with section 998’s financial inventive and disincentives, parties should not be penalized for making more than one reasonable settlement offer, “ Baxter wrote. “Nor should parties be rewarded for rejecting multiple offers where each proves more favorable than the result obtained at trial.”

Baxter also wrote that if there are allegations of gamesmanship, the trial court has discretion to make that determination and deny interest on the judgment or expert fees.

The case stems from two settlement offers Gloria Martinez made to Brownco Construction Co. Inc. after her husband was severely injured on the job.

Three months after the accident, in 2007, she made a 998 offer for $250,000. Two and a half years later on the eve of trial, she made a second 998 offer for $100,000.

The company rejected the offer, and Martinez won $250,000 at trial. Subsequently, she sought to recover interest on the case and cost of expert fees. The trial court held that Martinez couldn’t recover expert fees incurred between the two offers because the second offer extinguished the first one. The appellate court reversed and said the last offer is not necessarily the operative offer for purposes of cost shifting.

Sacramento plaintiffs’ lawyer Roger Dreyer, who was not involved in the case, described the state Supreme Court’s decision as “hugely important” for trial lawyers. He said he was often reluctant to make second 998 offers for fear that it would eviscerate the first one – and the potential to win interest extending back to the first offer.

“This may be the most important statute in the civil code as it affects trials,” Dreyer said. “It’s a strategic tool. It’s also a tool that forces the defense to evaluate their options.”

Albro Lundy III, who represented Martinez, said the court’s decision puts pressure on the litigants to settle.

“It increases the risk of going forward to trial and it lowers the risk of making a subsequent offer, and therefore increases the possibility of settling.”

Brownco Construction’s attorney, George M. Lindahl, called the decision “well reasoned.”

“I was hoping they would go the other way on it. But the law was in need of clarification.”

Lindahl cautioned that the decision could leave trial courts burdened with resolving complaints of gamesmanship in 998 offers – an argument he said he would now make in this case.

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Baker, Burton & Lundy Law Firm Presents $93,000 Cy Pres Donation

Baker, Burton & Lundy Law Firm Presents $93,000 Cy Pres Donation

Baker, Burton & Bundy law firm presents $93,000 cy pres donation from major energy cases to the Legal Aid Society of San Diego

Baker, Burton & Lundy Law Firm Presents $93,000 cy pres Donation From Major Energy Cases to the Legal Aid Society of San Diego

On Friday, May 16, 2014 Brad N. Baker, partner at the Law Offices of Baker, Burton & Lundy, presented a donation of $93,940 from the Anti-trust Natural Gas Settlement to the Legal Aid Society of San Diego thus completing a 14 year journey.  Presented on the steps of the San Diego Superior Court at where the case was heard, this donation is the final act in the largest energy case in the history of California, which resulted in settlements and benefits of over $4 billion to California consumers and businesses.

This cy pres donation was the final money left from the class action settlements administered efficiently by Epiq Class Actions & Claims Solutions of Portland, Oregon.  Baker, Burton & Lundy directed the donation of the final settlement dollars to the Legal Aid Society of San Diego since the case was heard in the San Diego Superior Court by the Honorable Ronald S. Prager, who both sides thought did a magnificent job.

Gregory Knoll, director of the Legal Aid Society of San Diego, said “There is nothing better than a law firm that thinks about us at a cy pres award time, which is when the money left from class action suits that cannot be paid out gets designated.  I can’t thank Brad enough. We are thrilled that the entire private bar in San Diego and all California has looked out for us and when there is a remainder that they think of us.  This allows us to do things we could never do otherwise.”

The energy case began in 1999 when attorney Lance Astrella found evidence of a secret 1996 meeting in an Arizona hotel bedroom between high level officers from competing gas pipeline companies planning cessation of competition and the carving up of markets to take advantage of electric deregulation in California. The companies ultimately restricted the flow of natural gas into California and Nevada.  Astrella brought the evidence to Baker, Burton & Lundy and together they recruited and organized a team of top attorneys and experts to investigate.

In September 2000 they filed a lawsuit against El Paso, SoCalGas and SDG&E alleging market allocation and anti-trust violations only to watch the situation become catastrophic as California experienced the energy crisis of 2000 and 2001.  From the legal pressure El Paso settled early for $1.7 billion and in 2006 Sempra Energy settled in the midst of trial which provided billions of dollars of benefits for California businesses and consumers in lower rates as well as a restructuring of the natural gas storage process which eliminated the opportunity for future price manipulation.

Along with the prime mover, Lance Astrella, and Baker, Burton & Lundy, the high-powered consortium of attorneys included Tom Girardi of Girardi  Keese, Walter Lack, Paul Traina and Rahul Ravaputi of Engstrom, Lipscomb & Lack, Pierce O’Donnell and John Shaeffer, of O & S, Brian McMahon, and Ty Kelly with Bill Bernstein and Barry Himmelstein of LCHB, heading up a second team of attorneys on the Price Indexing cases for false reporting of trades.

On a personal note, presenting this donation to the Legal Aid Society has special meaning to Baker since he began his law career by volunteering at the Legal Aid Society in Venice, California.  “This completes a circle” said Baker who suffered a life-threatening illness on a trip to Europe after law school and pledged that if he survived, he would donate six months of his life to a special cause.

Upon his return, he chose the Legal Aid Society where he shared his new legal knowledge with the poor and indigent who normally had no access to legal help. He looks back on that time as not only an opportunity to help others but as an “excellent opportunity to hone my legal skills, very similar to medical students’ residency and internships.”

At the end of Baker’s six months of volunteering, 1,000 feet of office space became available below the Legal Aid Society.  Baker approached fellow UCLA law graduate Kent Burton about forming a partnership and the law firm Baker & Burton was formed in 1976, expanding to Baker, Burton & Lundy in 1997 with the addition of trial lawyer Albro Lundy as partner.  Baker indicates that he was blessed to get to work with such outstanding people in his 14 year energy case journey and knows that the blessings will continue to be paid forward by Gregory Knoll and the Legal Aid Society of San Diego.

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Bleeding Life

Bleeding Life

Bleeding Life, Albro Lundy donates blood

Bleeding Life

Having Already given 140 pints, Albro Lundy continues to donate Blood

Published Nov., 2013 in Pulse: Healthy Living for the South Bay
Written by James Mills
Photographed by Michael Neveux 

Dedicated to the cause of giving blood, for his 52nd birthday Albro Lundy asked his family to donate a pint of blood in lieu of presents. “I was so proud,” reports the native Angelino. “We all went to Torrance Memorial together and donated at the same time. We took up all the chairs.”

Since he moved to Palos Verdes in the mid-1990s, Torrance Memorial Medical Center has been Lundy’s preferred place to donate blood. He goes in every two to three months.

“Torrance Memorial is just a really great place to give blood,” says Lundy, now 54. “They’ve got a nice spot; big, huge, picture windows overlooking the airport. You can watch the planes come in and out while you’re giving the blood. It’s free parking. No hassles. It’s a great group of people there. They’re very skilled.”

Donating blood has been a part of his life since he was a teenager. “I’ve donated 140 pints in my lifetime,” brags Lundy, a trial lawyer with the Hermosa Beach-based law firm Baker, Burton & Lundy. “I’ve been giving blood since I was 16. I had a high school teacher who said it was a good thing to do. So I did, and it was a great feeling—not just physically but spiritually too. You’re saving someone’s life by giving blood.”

Giving blood not only saves a life; in Lundy’s case, it helped him meet his future wife. “I was organizing a blood drive on campus at UCLA. Cathi and I were both working as English writing tutors. I asked her, ‘So what would you think about working on my blood drive?’ How’s that for a pick-up line?”

The couple are parents to three sons and a daughter. The three oldest children have all adopted the habit, each giving blood regularly at their colleges. Lundy is hopeful his youngest son will also start donating once he turns 16.

Lundy has traveled abroad extensively, including to Laos where he (unsuccessfully) searched for his missing-in-action fighter pilot father who was shot down decades earlier. Blood donation centers do not allow people to give for a period of time after such trips as a precaution—in case they picked up a blood-borne disease such as malaria. After the Laos trip, Lundy couldn’t give for two years. But he was back to it just as soon as it was permitted.

“Its value is extraordinary,” says Lundy. “You know you’ve saved one person’s life, but sometimes it’s up to four people’s lives. The blood can be used for up to four different people. That’s incredible to be able to do that in terms of charity. I give my blood, and it can’t be abused. I give my money to somebody, and I don’t know where it goes. Even if someone steals the blood, the only value it has is to somebody who needs it to save their life.”

Pulse logo, Torrance Memorial Hospital

Law In The Internet Age

Law In The Internet Age

Law In The Internet Age

By Kent Burton

EASY READER, May 24, 2012

In 1976, family, friends and members of the public called my law partner and me insane when we hung out our shingle, fresh out of law school. Undeterred, we equipped our law office with the latest in technology — a used IBM Selectric typewriter, carbon paper and white out. Our “URGENT” letters required responses within seven days. In the news, D.B. Cooper was able to parachute from a plane with $200,000 in ransom money and never be located. Republicans and Democrats actually passed laws together and both our State and our City were solvent. Things have changed.  

Warp speed travel through the digital age

The biggest changes in the legal profession over the past 35 years and the biggest changes we will see over the next 10-20 years involve innovations in media and the ways we communicate. The speed at which we communicate (and expect responses to our communications) has increased exponentially. Most legal communications now take place via email. Accustomed to immediate responses to their emails and texts in their personal lives, clients expect the same from their lawyers. Patience is rapidly disappearing. While increased speed allows us to get more things done, it also can result in more mistakes being made both by clients and by their attorneys. Generally, most legal services for individuals and small companies should become more specialized and less expensive in the future. Many of the new technological tools available to lawyers can make the performance of their services (especially the preparation of documents) far less time consuming, and as a result less expensive. Additionally, the more that lawyers specialize, the more efficient and knowledgeable they should become, resulting in a higher quality of services.

Choosing your lawyer

In the past, clients chose their lawyers generally by person-to-person referrals. Attorney/client relationships usually lasted for many years. In 1976, it was illegal (and considered unethical) to advertise. With the legalization of attorney advertising and the growth of the Internet, the ways that clients choose lawyers have changed dramatically. Clients are better able to choose their lawyers because the ability to research their qualifications and experience (and unfortunately their personal lives as well) has becomes as easy as typing the word Google. This will help make lawyers more accountable. There will also be more pressure on attorneys for legal specialization because clients will more often choose their lawyers for specific tasks. Lawyers have long complained about the loss of civility in the profession. While personal experience has led me to cringe whenever I have had to deal with lawyers in Philadelphia, I have not seen this in the South Bay. In fact, I think one of the major advantages in practicing law in the South Bay is that the practitioners generally have a collegial approach. South Bay clients often have a significant advantage in retaining local attorneys who know each other and are able to use those relationships to create faster, more amicable and cost effective resolutions. Maybe it’s the weather.

Politics and the judiciary – a bad mix

Our nation was founded upon the concept of a representative legislature making laws and an independent judiciary interpreting them. Judges were to be appointed based upon qualifications, not political persuasions. Unfortunately, the last two decades have seen a paradigm shift in these concepts. Federal judges are now appointed based more on their political positions than their legal capabilities. Currently, federal judge nominees are routinely filibustered or otherwise blocked in Congress, resulting in a large number of vacancies which is now affecting the administration of federal justice. In the last decade, the Supreme Court has elected a president (Bush v. Gore), allowed unlimited corporate and union donations to political campaigns, and is now poised to strike down a major federal regulatory program (the health care act) for the first time since 1936. The nomination of Supreme Court justices (pick one who supports your politics and who is young enough to survive the rigors of the job for several decades) is now entirely political. In the near future (and potentially the far future as well) the Supreme Court and the judiciary in general will have a far greater effect upon law and our society. At the heart of this is the increasing animosity and intractability between the two major political parties. Our legislators now represent factions of their political parties rather than Americans. They sign pledges locking in certain votes throughout their terms without compromise. As a result, our major law-making bodies are locked in a gridlock worse than the 405 Freeway at rush hour. Surprisingly, our best hope for the future in this area seems to be social media. As individuals creatively gain immediate access to huge numbers of citizens, voters can more readily organize behind certain candidates, demanding more accountability and potentially defeating the chosen ones of political parties and special interest groups. Social media can and hopefully will give birth to a new generation of independent voters.

Freedom and Privacy – we can run but will we be able to hide?

Our legal system was designed to protect individual freedoms and privacy. As we continue our headlong rush through the computer age, the protection of privacy will become a critical aspect of the legal profession. People are already becoming upset over the capability of your cell phone and car to peg your exact location to untold others at any time during the day. The Federal Trade Commission has suggested rules for “Do Not Track,” seeking voluntary compliance from technology companies with the threat that if they do not establish voluntary regulations, Congress is sure to act. Upgrades in communication devices, such as the Google Glasses, will continue at an astounding rate, with the ability to contain new tracking devices without our knowledge or consent. Relying on the technology industry to “self regulate” is less than comforting. And for those who think they can avoid the problem by discarding their cell phone and hitchhiking to a remote wilderness, we haven’t even begun considering the problems with XYZ Security Company’s unmanned drones flying overhead. The establishment and enforcement of significant new laws protecting our privacy will be a critical challenge for generations to come. I think there will be a huge groundswell of support for privacy protection legislation. At the same time, the loss of privacy has an offsetting benefit for law enforcement. Between GPS and other tracking systems, the growing ability to collect and analyze DNA evidence and nanotechnology, the tools available to law enforcement will render more crimes “solvable.” Whether the difficulty in getting away with a crime will result in a society-wide lessening of criminal activity is yet to be seen, especially in light of the growing disparity between the haves and the have-nots.

Is the jury out?

The jury system is under attack. When Thomas Jefferson commented on the most important provision of the Constitution that he had written for the young United States, he did not say that freedom of speech was the cornerstone of our Republic. He said that the jury system, a jury of our peers, was the most important provision in the Constitution. That critical constitutional right has come under attack by a contractual provision that most people are unaware of but almost everyone has agreed to. This contractual provision is called the “arbitration clause,” which you will find in almost every contract that you enter into as a consumer, including those you only approve electronically, such as your cell phone contract and every Amazon purchase you make. What this arbitration clause does is remove the right to a jury trial and forces the case to be heard by an individual, most often, closely aligned with the entity that is forcing you to sign the contract containing the arbitration clause. The right to a jury trial allows an individual to be able to gain justice against even the most powerful corporations and government entities. At Baker, Burton & Lundy we have been able to use the jury system to actually change the way in which a multi-billion-dollar government bureaucracy (Caltrans) operates, leading to safer California roads. We have also been able to force some of the world’s largest energy corporations to change the way they do business to the benefit of California consumers. Without the jury system the people of the state of California would never have received these benefits and the wrongdoing by the corporations and the government would still be occurring. Public awareness of the importance of preserving the jury system is gaining momentum. It is very important that it continue to do so in the future. Although navigating the flow of information we all now face is like trying to paddle out in storm surf, it is critical that we learn to deal with it. The future will require us to be selective with our time, but vigilant as to issues that truly matter. With access to others through social media increasing daily, single individuals can and will help shape the awareness of all of us on crucial issues, including the future of our right to a jury trial, the structure and operation of our government, and our personal privacy. Finally, on the local level, 2013 will see a historic election in Hermosa Beach when voters are asked to weigh in on the Macpherson Oil settlement by voting to approve or disapprove slant drilling from the city yard into the city’s tidelands. The conflicting issues of environmental safety versus the dire financial straits of the City of Hermosa Beach and its schools will be addressed in a general election. We can all be thankful that at least that decision will be made by Hermosa’s voters. > Read the article on the Easy Reader site.

Kent Burton
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Albro Lundy: Heart of the Law

Albro Lundy: Heart of the Law

Albro Lundy: Heart of the Law

by Robb Fulcher

Peninsula People/Easy Reader, April 28, 2010

Peninsula resident Albro Lundy III, who has helped win billions of dollars for California consumers through energy lawsuits, has added the title Trial Attorney of the Year for his dogged work in an accident case that has improved the safety of state roadways.

The case that would win Lundy the prestigious award from the Consumer Attorneys of California not only made the roadways safer, it greatly improved the future of a man close to Lundy’s heart.

On its face, the case was an extremely difficult one. It centered on a single-car accident on the night of Jan. 16, 2006 in the high desert, at the T-intersection of Highway 62 and Highway 177 in a rural northeast corner of Riverside County. The plaintiff was 77-year-old Clete Schmidt, a lifelong friend who had been a surrogate father to Lundy in his youth.

Schmidt was on his way to Lake Havasu when he was unable to see a stop sign in time to stop, crashing into a five-foot stony embankment just beyond the intersection and crushing his Ford Crown Victoria. He spent two months in intensive care, nearly died on several occasions, and emerged a ventilator-dependent quadriplegic with some arm movement.

As attorneys examined the condition of the public roadway, the state claimed there were at least six signs indicating that there was a stop ahead on a relatively straight road. No other vehicles were involved, and the victim was a 77-year-old ex-attorney who lived in Palos Verdes. In light of the severity of injuries, the case would be intensely defended.

Going for it

The attorney and his partners at the firm of Baker, Burton & Lundy had just finished joint litigation on two energy pipeline conspiracy cases that brought California consumers nearly $4 billion in settlements, when Lundy told his partners he wanted to take Schmidt’s case.

Lundy told his partners the costs could run several hundred thousand dollars, and he estimated there was a 5 percent chance of victory. In light of his 40-year relationship with Schmidt, he offered to run the case himself and spare his partners the risk. The partnership vote to take the case was unanimous and immediate.

Lundy and his team made multiple trips to Caltrans archives in San Bernardino and Sacramento, and spent hundreds of hours at and around the scene of the accident looking for witnesses or evidence to demonstrate that the roadway was unsafe. A theory of liability began to develop.

A longtime resident of Riverside County recalled that many years before, the roadway had contained “Botts Dots,” ceramic discs that warn drivers through vibration, which had been removed or destroyed. Then, after five days’ search in the San Bernardino Caltrans office and three more in Sacramento, a “needle in a haystack” was found in the form of photographs verifying that Botts Dots had existed at the approach to the intersection 30 years ago.

Lundy said Caltrans knew the Botts Dots were an important warning system approaching a stop sign in the desert, and had even replaced them at least once in the 1990s. However, Caltrans did not maintain them and never replaced them subsequently in spite of pictures in their own files showing the deterioration.

It was additionally discovered that a large double arrow “End of the Road” sign had been removed or lost, and not replaced. A further theory of liability was developed based on a berm cut into the road across from the stop, which eliminated a driver’s recovery zone.

Remarkable Win

The evidence uncovered and the theories developed resulted in a jury verdict on liability of 90 percent to Caltrans and only 10 percent to Schmidt. The jury ordered Caltrans to pay $11.6 million to Schmidt and his wife Marlene.

State officials later told Lundy that because of the jury verdict, Caltrans began inspecting all similar T-intersections in rural environments to make appropriate corrections. At the trial it was discovered that, except for one alcohol-related accident, seven other accidents over a 21-month period all involved drivers over the age of 50 whose response times required more warning on the high speed highway to come to a complete stop.

Caltrans also revamped the safety precautions at the intersection where Schmidt was injured.

Schmidt’s injuries left him in a precarious condition and the slightest thing, even a cold, is life threatening, Lundy said.

The case was tried on an expedited basis in a converted school classroom before Judge Lillian Y. Lim, sitting by special assignment.
“The ability to prosecute a case on an expedited basis against a governmental agency, and to allow the decision to be made by a jury of his peers, allowed Clete and his wife Marlene Schmidt to see a decision in his lifetime and receive an award that would give him the dignity of first-rate medical care throughout the rest of his life that would have otherwise been unavailable,” the Consumer Attorneys of California stated. “It also spared his family from the shame and anguish of being unable to pay his medical expenses or provide appropriate care and to avoid the eventual prospect of bankruptcy.”

To the rescue

During the trial’s 11th hour Lundy, facing medical complications of his own, enlisted the aid of noted attorney Gary A. Dordick as co-counsel. The attorneys alternated witnesses and shared opening and closing arguments.

A particularly poignant moment occurred when Dordick was questioning Marlene Schmidt. Speaking of Clete’s penchant for giving, Dordick referred to Clete’s befriending of an 11-year-old boy who had lost his father in the Vietnam conflict. This young man had joined the Schmidt family on every vacation and had become part of the family. When Dordick asked Marlene who this young man was, she pointed across the courtroom and declared it was Albro Lundy. Gasps from the jurors were audible.

Two months into the case, Lundy visited Schmidt in the intensive care unit at the Eisenhower Medical Center at Palm Springs. Lundy felt dizzy and thought he might have a minor concussion from a fall he had taken during a recent skiing vacation. As the symptoms grew progressively worse over the next week, he sought medical attention.

Lundy was diagnosed with a vestibular schwannoma brain tumor, and he handled the Schmidt case while undergoing 30 straight days of radiation treatment. The effects of the potentially life threatening brain tumor and radiation treatment included dizziness, double vision and periodic debilitating headaches which sometimes lasted for days.

Lundy brought Dordick into the case for extra assurance that Schmidt would have top-notch legal representation. Lundy also praised his firm’s litigation staff, Jeri Munn and Jenny Wood, and assisting attorney Norm Coe and Joe Barrett.

After the trial Schmidt paid tribute to Lundy, saying haltingly, “I took care – of him, and – now he took – care of me.”

David v. Goliath

The energy pipeline cases came about after gas prices spiked 16-fold at the California border at the turn of the decade. Energy companies blamed increased demand and a pipeline explosion, but Lundy and his partners didn’t buy the logic.

Thus began a dogged legal pursuit that, years later, won consumers $3.7 million in settlements from large companies accused of illegally killing pipeline projects, artificially raising the price of natural gas coming into California, causing electricity prices to soar, and contributing to California’s energy crisis of 2000 and 2001.

The attorneys’ work was hailed by Michael R. Peevey, president of the California Public Utilities Commission, who said it would “provide significant economic benefits to electric and natural gas consumers in California.”

Turning outward

Lundy and his partners donated massive chunks of their fees from the settlements – as much as 25 percent – to charities including the Christian nonprofit Floresta/Plant with Purpose which works to reverse deforestation and poverty in the world.

Lundy has been involved with Floresta since 1986 and has served on its board of directors for 10 years. He also serves as general counsel to the organization.

Lundy has been a member of the St. Lawrence Martyr Parish in Redondo Beach and has served on its Parish council for four years, including a term as vice president.

Albro and his wife Cathi have been giving Engagement Encounter weekends for the Catholic Church for 23 years, aiming to help preserve marriage as the cornerstone of strong families. They have given weekends to more than 4,000 couples.

Lundy has donated blood since he was 16, and has topped a total of 115 pints.

> Read the article on the Easy Reader website.

Albro Lundy, Trial Lawyer
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Giant Killers

Giant Killers

Giant Killers, The Sequel, Part 1

Easy Reader, January 12, 2006

In December 2000 newspapers reported a 16-fold rise in gas prices at the California border. Energy companies blamed increased demand and a pipeline explosion but a legal team with their leaders in Hermosa didn’t buy the logic. Five years later they have won nearly $4 billion for energy consumers. Attorneys working out of a modest Hermosa Beach storefront have helped California consumers win a second billion dollar-plus settlement from a Fortune 500 energy company.

Three years ago the attorneys from the firm of Baker, Burton & Lundy were instrumental in a $1.7 million settlement between California residents and El Paso Natural Gas. Last week the same attorneys signed off on a $2 billion settlement with San Diego-based Sempra Energy.

El Paso Gas and two California companies that later merged into Sempra were accused of illegally killing pipeline projects, artificially raising the price of natural gas coming into California, causing electricity prices to soar, and contributing to California’s energy crisis of 2000 and 2001.

Brad Baker of the Hermosa firm served as “head coach” of a team of lawyers from five firms, coordinating massive amounts of court filings and dozens of depositions in the U.S. and Canada, and leading successful courtroom battles against five separate motions for dismissal and 34 motions challenging evidence his attorneys were relying upon.

Partner Albro Lundy worked some of the depositions, prepared other attorneys for their courtroom arguments, and stood ready to question witnesses on the stand had the settlement not been reached. Partner Kent Burton provided consultation services to the team.

Lundy said many of challenges from Sempra lawyers could have sunk the consumers’ case.

“It was one major battle after another,” Lundy said. “Everything was on the edge. If we lost one of them we could have lost everything. But we won every single one of them.”

‘Brutal journey’

¨For four months down the homestretch Baker lived in a hotel next to the San Diego courthouse where the legal proceedings began and the lawsuit was eventually settled.

“When we started this journey we had as a goal that we wanted to change the way that business was conducted so that the Sempra entities could not do it to us again,” Baker said. “We think that we have accomplished this goal.”

Baker, 55, cannot yet fully decompress – the settlement now goes before state entities including the governor’s office, the attorney general’s office and the PUC.

“It’s been a long, brutal journey, and it’s not over yet,” he said.

Baker and the other attorneys on his side plan to request as much as $161 million in fees plus $9 million to cover out-of-pocket expenses. Baker said the fees paid to attorneys would probably be less than 10 percent of the amount they recovered for Californians.

Baker said about 15 attorneys spent most of their time on the case, including six who lived fulltime in San Diego. Their support staffs worked on the case as well.

Baker showered praise on Superior Court Judge Richard Haden, who presided over the case at its beginning, and Judge Ronald Prager, who took over after Haden retired and will maintain jurisdiction during the upcoming negotiations with the government entities.

But Baker saved his most lavish praise for the 12 jurors and eight alternates who spent more than two months in the box, paying close attention to the complicated arguments.

“Not one juror dropped out, not one juror was even five minutes late. They fought sickness – one man battled back spasms, he was practically dying, and he just fought through it. He was determined to see this through,” Baker said. “It really proved that the jury system works,” he said. “The average everyday person can make a difference.”

Bakers also believed the jury’s “attention and dedication” to the proceedings helped convince Sempra to settle. The Sempra attorneys might well have guessed that the jurors weren’t sticking it out through thick and thin “to validate their utility” in the end, Baker said.

Settlement praised

The settlement was hailed by Michael R. Peevey, president of the California Public Utilities Commission, who said it “will provide significant economic benefits to electric and natural gas consumers in California.”

Peevey said consumers will see lower electricity and gas costs as the Sempra companies – SoCalGas and San Diego Gas & Electric – pay $377 million over the next 10 years, provide discounts to Californians and restructure some aspects of their operations to save consumers money.

Sempra denied any wrongdoing as the settlement of the class-action lawsuit was announced.

“This agreement will put the major pieces of energy-crisis litigation behind us,” Sempra Chairman Stephen L. Baum said. “Above and beyond the costs to our company, this settlement will provide substantial benefits to millions of energy consumers in California and Nevada.”

Giant Killers, the sequel, Part II

How it began

The case against Sempra and El Paso began to unfold in 1999 when an attorney named Lance Astrella stumbled upon a hand-written note by a high-level executive telling of a hotel-room meeting in which, it appeared to Astrella, competing energy companies agreed to commit antitrust violations.

Astrella knew that a team of high-powered, specialist attorneys would be needed to pursue the matter. Bypassing armies of sleek-suited warrior in skyscraping Century City and downtown L.A. offices he tapped Baker, who holes up in the ground-scraping Pier Avenue storefront.

In a 2003 interview Astrella said the Hermosa attorneys were known and respected by their colleagues statewide, in part because they fielded sports teams that dominated countywide law firm competitions.

“Many of the top litigation firms knew Baker, Burton through our athletic teams,” agreed the 6-foot-2 Baker, once a hard-working guard on the University of California, Irvine basketball team.

“Litigators are warriors, competitors,” he said.

Baker took the lead role in building a lawyer team that included Tom Girardi and Walter Lack of Erin Brokovich fame. (In the Julia Roberts movie about the corporate whistle blower, Girardi and Lack appear as a composite character played by actor Peter Coyote.)
�The initial $1.7 settlement with El Paso Gas, negotiated by the team in 2003, ranked among the largest in California history. In the settlement El Paso Gas admitted to no wrongdoing.

California Senior Assistant Attorney General Tom Greene, head of the AG’s energy task force, said the antitrust settlement ranked second largest in California history. The largest, he said, came in a nationwide tobacco industry case that was settled in California for $26 billion payable over 20 years.

“Brad did good,” Greene said of Baker in 2003.

How it worked

¨The lawsuit contended that in September 1996 top executives of Southern California Gas Company, San Diego Gas & Electric and El Paso Gas met at the Embassy Suites Hotel near Sky Harbor Airport in Phoenix, Ariz., and illegally agreed to refrain from competing against each other in the natural gas delivery markets of Southern California and Baja California.

A hand-written agenda for the Phoenix meeting called for the 11 executives to discuss “opportunities resulting from electric industry restructuring,” referring to California’s electric industry deregulation that had become law just a month earlier, according to the lawsuit.

The lawsuit claimed that an agreement reached at the “secret Phoenix meeting” went this way:

  • Top officers of El Paso Gas agreed to kill pipeline projects by a company El Paso had purchased three months earlier, called Tenneco Energy. Tenneco had planned to use the pipelines to bring Canadian natural gas into Southern California and Baja, making it cheaper and more plentiful in those markets.
  • In exchange, Southern California Gas and San Diego Gas would agree not to compete with El Paso on a separate pipeline project to bring natural gas from Texas to a plant in Chihuahua, Mexico, even though SoCal Gas enjoyed “a tremendous cost advantage” over El Paso.

Within a month of the Phoenix meeting SoCal Gas announced that it would not compete for the Chihuahua pipeline, and two weeks later El Paso refunded money from companies that had paid to receive Canadian gas delivered through the now-dead Altamont pipeline, the lawsuit contended.

Electricity prices are tied to gas prices largely because gas is used to fire over half of California’s electric plants. In addition, when gas prices rise, the electric companies are allowed to charge more for all their power, including power generated by non-gas fired plants, the lawyers said.

So a spike in gas prices has “a multiplier effect” on the price of electricity, allowing power companies to make profits beyond offsetting their costs of buying more expensive gas, Baker said.

“The agreement eliminated potential price competition and allowed El Paso and SoCal Gas to retain their unchallenged market dominance,” the lawsuit claimed. SoCal and El Paso discussed a long-term plan to “link up supply, transportation, generation and sale of electricity” and to “think/plan position now to be ready when the opportunity comes,” the lawsuit contended, quoting from the alleged agenda.

Following the meeting El Paso Gas launched a “shopping spree” for electricity generating facilities serving California, to exploit its own advantages that had been created in the natural gas market, the lawsuit claimed.

In addition, the lawsuit contended, the companies agreed not to challenge each other’s mergers — El Paso earning regulatory approval to complete its purchase of Tenneco, while SoCal Gas and San Diego Gas merged to become Sempra Energy. In one instance of a possible merger challenge, the lawsuit claimed, San Diego Gas could have fought the El Paso-Tenneco deal, claiming that the killing of Tenneco’s California pipeline plan would prevent cheaper gas from reaching the San Diego area. San Diego Gas could have claimed that the merger would harm potential competitors of SoCal Gas, who would want to sell the cheaper natural gas to San Diego Gas, according to the lawsuit.

“The last thing that any of the coconspirators wanted was legitimate competition,” the lawsuit claimed.

“Soon after the meeting SoCal Gas and El Paso successfully implemented their plan to carve up the California and northern Mexico markets,” the lawsuit claimed. SoCal Gas was the sole bidder on the Baja pipeline, El Paso was the sole bidder on the Chihuahua pipeline, and SoCal Gas was protected from potential competition by El Paso’s ending of the pipeline projects that would have significantly lowered prices in Southern California, the lawsuit claimed.

Energy crisis

The lawsuit also claimed that the alleged collusion exacerbated the energy crisis at the turn of the decade by driving up the price of electricity in California, through an artificial hike in the price of natural gas coming into the state, caused by reducing the number of pipelines to carry the gas. “Southern California’s ‘energy crisis’ is not simply the result of ever-increasing demand for energy by a growing population,” the lawsuit claimed in December 2000. “Rather, it is the direct result of a conspiracy among the natural gas industry’s most powerful Southern California players to preserve and maintain the market dominance that they enjoyed for many years as monopolies subject to regulation.”

“Their unlawful collusion has contributed significantly to the recent astronomical increases in the price of gas and electricity,” the lawyers contended. “As a result Southern California customers have had and will have to pay billions of dollars extra for their natural gas and electric needs.”

In December 2000, newspapers reported a 16-fold rise in gas prices at the California border. Defenders of the rising prices said they were at least partly explained by colder weather, heavy gas use by California power plants and an explosion along an El Paso Gas pipeline that limited its flow.

According to the lawsuit, increases in the price of natural gas at the Arizona-California border well outpaced those throughout the rest of the country, going from $2.40 to $4.40 for a unit called an MMBtu over a one-year period ending in June 2000, then leaping to $25 per MMBtu during 2001.

In 2003 Greene said it was difficult to tell how much of the energy crisis could be blamed upon the alleged conspiracy of the energy companies.

“It affected the price of every kilowatt in California,” he said.

The simple life

Baker the weary warrior figures he can return to his quieter role as an estate-planning attorney about March.

“I’m looking forward to helping one client or one couple at a time instead of helping 14 to 30 million people at time,” he said.

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