Long-Running Embezzlement Case Yields 'A Legal Perfect Storm'

by Gwen Moritz  on Monday, Nov. 21, 2011 12:00 am  

Little Rock attorney Pat James is defending Garret and Katherine Sorensen in the civil case filed against them by Stephen L. LaFrance Holdings Inc., the parent company of USA Drug.

It's come to this: Little Rock attorney Pat James has notified the federal court that he is willing to urinate outdoors, just not in the most prestigious residential neighborhood in town.

Being barred from the bathroom at drugstore scion Jason LaFrance's $2.5 million house on Edgehill Road after spending hours taking his deposition in a "dirty" garage was the last in a long list of complaints James made to U.S. District Judge Bill Wilson earlier this month.

LaFrance's attorneys, Ryan Solomon and David Martin of the Rose Law Firm, have defended their honor vigorously against James' narrative, which they insist is mostly untrue.

"David Martin and Ryan Solomon are fine lawyers and fine people with high ethical standards, and I think the evidence will show that Pat James has mischaracterized what has happened," Steve Joiner, managing partner of the Rose Law Firm, said last week.

There is no question, however, that they - and particularly Solomon - tried the patience of the colorful mule-raising judge.

"You're being hot-headed, and I am - I've had a belly full, I have had a belly full," the judge told Solomon during a telephone conference.

Next week, Solomon, Martin, LaFrance and even the U.S. Attorney's Office will have the chance to talk Wilson out of finding them in contempt of court, slapping them with sanctions and/or reporting them to the state Supreme Court for disciplinary action.

The Nov. 28 "show cause" hearing is a sideshow in a long-running case that resembles nothing so much as a three-ring circus: Garret Sorensen, his wife, Katherine Sorensen, and her sister, Shannon Walters, are accused of embezzling some $525,000 from the USA Drug pharmacy chain in a case that has been pursued simultaneously in federal criminal court and in civil court, both state and federal.

The case started as a straightforward question of right and wrong: Did the defendants illegally route commissions from Garret Sorensen's employer to an advertising placement business they set up without his employers' knowledge? But it has metastasized to include allegations ranging from simple theatrics to unprofessional conduct to deliberate misuse of the courts.

"This is a legal perfect storm," commented a Little Rock lawyer who knows the attorneys involved in the case.

In Dispute and Indisputable
The events that culminated with James driving in the dark to use the men's room at the Waffle House on Old Cantrell Road are very much in dispute. The legal question that brought the parties to that point is this: Is a defendant who has no right to depose witnesses in his criminal case entitled to depose the same witnesses in a related civil case?

Shortly after the Sorensens and Walters were charged in June 2009 with federal crimes for their dealings with USA Drug, the pharmacy chain's owner, Stephen L. LaFrance Holdings Inc., compounded the defendants' legal problems by filing a civil complaint in Pulaski County Circuit Court.

Whether there was much enthusiasm inside the LaFrance organization for suing a fraternity brother of Stephen L. LaFrance Jr. is not clear. Court filings indicate that LaFrance Holdings pursued the civil lawsuit in an attempt to make both LaFrance Holdings and its insurance carrier whole.

It is crystal clear that the LaFrance camp had no appetite at all for answering questions.

James tried repeatedly to schedule depositions with company founder Stephen LaFrance Sr. and his sons, Stephen Jr. and Jason, but their attorneys objected on the grounds that answering questions would interfere with the criminal prosecution.

Circuit Judge Ernest Sanders Jr., however, refused to stay the civil case. Rather than sit for depositions, the LaFrances dismissed the civil case in June 2010 "without prejudice," meaning it could be refiled within a year.

Progress in the criminal case against the Sorensens and Walters slowed to a crawl while the parties waited for a ruling by the U.S. Supreme Court that limited criminal prosecution in such cases of "honest-services fraud."

The June 2010 decision, in the case of former Enron CEO Jeffrey Skilling, prompted federal prosecutors around the country to dismiss many similar cases. But the U.S. Attorney's Office in Little Rock tweaked its case against the Sorensens and Walters with a superseding indictment, and the prosecution effectively started over in August 2010.

The trial, delayed repeatedly, is currently scheduled to begin on May 1, 2012, nearly three years after the first indictment.

Summer Heat
The civil case also started over. With the one-year deadline looming, LaFrance Holdings renewed its complaint against the Sorensens and Shannon Walters in June of this year.

But, like a football coach trying to manage the game clock, their Rose Law Firm lawyers delayed serving the defendants notice of the refiled case.

Meanwhile, in federal court, Garret Sorensen's criminal defenders, Ted Boswell of Bryant and Floyd Clardy of Dallas, tried to persuade Judge Wilson to allow them to take depositions in the criminal case, including of the three LaFrances.

Generally, depositions are allowed in a criminal case only when a witness is not likely to be available to testify at trial. But Clardy argued that the FBI and prosecutors simply hadn't asked the LaFrances all the right questions - including why Stephen LaFrance Sr. personally signed more than $300,000 worth of checks to the Sorensens' business that he claimed he didn't even know existed.

They wanted records on payments made to previous advertising vendors. They also asked for the minutes of USA Drug board meetings held between October 2005 and October 2007 and the minutes of monthly meetings between USA Drug and Stephens Investment Group of Little Rock. (Click here for a related story.)

A transcript of that July 14 hearing yields what little is known about the defense that the Sorensens and Walters plan to mount. "There was," Clardy said, "a culture at USA Drug of operating side businesses that fed off USA Drug," and the Sorensens and Walters believed they had permission to get in on it.

The hail-Mary effort failed. On the same day, July 18, that Judge Wilson denied the motion for depositions and documents in the criminal case, Pat James began demanding documents in the civil case - even though he and his clients had still not been served.

The next week, he issued deposition notices for Stephen LaFrance Sr. and his two sons.

James told Arkansas Business that the timing was coincidental and he was merely renewing the same efforts for his clients that he had started the first time the LaFrances sued his clients.

But that's not the way it looked to the LaFrances' lawyers:

"The starting point for this discovery dispute was Sorenson's [sic] dissatisfaction with this Court's Order in the criminal case that he could not conduct depositions or obtain discovery in defense of his criminal indictment," the Rose lawyers would write to Judge Wilson months later. "... Mr. Sorensen and Mr. James attempted to get what this Court told them they couldn't get - namely depositions and interrogatories and requests for production [of documents]."

We're From the Government
That's how it looked to the U.S. Attorney's Office as well. Assistant U.S. Attorney Angela Jegley, who is prosecuting the Sorensens and Walters, filed a motion to intervene in the refiled civil case, then in Circuit Judge Wendell Griffen's court, to argue that forcing the LaFrances to answer questions in the civil case would prejudice the criminal case.

After a hearing on Sept. 9, Griffen granted Jegley's request to intervene - but he denied the motion to stop the discovery. Griffen gave the LaFrances 30 days to comply.

Jegley tried another tactic, an interlocutory appeal in the middle of the case, but Judge Griffen never ruled on it.

On Oct. 7, as the deadline for compliance neared, Jegley took a step that boggled even attorneys with decades of experience. She moved the civil case out of Pulaski County Circuit Court and into federal court, where - presumably because Jegley used the criminal docket number on the removal notice - it was initially combined with the criminal case she was prosecuting against the Sorensens and Walters before Judge Wilson.

Although Wilson has since expressed some suspicion that the LaFrances and their attorneys were somehow involved in the prosecution's decision to move the case to federal court, U.S. Attorney Christopher Thyer told Arkansas Business that he made that decision personally "to protect the integrity of the legal system."

Pat James, on behalf of the Sorensens, attempted to get the case moved back to circuit court - and to file a countersuit against the LaFrances for defamation. But in the meantime, Judge Wilson - who had refused to allow depositions in the criminal case - specifically ordered that the depositions of Jason LaFrance, Stephen LaFrance Jr. and Stephen LaFrance Sr. go on as scheduled from Monday, Nov. 7, through Wednesday, Nov. 9.

Having failed to persuade Judge Sanders, Judge Griffen or Judge Wilson to stop the civil discovery process, the LaFrances didn't just concede the battle: They abandoned the war - or tried to.

At 4:58 p.m. on Friday, Nov. 4 - a last-minute move that the Rose attorneys insist was not tactical - LaFrance Holdings filed a motion to dismiss the civil case altogether, and this time with no possibility of refiling it.

"[T]he reasons the depositions were to be taken in the first place," Solomon would later tell Judge Wilson, "was based on Judge Griffen's order, which said if you make allegations in a complaint against a defendant, that defendant has the right to conduct discovery. And that price seemed too high to our clients, so they moved to dismiss the case."

Judge Wilson was out of state and didn't immediately rule on the motion, and James, planning a countersuit, insisted on getting the chance to question Jason LaFrance that both Griffen and Wilson had ordered. James, with a court reporter in tow, arrived at the Rose Law Firm on the morning of Monday, Nov. 7, even though David Martin had told him repeatedly over the weekend that LaFrance was not going to be there.

Thus began a 14-hour day that included four telephone conferences with Judge Wilson, who scolded Solomon for "trying to stall this thing."

By mid-afternoon, the judge was clearly fed up with excuses. He repeatedly ordered the deposition to commence, even though Jason LaFrance said his pregnant wife was ill and he had trouble finding a babysitter for his 1-year-old child.

"You're required to have this damn deposition," Wilson said. "Am I going to have to send a marshal out there to conduct this deposition?"

Two days later, James filed a motion for sanctions against the attorneys who required him to depose LaFrance in a garage and who eventually banned him and his client, Garret Sorensen, from entering the house even to use the bathroom.

On Thursday, Nov. 10, Wilson held a 13-minute hearing in which he informed Martin, Solomon, LaFrance and the U.S. Attorney's Office that he was considering sanctions.

He advised them to hire lawyers: Martin and Solomon hired Ed Lowther of the Wright Lindsey & Jennings firm, and LaFrance hired Jim Simpson of Friday Eldredge & Clark.

If Wilson agrees with James that the U.S. Attorney's Office abused its authority by moving the civil case from state to federal court, he could impose sanctions on the federal prosecutors.

He would also then return the case to state court, which would mean "I may not have authority to hold the lawyers and [Jason LaFrance] in contempt," the judge wrote, although he could impose sanctions.

And Pat James?

Martin and Solomon have suggested that James should be sanctioned for making videotapes of Jason LaFrance's home with his cellphone and for "making threatening, physical contact" when Solomon ordered him to stop.

But nothing in Judge Wilson's notice of next week's hearing indicates that he is even considering sanctions against James. The only mention of James in the notice is to instruct him to make sure that the court reporter who recorded the deposition in Jason LaFrance's garage attends the hearing



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