Plumbers’ pensions were down the drain till Stephen English taught their scheming fund managers a thing or two
Published in 2007 Oregon Super Lawyers magazine
By Stan Sinberg on November 9, 2007
Members of Oregon Plumbers Union Local 290 were not happy. They’d just discovered that their pension and health funds might well be drained, the victims of a Ponzi-like scheme by their investment manager, Jeff Grayson with Capital Consultants.
As the nearly 1,000 members and their families poured into the Portland Hilton for an emergency meeting that September 2000, they didn’t know—or particularly care—that they were part of the largest Taft-Hartley ERISA (Employee Retirement Income Security Act) investment-management fraud case in U.S. history, one that bilked dozens of union retirement plans out of more than a quarter-billion dollars.
They wanted answers. They were getting frustrated with their attorneys’ “lawyer-ese.” One plumber pushed to the podium and bellowed that he had spent his whole life “pulling shit out of toilets, and I want to know where that guy [Grayson] lives!”
Stephen English, lead counsel for the union’s pension-fund trustees—who had hired Capital Consultants to manage the fund’s investments—rose up and, forsaking the podium, strode to the middle of the floor. A stately 6-foot-4, nattily attired and sporting a neat goatee, English spoke softly but firmly. “I also know what it’s like to lose everything. I can get you revenge or money, but not both, and it’s my job to get you the money. I’ll get you all that’s possible to get.”
The plumbers were still indignant. But there was something about the man, and the way he said it, that made them believe he would do just that.
“See that? That’s the house where my grandparents grew up. That comic book shop over there? That used to be a grocery store run by my Great-Uncle Tony.”
English is driving around southeast Portland waxing nostalgic about sites in the neighborhood, both current and long gone, where he, his six siblings and his parents, who were married 63 years, shared a three-bedroom/one-bath house—a situation, he says, that instilled useful skills in conflict resolution.
English cherishes those roots. As director of Bullivant Houser Bailey’s litigation department, he handles environmental cases, freedom-of-religion issues, contract breaches and protection of trade secrets. He deals with clients such as John Deere and Caterpillar (not to mention helping ousted Portland Trail Blazers coach Tim Grgurich get released from his contract so he could join the Denver Nuggets). He volunteers that the three things he values most are “family, community and professionalism.” Having all three, he says, makes you “a better person and a better lawyer.” Coming from someone else this might sound a little hokey, but not from English. Bullivant, with half its 180 attorneys in Portland, occupies 2½ floors of a downtown office building. Major cases get their own “war rooms,” in which walls of binders and documents are organized according to motions, witnesses, depositions, etc. A chalkboard lists all aspects of the case, and the results of strategic brainstorming sessions.
On a recent “typical” day, English conducts meetings on a dizzying array of cases: defending a convenience-store chain against securities claims, deciding how to advise a client on the wording of a new product warning, debating whether to join a lawsuit with parties they’d earlier opposed, analyzing a case seeking punitive damages against financial professionals, and defending the constitutionality of a religious institution’s desire to keep its documents confidential.
English probes, prods, delegates and asks a lot of questions, but there is a decided chumminess among the staff. Virtually everyone—including much younger attorneys—razzes him. When English asks yet another question, one associate asks, “When did we get this guy?” In another meeting, English presses associate Steve Deatherage on whether it’s imperative to hear the brief this day. Deatherage answers, “OK. I’m going to be honest with you, which I almost never am…”
English throws it right back. Assigning an associate a case, he explains, “They wanted someone with a little authority, and you have as little authority as anyone.”
Bullivant attorney Renee Rothauge likens English to a general. “He tells us what kind of case he wants to try, what positions and themes he wants to put in front of a jury, and sends us out into the field.”
English tries to instill his “family, community and professionalism” ethic in others at the firm. He instructs his associates, “Don’t e-mail clients when you can pick up the phone; don’t phone when you can meet face-to-face—and meet at their offices. If it’s a new client, find out what they do, because if you understand that, you can give them better advice. And don’t bill them for that meeting.”
Not that he has a problem with billing. As he puts it, “I never met someone who said, ‘My lawyer wasn’t too good, but he was cheap.’”
Still, he praises the relatively small community of Oregon lawyers for its “good behavior.” “We conduct lawyering with a degree of civility, because you know you’re going to see them again.”
He would need every bit of those community-building skills when the case involving Grayson and Capital Consultants broke. Ultimately, he would be the lead architect of the largest pension fraud recovery in history.
When the Labor Department began investigating the ERISA fund trustees, the trustees of 11 plans—including plumbers, laborers and office workers—retained Bullivant to represent them.
Instead of going into “defense mode,” English took the position that the scam was so sophisticated, there was no way his clients, the union trustees, could have figured it out, and set out to uncover the scoundrels who had defrauded them.
English employed Norman Transeth Jr., a forensic accountant formerly with the FBI’s Organized Crime Division, and Joseph Gavalis, an ex-racketeering investigator, to uncover the scam. The pair, who founded litigation and private-investigation firm CTG & Associates, were a yin-yang team, to be sure: Transeth, the buttoned-down “business” type and Gavalis, the garrulous Yonkers, N.Y., “streetwise” character.
When asked how they divide their duties, Transeth jokes, “I tell him what to do,” and Gavalis counters, “And I tell him what to do.”
In reality, Transeth handles the accounting fraud, and Gavalis handles general investigations.
English says whenever the investigation got complicated, Gavalis would simplify it: “Steve, it’s all about lying, cheating and stealing.”
Together with Bullivant’s Bob Miller, the team managed to get exclusive access to reams of documents that helped them unearth the convoluted scheme.
What they found was that investment manager Grayson extended a $5 million line of credit to Wilshire Credit Corp., owned by Andy Wiederhorn; Wiederhorn in 1995, in violation of ERISA regulations, recapitalized the interest due on the loans. He then presented them as new loans and ballooned the $5 million into $160 million over a three-year period, then invested in sub-prime mortgages until autumn 1998, when the so-called “Asian flu” caused the sub-prime market to nosedive. When the loans were called in, the collateral for all of them evaporated overnight.
Meanwhile, Grayson himself had borrowed $3 million from a Wiederhorn-controlled entity to pay a fine imposed by the Department of Labor for excessive management fees. At some point, the loan “disappeared” in the Wilshire bankruptcy, and Grayson let Wiederhorn walk away from his $160 million obligation.
To cover his tracks, Grayson put together a Ponzi-like scheme while the pension funds continued to pour in money. By the time the union lawyers caught on 10 months later that something was fishy, $350 million was gone.
Meanwhile, a small army of bitter union members was eager to sue, with a battalion of lawyers from various private firms champing at the bit to get in on the action.
To bolster their side’s leverage with the defense and insurance companies—and avoid a litigation nightmare—English took the highly unusual step of approaching lawyers representing other unions hurt by the scheme and offering to share all the documents and information he had, on the condition that they agreed to work together. Virtually everyone did.
Within a few months, 22 lawsuits had been filed against more than 50 defendants, including Grayson, Wiederhorn and their assorted lawyers, accountants, plan managers and overseers.
“We sued a lot of people,” English says of the consortium.
The would-be priest
As a teenager, English planned to appeal to a “higher court.” He went to seminary school, where he studied to be a priest until he decided he was too attracted to girls to “kiss them off” forever. His new path took him to the University of California, Hastings College of the Law. Upon graduating, English returned to Portland and, while looking for an apartment, spotted a “cute girl” and asked a neighbor who she was. English recalled that she was a classmate of one of his younger brothers in elementary school. The next time he saw her, he called, “Francene! Long time! You haven’t changed a bit.” That was 34 years, three children—and a 2-year-old granddaughter, Josephine, whom English calls “the light of my life”—ago.
He spent the first 15 years of his law career working for insurance companies. One firm where he worked for eight years dissolved, and English and the other attorneys not only lost their equity but were stuck as the firm’s guarantors, prompting the 30-something-year-old lawyers to joke, “Our goal was to have a net worth of zero by the time we were 40.”
At his next firm, he often handled liquor-liability cases. Then one day, while the family was driving through southeast Portland, his youngest son excitedly proclaimed, “There’s Daddy’s client. And there’s Daddy’s client!” He was pointing at various taverns. Francene leaned over to her husband and said, “Maybe you should ease out of that into something else.”
What he mostly “eased into” was commercial litigation, which he jokingly describes as “guys with ties fighting over money.”
English has many strategies to help companies avoid litigation. At least one, he thinks, has been misused. “Warning labels were once useful to consumers and helped manufacturers think about the dangers their products might cause,” he says, then reads through a list of warnings he says are ridiculously obvious, such as a power handsaw label reading “Keep hands away from the blade when in use.”
“Warnings like this,” he says, “invite derision from comedians—and make people pay less attention.”
Keeping the faith
Perhaps owing to his seminary training, English also represents a number of religious institutions, defending them in cases including pulpit defamation and discrimination. He maintains that the U.S. Constitution protects these institutions.
“Religious institutions can discriminate on the basis of gender, and they can say, ‘If you don’t believe this and this, you don’t get to be a part of our organization.’ Who are we to get to decide if they should believe that?
“It’s sometimes difficult for the average person to see why a religious institution should have different rules under certain circumstances, but you have to avoid a jury deciding the reasonableness of a religious belief.”
Still, in an era of diminishing jury trials, English remains a big believer in them.
“If you get 12 people with a decent amount of common sense, they can solve most of your problems.”
Before he makes opening and closing statements, English will often put out a call to the firm’s receptionists, clerks and other support staff—basically, anyone but the lawyers—to join him in a conference room so he can sound out their reactions.
In an article for Litigation Journal, he wrote that even if lawyers prefer to settle a case, they optimize their leverage if the other side knows they’re ready to go to trial.
“Anyone who says they’ve never lost a case has selectively eliminated cases he should’ve taken chances on. They’ve tried far too few cases,” he laments.
Settling for more
After that turbulent September meeting with the plumbers’ union, the case proceeded quickly. The keys, according to English’s team, were: 1) being able to assure the defense lawyers that “if you settle with us, you settle with everyone;” 2) giving plaintiffs lawyers from the other firms meaningful input and responsibility; 3) getting all the plaintiffs to agree on a sum to request, and 4) not hitting the insurance companies up for so much that they refused to settle. In the end, the case was settled in 2½ years. And in a type of situation in which recovering 10-15 percent of the money is considered “good,” more than 70 percent of the money was returned.
“Steve’s magic trick was keeping all those lawyer egos in check,” says Gavalis. “There were huge egos and huge, screaming fights. It wasn’t all kisses and hugs. But when they walked out that door, they all walked behind Steve, and there was never a wedge. And the defense tried to find one, believe me.
“We’ve been around the around and a couple of county fairs, and this was the best effort I’ve ever seen.”
Wyoming Sen. Mike Enzi agreed. Inviting English to testify before the Congressional Committee on Health, Education, Labor and Pensions, the senator announced he was sending a letter to all 50 governors suggesting that English’s handling of the case serve as a model for future cases of this sort.
“My grandfather was the first boilermaker union cardholder in the state, and my dad was a union guy, too. So when I get money back for union members, it scratches an itch,” English says.
Another itch is bike-riding. A self-described “health nut” who keeps a bag of blueberry walnut granola under the driver’s seat of his silver BMW, for the past few Septembers English has joined 2,000 other bicyclists in Cycle Oregon, a week-long ride through small Oregon towns, while camping out and employing local townspeople to help them with various tasks.
A fancier form of recreation landed English on the front page of The Wall Street Journal when Wiederhorn, after spending a year and change in prison (Grayson pleaded guilty to two counts of fraud), sued to get his membership reinstated in Portland’s prestigious Multnomah Athletic Club, from which he’d been expelled. English, a member of MAC for more than a quarter-century, took up the so-far successful cause to keep Wiederhorn out.
English was recently inducted into the exclusive International Academy of Trial Lawyers, whose qualifications are “impeccable character, ultimate integrity, and demonstrated exceptional skill and ability as a trial lawyer.” He’s equally proud of his membership in the American College of Trial Lawyers.
“If you create a legacy of being truthful, professional and very good, and you’ve done what you can for your client, your family and your community, then your life has meaning and value.”
Somehow it doesn’t sound the least bit hokey.
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