In what may be one of the area’s largest legal malpractice awards, Roseville attorney Jeffrey H. Ochrach recently announced a $2.8 million victory for his palm Springs-area clients.
A Sacramento Superior Court has ordered former state Assemblyman Mike Cullen, who went into private practice after losing a 1978 re-election campaign to pay the award to Western Assurance Co. Inc., a tax-advise business started in the home of Martin and Carol Nemeth in the 1970's. The company eventually bloomed into a multi-million dollar operation.
During a three week trial, Ochrach said the jury found that "Cullen committed malpractice and breached many fiduciary duties" while acting as the Nemeths’ business attorney.
In particular, he said, Cullen violated Rule 3-300 and 4-200 of the Rules of Professional Conduct which prohibit oral business transactions with clients. He further disregarded section 6148 of the Business and Professions Code which deals with putting fee agreements in writing and sending out written monthly statements to clients explaining work completed, said Ochrach.
In essence, the case began in 1987 when Western accused its mid-west manager of operations of embezzling $700,000. The manager alleged in a federal court in Indiana that because there was no written employment contract describing his role with the company, he qualified as a 50/50 partner rather than the orally agreed 20/80 percent split.
The court agreed.
Then Cullen, who served as the company’s business attorney for eight years, filed a similar suit in California seeking $450,000 in sales commissions. This action, however, was violated and thrown out by a Sacramento Superior Court judge last month.
Just prior to that hearing, Ochrach filed a cross-complaint on behalf of the Nemeths against Cullen for malpractice.
Cullen is appealing the dismissal of his initial complaint on the grounds that he was a salesman for Western prior to becoming their attorney; thus he is entitled to commissions. He also said this week that he is planning to file a motion for a new trial on the jury’s $2.8 million verdict, but declined to state the grounds.
A retired U.S. Navy captain and former Democratic assemblyman from 1967-78, Cullen said he initially registered his law corporation with the California Secretary of State as a lobbying firm specializing in governmental relations.
He said that he was first approched by the Nemeths and former Assemblymen Tom Suitt in 1978 about Western’s audit program – a program where the company reviews a company’s or an organization’s payments to Social Security and recovers any overpayments.
After learning about the program, Cullen decided he "might give (selling the program) a try." He said his sales generated $3 million in revenue during his tenure with the company.
"In 1979 – I was asked to assist the president (Nemeth) in assembling the contract with California. At that time the company (Western) sent to the state a ‘Special Power of Attorney’ empowering Mike Cullen, general counsel (for) Western Assurance Company to sign papers in their name," Cullen said.
"So from that time on – June until termination in September 1988 – I was doing strictly legal representation with state and federal officials in California, Arizona, Illinois and Washington, D. C.," he added.
Ochrach, a former malpractice defense attorney for the San Francisco law firm of Long & Levit, said: "We sued (Cullen) for what (Western) actually lost (in the suit filed by the midwest operations manager) and recovered every penny of it."
Although his clients "were vindicated" in court, Ochrach said, the lengthy legal battle ultimately cost them their multi-million dollar company, forcing them into bankruptcy in 1991.
According to Ochrach, Western got its start after the Nemeths "discovered a loop hole in the tax laws," namely, that employers do not have to pay FICA (Social Security) taxes on sick pay. The company reviewed large employer’s records and took a percentage of the recovered taxes as their fee.
Western also counseled companies on how to get tax credits by hiring low-income individuals who might otherwise receive public assistance.