LAWYERS bring an international CLASS ACTION case to rural MADISON COUNTY ...


March 08, 2004|By Greg Burns, Tribune senior correspondent.

GRANITE CITY, Ill. — Barely 20 minutes into a hearing last month, Judge Phillip Kardis signed off on another class-action lawsuit.

Nothing new about that here in Downstate Madison County, where a friendly approach to these mass civil cases has turned a small-town court system into a hotbed of megabuck litigation.

Yet this case, supposedly aimed at helping the victims of an illegal telemarketing ring, has an unusually disturbing history.

To critics, it is class action run amok, stretching on even after a federal jury in Chicago slammed its plaintiffs' attorneys with a rare $36 million judgment for selling out their clients.

It's a case that raises doubts about the ability of state courts to deal fairly with class actions--doubts at the heart of legislation pending before Congress aimed at addressing abuses of the system.

The lawyer who chose to file the case in Madison County claimed the proceedings here could be manipulated to his advantage, according to court testimony.

Four years later, a notorious Canadian criminal targeted in the lawsuit still controls millions of dollars he was accused of stashing in investment trusts and foreign bank accounts around the world.

At the same time, the chances of a recovery for his estimated 700,000 victims are slipping away. Many, like Irene Taylor, were elderly when they lost money almost a decade ago.

"Several of them have passed on," said Taylor, a 76-year-old Texan. "It seems that something's the matter with our law that it would drag on like that. It was a bad deal."

Nagged as often as twice a day in the mid-1990s to invest in foreign lotteries, Taylor handed over at least $15,000 to the operation masterminded by James Blair Down.

By selling pools of lottery tickets, puzzle contests and lucky number offerings, Down pulled in more than $100 million before a grand jury in Seattle indicted him in 1997 on 145 criminal counts of interstate gambling, conspiracy and money laundering.

He fought extradition from his home in Vancouver and after protracted negotiations pleaded guilty to a single felony. Down served a 6-month prison sentence and surrendered $12 million he had deposited in a U.S. account.

In 1998, an FBI agent who had heard about Down phoned an unusual company in Ireland run by Martin Kenney, a pro hockey goalie turned international lawyer.

Kenney's Interclaim specialized in recovering money from white-collar criminals, returning a portion to victims while keeping a hefty finder's fee for itself.

A federal prosecutor in Seattle followed up the FBI agent's call by giving Interclaim a memo identifying some of Down's foreign assets and introducing victims to the company.

Interclaim purchased unpaid debts from Down's telemarketing operation and obtained the rights to seek a recovery on behalf of 29 of Down's targets. The Irish firm planned to force him into bankruptcy and seize his assets.

But first it had to find the loot, and, in the months that followed, Interclaim's pursuit of Down's millions unfolded like a spy novel.

Pursuit of assets

Just a week before Down reported for his six-month stretch at a federal prison, Interclaim operatives followed him on a business trip to Papua New Guinea.

The undercover agents checked into the same hotel, tracked his travels by helicopter across the Pacific island's rugged countryside and traced the identity of those he met.

Putting the clues together led Interclaim to a timber deal worth as much as $50 million.

Later, Interclaim agents tailed Down's brother and sister-in-law on a luxurious holiday cruise along the coast of South America. The undercover team even dined with the unsuspecting couple, asking obliquely about laundering money and gathering more clues about possible hidden assets.

In January 1999, the sleuths sprang their trap in Canada. Through a bankruptcy proceeding, they obtained simultaneous court rulings in 15 jurisdictions around the world that froze approximately $60 million.

Down's lawyers fought back, accusing Interclaim of abusing the bankruptcy process to launch its sting. In a seesaw battle through the Canadian courts, Down started to win the upper hand against a firm his lawyers describe as opportunistic.

"They're not out for the interests of the poor victims," said Robert Millar, a Canadian attorney who represents Down. "They're just trying to capitalize on somebody else's loss."

Indeed, after sinking $7 million into the investigation, Interclaim was at risk of collecting nothing.

So Kenney decided to pursue a class-action judgment in the U.S. on behalf of Down's victims for the Canadian courts to enforce. That, he believed, would clear the legal path to the telemarketer's millions.

Kenney turned to Blair Hahn of Ness Motley, a law firm in South Carolina that had scored big in some of the landmark mass cases of the past decade.