How Tom Girardi Used JAMS to Defraud Clients
Tom Girardi has been accused of using JAMS to defraud clients. Girardi was a highly respected California attorney who spent decades representing plaintiffs in class action lawsuits against corporations. JAMS, previously known as Judicial Arbitration and Mediation Services, is the largest private mediation and arbitration company in the world with more than 400 former judges and legal professionals serving as arbitrators and mediators in California, Texas, New York, and other states. JAMS has come under intense scrutiny from arbitration lawyers and others in the legal community as several of the company’s judges were accused of unethical conduct and corruption.
To learn more about the fraud allegations against Tom Girardi and the JAMS private judges, keep reading this blog.
Tom Girardi Used to Be a Respected California Attorney
Tom Girardi’s abuse of the private judging system lasted decades and affected thousands of clients. Earlier in his legal career, Girardi was one of the lawyers responsible for the case that later inspired the acclaimed movie Erin Brockovich. As an attorney for residents of Hinkley who got cancer from local drinking water, Girardi helped to secure a $333-million settlement.
Girardi’s law firm eventually collapsed as more and more evidence came to light that he had swindled his clients out of millions of dollars. In 2022, Girardi lost his license to practice law in California and his law firm filed for bankruptcy.
Tom Girardi Stole Money from Clients
When a corporation gets sued in a contract dispute, employment claim, consumer action, or some other type of legal dispute, they often rely on JAMS to make sure that the case is handled behind closed doors with an arbitrator or mediator instead of a judge. Additionally, it is not uncommon for retired judges with JAMS to be asked to administer large settlements in mass tort cases. In Girardi’s cases, the JAMS judges failed to notice and/or take action when Girardi stole millions from the parties. This is just one of several instances of JAMS private judges with a huge conflict of interest in the cases they oversee.
A forensic accountant who examined law firm finances determined that Girardi was using his clients’ settlements “like a slush fund.” An audit of Girardi’s financial accounts reportedly showed that he had stolen money from his clients and given it to companies and individuals who had no connection to any of his cases. Even when Girardi claimed that the money was spent on “expert witnesses,” the withdrawals were suspicious. For example, one withdrawal of $450,000 for an expert witness in a case against Lockheed Martin was “confidentially” approved by a JAMS judge.
At the time of his deceit involving JAMS, Tom Girardi was married to Erika Jayne, who is best known as one of the stars of the reality show “The Real Housewives of Beverly Hills.” According to one federal judge, Girardi committed multiple crimes when he used his clients’ settlement funds to cover personal expenses for himself and his wife. For example, Bankruptcy Court records indicated that Girardi gave $750,000 to M.M. Jewelers for the purchase of a pair of diamond earrings for his reality TV star wife. He did this shortly after gaining access to the settlement funds, and he reportedly classified the purchase as a case expense. A federal bankruptcy judge, Barry Russell, later said that Girardi’s use of client money to buy expensive jewelry “clearly was a crime” along the lines of theft or embezzlement.
At other times, Girardi took from his clients’ settlement funds to pay himself. Records showed that he would often write several million-dollar checks to his firm in the same week. In one case, Girardi withdrew more than $15 million. Girardi claimed that this money was for his “costs” of representing the plaintiffs, but the amounts and pattern of the withdrawals from the settlement suggested that it was fraud.
JAMS Private Judges Accused of Helping Tom Girardi Cheat Clients
Tom Girardi was able to get away with his deceit because he used private judges affiliated with JAMS. The JAMS private judges have wide latitude and wield substantial power in legal disputes precisely because there is basically zero government oversight of the private arbitration industry. California Supreme Court Chief Justice Tani Cantil-Sakauye reacted to the revelations about Girardi’s conduct by calling it “shocking.” Cantil-Sakauye commented further on JAMS by observing that there are currently not enough safeguards to ensure that private judges remain fair and impartial. For instance, the retired judges are not subject to supervision by the Commission on Judicial Performance (CJP), an independent California agency tasked with investigating complaints of judicial misconduct.
Many of the JAMS private judges had impeccable reputations prior to joining the arbitration company, which allowed Tom Girardi to establish credibility even as he misappropriated money from his clients. He later used the perceived reputations of the “JAMS Neutrals” to deflect questions about his misconduct. When Girardi’s clients began to suspect that something was amiss with their settlement funds, Girardi actually referenced the private judges’ impressive credentials to justify his unethical actions. According to a Los Angeles Times investigation of Girardi’s fraud, the JAMS arbitrators “occupy a secretive corner of the legal world.” The private arbitration industry is almost entirely unregulated, which exposes parties to significant risks.
JAMS Profited from Tom Girardi’s Lawsuits
Private arbitration is a lucrative industry, and there can be plenty of financial incentives for the JAMS judges, arbitrators, and mediators to rule a certain way. In the aftermath of the revelations about the massive scale of Tom Girardi’s fraud and theft, many questions have been raised about whether the legal system has enough safeguards to protect litigants against predatory attorneys and unethical arbitrators when the JAMS Alternative Dispute Resolution (ADR) service is used. That’s because there can be a conflict of interest for JAMS arbitrators and mediators. This was especially true in Girardi’s cases, which involved Girardi paying the JAMS private judges up to $1,500 an hour.
In one of Girardi’s biggest lawsuits, he represented patients who claimed that a large drug company’s diabetes medication, Rezulin, had caused serious health problems, including liver failure. That case resulted in a $66 million settlement on behalf of the plaintiffs, many of whom desperately needed the money to cover their medical expenses. Girardi convinced the victims to allow a JAMS mediator to oversee the settlement and to supposedly ensure that the funds were distributed in the right amounts and to the right individuals. For this service, JAMS received a $500,000 cut of the proceeds.
What Did JAMS Judges Do to Earn Their Fees?
JAMS also received a $500,000 fee for handling the Lockheed Martin settlement that Girardi secured, an enormous figure that was kept secret from clients. When a bankruptcy court requested a full accounting of exactly what John Trotter and the other JAMS judges had done to earn that fee, the arbitration company refused to provide invoices.
Girardi eventually filed for bankruptcy, which has made it even more difficult for those he had deceived and stolen from to get the money they were owed. Incredibly, one of the companies participating in the bankruptcy proceedings is JAMS, which requested a sum of nearly $10,000 for “an unpaid bill.”
Conflicts of Interest When JAMS Oversees Legal Disputes
In addition to the obvious conflict of interest that exists anytime a company pays a JAMS judge to arbitrate a dispute or oversee a settlement, there were other less obvious conflicts with Tom Girardi. For instance, Girardi reportedly arranged for several JAMS judges to go on a Mediterranean cruise after they ruled in his cases. Although Edward Panelli later claimed that his attendance at the event did not affect his “impartiality as a jurist or neutral,” his actions as a JAMS private judge suggested otherwise.
In one high-profile case, Girardi represented 1,500 residents of Carousel, a housing development located just outside Los Angeles. The clients were suing an oil company and a real estate developer allegedly responsible for polluted soil that caused widespread cancer and other health issues. After reaching a settlement with the defendants, Girardi specifically requested that JAMS and John Trotter serve as special master to determine how the funds should be divided among the plaintiffs.
After more than two years, many of the clients still had not been paid. When one of the clients requested information about Girardi’s accounting practices, Girardi once again placed the blame on Trotter and JAMS. When that same client sued Girardi, the attorney insisted that the lawsuit be moved from a courtroom into private arbitration. As usual, Girardi wanted the arbitration handled by JAMS. The perception was likely that a JAMS private judge would show favoritism and rule in Girardi’s favor.
Contact the California Arbitration Lawyers at Tauler Smith LLP
Are you one of the parties in an arbitration being administered by JAMS? Is your case being overseen by a JAMS private judge? The California and Texas arbitration lawyers at Tauler Smith LLP can help you. Our legal team represents small business owners and individuals in arbitration, mediation, and other types of alternative dispute resolution. We also handle settlement negotiations. Call or email us to schedule a free consultation.