The heirs to the Alta-Dena milk empire Thursday lost their multimillion-dollar lawsuit against an Irvine-based law firm that employed an attorney who they claim helped raid $50 million of their fortune.
In closing arguments in the Stueve family’s lawsuit against the Buchalter Law Firm, their attorneys argued for $16 million to $17 million in actual damages, but said with escalators for elder abuse and other allegations, the damages could have reached $60 million to $65 million. In opening statements in the trial last month, the family’s attorneys alleged the damages were $200 million.
“Buchalter did the right thing every step of the way,” said the firm’s attorney, Wayne Gross.
The law firm forced the attorney accused in the lawsuit, Jay Wayne Allen, to resign when the allegations from the Stueves surfaced, Gross said.
“Buchalter never should have been sued in the first place,” he said.
Allen settled with the Stueves before the trial, agreeing to pay $1.25 million. The family’s longtime attorney friend, Raymond A. Novell, who was also accused of raiding the family fortune, agreed to a “non-collectable” $200 million judgment, Buchalter attorney Pam Webster said.
The jury, which deliberated for about 2 1/2 days, voted 10-2 on most of the claims in favor of the defense. On a claim of direct liability of a breach of fiduciary duty, the jury voted 9-3 for the defense.
“We don’t understand why they put a target on our back,” Webster said of the Stueves.
Webster said the firm acknowledged that Allen improperly borrowed money from the clients, which “was against our rules… As soon as we found out about it, we forced him out.”
Elmer, Harold and Edgar Stueve, who were all born between 1913 and 1917 in a small town in Missouri, started the dairy farm after joining the Dust Bowl migration West during the Great Depression. It was a family business and they typically lived a modest lifestyle while giving away much of their income to charity, the family’s attorney, Robert Barnes, said in his opening statement.
They sold the Alta-Dena brand in 1989, but took a financial hit during the “dairy wars” over raw milk vs. pasteurized milk in the mid-1990s and had to declare bankruptcy, Barnes said. They emerged from the bankruptcy by 1999 and paid back creditors they didn’t even have to reimburse, Barnes said.
They sold the entire Alta-Dena company by 2001, he said. The family grew concerned as the founders of the company began dying that they would lose everything to estate taxes, so they turned to Novell when he offered help, Barnes said.
They were assured by Novell and Allen that they could set up a complex set of trusts that would ensure each of the heirs would have a lifelong income and they could still keep giving to charities, Barnes said.
In 2008, the last of the wives of the founders died, leaving her daughter in charge of the estate, Barnes said. She thought the insurance payout would be $2 million, but when Allen explained it would be less because of some borrowing, she sought advice from another trust attorney, he said.
She was advised she could ask for a full accounting to avoid having to file a lawsuit, which she was reluctant to do, Barnes said. A family meeting was called in September 2009 at the Buchalter firm’s offices in Irvine to go over the family’s finances.
“Buchalter says everything is fine and in order,” Barnes said.
When family members asked for an audit, they were told it was not possible because it would violate privacy rules governing the trusts, Barnes said, and were also told it would be “very expensive’ ‘at an estimated cost at $300,000, the attorney said.
The family was “still very confused” about loans taken out by a foundation, so that led one family member to seek help from an old friend, who was an attorney, who advised them that tax laws had been reformed and they had no danger of “losing everything” to estate taxes and that much of the work done on their behalf by Novell and Allen was unnecessary, Barnes said.
When they took their case to probate court, Novell was removed as trustee of the estate, and they learned that nearly all of the family fortune was gone and half of one valuable piece of property in Chino had been sold out from under them, Barnes said.
Novell had spent $7 million on himself with vacations and homes in San Diego and Long Beach for himself and his family, Barnes alleged. Novell, when reached last week, declined to comment on the settlement.
Experts found a “spider web of transactions so thick it could block out the entire sun,” Barnes said.
“There was a lot of self-dealing, a lot of concealing,” on behalf of Allen and Novell, Barnes alleged.
He accused Buchalter of ignoring several “alarms” that would have warned the firm off of hiring Allen, including background and conflict checks.
When Buchalter partners learned the probate court ordered an accounting of the family’s funds, there was a “hush hush meeting” and Allen was cut a check before resigning, Barnes said.
Allen walked out of the firm with a computer of records and had it “nuked” so no one could recover files, Barnes alleged. He said forensic experts eventually concluded that Allen and Novell left the Stueves “short of $50 million and the interest on that is $150 million.”