School bus operator Laidlaw Transit targeted by New Jersey grand jury
NEW YORK -- Laidlaw Transit Services Inc., a bus operator and unit of FirstGroup Plc, is the target of a New Jersey grand jury investigating possible fraudulent billing of a county government, according to a company lawyer.
Prosecutors are probing "whether a corporate contractor had submitted fraudulent invoices for services purportedly rendered to a county government," according to a Nov. 23 New Jersey Supreme Court opinion. Laidlaw is that company, said its attorney, Richard Rafanello, in an interview yesterday.
The court, which ruled it isn't a conflict of interest for a company to hire lawyers for employees, said the state and "several unnamed employees" were targets of the investigation. The opinion doesn't identify the company except to include Laidlaw and Rafanello in the list of parties to the case.
"Laidlaw has been identified as the target," Rafanello said in the interview. "It's an ongoing investigation. It would be inappropriate to comment on it. The company asserts vociferously that there is no wrongdoing on their part."
The probe is related to the Feb. 11 indictment of former Laidlaw project manager Isaiah Davis, who was accused by a state grand jury of fraudulently overbilling Burlington County, New Jersey, for bus services for the elderly and disabled, Rafanello said. Davis's lawyer, Adam DeJohn, said today he is innocent. FirstGroup has operations in Naperville.
"All that he did in the 12 months that he was there was bill in accordance with how he was told to bill," DeJohn said.
FirstGroup, Britain's biggest train operator, in 2007 bought Laidlaw International Inc., the largest operator of yellow school buses in the U.S. and the owner of Greyhound Lines Inc., the U.S. intercity bus company.
Maureen Richmond, a spokeswoman for Cincinnati-based FirstGroup America, declined to comment on the grand jury probe and the Davis indictment, citing the ongoing investigations.
The state Supreme Court ruled on an appeal by Attorney General Anne Milgram of lower court rulings allowing the company to provide lawyers for employees who were targets of the probe.
The company hired three lawyers -- Jack Arseneault, Jerome Convery and John McDonald -- to represent employees who were targets, and a fourth lawyer -- Timothy McDonald -- for non- targets of the investigation, according to the opinion and Rafanello. Such a practice is common in corporate probes.
The state moved to disqualify the lawyers, claiming their representation posed a conflict of interest under the state's Rules of Professional Conduct.
'Split the Attorney's Loyalty'
When a target hires a lawyer for potential witnesses against it and pays their legal fees, Milgram argued, that "will split the attorney's loyalty and will discourage the lawyer from counseling the client to cooperate with the state, even when cooperation might be in the client's best interest," according to the unanimous opinion.
The court, which ruled on a similar case in 1970, cited the 1984 Rules of Professional Conduct and a 2001 revision in laying out six conditions by which "a lawyer may represent a client when the fees and costs incurred are being paid by another," according to the opinion.
It said a client must give informed consent; the payer can't interfere with the lawyer's judgment; no attorney-client relationship can exist between the lawyer and the payer; the lawyer can't tell the substance of his representation to the payer; the payer must process the bills at a regular speed; and a judge must approve an end to legal fee payments.
The attorney who argued on behalf of the four lawyers lauded the Supreme Court's ruling, saying Milgram's position would have done great damage if approved by the justices.
'Radical Departure'
"It would have been a radical departure from existing practice and would have shifted defense costs from employers to employees," said attorney Lawrence Lustberg. "Employees would have been left without representation and many lawyers would have been left without work."
New Jersey was "attempting to deprive employees of the right to counsel," Lustberg said. "Unless their companies pay, a lot of them can't afford one. The notion is that they would have to pay instead of their company would have had a very profound impact."
Rafanello said: "I'm delighted that the Supreme Court affirmed the manner in which Laidlaw engaged counsel for its employees."
Milgram spokesman Peter Aseltine disagreed in an e-mailed statement.
"The court's earlier precedent held that there is an inherent, non-waivable conflict of interest when a target of a criminal investigation unilaterally selects and pays for counsel for all potential witnesses," Aseltine said. "We do not believe the Rules of Professional Conduct changed the fundamental truths underlying that prior precedent."