Tuesday, April 18, 2000 | 11:14 a.m.
Attorneys for the court-appointed receiver of Equinox International Corp., saying the company's legal expenses are excessive, are seeking court instructions over whether they should approve further payments.
They say the Las Vegas network marketing company, now fighting for its life in a federal civil trial that began April 3, has paid $2.55 million in legal fees to date to its Washington D.C. attorneys, Williams and Connolly LLP. They say these legal costs are still rising.
The government is still presenting witnesses in the case. Equinox is expected to begin its defense by midweek.
The Federal Trade Commission and eight states, including Nevada, sued Equinox nine months ago in hopes of shutting down the company, which they brand an illegal pyramid scheme, and to force the company and founder William Gouldd to forfeit more than $50 million in assets to repay former distributors.
The company, which sells beauty and health products, as well as a line of water filtration products through a network of independent distributors, is accused of attracting new recruits through deceptive advertising and false claims of income. Equinox denies these allegations. Prior to the initiation of legal action, the company had 40,000 distributors.
In a U.S. District court motion filed Friday, Robb Evans, Equinox's receiver, said the $2.55 million legal bill is "extraordinarily and unusually high" and is seeking court instruction over whether he should retrieve a portion of this fee to ensure there are adequate company funds to reimburse former distributors should Judge Johnnie Rawlinson rule against the company.
"Ultimately it's the court's decision. We aren't seeking a specific dollar amount," said Gary Owen Caris, Evans' attorney. "But given the receiver's role is to preserve company assets, we need to apprise the court of the circumstances and seek her instruction as to how to proceed with the legal payments."
He said Rawlinson hasn't yet ruled on the legal fees issue or set a hearing date on the receiver's request for instruction.
Equinox's attorneys fired back Monday, disputing what they call the receiver's "implications of overcharging" as "dead wrong," and said their fees are "entirely consistent" with the receiver's forecasts.
They argued the timing of the receiver's motion is "particularly inappropriate given that it comes in the middle of trial while (they) are expending maximum effort on the defense of its clients," and given that Evans has known for at least four months estimates of the defense fees.
Evans, who was appointed receiver on Aug. 4, had predicted in a report of the receiver's activities from Oct. 26 through Dec. 17 that the company's legal fees, which reached an average of $200,000 a month, could "double or triple" in the weeks before and during the trial.
Williams and Connolly said the receiver, at that time, did not suggest the anticipated legal expense was unnecessary and inappropriate. The firm, which said it charges market rates ranging from $170 to $350 an hour, said expenses averaged about $350,000 a month from August 1999 through March, with fees "not surprisingly increasing during the heaviest discovery period and months before trial."
Williams and Connolly also said about 15 percent of the bills, about $485,000, were reimbursements for out-of-pocket expenses.
Williams and Connolly also attributed the high legal costs to the massive legal workload and fees incurred in its representing Equinox in four other lawsuits in the past seven months.
The firm said it had taken at least 161 depositions in 22 states and the District of Columbia and responded to at least 12 requests for production of hundreds of boxes of documents, hundreds of video and audio tapes and massive amounts of computer data.
Val Miller, Equinox's general counsel, said in a declaration Monday that Equinox had agreed, months prior to the trial, to pay a $700,000 advance retainer because the law firm would otherwise "be advancing very large expenses on (Equinox's) behalf and devoting extraordinary resources for the trial."
Miller, who said the law firm has used far fewer lawyers than the total utilized by the government, the eight states and class action plaintiffs, argued that it would be "wholly inequitable" for the law firm to be ordered to return any portion of the fees it earned or the out-of-pocket expenses for which it was reimbursed. The firm said the government has deployed at least 20 attorneys and eight investigators so far.
But Evans objected to the $700,000 prepayment as "not being an ordinary and usual business expense."
After Williams and Connolly learned of Evans' objection, it said it agreed to forego the $700,000 prepayment it had received because it "did not want their attorneys fees' to become an issue before the court." It said it agreed to be paid only after services were rendered and invoices submitted.
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