SALT LAKE CITY — The lawyers behind the well-known Siegfried and Jensen legal firm have been ordered in a civil lawsuit to pay nearly $6 million to a former business partner.
In a jury trial that wrapped up earlier this month, Ned Siegfried and Mitchell Jensen were ordered to pay a former business partner who claimed the two men diverted funds from the law firm into other entities so they wouldn't have to pay him as much in shareholder earnings.
Attorneys for Preston Handy say he joined the Utah firm in 1993 and became a shareholder in 2003, but did not receive his full 20 percent share of the profits.
"Without Mr. Handy's knowledge, (Siegfried and Jensen) began making excess payments to themselves and to companies that they owned so that the company never showed a profit," said Jeff Gross, Handy's lawyer.
When Handy discovered the discrepancies in 2012, he resigned from the firm and filed the civil lawsuit against his former partners.
Attorneys for Jensen and Siegfried, however, said Handy misinterpreted a stock payout agreement with his partners and mistakenly believed that the firm's operation costs and payments were an attempt to divert funds from him.
"The biggest issue in the case was how to interpret a contract with respect to a stock purchase. … The court had found the language of the stock purchase agreement to be ambiguous and had said that the terms of the payment were not clear, so we had to have a trial for the jury to decide what the stock purchase price was," said Karra Porter, attorney for the two law partners.
In the jury's judgment, signed Thursday by 3rd District Judge Randall Skanchy, Siegfried and Jensen were ordered between them to pay Handy: $3.7 million from a buy-sell agreement, $1.2 million in punitive damages, and $927,680 in losses from breach of fiduciary duties.
Handy's attorneys are also seeking an additional $2.1 million in legal fees.
Just because there may be some aspects of a case that are properly confidential, that doesn't mean that everything in the case file should be put off limits to the public." - David Reymann, First Amendment attorney
In an unusual move, Skanchy ordered the lawsuit to be sealed on the day it was filed in August 2012, including the initial complaint in the case, according to the court docket.
Because of the seal, the accusations against Jensen and Siegfried and the duo's responses in the lawsuit that were filed in the public court system were kept private and out of the public eye for nearly three years until the case went to trial. Meanwhile, business continued at Siegfried and Jensen's firm, and Handy opened his own practice.
It is unclear which party asked Skanchy to seal the complaint and keep it secret, and there is no record as to why the request was granted. Both sides point fingers at the other.
David Reymann, a First Amendment attorney in the state, said it was "unusual and likely improper" that the entire case was sealed. Normally, parties in a civil or criminal proceeding are required to make a specific and documented motion requesting that a judge close any portion of a case to the public.
"Parties are not entitled to secret trials. Just because there may be some aspects of a case that are properly confidential, that doesn't mean that everything in the case file should be put off limits to the public," Reymann said after reviewing the docket. "There are hundreds of entries in that docket. There's no way everything in there is properly nonpublic."
In recordings of the July 1 closing arguments acquired by the Deseret News, Gross told jurors that Siegfried and Jensen's testimony through the trial had been "evasive," and called their explanations for different payments "tall tales."
"For nine years, Mr. Siegfried and Mr. Jensen were dishonest with Mr. Handy. And now for the past week and a half, they've been dishonest with you," Gross told the jury.
Porter, however, in her closing argument, laid out what Siegfried and Jensen said were legitimate business dealings and expenses of which Handy said he should have received a cut. Those include lease payments, utility costs and advertising efforts.
"Look at the evidence here of what their actual intent has been in this case. It has all been insinuation and speculation and innuendo. 'You paid yourself for marketing and therefore you must have had ill intent.' Well, look at everything we were doing," Porter said. "You may not agree with it, but was that a scheme? No."
Gross, however, argued that legitimate expenditures were meant to "camouflage" the cash that Siegfried and Jensen were diverting.
"It's undisputed that Mr. Siegfried and Mr. Jensen just cut checks to themselves as bonuses, above and beyond their base salary, without paying Mr. Handy his 20 percent share, pursuant to their agreement, and then they booked them into accounts where legitimate expenses were paid," Gross said during closing arguments. "When you're thinking about all of these schemes … and you're deliberating about this, ask yourselves this: Do you really think we caught them all?"
Porter told the jury that punitive damages were unwarranted, in part because Siegfried and Jensen had already suffered the repercussions of the lawsuit.
"The court, at the beginning of this case, indicated to you that this was a case of some notoriety," Porter said. "That's because these types of cases with these kinds of accusations are widely publicized, and you're talking about Siegfried and Jensen, very well-known. There are reasons for these things, whether you agree with them or not, this is not a case for punitive damages. Their reputations are already irrevocably scarred by Mr. Handy's allegations."
Jurors, however, ultimately awarded $1.2 million in punitive damages to Handy.
With the final judgment in the case signed by Skanchy, which Porter said was expected to include payment schedule details, Jensen and Siegfried will now consider whether to appeal the case, according to Porter.
"They were grateful to the jury for their service," she said. "Just because you go ahead and take your opportunity to get guidance from the appellate court doesn't mean you don't respect the jury's finding."
Porter noted that prior to the trial, the court ruled in favor of Siegfried and Jensen regarding several contracts that Handy had disputed. The jury trial addressed only Handy's remaining claims.