Two Dresser Industries Inc. lawyers have testified to a federal jury that former Annapolis attorney Edward S. Digges Jr. told them his law partners were not involved in his $3.1 million billing scam against the company.
M. Scott Nickson Jr., a Dresser vice president and general counsel, and Thomas H. Fitzpatrick, head of Dresser's litigation department, said Digges absolved his partners of knowledge about his fraud when he was confronted May 26, 1988, with evidence that he had overcharged the company for legal work.
Digges, the witnesses said last week, had billed Dresser for work that wasn't done, charged senior partner's rates for work done by associate lawyers and charged for "unsupportable" legal services. They confronted him in an attempt to learn the extent of the overcharges and to try to arrange repayment.
Nickson said that during the confrontation he told Digges to "go and get your partners and come back to continue the discussion."
Digges "remarked that his partners didn't know about this," Nickson said. "We told him we thought it would be best to let them in on it."
Fitzpatrick said he had found the evidence of overbilling in a "mini-audit" of Digges, Wharton & Levin law firm records with a Dresser accountant three weeks earlier.
When he and Nickson went to Annapolis to talk to Digges, he said, Digges steered them to a breakfast meeting at their hotel, away from his law office.
"We told him that we thought what had been found was not the total amount of the overcharges, and that we wanted to talk to other lawyers in the firm" about their work on the account, Fitzpatrick said.
"Digges said, 'I can't let you do that. My partners don't know anything about this,' " Fitzpatrick testified.
The Digges quotes may have seriously damaged the case being pursued by St. Paul Fire and Marine Insurance Co., the law firm's liability insurer, at the trial in U.S. District Court in Baltimore. The suit was prompted by Digges' statements to St. Paul officials that his partners knew of his fraud from its inception.
Digges' former partners, James T. Wharton and David A. Levin, already have told the jury they knew nothing of Digges' billing fraud until they met with Digges, Nickson and Fitzpatrick the afternoon of May 26.
The Digges quotes from Nickson and Fitzpatrick added strength to those denials.
St. Paul is seeking a declaratory judgment from the jury that it does not have to pay $3.6 million in negligence judgments against Wharton and Levin as a result of Digges' fraud. The insurer cut Digges out of the policy two years ago, and contends now that Wharton and Levin knew of his 3 1/2 -year billing scam against Dresser when they applied for the policy in early 1988.
Nickson and Fitzpatrick testified as witnesses for Dresser, which is the defendant in the case because it can collect the judgments from St. Paul if the insurer loses the jury verdict.
Fitzpatrick said the auditor came to Annapolis because a Dresser executive questioned the amounts of Digges' bills for representing Dresser in asbestos cases.
When Fitzpatrick and the auditor met with Digges in his office May 5 for the mini-audit, "I found him very nervous, uptight, not in control of himself the way he usually was," Fitzpatrick said.
Over the next few hours, Digges steered them away from the firm's records, gave them a tour of the office and took them to lunch.
When they returned to the office, Fitzpatrick asked to look at the Dresser case files.
Digges "showed us some empty folders" and explained that he had routinely destroyed files as cases were closed, Fitzpatrick said.
"That afternoon, we began to find discrepancies in the open files," Fitzpatrick testified.
Later, Fitzpatrick said, he asked Digges to provide time sheets for the April 1988 bill, which Dresser had not yet paid. Digges said he couldn't find the time sheets, and took the two to dinner.
The next day, Fitzpatrick and the auditor read more files at the law firm, and Digges gave them copies of the time sheets they had requested, the witness said.
Those time sheets turned out to be bogus. Without Fitzpatrick's knowledge, however, Digges had asked Wharton and Levin the night before to manufacture them from information he gave them to support the April bill.
Wharton and Levin have testified that Digges told them he needed duplicate time sheets for the mini-audit because he couldn't find the originals, and that they reconstructed the sheets because they trusted him.