We all know about the political divides that seem to prevent a simple discussion: left versus right, old versus young, coasts versus the center of the country, etc. But until now I didn’t appreciate the vast gap between "lawyer math" and "accountant math."
The Beverly Hills Courier last week published a story championing our school district's "profit" from its various litigation efforts and clearly many things have changed from my days of taking accounting classes. The school district is supposedly making vast amounts of money with its army of lawyers that purports to explain why we’ve paid a couple of million dollars in fees to counsel in just the first six months of the year. Just to be old fashioned let’s investigate the difference between the new "lawyer math" to which we’ve just been introduced and how those of us with an accounting bent might want to look at things.
Bernie Madoff’s brother Peter recently agreed to forfeit $143 billion in assets to his defrauded creditors. The only problem is that he is broke and the judgment will never be paid. Nevertheless the lawyers for the trustee celebrated their victory and "lawyer math" allows the announcement of their massive litigation win. It is of course a minor inconvenience that there are no assets and the fraud victims will never receive reimbursement. Unfortunately, this seems remarkably similar to our school district’s —to quote the news story, "Christiansen is not expected to pay the award." So, under "lawyer math" the school district celebrates winning $10M but under boring old "accountant math" the district is really only getting the (and some of that is not cash, either).
Accompanying the news story were a series of tables detailing the payments to law firms and apparently "lawyer math" also applies to professional fees because the numbers seem to be different when I add them. Best, Best & Krieger—which provided legal support for a lot of the decisions by the City of Bell and continues to act as counsel for our school district—always catches my attention. So let’s just look at their fees as published in the news story. Per the "Payments to Law Firms" table, BB&K was paid a grand total of $91,213. But the accompanying "Sources of Payments" lists that firm as having received $247,634 from the general fund and another $3,799 from Measure E. It seems that "lawyer math" works both ways, allowing the grand total for reported payments to be lower than the fees paid out—by the way, this works for each of the other six law firms our school district is supporting.
All of this aside, the really big difference between "lawyer math" and my experience with how the rest of the world works is that you get to count only the last six months of legal fees against the full amount of a judgment or settlement. That means that our $10M legal wins (which we’ve established is maybe only $6.5M) only took six months of legal effort—and all those legal fees paid out in say 2010 and 2011 just don’t count. With the announced "$10M coming back in the form of damages and restitution," I think we can all safely expect not to have to pay real estate taxes to the district for the next year or two—we’ll just hire more lawyers.
It’s easy to be flip so let’s be serious for a moment. A school board and administration are rightly empowered to make their own decisions as to how best to utilize funds but also runs the risk of losing community support when they act without transparency or appear disingenuous. Specifically, there was no publicly available analysis of how much the will actually cost and now we have nonsensical logic about making money from litigation. The district is continuing to employ a lot of law firms and the right thing to do is publish a clear and definitive account of how much was spent in entirety on the Karen Christiansen-related litigation; it was almost certainly the right thing but taxpayers should know the full picture. The district is also using Measure E money for the MTA fight and it is already clear that the remaining bond funds will never allow for fixing all the schools—it’s time for some tough decisions and that requires much better accounting.