Pre-Paid Faces Day in Court

Updated from 7:14 a.m.

Rich folks tend to wind up in dirt-poor Holmes County, Miss., for the same basic reason.

They have to appear in court. Maybe they work for some deep-pocketed company facing ugly lawsuits and potentially monstrous damages, or maybe they happen to be a lawyer or expert witness.

This fall, Harland Stonecipher -- the CEO of a company that boasts one of the most heavily shorted stocks on the New York Stock Exchange -- could take the stage. His company, Pre-Paid Legal Services (PPD Quote), is accused of bilking customers with overpriced legal insurance instead of delivering on its promise of "equal justice for all." The company's policies, sold by network marketers like those engaged by Amway, exclude coverage for most common legal problems and can still require expensive retainer fees when a customer is sued.

"To the best of our knowledge, this is the first time a jury will ever be considering the legality or possible harmfulness" of Pre-Paid's practices, said Doug Minor, a lawyer at a prominent Mississippi law firm that boasts former U.S. Attorney Brad Pigott as a senior partner, who is leading the case against Pre-Paid and its founder. "We're definitely going to trial ... [and] plan to seek punitive damages based on the fraudulent conduct that harmed our clients."

Minor had expected his case against Pre-Paid to go to trial this week. But on Monday, the court stayed the proceedings. But Minor still believes the company could wind up in court by this fall.

The Holmes County trial is just one of 18 that Pre-Paid could ultimately face in Mississippi state courts known for their runaway jury awards. All told, some 432 Mississippi residents have filed claims against the company in multiparty lawsuits that, in some cases, seek a whopping $90 million in damages.

On the basis of its market value, Pre-Paid itself is worth less than five times that amount. And the company has just $47 million -- most of it restricted at the subsidiary level -- of cash and saleable investments listed on its balance sheet.

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