Pre-Paid Legal Services ( PPD) has been spending an awful lot of time in the courtroom lately. The Oklahoma-based legal services provider -- itself a magnet for massive litigation -- last week saw a state supreme court reverse an earlier ruling in favor of the company. The case, which accuses Pre-Paid of fraud and breach of contract, is headed for trial after a swift, three-week decision by the high court in West Virginia. "We feel this is a good case for punitive damages," said Jane Peak, the attorney for the plaintiffs. "Pre-Paid needs to learn that it has to live up to the representations made by its sales force ." As a policy, Pre-Paid does not comment in stories by TheStreet.com because it believes the coverage is biased. Ironically, Pre-Paid's latest setback came at a time when a prominent New York hedge fund was downplaying the risks associated with lawsuits targeting the company. Gotham Partners, which owns 1 million shares of Pre-Paid, instead touted Pre-Paid as extremely undervalued, offering a ringing endorsement that lit a fire beneath the heavily shorted stock. But Pre-Paid critics -- including RealMoney columnist David Rocker, who is short the stock -- were quick to pounce on the Gotham report as flawed. They saw particular weaknesses in Gotham's evaluation of the litigation and regulatory risks surrounding the company. Short-sellers blame the company, at least in part, for such favorable analysis. They accuse Pre-Paid of practicing "selective disclosure," releasing information only when things go the company's way. They point to last week's ruling in West Virginia as the latest evidence of this practice. "When Pre-Paid issues press releases only about its victories, it's misrepresenting the state of its liabilities," one short-seller said. To illustrate their case, short-sellers pointed out that Pre-Paid officially alerted investors when the company defeated the class action aspects of a lawsuit filed by customers in Alabama. But the company said nothing when a judge last month ruled against striking down the class action aspects of an even bigger $315 million lawsuit filed by members of its own sales force.