Pre-Paid Legal Services ( PPD) tumbled 5% Wednesday after the company suffered a rare legal setback. Ada, Okla.-based Pre-Paid and its founding CEO were ordered to pay $9.9 million in punitive damages for defrauding a customer in Mississippi. Pre-Paid must fork over $4.4 million of that total with CEO Harland Stonecipher on the hook for the rest, says plaintiff attorney Doug Minor. The damages represent 10% of each party's estimated net worth, Minor says. A separate jury earlier found Pre-Paid liable for $40,000 worth of compensatory damages, the company said. Pre-Paid said the award came on claims by a customer "who paid the company less than $800 during the life of a membership originally purchased in 2000." Pre-Paid plans to appeal. Pre-Paid got slapped with the punitive damages after jurors reportedly viewed videos produced by the company. Stonecipher "claimed that Pre-Paid customers 'never have to reach for their wallets' to pay a lawyer in any legal proceeding," states a press release issued by Minor's firm. But "among the most damaging statements from the videos was Stonecipher's spirited declaration, 'Three cheers for greed,' made while he tore $100 bills in half as part of a speech to thousands of Pre-Paid sales associates." The company now faces lawsuits filed by hundreds of other disgruntled customers in Mississippi, a state known for its generous courtroom awards. Pre-Paid stock, which has tripled in recent years, dropped $2.22 to $45.20. By now, the legal services provider has spent years fighting courtroom battles of its own. The company stands accused of misrepresenting both the value of its product, which offers limited coverage for a monthly fee, and the opportunity to sell its policies through the multilevel marketing technique made famous by Amway. Pre-Paid critics claim that the company targets the working poor, including minorities, in particular.
For its part, Pre-Paid has always stood by its practices and vowed to fight off its opponents in court. The company has previously prevailed in cases brought by customers and sales associates, but it now faces the potential of even larger damages ahead. Pigott Reeves Johnson & Minor, a Mississippi law firm led by former U.S. Attorney Brad Pigott, is seeking as much as $90 million per case for customers allegedly defrauded by the company. Pigott won big cases against companies and public officials alike during six years as a federal prosecutor. To be fair, Pre-Paid has a string of victories behind it. Perhaps most notably, the company has overcome a purported class-action lawsuit accusing it of being an outright pyramid scheme. It has also escaped financial penalties sought by some of its former star associates. It has even gotten a fraud verdict overturned and damages reduced in none other than Mississippi. Still, Pre-Paid faces multiple lawsuits involving more than 400 plaintiffs in Mississippi. The company will head right back into a Mississippi courtroom to defend itself against a single customer next month. In the meantime, those suing the company clearly believe they have found a formula that works. "We are pleased that the jury recognized the fact that there is a significant difference between what Pre-Paid and Harland Stonecipher said about the product sold ... and the truth of what that product really is," Pigott declared. "Ultimately, the testimony of Mr. Stonecipher and the Pre-Paid sales associates proved our case for us."