Friday, January 24, 2014

Wellman & Warren Finds the Right Balance

By Alexandra Schwappach
Daily Journal Staff Writer

LAGUNA HILLS – When a Wellman & Warren LLP client ran up a bill of more than $1 million in attorney fees and suddenly couldn’t pay, the fledgling firm found itself in a sticky financial situation.

“We were out of money. We were stuck,” name partner Scott R. Warren recalled. “We basically had to scramble and make ends meet.”

It was 1996. Scott W. Wellman had founded the firm in Newport Beach under the name Wellman & Cane in 1982, and Warren came on board a decade later. Just a year before the client became delinquent, Wellman had made Warren a
name partner in an effort to strike a valuable balance between his own complex business litigation practice and Warren’s burgeoning multilevel-marketing practice.

Though the financial predicament threw a wrench into the firm’s plans for a time, it managed to move forward. Today it has eight attorneys.

“We would have brought in more partners but nobody else came in named Scott,” Warren joked.

The two name partners’ identical first name and last initial can sometimes cause confusion, they said. Clients often call one and ask for the other. Some people even think they are brothers.

“When I get a phone call I always ask, are you sure you want this Scott?” Wellman said. “Because we do completely different things.”

While Wellman concentrates on complex business litigation, Warren focuses on the legal side of multilevel marketing – sometimes known as pyramid selling – a niche practice where he has found success.

“It’s a pretty limited group because the industry is very incestuous,” Warren said. “You meet some really nice people and you also meet some really strange people.”

The firm has represented media mogul Ted Turner, rapper Snoop Dogg, Oakland Raiders’ wide receiver Tim Brown and Robert Englund, the actor best known for playing serial killer Freddy Krueger in “Nightmare on Elm Street.”

Warren recalled a phone conversation with a client in which the client felt sure his business would grow based on support from a friend who had a lot of connections.

Warren asked the friend, “How do you have all these connections?” The person responded that his name was Gene Simmons.

“Ok, Gene Simmons. How do you have all these connections?” Warren asked again.

The friend stressed that he was the Gene Simmons.

“That’s when I realized I was talking to Gene Simmons from the band KISS,” Warren said. “Celebrities are generally very entrepreneurial. So we get some colorful people.”

One of them is Donald Trump. In 2009 Wellman represented the billionaire businessman in a case against Rancho Palos Verdes. Trump wanted to develop the land surrounding his $264 million golf course, Trump National, on the Palos Verdes Peninsula, but the city cited landslide danger and would not grant him the permits. Wellman sued the city and the two settled, granting Trump his permits in 2013. *VH Property Corp. v. City of Rancho Palos Verdes,* CV09-298 (C.D. Cal., filed 2009).

In most all of Wellman’s cases, he is fighting against big firms, he said.

“I think I pride myself on fighting the large law firms,” he said. “Most of the time when I am in a case it’s between four and six attorneys against my law clerk and I.”

Though both partners’ practices are very different, the two complement, offset and benefit one another.

For example, Warren represents a California coffee company on the transactional and regulatory side. When some of the coffee company’s employees left to start another company – in direct competition to the first business – they all started suing each other. That is when Wellman came in.

“There’s a lot of spinoff from the [multilevel-marketing] transactional work because of these lawsuits,” Wellman said. “Either our clients get sued or they want to sue to protect their propriety interest.”

In network marketing, there are three basic documents: the distributor agreement, policies and procedures, and the company’s compensation plan. Litigation crops up due to issues within or surrounding one or all of those agreements, Wellman said.

For example, if a distributor for a company wants to branch off and start his own company, he cannot take his downline – the salespeople he recruits – with him. Contacts, lists and prices are among the things within that network that are considered proprietary assets and even trade secrets.

Warren’s job is to keep those companies from making mistakes, and Wellman comes in to spearhead any litigation that arises in case mistakes are made.

The workload for each partner’s specialty is quite different as well. While Warren’s is more easygoing and relatively painless, Wellman’s practice is more high stress and deadline-focused.

“I like to have my blood boiling,” Wellman said. “[Warren] is much more laid back.”

Wellman has had many firsts in his high pressure litigation job, including prevailing in the first successful permanent regulatory taking claim in the state, obtaining a judgment worth approximately $24 million for their

The case involved an inverse condemnation action filed by property owners against the city of Rancho Palos Verdes. The claim alleged that the city had exacted a taking by passing a resolution that precluded the owners from building homes on their vacant lots. *Monks v. City of Rancho Palos Verdes, *167 Cal.App.4th 263 (2008).

“Though litigation fluctuates, [multilevel marketing] is pretty steady income,” Warren said. “Because of that steady income we can mold our practice areas and take chances that maybe some other firms can’t.”

Wellman & Warren has broken international ground, too. Because companies in multilevel marketing want to distribute all over the nation, the firm has to keep up with international regulations and maintain relationships with legal professionals in many different regions.

Warren currently has a client who is in 29 different countries.

“We build liaison relationships with attorneys in other countries – who know the regulations in those countries – and I teach them about multilevel marketing,” Warren said. “So I can go to them when a client wants to get in their country and they can refer stuff back to me.”

The firm is selective about the multilevel-marketing companies it chooses to represent. Right now it is representing 45 different network marketing companies, and the firm gets a call nearly every day from a new one. Companies marketing e-books, Warren said, are the most popular.

“It’s hard to say how the companies will do,” Warren said. “I hear about something that I think will flop and it will end up becoming huge.”

Because of the number of calls he gets from these companies, Warren’s office is filled with “lotions and potions.” A coffee maker from one distributor, an energy drink from another.

Despite the good flow of business, the firm doesn’t have plans to add more attorneys, save for Wellman’s son Chris A. Wellman, who just passed the bar and is expected to join the firm soon.

“Being the size that we are makes it fun and challenging, in a good way,” Warren said.

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