Unlucky Lawyer or Legal Pirate?

Judge Finds High-Seas Saga of Yachts Hijacking, Scuttling a Bit Fishy
By Martin Berg
Los Angeles Daily Journal
July 17, 1997

Around 12:30 in the afternoon on Nov. 2, 1992, Italian coastal authorities picked up three men in a dinghy floating in the Mediterranean Sea, 60 miles off the coast of Naples.

Next to the dinghy, a brand new, deluxe 76-foot motor yacht, the Principe Di Pictor, was sinking into the ocean.

The yacht was taking in water through three large holes sawed through the hull.

According to one of the men, Rex DeGeorge - a wealthy Greek-born Beverly Hills attorney and executive of a little-known movie company - the holes were sawed by three mysterious men carrying black duffel bags, who posed as a Russian sea captain and crew, hijacked the boat and tried to scuttle it, then escaped into the night .

The sinking yacht, who owned it and DeGeorge's incredible bad luck on the high seas spawned a four-year-long battle in U.S. District Court that shows no signs of ebbing. Each side has accused the other of piracy - either on the high seas or in the courtroom in a tale that left U.S. District Court Judge J. Spencer Letts incredulous.

The case has also raised significant issues in the venerable but somewhat obscure area of admiralty law, concerning how much a person must disclose about his past when buying insurance. At issue is a nearly unpronounceable 200-year-old doctrine that has guided admiralty law since its infancy, when the first maritime insurers hammered out policies to insure boats they never saw, based on representations by ship owners who described the condition of the ship and its contents. That doctrine, known as "uberrimae fidei," translates as "uttermost good faith."

According to Cigna Property and Casualty Insurance Co., which held the policy on the Principe Di Pictor, DeGeorge failed badly when it came to uberrimae fidei. After DeGeorge's movie company, Polaris Pictures, submitted a claim of $3.6 million for the sunk yacht, Cigna conducted an extensive investigation that allegedly uncovered a modern-day version of piracy.

At the heart of Cigna's investigation was a shocking discovery: DeGeorge had three yachts before the Principe Di Pictor.

They all sank.

One exploded off the California coast. One was allegedly stolen by two Peruvian coffee merchants. And the third also sank off the cost of Italy.

In each case, DeGeorge had collected on an insurance claim. According to Cigna, the sinking of the Principe de Pictor was just one more ruse to collect insurance money, this time through an elaborate shell game.

"Old-fashioned piracy on the high seas and overwhelming greed are at the heart of this case," Cigna attorneys wrote in court papers. "What makes this case unusual ... is that the leader of the pirates is not a swashbuckling Long John Silver, but a grasping litigious Beverly Hills lawyer named Rex K. DeGeorge, who uses other people and corporate shells to work his schemes."

In June 1992, 17 months before he sailed from Naples in the Principe Di Pictor, DeGeorge ordered the boat for $1.9 million. He then assigned his contract to buy it through several corporations to which he was linked.

In the process, he inflated the boat's value to $3.6 million, Cigna contended.

The insurance company also charged that none of those companies had the ability to pay for the boat.

Just a month before the ill-fated voyage from Naples, the Principe Di Pictor as well as Polaris Pictures was purchased by a Beverly Hills company called Tridon Corp. - a company its own lawyers conceded was no General Motors. A small public company, Tridon had been involved in a variety of enterprises, including hair restoration products. With its purchase of Polaris, Tridon apparently hoped to branch out into the movie business.

Sitting in the dinghy with DeGeorge when Italian authorities picked them up was Paul Ebeling, Tridon Corp.'s chief executive officer.

(Ebeling was aboard the previous yacht that went down off the coast of Italy, as well.)

Just four months after their rescue, DeGeorge, Ebeling and their various corporate entities were sued in U.S. District Court in Los Angeles. Cigna, which sought to rescind the policy, claimed Polaris, U.S. Inbanco Ltd., DeGeorge and Ebeling failed to disclose information about previous losses, financial transactions, and ownership that the insurance company would have used in evaluating Polaris and Inbanco's application. Cigna v. Polaris et al, 93-2259 JSL.

DeGeorge and Ebeling succeeded in having lawsuits against them as individuals dismissed, since the insurance policies were issued in the names of companies. Polaris and Inbanco, which purchased the insurance, countersued Cigna, the world's largest insurer of yachts and mega-yachts. Those lawsuits were also dismissed.

Cigna's rescission of Polaris' insurance policy , however, went to trial before Letts last year. Following a bench trial, Letts ruled that Cigna was right to rescind its policy for the Principe Di Pictor. Recently, he awarded Cigna $2.7 million in legal fees and costs.

Earlier this month, on July 10, Letts ruled that DeGeorge was a "non-party judgment debtor and the alter ego" of Polaris. Cigna had sought the ruling so it could attempt to hold DeGeorge responsible for the legal fees it had been awarded.

After the trial, Letts said, "This was a very sophisticated fraud that the finder of fact believed to be a fraud beyond a reasonable doubt."

At the heart of the scheme was DeGeorge, who told a tale tinged with intrigue, menace and mystery.

After Letts heard DeGeorge testify, the judge said his testimony "may have been the single most incredible story I have ever heard from the stand."

It began serenely enough, in a seaside coffee shop in the Greek port of Margellina where DeGeorge and his companions were wrestling with a dilemma. They were about to pick up the Principe Di Pictor. But the captain they had engaged didn't show up. As luck would have it, there was a man who said he was a sea captain in the neighborhood, and he was looking for a job.

DeGeorge and his companions were approached by the man, who called himself Captain Libovich, a Yugolsav trained in the Russian Navy.

Ebeling checked some of Libovich's papers, which appeared to be in Russian. "They seemed to be official, let's put it that way, as far I could tell. ... In ... nobody's mind was this man an impostor," DeGeorge testified. He and his companions decided to have Libovich take the boat for a test run the next day and, if he performed well, he would captain the Principe Di Pictor.

The following day, Libovich and two crew members appeared at the docks, each carrying a black duffel bag. Once at sea, the test sail went well and Ebeling decided the group should press on to their next stop.

Then around midnight, unusual things began to happen. First, a boat with an American flag approached the Principe Di Pictor, and a voice demanded that those on the yacht identify themselves.

Then, Libovich and his henchmen suddenly drew their weapons and pointed a gun at DeGeorge's head. "We were terrorized," DeGeorge testified. "We thought we'd be killed there."

The crew led DeGeorge, Ebeling and Falco below decks at gunpoint. After that, a boat came "very near" and its "big, powerful floodlight" shone through the portholes of the Principe Di Pictor. After a while, it left and the captives heard "noises, noises of instruments running ... grinding sounds... It sounded like a hydraulic instrument of some kind." About the same time, DeGeorge noticed water on the floorboard of the boat.

The hijackers then brought the captives on deck, and DeGeorge asked what they were doing. "We're going to sink the ship," was the response.

DeGeorge told the men they couldn't sink the ship because of the high standards to which it was built.

"I can sink any ship," Libovich scoffed.

The hijackers remained on board for four more hours, until they were picked up by another boat at 6 a.m. DeGeorge and his companions - after trying to slow the boat from taking on water - were finally rescued shortly after noon.

Lawyers for DeGeorge's film company claimed the hijackers were actually drug smugglers who used the Principe Di Pictor to get out of the Italian port. They offered testimony from an expert witness, a former DEA agent, who testified that this was a method used by drug smugglers.

But the former agent ran into some rough questioning - not from Cigna's lawyers, but from Letts.

Did the agent have "an opinion whether or not this loss was a loss that's consistent with Sicilian Mafia smuggling deals?" a defense attorney asked.

"You must be kidding," commented Letts.

Several questions later, Letts asked, "How many times have you seen somebody take a slower vessel and sink it and then get picked up by a faster vessel?"

After the agent said he had seen "numerous cases," Letts asked him, "In Italian waters?"

The expert replied, "There was this instance."

Letts cut off the questioning. "You de-experted your witness. I don't think there's any point in listening to this. It's happened once."

The tales told by DeGeorge and attorneys for his film company, Polaris Pictures, made a big impression on Letts - a bad one.

Earlier this year, Letts found "the defendant's claim that the lawyer-conspirator [DeGeorge] and Messrs. Ebeling and Falco turned the vessel over to such complete strangers, and allowed such strangers to take them on a voyage so far into the open seas to be wholly preposterous.

"The court finds the account of the scuttling so incredible that standing alone it would raise questions as to whether the boat was deliberately scuttled. In the face of the totality of the evidence, that conclusion is inescapable," he concluded.

Letts took an equally dim view of DeGeorge and his testimony. In his written ruling in Cigna's favor, Letts said: "The lawyer-conspirator was without any credibility as a witness, and he looked, acted and sounded very much like a conspirator in a dishonest scheme." Among his transgressions: He answered questions by saying he could not find the answer or by offering the whole story rather than a direct answer.

The judge saved perhaps his strongest chastisement for the issue of uberrimae fidei.

"The evidence shows that the lawyer-conspirator and Mr. Ebeling had also been together on another boat that sank, off the coast of Italy. These two sinkings do not seem coincidental," Letts wrote, of the loss history of the principals. "The evidence did not show that there would be two such sinkings, such as that the lawyer-conspirator were friends who would sail off together off the coast of Italy often enough that they might be on the same boat that sinks twice."

As a result, Letts held Polaris and Inbanco had failed to disclose material facts when they purchased the policy from Cigna.

Describing the various companies as "entities without assets," he said "the evidence showed no legitimate business purpose" in the deals involving the Principe Di Pictor. "The evidence did show that the lawyer-conspirator took such extensive measures to distance himself from these corporations and transactions was to divert attention away from his own personal loss history of sinking vessels." Letts ruled that none of the companies had the ability to pay for the boat.

Despite Letts' ruling against Polaris and Inbanco and DeGeorge's incredible history, his defenders continue to deny he participated in any fraud - they say he is an honest businessman, if an admittedly unlucky yachtsman.

They contend their client has been hijacked once again, this time in a federal court by greedy insurance lawyers.

In strongly worded legal briefs, Timothy J. Morris of Gianelli & Morris, which represents Polaris and Inbanco, labeled Cigna's legal tactics a "technique pirates used, catching a schooner in tight straits where there is little room and no wind to fill her sails."

"It is also a way of flooding the court with a sea of documents hoping to cause confusion and even error...," he wrote.

The use of uberrimae fidei to challenge DeGeorge's claim on the Principe Di Pictor was nothing more than an attempt to bias the trial judge, Morris charged. "The promiscuity exhibited in flashing distorted and irrelevant matter before this court suggests disrespect and abuse of the trial by court system and a genuine lack of professional discretion and responsibility."

Morris also ridiculed Cigna's allegations of piracy, suggesting that the insurance company exaggerated DeGeorge and others involved in business transactions surrounding the Principe Di Pictor into "Einsteinian geniuses who went to the black side. They are masters of intrigue. Masterminds of great abilities."

Morris, who along with DeGeorge declined to be interviewed for this article, contended that Letts shouldn't have considered evidence of DeGeorge's previous maritime mishaps. According to Morris, those were "concocted" by Cigna's attorneys. Referring to his previous losses of boats, Morris argued - in a legal brief seeking to exclude any mention of DeGeorge's previous losses from the trial - that they were all legitimate losses "approved by the expert insurers, either for the price they could be sold or less." To bolster his argument, Morris pointed to a boat that sank in 1976, which was surveyed by the insurance company and given a replacement cost of $325,000 though it was insured for only $200,000. "Therefore not even an argument of motivation that would support Cigna's putrid thoughts existed," Morris wrote.

The defendants also argued that Cigna never disputed the facts of how the Principe Di Pictor was scuttled. But in an interview, Cigna lawyer Neil Lerner, of the Los Angeles firm Sands, Narwitz, Forgie, Leonard & Lerner, said, "Cigna never said it believed the facts of the loss. What Cigna always said was, it isn't necessary for the rescission action, because in the process of adjusting the loss, there were so many lies that we never got to the facts of the loss. But the judge ruled that the facts of the loss were so utterly ridiculous that it dovetailed neatly with how insurance was obtained - the only conclusion you could come to was that it was a scam."

Finally, the defendants claimed Cigna failed to prove that any of DeGeorge's previous insurance claims were false.

But Cigna's lawyers said the previous claims still should have been disclosed.

"We don't have to prove they were false," Lerner said. "If God doesn't like him, we don't like him. We don't insure unlucky people."

Lawyers for the defendants have vowed to appeal.

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