Nightmare on the Net

A web of intrigue surrounds the high-stakes legal brawl between FACTnet and the Church of Scientology.

The second carrier, Coregis Insurance, was reluctant to pay up, compelling the FACTNet defendants to file suit against the company that was supposed to be funding their defense. Although the exact terms of settlement of that suit are sealed, court records indicate that Coregis agreed to pay up to $925,000 to cover ongoing legal costs. By that point, FACTNet already owed nearly half that amount to the law firm of Faegre & Benson, which had been retained by the insurers to defend both the Virginia and Colorado cases and had run up bills in excess of $1.4 million by last April.

Wollersheim makes no secret of his feelings about the lawyers who were thrust upon him in the early months of the case. "We're going to be suing Faegre for malpractice and bad-faith litigation," he says. "The first week I asked them to remove themselves because they were incapable of handling this case. Plus, there was such antagonism between Tom Kelley and me that he had a conflict of interest trying to represent me. It got so bad that we wouldn't even talk to each other."

Kelley, a First Amendment specialist who frequently represents Denver media organizations, denies any mishandling of the case. "My relationship with some of the FACTNet people is not as good as it once was," he says. "I'm reluctant to talk about it. But I don't think there's any question that FACTNet and Mr. Lerma got the best representation available, and that was demonstrated by the result in the Lerma case."

The staggering cost of the litigation, Kelley adds, had a lot to do with the tactics employed by his opponents. "The Church of Scientology has proven to be a litigation machine that can drain the resources of an opponent," he says. "In the Lerma case, we had not only constant discovery but weekly motions--all of which required extensive briefing and argument. In Colorado, things have been less intense, but certainly the scorched-earth approach to litigation has been much the same."

Lerma and Wollersheim both say they clashed with the Faegre & Benson defense team over several issues--including the firm's seeming lack of experience in cyberspace, despite its claimed expertise in computer law.

"They're fakes," Lerma declares. "They were using us to learn the Net. We didn't even get an e-mail address from these clowns until they'd run up their first half-million in billings. If your own lawyers don't have a clue and won't listen to you, it's impossible to get the judge to understand what you're saying."

"It was a nightmare," Wollersheim says. "Tom Kelley had never been on the Internet, didn't know what an upload or a download was. We told them we had the expertise to handle the internal computer work and save money for the court case. They farmed it out and created a database with eighty-megabyte text files in a format that was totally unusable."

Last August Lerma informed supporters on the Internet that he'd dismissed Faegre & Benson as counsel in his case. The firm soon bowed out of the Colorado case, too, along with another law firm that had been retained as a "buffer" between Kelley and Wollersheim. Kelley says his firm withdrew "because of an irreconcilable conflict of interest among the parties. That's all that's appropriate for me to say."

Wollersheim has a different story. "They got me in an office, and Kelley said, 'I want you to guarantee you're going to pay every single bill we incur,'" he recalls. "I said I had obligations to the organization and would have to review every bill; I would not give him carte blanche. Four days later, all of a sudden this conflict of interest comes up and they have to resign from the case. They knew about this alleged conflict from month three."

The conflict, alleged or actual, almost certainly has to do with the role of FACTNet co-founder Bob Penny in the litigation. From the outset, Penny and Wollersheim have offered contradictory explanations about how certain Scientology materials ended up on FACTNet's hard drives. Wollersheim has suggested that Scientology "agents" might have uploaded the documents in an effort to plant evidence (a notion that RTC attorney Todd Blakely has branded "absurd" in light of the church's campaign to protect its copyrights) or that Penny, whose memory has been affected by his battle with multiple sclerosis, may have loaded them by mistake. Penny has said he doesn't know how the documents got there.

"There are hundreds of pages of claimed infringements that Bob Penny swears he didn't put on the database, and he's the only one who did the database," Wollersheim says. "All I have is the memory of a guy with MS. I either have to think Bob is telling the truth or he can't remember."

Around the same time that Faegre & Benson withdrew its representation, Lerma and Wollersheim informed Penny that he was being removed from FACTNet's board of directors. He wasn't the first such casualty; one director in England had been driven into bankruptcy by church-related litigation, and another in South Africa had been persuaded by Scientology officials to sign a "confession" of misdeeds and bow out of the conflict. But Penny's removal from the board didn't remove his liability in the lawsuit.

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