News in Brief

Philadelphia – Tell-tale electronic documents have helped lead a Philadelphia jury to a $351 million verdict against First Union Corp. in a commercial tort case.

Attorneys Christopher Day and Maurice Mitts of Philadelphia’s Frey Petrakis Deeb & Blum brought home the verdict – $1.779 million in direct damages, $13.4 million in consequential damages and a whopping $337.5 million in punitives – for Pioneer Financial Mortgage Corp., a mortgage warehouse lender that has been struggling on the verge of bankruptcy since a crucial deal soured in 1997.

Pioneer lost the $1.779 million that was originally disputed in the case through a complicated transaction involving First Union (then CoreStates Bank), co-defendant American Financial Mortgage Co. – which was held jointly and severally liable for the $1.779 million in direct damages – and another mortgage company called Norwest Funding.

Pioneer sold two “bundles” of mortgages to Norwest using American Financial as a conduit. The plan for the transaction was that Pioneer would send the mortgages to American Financial with a bailee letter certifying that Pioneer was their owner, that they should be conveyed to Norwest and that Norwest should wire the money for them directly to Pioneer.

The problem arose with the second transaction, when Norwest received a bundle of 13 mortgages and once again sent the money to American Financial’s CoreStates account. These wire transactions occurred between Nov. 11 and Nov. 19, 1997, Day said.

But unbeknownst to Pioneer and Norwest, Day reported, CoreStates on Nov. 7 had frozen all American Financial’s accounts because it suspected the company and its principal, Thomas Flatley, of a check-kiting scheme. Day said Flatley and two of his accountants have since been investigated by the U.S. Attorney in Philadelphia.

But Pioneer’s lawyer, a California practioner named Robert Izmirian, was never told of this situation, Day said.

On Dec. 19, CoreStates was owed about $4 million by Flatley and American Financial, Day said, and they swept his accounts, taking Pioneer’s $1.779 million in partial satisfaction of that debt.

Day said that all parties involved in the funds transfer from Norwest to American Financial – Pioneer, Norwest and even American Financial – requested that the transfer simply be reversed.

According to Day, the loss was devastating for Pioneer.

School District Must Continue Desegregation Efforts

Pittsburgh – A judge ordered a suburban Pittsburgh school district last week to continue remedies started nearly 20 years ago to give equal education to students of all races.

U.S. District Judge Maurice Cohill Jr. said the Woodland Hills School District still needs to eliminate tracking in junior high school math programs.

The school district has until 2003 to stop the practice of tracking, which is the grouping of students by perceived achievement level, as opposed to actual ability.

In October, Woodland Hills filed a motion seeking the end of court-ordered supervision of its staff and programs. The district said it met benchmarks used by courts to determine desegregation.

Those benchmarks measure racial equality in school facilities, student assignment, staffing, transportation and extracurricular activities.

The Woodland Hills School District was formed in 1981, ten years after the merger of five other school districts to settle a lawsuit. Black parents accused the state of segregating school districts in Pittsburgh’s eastern suburbs.

In May, attorneys from the families said there were still not enough black students in advanced courses and alleged that black students were punished more than white students.

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