James T. Wharton, testifying to a federal jury, described May 26, 1988, as "a terrible day."
That was when he learned from officials of Dresser Industries Inc. that one of his law partners, Edward S. Digges Jr., had overbilled the client by astronomical amounts, charging for legal work that was never done and charging partner's rates for work done by law clerks and associate lawyers.
But Wharton admitted yesterday that, even though he came to realize Digges' billing fraud had substantially elevated his income as a law partner -- to $1.7 million over three years -- he has not yet paid back any of the money to Dresser Industries.
"We have offered to pay," Wharton told the jury. "We have not paid."
Wharton, a partner in the former Annapolis firm of Digges, Wharton & Levin, spent his second day on the witness stand in U.S. District Court in Baltimore testifying that Digges, who was convicted of related criminal charges last year, was totally responsible for the fraud.
The trial culminates a civil case in which St. Paul Fire and Marine Insurance Co. is trying to prove that Wharton and the law firm's other partner, David W. Levin, lied to get a liability insurance policy that would cover $3.6 million in judgments against them in a case eventually filed by Dresser Industries.
St. Paul contends that Wharton and his partners lied on their insurance application, knowing of Digges' fraud and knowing that they might be held liable for it.
If St. Paul is successful in this trial, it will not have to pay the judgments. But the company is opposed by Dresser's lawyers, who are fighting for the $3.1 million in fraud and negligence judgments, and some $500,000 in their own legal fees as well.
Wharton told the jury yesterday that he knew nothing of Digges' fraud until Dresser officials confronted him and his partners with startling allegations at a meeting May 26.
"If I had seen the time sheets, I would have know they were wrong," Wharton said. "But Digges [the firm's managing partner] handled all that. I never saw them."
The witness also testified that he and Levin helped Digges re-create time sheets to verify the Dresser billings in a meeting May 5, 1988, the same day he sent the insurance company a check for the policy.
But he said he had actually applied for the policy in March, several months before he sent the check to St. Paul to pay for it.
Wharton said Digges asked him and Levin on May 5 to "duplicate" original time sheets for Dresser billings that could not be found. Digges needed the time sheets for a meeting with two Dresser auditors the next day.
"I was duplicating what Mr. Digges told me," Wharton said. "When I got to the third one, I quit. I was concerned about the fact that a partner whom I trusted asked me to do something that didn't make sense."
He said he learned about Digges' fraudulent overcharging three weeks later, in the partners' meeting with Dresser's corporate lawyers.