Via Point of Law, today’s DC Examiner has a big package of stories on trial-lawyer felon William Lerach:
The “Who lost when Lerach won?” piece quotes me.
Hear, hear. (In re Apollo Group, Inc. Securities Litigation (D. Ariz. 2008) via WSJ Law Blog; Bloomberg). Plaintiffs will appeal the trial court’s decision to throw out the $277 million verdict.
“For the second time in less than a week, class action law firm Labaton Sucharow has been reprimanded for overreaching in its attempts to lead a major securities fraud action.” Having attained lead counsel status in one class action against American International Group, the firm sought to combine that case with others pending elsewhere that raised quite different claims against the much-sued insurer.
“As is readily apparent here, lead plaintiff’s Motion for Leave to Amend to add unrelated claims is a calculated attempt at judge shopping,” [Southern District of New York federal judge John] Sprizzo wrote. “It seems apparent that lead plaintiff is trying to usurp lead plaintiff status over claims which are properly in front of other judges.”The decision came just three days after Southern District of New York Judge Jed S. Rakoff admonished Labaton Sucharow attorneys for perhaps not “fulfill[ing] their professional responsibilities” in their proposal of a co-lead plaintiff in In Re Monster Worldwide Securities Litigation, 07 Civ. 2237.
(Mark Fass, “Labaton’s Newest Bid to Lead Major Securities Fraud Action Rejected”, New York Law Journal, Jul. 22).
Class actions of the lawyers, by the lawyers, for the lawyers? To quote the Law.com summary: “A federal judge has rejected a proposed co-lead plaintiff for the Monster Worldwide securities fraud class action because the representative knew nothing about the case. Southern District of New York Judge Jed Rakoff had some pointed words for lead plaintiffs counsel Labaton Sucharow, saying the Steamship Trade Association International Longshoremen’s Pension Fund was ’simply the willing pawn of counsel’ because it ‘has no interest in, genuine knowledge of, and/or meaningful involvement in this case.’” Judge Rakoff noted that pension fund co-chairman Horace Alston had represented himself under oath as the fund’s most knowledgeable person about the suit. “However, Mr. Alston then testified that he did not know the name of the stock at issue in this case, did not know the name of either individual defendant, did not know whether STA-ILA ever owned Monster stock, did not know if an amended complaint had been filed, did not know whether he had ever seen any complaint in the action,” leading Judge Rakoff to declare that he would “not be party to a sham.” (Mark Hamblett, “Lead Plaintiff Pick Rejected as Merely ‘Pawn of Counsel’”, New York Law Journal, Jul. 17).
Plaintiffs firm Berman DeValerio sued attorneys Eran and Susan Boltz Rubenstein, former Coughlin Stoia attorneys, for breach of contract; in their counterclaim, the Rubensteins claim they were hired on a contingent fee basis to wrangle international clients to serve as plaintiffs in securities class actions. Lyle Roberts has the details, and the complaint and counterclaim. Alas, the case settled before details of this interesting arrangement came to light in discovery or other court filings, and it is perhaps too much to ask for questions to be asked in the nonexistent Congressional investigation of the practices of the securities class action bar.
The Texas Republican, a member of the Senate Judiciary Committee, is introducing legislation that
would make several key reforms to current securities class action law to increase the accountability of and transparency for attorneys filing these lawsuits and the institutional plaintiffs they often represent. Specifically, it would require:DISCLOSURE OF PAYMENTS BETWEEN PLAINTIFFS AND ATTORNEYS
Plaintiffs and attorneys would submit sworn certifications identifying any direct or indirect payments, promises of such payments, and other conflicts of interest between them, as well as all political contributions made to elected officials with authority or influence over the appointment of counsel in the case.
COMPETITIVE BIDDING FOR LEAD COUNSEL
Courts would include a competitive bidding process as one of the factors for the selection and retention of lead counsel for a class of plaintiffs.
STUDY TO DETERMINE APPROPRIATE ATTORNEYS FEES
GAO would commission a study of the last 5 years of fee awards in securities class action cases to determine the average hourly rate for lead counsel.
(release, Congressional Record statement). (cross-posted from Point of Law). More: hailed by Lisa Rickard of U.S. Chamber.
The lead plaintiff had claimed losses of $25 million, but settled for zero plus some corporate-governance changes that, as a Rutgers professor notes, probably would have happened anyway. But a settlement approved by a New Jersey federal judge in a shareholder suit against Schering-Plough awarded $9.5 million in attorneys’ fees, even applying a multiplier to lodestar hourly rates. [New Jersey Law Journal/law.com; In re Schering-Plough Corp. Securities Litigation, Case No. 2:01cv829 (D.N.J.)] Paying for those fees: shareholders, who also paid for what were likely multi-million dollar defense costs of litigation. Judge Katharine Sweeney Hayden, when certifying a single class in 2003, rejected arguments that there was an inherent conflict between class members that had already sold their stock and class members who continued to hold stock; she was appointed by Clinton in 1997.
Ed Morrissey of the Captain’s Quarters Blog interviews me about the Stoneridge case and argument, and about Sarbanes-Oxley. Morrissey comments further about the case.
I’m scheduled to be on Bloomberg TV at 5 pm Eastern talking about the Stoneridge case. See also Point of Law October 6 for more links.
In the August 27 Legal Times:
To the editor:I appreciated the chance to speak with reporter Tony Mauro about Stoneridge v. Scientific-Atlanta, an upcoming Supreme Court case that will be discussed at an AEI panel on Oct. 5. Unfortunately, a sentence in his Aug. 20 article [“High Court Head Count at Issue,” Page 1] incorrectly implied that I thought the decision by the U.S. Court of Appeals for the 8th Circuit in the case was an “anti-investor ruling,” when that characterization is solely Mauro’s.
On the contrary, as I have written in The Wall Street Journal and told Mauro, I believe that the 8th Circuit’s dismissal of the case redounds to the benefit of investors in general and that the best result for investors (if not for trial lawyers) would be affirmance by the Supreme Court. And I say that even though I am a putative class member in Stoneridge.
Theodore H. Frank
Resident Fellow
American Enterprise Institute for Public Policy Research
Washington, D.C.
The Supreme Court issued the following order today:
The motion of Former SEC Commissioners for leave to file a brief as amici curiae out of time is granted. The motion of John Conyers, Jr. and Barney Frank for leave to file a brief as amici curiae out of time is granted. The Chief Justice and Justice Breyer took no part in the consideration or decision of these motions.
Respondents had objected to the out-of-time filing by the Former SEC Commissioners. Separately, Tony Mauro speculates in the Legal Times whether Roberts or Breyer will “unrecuse” themselves. (Mauro quotes me and Professor Bainbridge (who gets all the good lines); the “anti-investor opinion” language is Mauro’s, however, and not mine: as I wrote in the Wall Street Journal and expressed to Mauro, the lower-court decision was decidedly pro-investor, if anti-trial lawyer.) As the order suggests, however, if Roberts and Breyer are going to divest themselves of Cisco stock so they can participate in the case, they have not done so yet. Earlier: Aug. 15; POL May 20.
Full disclosure: As an unnamed class member, I am a plaintiff in Stoneridge, and would be entitled to some small amount of class recovery. Also, I hate hate hate respondent Scientific-Atlanta with a deep burning passion, not least because Scientific-Atlanta attorneys subjected me to a harassing subpoena. Nevertheless, a victory for petitioners would be disastrous.
The trial bar’s efforts to broadly expand the securities laws through judicial fiat is challenged in an amicus brief filed in Stoneridge v. Scientific-Atlanta (earlier: Jul. 31, etc.), including former SEC chairs Roderick Hills, Harvey Pitt and Harold Williams; and law professors Richard Epstein, Joseph Grundfest, Stephen Bainbridge, and Larry Ribstein.
Update: Not only has the Department of Justice come out in favor of affirmance (despite extensive lobbying by the plaintiffs’ bar), but both major stock exchanges—who interests unquestionably parallel the interests of investors as a group—filed amicus briefs seeking affirmance. But watch the press portray this as “businesses versus investors” instead of “businesses and investors versus trial lawyers and government officials seeking donations from trial lawyers.”
Update: Oral argument is October 9. AEI will hold a panel discussing the case October 5.
Reps. Barney Frank and John Conyers, Jr. spend taxpayer dollars to file a late amicus brief on behalf of plaintiffs’ lawyers and against investors in Stoneridge v. Scientific-Atlanta, taking issue with my Wall Street Journal op-ed on the case. (H/t L.R.) To wit, “A number of commentators have called for the Court to decide this case by reference to policy considerations nowhere found in the statute.” This is wrong: the op-ed explicitly noted that Congress had twice rejected precisely the sort of liability that petitioners were seeking in this case. It is also ironic: civil securities fraud liability was created by judicial fiat out of a statute that had no private right of action.
Our own Ted Frank has an op-ed in today’s Wall Street Journal. Excerpt:
…The plaintiffs’ bar is heavily lobbying the SEC to intervene in a pending Supreme Court case, Stoneridge v. Scientific-Atlanta, on the side of a gigantic expansion of private litigation.The case’s facts are straightforward: Charter Communications purchased set-top cable boxes but got back some of the money in the form of advertising bought by the vendors. Charter executives recorded the outgoing money as a “capital expenditure” (to be depreciated over several years) but the incoming money as revenue recorded within a single year, thus falsely inflating operating cash flow. Three Charter executives went to prison over the shenanigans. Plaintiffs’ attorneys sued Charter and the executives, of course, but named as codefendants two of the vendors, Motorola and Scientific-Atlanta.
The suit makes little sense. The vendors had no say in how Charter accounted for or reported its transactions. Worse is the precedent it represents: How can a business function if it is potentially liable for hundreds of millions because those whom they trade with misreport a day-to-day transaction?…
Indeed, a 1994 Supreme Court decision on its face cuts off such “secondary liability” claims, but hope of reviving them springs eternal in the plaintiff’s bar — one reason for the P.R. campaign aimed at putting pressure on officials like SEC Chairman Chris Cox. (Ted Frank, “‘Arbitrary and Unfair’”, Wall Street Journal, May 31)(sub-only)(cross-posted from Point of Law). Plus: here’s the free AEI version.
Point of Law Volokh