Overlawyered: Chronicling The High Cost Of Our Legal System

Archive for July, 2007

Class acting

More on the story Walter only teased us with earlier today: The Associated Press reports on the fall of a mighty class action plaintiffs’ lawyer — the managing partner and third name in the firm now known only as Milberg Weiss:

A former partner of a major New York law firm pleaded guilty to conspiracy Monday in connection with kickbacks the firm is accused of paying to plaintiffs in class action and shareholder lawsuits.

David J. Bershad, 67, of Montclair, N.J., pleaded guilty in federal court to one count of conspiracy that includes obstruction of justice and making false statements under oath.

…Prosecutors believe the firm, now known as Milberg Weiss, received more than $200 million in fees from such lawsuits filed over the past 20 years. Bershad was responsible for overseeing the firm’s accounting department and financial affairs….

Bershad could face up to five years in federal prison when he is sentenced on June 23, 2008.

Grisly. According to the New York Law Journal, Bershad himself made — sit down for this part — $160 million as a Milberg Weiss partner over the last twenty years, so that $8 million (why so low?) should not be all that painful, financially; but this is not the style in which to go out for a Columbia Law man.

Here is the stipulated statement of facts in support of the plea agreement, from the Law Journal. If you have trouble following what he did wrong — the rules regarding class actions and fees are fairly arcane — in short, if you represent a class, you’re not allowed to secretly share attorneys’ fees with favored class members. Such payments create conflicts of interest between the paid plaintiffs and the rest of the class members the lawyers represent. As the statement says:

By entering into such secret payment arrangements, BERSHAD and the other Conspiring Partners were able to secure a reliable source of individuals who were ready, willing, and able to serve as named plaintiffs in Class Actions that Milberg Weiss wanted to bring. In addition, some of these individuals would investigate and propose to BERSHAD and other Conspiring Partners potential Class Actions for Milberg Weiss to bring. Such payment arrangements generally enabled Milberg Weiss to file more Class Actions and to file them more quickly than would be possible absent such arrangements. Filing Class Actions more quickly than other competing plaintiffs’ law firms enhanced Milberg Weiss’s ability to obtain lead counsel status in cases, before and after the passage of the Private Securities Litigation Reform Act of 1995. Lead counsel generally obtained a larger share of the attorneys’ fees awarded in a Class Action than other counsel.

The statement of facts goes on to lay out a Byzantine arrangement of cash flow, everything short of a hollowed-out pumpkin. It describes the sort of thing that, well, crooks do. At this point, the crooks have names in the court filings such as Partner A, Partner B, down through the alphabet — and, just like Little Cats A through Z in The Cat in the Hat, they all cleaned up.

So, how long will this 67-year-old man sit in jail? I imagine he had something more like Miami in mind. But it could get even hotter — for his partners. Bershad is surely going to spill his guts even more. As the story continues:

Legal experts believe Bershad’s plea appears to be an effort to reduce his possible prison sentence in exchange for testimony.

Meanwhile, the good work of the firm goes on:

In its statement Monday, the firm said: “We remain confident that [Mr. Bershad’s] actions will have no effect on the firm’s commitment to its clients and its ongoing work to protect public shareholders and consumers.”

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“Violent and profane” workplace outburst protected

Applying Washington state disability-rights law, the Ninth Circuit has ruled that an employee’s “violent and profane” outburst to supervisors may be a protected manifestation of her bipolar disorder and thus not grounds for termination. Although the court cautioned that not all disability-induced misconduct should be seen as protected, it ruled that the law protects “manifestations” of a mental or physical disability just as it protects the disability itself (Gambini v. Total Renal Care, opinion in PDF format; HR.BLR.com, Jun. 11; Workplace Law Prof, Jun. 15). For more on the Ninth Circuit and disabled-rights law, including some misconduct cases, see Oct. 7 and Oct. 14, 2003; Oct. 12 and Dec. 6, 2006, Mar. 23, 2007. For a contrasting Massachusetts case, see Jun. 28, 2006.

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Lawsuit Heaven

A Korean report says that country’s developing economy is starting to look very familiar:

It is no exaggeration to say that Korea is the “heaven of lawsuit” as the number of criminal charges and civil suits in the country is 155 times and six times higher than that of Japan, respectively.

People tend to go to court even at a slightest provocation as they institute a suit to retrieve money even if they had not signed any written contract and file for criminal charges when the case can be resolved in a civil suit.

It sounds as if the “filing” of criminal charges is a lot easier in Korea than it is here. I do civil litigation, and clients always want to know whether the fraud, or false statements under oath, or other bad acts they are positive our adversaries have done have a criminal down side. The answer, of course, is almost always “no” — prosecutors are virtually never interested in bilateral wrongdoings. That is as it should be; dragging the threat of prosecution — unspoken or otherwise — into civil litigation only makes bad situations worse (and gives your adversary a constitutional justification not to testify). Again, by all indications something very different is going on over there:

“Although over 600,000 people are being charged each year, a significant number of cases are dropped as they cannot be considered as a crime. We cannot overlook the seriousness of the current legal situation as over-issued charges are perturbing prosecutors from inspecting more crucial cases such as bribery,” said Shin Kyeong-sik, the head of planning department at the Supreme Public Prosecutor’s Office.

Perhaps the Prosecutor’s Office in South Korea should be a little more Supreme.

The Wall Street Journal on “Do it Yourself Tort Reform”

In today’s Journal, an article by the people behind Medical Justice:

In 2002, we launched Medical Justice, a membership-based organization designed to complement tort reform and to head off frivolous lawsuits. ….

Our service has two principal components. First, we look at the quality of so-called expert-witness testimony. Behind every frivolous lawsuit there is an “expert” — usually a physician skilled in testifying before juries and often compensated to the tune of $10,000 dollars a day. Put bluntly, many of these “experts” are frauds, as this newspaper has repeatedly shown in cases regarding asbestosis and silicosis claims….

Medical Justice’s second tool is a patient-physician contract. That contract states that in a legitimate dispute, both sides will utilize only those experts who belong to such societies and who strictly follow their code of ethics. This limits the list to reputable and accountable physician experts, thus precluding the use of hired guns or medical “witnesses having other rational explanations” — better known by their acronym.

Does it work? Yes. After five years of collecting data, we know that Medical Justice plan members are sued at a rate of under just 2% a year. The average doctor is sued at a rate of 8%-12% per year. And the company is top heavy with physicians in “high-risk” specialties.
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Private law saves the day? Perhaps — but how long before the plaintiffs’ bar fights back with legislation?

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So few class-action antitrust trials

Although the New York attorney general had already extracted $3 million in penalties on the charges, a jury returned a defense verdict in a class-action suit charging that Macy’s and other department stores conspired to fix the price of high-end tableware. Plaintiffs admitted they had no direct evidence of a conspiracy and jurors in San Francisco federal court declined to infer one. Manufacturer/defendant Lenox had already paid $500,000 to be let out of the case.

What was truly unusual about the case, however, was that it went to trial at all, given the pressure to settle on defendants in such situations:

Antitrust attorneys say the verdict was remarkable if only because the case made it all the way to trial.

“In terms of a price-fixing class action going to trial, I honestly can’t think of one,” said James McGinnis, a partner at Sheppard, Mullin, Richter & Hampton, who briefly represented May Department Stores, one of the defendants, at an early stage in the case.

Usually, said lawyers on both sides of the bar, a combination of sky-high financial risks and the prospect of criminal prosecution is enough to encourage a settlement. Defense attorneys, for example, may not want to lay all their cards on the table in a civil case while prosecutors are watching.

(Matthew Hirsch, “Macy’s Beats Antitrust Price-Fix Rap”, The Recorder, Jul. 5).

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Next stop for boys’ team-cutting: high schools?

The quota pressures of the federal Title IX law have resulted in the axing of hundreds of men’s college sports teams, and now activists are preparing to intensify their legal campaign at the high school level, reports Jessica Gavora:

At the center of the pro-quota activists’ marching orders for Congress today is something called the “High School Sports Information Collection Act.” It’s modeled after the Equity in Athletics Disclosure Act (EADA), which for a dozen years has forced colleges and universities to annually report their athletic participation and expenses — broken down by sex — to the feds. The EADA was meant to be, and is, a one-stop-shopping list for trial lawyers and activist groups looking for schools to sue for failing to meet the Title IX quota. Now, courtesy of Senators Olympia Snowe and Patty Murray, they are about to have the same litigation hit list of high schools.

In a year in which Rutgers, James Madison, Ohio University, Butler, Clarion, Slippery Rock, and Syracuse have eliminated hundreds of men’s roster spots in full or in part due to Title IX, we have yet to see — thankfully — boys’ high-school teams eliminated under the law. But we are beginning to see boys athletic opportunities be limited due to Title IX quota creep in high schools.

(Jessica Gavora, “Title IX Trickle-Down”, National Review Online/CBSNews.com, Jun. 20)(broken link now fixed).

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Killer Quakers

Hierarchical government a pain? Separation of powers getting you down? Not a problem! Not if you’d rather be in Philadelphia:

Two Philadelphia City Council members plan to file suit against the state House and Senate Wednesday for preventing the city from passing more restrictive gun laws.

Council members Donna Reed Miller and Darrell Clarke called the city’s surging homicide rate in part a “state-created danger.”

Lawmakers have tied the city’s hands by not giving it the authority to limit gun purchases to one a month and require lost or stolen guns to be reported, according to Miller.

I’m sure the city does feel bad that it can’t pass more laws to make it feel good about the fact that its residents have turned America’s first capital into a shooting gallery… mm, like its present capital. But that is the fool’s perspective; for see how the state is even described — in its role in actually arrogating to itself the right to set policies for, er, the state — not as a sort accessory to crime, or, switching to civil liablity, a but-for cause or even a proximate cause. No, homicide in Brotherlovopolis are a “state-created danger”! Only a sage who merits a seat on the Philadelphia City Council can see these murders committed by carbon-based entities in Philadelphia for what they are: The product of passive, robotic mayhem-slaves of the blood-lusting Commonwealth of Pennsylvania, doing its cynically William Penn-garbed bidding and killing! Killing! Killing!

Quaker State indeed.

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Searle Freedom Trust request for proposals

Now this is the sort of thing likely to be of interest to some of our readers: the philanthropic Searle Freedom Trust concentrates on U.S. domestic policy and “aims to foster research and encourage public policies that promote individual freedom and economic liberty”. It

seeks to pursue its mission through new media and invites interested parties to submit applications for grants of up to $250,000. All ideas are welcome and will receive consideration. …

Proposals that may hold particular interest include fellowships for bloggers who focus on government spending, tort reform, or problems in higher education; projects that encourage emerging filmmakers and video producers and help them develop their talent; and podcasting.

Proposals must be submitted by October 1 and are being handled by John J. Miller, for whose bona fides we can vouch. (cross-posted from Point of Law).