Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘Bill Lerach’

Baltimore Examiner (& publicity roundup)

Lawsuits filed against the city of Baltimore demand hundreds of millions of dollars, but the city pays out only a minute fraction of that sum — one of many reasons being that “the city caps awards for lawsuits at $200,000, save for intentional bad acts by city employees.” An editorial in the Baltimore Examiner quotes me on the subject (“Slow lawsuits; charge losers fees”, Jul. 13). For more on New York City’s tort predicament, see Jun. 15.

Last month Overlawyered.com was named “Web Site of the Day” by the Bulletin Board at the St. Paul Pioneer Press, one of the Twin Cities’ two big papers (Jun. 2). The British publication The Lawyer cited our coverage of Bill Lerach’s Enron fees (Jun. 5). And New York-based journalist Robert A. George (the “good” Robert George) calls this website “great”, though he erroneously thinks me a lawyer (Jun. 5).

I’ve also been quoted on same-sex marriage issues in a variety of venues, including by Lou Chibbaro Jr. in the Washington Blade (“Amendment bars states from marrying gay couples: experts”, Apr. 20); Jonathan Rauch at MarriageDebate.com (May 6); Andy Humm, “Gay Marriage Ruling Highlights a Changing Court”, Gotham Gazette, Jul. 10); and the Robert A. George post above. For more of my views on that subject, see Jun. 2, etc.

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“$1 Billion Legal Fee Eyed in Enron Suit”

That’s what Bill Lerach, late of Milberg Weiss, could bag as Enron settlements mount toward $10 bmillion. It seems Lerach has a sliding-scale contingency-fee arrangement with his lead plaintiff, the University of California, starting at 8 percent and going upward from there. And — this is the beauty part — it seems there’s a good chance courts will simply extend the percentage rates to apply to the many other investors in the plaintiff class, even though they never signed up to be Lerach clients or were given a chance to negotiate fees with him. No wonder class-action lawyers are so concerned to butter up the universities, pension funds, unions and other big institutional plaintiffs who serve as their stalking horses in these actions. The university, it seems, did not employ competitive bidding to invite participation by other potential counsel.

A critic of class action litigation, Lawrence Schonbrun, said he is suspicious of the university’s claims that it has vigilantly overseen the Enron case. A retired judge the university hired as a consultant on the case, J. Lawrence Irving, was paid more than $1.4 million by the state school, before being hired this month as a consultant by Lerach Coughlin. “This was not the ideal choice to monitor plaintiffs’ counsel,” Mr. Schonbrun said.

(Josh Gerstein, New York Sun, May 31).

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“Inside Milberg’s Credenza”

I’ve got a lengthy op-ed in today’s Wall Street Journal (sub-only) discussing the indictment of Milberg Weiss. A few excerpts:

Since such payoffs are baldly illegal, prosecutors claim the firm took elaborate steps to keep them concealed from judges and others. They say Milberg funneled much of the money through law-firm cut-outs and other channels, including casinos, and drew on a stash of money kept in a safe located in a credenza in partner David Bershad’s New York office, “to which access was strictly limited.” Again and again, prosecutors add, the firm submitted sworn statements on behalf of its clients denying any receipt of the sorts of payments they were in fact receiving. …

With other class members absent, named plaintiffs are one of the few watchdogs against self-dealing or misconduct by the lawyers — specifically, the pursuit of settlements that result in high legal fees, whether or not they serve the interest of the class. … if the Justice Department’s allegations are correct, Milberg was taking no chances on the watchdogs staying pacified: It threw regular chunks of raw liver into their cages. …

The two celebrity lawyers who made Milberg famous, Melvyn Weiss and the now-departed William Lerach, have thus far escaped indictment: Of course, if they were prosecuting such a case, they would miss no opportunity to insinuate that misconduct by part of a team of top executives must have been at least tolerated by the others, that the rot goes straight to the top, that senior partners turned a convenient blind eye to signs of misconduct because they profited handsomely from that misconduct, and so forth. Messrs. Weiss and Lerach must count themselves lucky that such reasoning did not lead to their inclusion as defendants.

The Journal also has an editorial today on the subject.

Our earlier coverage: May 20 and links from there, May 21, as well as many posts at Point of Law. When The Economist profiled Melvyn Weiss three years ago, I told them, “A distinguishing characteristic of the Milberg Weiss approach is that the clients became tokens to be moved around a game board” (Jan. 17, 2002).

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Shareholder Suits Reach New High

Apparently, 2005 was a record year for class-action securities settlements, (Patti Bond, “Class-Action Securities Settlements Set Record, Indianapolis Star, Feb 13)

If it has not become abundantly clear already, I am not a lawyer, so I can’t comment on the legal ins and outs. But from a philosophical standpoint, shareholder suits have never made much sense to me. While I can understand the shareholders of the company suing a minority shareholder who might be enriching themselves disproportionately (e.g. Rigas family at Adelphia), suits by shareholders against the company they own seem… crazy.

Any successful verdict for shareholders against the company would effectively come out of the pockets of the company’s owners who are.. the shareholders. So in effect, shareholders are suing themselves, and, win or lose, they as a group end up with less than if the suit had never been started, since a good chunk of the payout goes to the lawyers. The only way these suits make financial sense (except to the lawyers, like Bill Lerach) is if only a small subset of the shareholders participate, and then these are just vehicles for transferring money from half the shareholders to the other half, or in other words from one wronged party that does not engage in litigation to another wronged party who is aggressively litigious. Is there really justice here?

OK, you could argue that many of these shareholders are not suing themselves, because they are past shareholders that dumped their stock at a loss. But given these facts, these suits are even less fair. If these suits are made by past shareholders who held stock (ie, were the owners) at the time certain wrongs were committed, they are in fact paid by current and future shareholders who may well have not even owned the company at the time of the abuses, and who may in fact be participating in cleaning the company up. So these litigants are in effect making the argument that because the company was run unethically when they owned it, they are going to sue the people who bought it from them and cleaned it up? Shouldn’t the payment be the other way around, with past owners paying current owners for the mess they left?

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John Torkelsen in plea deal

John Torkelsen, once described by Fortune as “the damages expert of choice for the entire plaintiffs side of the securities bar”, is “expected to plead guilty to reporting false information to a government agency in a D.C. federal court Oct. 21.” The charge arises from Torkelsen’s actions in handling a venture capital fund, rather than from his courtroom work. Before now, however, Torkelsen has declined to cooperate with prosecutors, and a change in that posture could give new impetus to the ongoing federal investigation of the law firm of Milberg Weiss Bershad Hynes & Lerach, for whom Torkelsen was a “notoriously effective expert witness … in dozens of securities suits throughout the 1990s,” according to sources interviewed by Law.com. (Justin Scheck, “Charge Against Expert May Spur Probe of Milberg Weiss”, The Recorder, Oct. 10).

For more on Torkelsen and the venture capital controversy, see Barbara Fox, “Unraveling the Torkelsen Case”, U.S. 1, May 7, 2003. Peter Elkind’s Sept. 4, 2000 expose for Fortune (“The King of Pain is Hurting“) reported:

Torkelsen’s calculations of shareholder losses routinely supported the hundreds of millions of dollars Lerach sought — and he was fabulous in front of a jury should a company decide to fight….Over more than 20 years, Torkelsen’s firm, Princeton Venture Research, not only had made tens of millions working for Lerach’s firm Milberg — by far its biggest client — but also had become the damages expert of choice for the entire plaintiffs side of the securities bar….

He sent thousand-dollar gift baskets as baby presents, and he invited his many friends in the plaintiffs’ bar to an annual black-tie Christmas party that was mind-boggling in its extravagance. At one, guests arriving in Torkelsen-provided stretch limos were heralded by buglers and greeted by costumed Disney characters. Entertainment was invariably provided by a big-name act: Little Richard one year, Aretha Franklin another.

For more on the Milberg probe, see Jun. 27, Jun. 28, Aug. 29, Point of Law Aug. 8, etc. On the reliability of Torkelsen’s numbers as submitted to courts, see the Delaware Chancery Court’s memorandum (PDF) in Cinerama v. Technicolor (2004), a non-Milberg case, pp. 10 et seq.

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“$16.3 million in lawyer fees OK”

Waving big fees through the gate:

A Denver District Court judge overseeing a $50 million class-action settlement from Qwest Communications shot down a shareholder group’s request to limit plaintiff attorney fees to $10 million.

Judge John Coughlin gave short shrift to arguments presented by the Association of U S West Retirees, which asked the court — at the very least — to delay settlement approval until attorneys submitted detailed documentation of their hours and expenses.

At a fairness hearing [Aug. 30], the judge ruled the class counsel, led by Los Angeles law firm Lerach Coughlin, was entitled to $15 million, or 30 percent of the settlement, plus an additional $1.3 million in out-of-pocket expenses….

[The retiree association] wanted proof of each firm’s time records and questioned several six-figure expenses, including $176,000 for meals, hotel and travel and $105,000 for photocopying.

“That’s 25 cents a page using your own office copy machine,” Denver attorney Curtis Kennedy, representing the retirees, said Tuesday after the hearing. “Don’t we at least get a discount for volume? Why not 5 cents a page?”

…[L]ast month, the association filed its objections over attorney fees, complaining that the more than $16.3 million Lerach had requested would leave just $33 million to be distributed among the thousands of plaintiff shareholders they represented….

[Kennedy] said the blanket $15 million contingency award represented 2.3 times what the plaintiff lawyers actually put into the case. Paralegal time alone would be compensated at the rate of more than $400 an hour.

“Times are changing,” he told the judge. “Shareholders are beginning to feel they need to step up and object…that these attorney fees are getting out of hand.”

How often will they feel it worth objecting if, as here, they get the back of the judge’s hand for their troubles? (John Accola, Rocky Mountain News, Aug. 31).

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Corporate governance at Point of Law

White-collar prosecutions, securities and accounting law and corporate governance in general have come in for much attention of late at our sister site. Lyle Roberts (no relation to John that we know of), who puts out the excellent securities law blog 10b-5 Daily, dropped by as a guest the other week to contribute posts on, inter alia, the record of the PSLRA and the Supreme Court’s history of dodging questions in this area. Ted Frank discusses the Bernie Ebbers sentence as well as a new NERA study on securities lawsuits, while Martin Grace, Jonathan Wilson and I all post on different aspects of the Sarbanes-Oxley law. I’ve also got brief items on Chris Cox as Bill Lerach’s nightmare nominee and on the much-discussed Larry Thompson memo laying out ground rules for corporate prosecutions at DOJ.

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Nocera on Lerach

Via Kirkendall, Joseph Nocera profiles the legal career of William Lerach (Jun. 28, Jun. 27). (“The Lawyer Companies Love To Hate”, NY Times, Jul. 2). Larry Ribstein correctly quibbles:

[The 1995 Private Securities Litigation Reform Act] was not just, and maybe not even mostly, intended to make securities cases harder to “win,” as Nocera said, but harder to bring. This is an important distinction, since a main problem with class actions is the extent they are used to bludgeon (or, less charitably, blackmail) firms into settling cases that probably can’t be won, but that can cause plenty of trouble along the way. The plaintiff’s lawyer in effect “wins” the case by surviving a motion to dismiss, which is harder to do post PSLRA. Moreover, even apart from the motion, the case is likely to have more weight if big shareholders, rather than the lawyers and their stable of career suers, are behind it.

This distinction between eliminating nuisance cases and hobbling good cases is a big reason why Lerach and others are flat wrong about the effect of the PSLRA in inviting Enron.

Moreover, Nocera’s interview with Lerach makes clear why Lerach doesn’t like the Act — whatever his success post-PSLRA, he likes being able to bring weak cases. Lerach calls it his “business model.” He says it’s useful in training lawyers. One can’t tell from newspaper page how fully Lerach’s tongue was inserted in his cheek when he came up with that one.

See also Peter Burrows, “Payback Time for Lerach?”, Business Week, Jun. 30 (via Schaeffer).

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