Slow death of class action suits

I liken the Milberg Weiss class action lawsuits against the nation’s biggest companies engaged in the “new economy” to familiar land sharks here in the late eighties.

I’ve coined the term “land sharks” to middlemen who made windfall profits from someone else’s land, raking-in more money than the amount given family members when the largess is divided.

This scenario is basically the same as the money that Bill Lerach made suing corporations via class action lawsuits. In 1998, Lerach’s personal net income amounted to $13.6 million while his firm’s profits that year was about $91 million, according to a recent news account from the San Diego-Tribune. Lerach’s stratospheric income peaked in 1994 when he made slightly more than $16 million.

So what’s the point here? While Lerach walks away with millions of dollars, it would be interesting to explore how much corporate shareholders received from these class action lawsuits. I am sure it has to be no better than bread crumbs, far less than what the legal eagle shoved into his pocket as cases are settled. I’m tempted to think that the issue shifted from the noble cause of righting a wrong to one motivated by money where legal eagles make windfall profits.

Interesting that in most of these cases where “executives and officers were found guilty of violating federal securities law…the criminal proceedings were precipitated by federal prosecutors, not Milberg Weiss. The law firm piggybacked on the criminal litigation”. This void in unbridled class action lawsuits was addressed by the US Congress in 1995.

The reform (securities litigation law) sought by the new law focuses on how “to curb the ‘baseless, extortionate lawsuits’…while at the same time going after genuinely fraudulent companies and recovering monies stolen from shareholders”. I couldn’t agree more with the suggestion to place the “onus on the Securities and Exchange Commission, the federal agency responsible for overseeing publicly traded companies, in the first place.
If a corporation is suspected of defrauding shareholders, the SEC has the power to pursue civil litigation and, if warranted, criminal litigation”. This is a better approach than leaving this issue in the hands of private attorney generals!

Lerach’s hardball legal tactics came back to haunt him in March of last year. For a “guy who’s more accustomed to being a hammer than a nail”, he took the role of the latter on the witness stand uncomfortably answering questions about his role as the “king of shareholder suits”.

“In 1992, Lexecon sued Lerach’s law firm (Milberg Weiss) alleging malicious prosecution, defamation and abuse of process….” Milberg Weiss lost when the jury “returned a judgment of $45 million in actual damages. Lerach’s firm settled the case for $50 million–in cash–before jurors reconvened to consider punitive damages”. Lerach said “Lexecon ultimately got us in a forum that was unduly favorable to them”.

Chuck Dick, a corporate defense lawyer in San Francisco criticized Lerach’s work as sort of zealotry and “like most zealots, they tend to become blind to objective truth” and “people who are motivated by a cause can become myopic”.

Lerach’s days as the “king of shareholder suits” are just about over. A trade group representing high-technology companies last week hailed a federal appellate court ruling that has sweeping implications for hundreds of class-action lawsuits now pending in federal courts”. The nation’s high-tech industry (now referred to as the ‘new economy’) “is too important to be forced to waste its time defending lawsuits lacking merit”. The decision by US District Court Judge Fern Smith was one of the first to apply stricter standards for filing shareholder lawsuits approved by Congress in late 1995.