Cases Against Predatory Lawyers Benefit All
Tuesday, October 2, 2007 11:12 AM
Finally some good news in the arena of tort law in the battle against unscrupulous and predatory lawyers.
Indictments, a guilty plea, a disintegrating legal firm and an indictment under duress of William Lerach of the Lerach law firm have led to the sun setting on one of the great heists of the last two centuries.
His firm made "strike suits" a part of the corporate litigation syllabus in the 1990s. Such suits amounted to little more than extortion — and any company that was unlucky enough to be the victim paid a high price.
In "Balance," a publication of CJAC, a column titled "Leracked No More: An Era Ends," reports on some victories over the Lerach firm.
In its glamour days, the five partner coast to coast firm of Millberg Weiss Bershad Hynes and Lerach gained infamy by filing enormous securities cases that often hung on little more than a sudden change in the defendant corporation's stock price.
At that time persons I knew in California and New York told of seemingly unbelievable stories from the street of the Lerach firm hiring persons to buy a few shares (sometimes only one) of many companies. They particularly liked to "strike" against new companies. If the price of a new stock suddenly went up Lerach and partners would sue charging that the stock was under priced. If the stock went down suddenly they would sue alleging it was overpriced.
Nothing spelled Chapter 11 to a company more precisely than these extortion suits.
Congress enacted the Federal Securities Litigation Act of 1995 to stop federal courts from being abused by this brand of extortion. Then President Bill Clinton (always the loyal fiend of the trial lawyers) vetoed the Act, but Congress finally had the courage to shoot back with an override.
In 1996, Bill Lerach hammered out his California initiative to re-inject into our courts the kind of lawsuits that he failed to sustain nationally.
He did this even after his massive contributions to congressman and suppers in the White House. Most newspapers opposed the initiative. Even the Los Angeles Times called it a "prescription for frivolous litigation."
Proposition 211 was defeated by the voters.
Now, 11 years later, the divided firm is dealing with far more debilitating news. On July 9, partner David Bershad pled guilty to conspiracy over using the illegal practices of using paid, hand picked plaintiffs in filing class-action lawsuits.
The eastern Millberg Weiss cell of the legal firm and two of its partners have been charged with kicking back more than $11.3 million to a reusable stable of morally and ethically challenged clients.
Bershad's guilty plea includes an agreement to cooperate with prosecutors.
Since federal indictments and Bershad himself refer to "Partner A and Partner B," as participants in cash pooling to illegally pay plaintiffs, it is believed that the Weiss and Lerach partners are on the indictment waiting list.
Lerach, through a spokesperson, initially said he would retire by the end of the year. He then issued a statement promising to "retire before he will allow [the matter] to become a distraction to the firm."
On Aug. 28 he kept his word.
Andrew Longstreth, a New York reporter for "The American Lawyer," writes that "the firm has been diminished. . . it has shrunk to less than 70 lawyers, and last year filed only 59 cases."
In an Oct. 1, 2007 conversation with John H. Sullivan, president of the Civil Justice Association of California (CJAC) based in Sacramento, Sullivan commented, "We've had some big wins lately."
On Sept. 14, Sullivan stated, "Mr. Lerach's guilty plea is an unfortunate milestone in the plaintiffs bar's slide from a legal profession into a litigation industry. Mr. Lerach¹s tactics epitomize today's class action legal system where the lawyers, not their clients, control the cases.
Despite reforms sending some cases into federal courts, 80 major class action lawsuits are filed every month in California courts. These are largely driven by hopes of jackpot settlements for the lawyers, whose unnamed class action clients often don't really know they are in a lawsuit and end up with pennies.
These guilty pleas in the securities litigation area pull back the curtain and give the public a good view of a system that's become of, by, and for the lawyers. The millions of dollars that personal injury and other plaintiffs lawyers are currently spending to boost their image can't undo today's headlines.
In spite of this legal milestone, which is good news for everyone but the trial lawyers, we wonder why it took 15 years for prosecutors to bring the Lerach gang to justice when their activities were widely known in the street buzz. Also, the punishment of one to two years in prison for Lerach is hardly more than a weak slap on his wayward wrist. The Lerach firm should have been ordered to dissolve completely. There are about 70 disciples of Lerach in the dust.
Stockholders, businessmen, corporations — in fact all people — will benefit. The recent indictment against the Lerach law firm should go down as a historical milestone.
We need to remain diligent and use this case as a wakeup call for further tort reform. The one thing you can count on for sure when dealing with trial lawyers is that they'll be back.
Editor's Note: Michael Arnold Glueck, M.D., penned this week's commentary.
* * *
Michael Arnold Glueck, M.D., comments on medical-legal issues and is
a visiting fellow in economics and citizenship at the International Trade
Education Foundation of the Washington International Trade Council.
Robert J. Cihak, M.D., is a senior fellow and board member of the Discovery
Institute and a past president of the Association of American Physicians
Three Strikes Legal - Index