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 the Civil Justice Association of California
(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. Lerach¸s 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.
