According to an AP story published today, Texas Senator John Cornyn has introduced a bill “aimed at protecting shareholders from rogue attorneys” in securities class actions. Senator Cornyn’s bill, not coincidentally, was introduced on the same day that class action attorney William Lerach reported to prison for a 2-year term for paying illegal kickbacks to securities class action plaintiffs. See here for Senator Cornyn’s official statement regarding the proposed legislation. According to Senator Cornyn, the bill would 1) require sworn disclosures regarding the existence of direct or indirect payments by counsel to plaintiffs; 2) create a competitive bidding process for the selection of lead plaintiffs’ counsel; and 3) commission a GAO study regarding the appropriate “hourly rate for lead counsel.”
I previously commented on a proposal to initiate a Congressional investigation into systematic abuses in class action litigation. (See my earlier entry here.) Having not read the text of Senator Cornyn’s bill, I can’t say with confidence that it is another example of an unnecessarily rash solution to a perceived problem that can be remedied simply by enforcing existing law. However, Mr. Lerach was prosecuted under existing law, pleaded guilty, and is now serving time in prison for his illegal acts. Reforms requiring more “transparency,” such as requiring the submission of a sworn statement, would not appear to be a significant deterrent to a clever lawyer bent on breaking the law. As for the other proposed reforms, judges are already very well equipped to make determinations about the appropriateness of an attorney’s fee in a particular jurisdiction without having a government study to rely on. The proposal to create a competitive bidding process for the appointment of class counsel is a concern because it may have the unintended consequence of encouraging, not reducing, unprofessional conduct, and because it has serious implications for the very nature of the attorney/client relationship. Rule 23 already give judges the power to scrutinize relationships and potential conflicts of interests between lawyers and their clients in deciding whether to certify proposed class actions. I am skeptical that reforms of the type proposed by Senator Cornyn are necessary or even likely to reduce potential lawsuit abuse in ways not already covered existing laws.