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Posts Tagged ‘Milberg Weiss’

AP writer Greg Risling reported today on the sentencing of former Milberg Weiss partners Steven Schulman and David Bershad for their roles in a scheme involving the payment of kickbacks to plaintiffs in securities class actions.  Both lawyers were sentenced to six month prison terms.  The scandal involved paying class representatives a portion of the oftentimes multi-million dollar legal fee awards obtained as part of large class action settlements.  In this way, the conspirators were able to provide a significantly greater incentive for a plaintiff to pursue the case than if he or she were limited to recovering an amount necessary to compensate them for their injury.  However, fee-splitting with non-lawyers is considered unethical under long-standing rules of professional conduct.  According to the article, available at Newsweek.com:

In a letter submitted to Federal District Court Judge John Walter, Bershad apologized for the deception.

“I now recognize that our behavior grievously injured the judicial process,” he wrote. “I will live out my days with the painful knowledge that our acts tarnished all of the good work we did.”

Co-conspirator William Lerach published an essay in Portfolio.com earlier this year entitled “I am Guilty,” in which he unapologetically blamed his conviction on zealous prosecutors, the bar associations, big business, and just about everyone other than himself.  Lerach’s diatribe makes the quote from Bershad’s letter seem downright contrite, until you look more closely at his word choice: “I now recognize.”  Though subtle, either the introductory clause reflects a lingering defiance, being code for “I know I need to say this but I don’t really mean it,” or Bershad was commenting on the difficulty of seeing anything wrong with his behavior in the first place: “how could I possibly have known that what I was doing was illegal?”  Either way, his failure to state simply that “Our behavior grievously injured the judicial process” reflects the warped sense of morality that underlies the actions of the lawyers involved in the scandal.

Bershad’s apology fails to recognize that his illegal acts didn’t just tarnish “all the good work” he believes he did, they took the “good” of the work entirely.

Essentially, the argument is that fee-splitting with clients, while concededly unethical and illegal, was a morally necessary tactic to level the playing field in taking on powerful interests.  “Whistleblowers” just needed an extra push to convince them to help the white knights seek justice against evil corporations.  Lerach’s essay even goes so far as to compare his crusade to that of the lawyers who brought the landmark civil rights decision Brown v. Board of Education, though his essay glosses over the small detail that those lawyers did not need kickbacks to persuade a plaintiff to help them do justice.

The “end justifies the means” argument does not work here.  Taking on wrongs in the name of public interest is what attorneys general and other regulators are for.  If public prosecution is not enough, and if there is a true problem in incentivizing victims to pursue a civil remedy without having to bribe them, then we should have a debate about how to change the system.  The kind of private vigilante justice that Lerach and his counterparts championed, where the rule of law is abandoned in the name of the common good, can only lead to exploitation and greed.  It can in no way be considered “good work.”

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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.

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