Lerach Liable for Attorney's Fees

A federal district court judge in Houston has ordered a plaintiff's law firm, Lerach, Coughlin, Stoia, Getter, Rudman & Robbins, to pay the attorney's fees of a defendant in a class action securities suit. The case was part of the Enron litigation and the defendant wqas AllianceBernstein, a money management firm.  Lerach had included Alliance in a list of defendants because an Alliance Executive was on Enron's board for two years.  The Judge found that the allegations that Alliance was a "control party," controlling the actions of its executive while on the Enron board, were groundless.  Section 11(e) of the Securities and Exchange Act of 1934 does allow a judge to order that a plaintiff to pay a defendant's attorney's fees if the action is baseless but the section is rarely invoked.  In most cases in which the plaintiff's case is frivolous, the plaintiff is a small shareholder, often without the means to make the payment.  Judge Harmon's solution, directing that the plaintiff's lawyers pay the defendant's attorneys fees, is unique.  There is no authority in favor and limited authority against the holding.  The Judge's ruling is a symptom of a growing unrest over class action securities litigation in the United States.  The Committee on Capital Markets Regulation has also published its views on the matter.  Courts can nibble at the problem in individual holdings but only Congress, the SEC, or the drafters of the rules of procedure (or all three) can make the comprehensive changes necessary to re-balance our securities class action litigation practice.