Tuesday, October 23, 2007

Coke Trying to Use Expected Guilty Plea by Lerach to Deny Class Status Based on Inadequate Representation

In Coke Tries New Defense: Firm Hopes to Use Plea in Lerach Case To Its Advantage, by Peter Latman, the Wall Street Journal reports Coca-Cola Co.'s attempt to use the impending criminal guilty plea by plaintiffs' lawyer William Lerach to deny class action status to a securities suit brought by Lerach while at the firm now called Coughlin Stoia.  The Journal reports that Lerach took the case with him when he left the firm.

In appointing class counsel, a federal court must under Rule 23(g) that the counsel may "fairly and adequately represent the interests in the class."  Moreover, Rule 23(g)(C)(ii) notes that the court may broadly consider "any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class."

Lerach, members of Lerach's former firm Milberg Weiss, and Milberg Weiss itself are all under indictment for their alleged roles in a scheme to pay class representatives -- the few plaintiffs who represent in court the interests of the thousands of absent class members whose claims are being adjudicated.  While any payment of class representatives would appear to have been done to keep them on standby for quick filing of lawsuits, those payments also have the capacity of undermining the independence of the class representatives and perpetrating a fraud on the court.

What's so interesting about Coke's move are its implications for other lawsuits.  Should all putatitve class actions brought by Lerach or Milberg Weiss be denied class certification on grounds of inadequate class counsel?  Here, I would argue that the presumption of innocence should apply to prevent the government from effectively destroying the business of a plaintiffs' firm by causing the denial of all class actions brought by the firm.  Of course, many would argue that the specter of the indictment alone destroys the accused firm -- but it is one thing for individuals to choose not to associate with an entity accused of a crime, but quite another thing for a court effectively to impose penalties based merely on an accusation.

What if the allegations against Lerach, Milberg Weiss, and certain Milberg partners are proven?  Indeed, Steven Schulman of Milberg has already pleaded guilty, as has Milberg partner David Bershad.  Then, denial of future class actions by the lawyer or firm on the basis of inadequacy seems more reasonable, at least until the bar decides whether the lawyers in question will be able to continue to practice. 

And what about any prior class actions resolved where class representatives were illegally paid?   That's a question with implications for perhaps hundreds of millions of dollars of recoveries.  The representation in those classes would likely be deemed inadeqate -- both by class counsel and by the class representatives.  And the inadequate representation could be seen as a violation of constitutional due process, which turns in class actions upon the adequacy of class representation.  One could imagine myriad actions for malpractice against the lawyers involved (if courts hold that absent class members have an attorney-client relationship with class counsel), as well as attempts by defendants to recoup settlement payments made under alleged fraud by class representatives and class counsel.  Interestingly, many defendants would probably rather not reopen settled class actions, for fear that courts would toll the statute of limitations against them and allow new class counsel to bring new actions against them based on the same alleged wrongs.  All in all, it would be a litigation meltdown worthy of a law school exam.   



Class Actions, Ethics, Procedure, Settlement | Permalink

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