Wednesday, October 31, 2007

Lerach pleads guilty

Former Milberg Weiss partner William Lerach pleaded guilty this week to charges of paying kickbacks to plaintiffs to serve as class representatives.  His plea agreement calls for forfeiture of $7.75 million, a fine of $250,000, one to two years in prison and three years of supervised release.

Today, the Los Angeles Times published an editorial -- An Isolated Case -- arguing that the scandal does not indicate a need to curtail class actions in general:

Famous -- or make that infamous -- class-action attorney William S. Lerach pleaded guilty Monday to one count of conspiracy, admitting his role in a $11.3-million kickback scandal that has upended his former law firm, the pathbreaking shareholder advocacy firm of Milberg Weiss.

As part of his plea, Lerach will pay $8 million to the federal government, and could spend up to two years in prison. Responding to news of the deal, tort reform advocates seized the easy opportunity to make sport of Lerach's downfall. But for those tempted to argue that his crimes make the case for curtailing class-action suits sharply, we'd like to offer the objection that such an argument overstates the evidence. Paying plaintiffs to sue is illegal and should be. Zealously representing injured clients is not and shouldn't be.

To the contrary, it's a necessary calling that benefits victims and society. The usual complaint against lawyers such as Lerach is that they trump up frivolous claims against innocent corporations, dragging down the economy and laughing all the way to the bank. Business interests point out, with some merit, that while individual plaintiffs can receive little in compensation, class-action lawyers reap millions of dollars in fees. Lerach's fees in suits against Enron alone may surpass $1 billion.

But here's the rub: Complaints against a company such as Enron, to cite an obvious example, aren't frivolous at all. Through deceitful accounting practices, Enron defrauded shareholders out of $40 billion and wreaked havoc in energy markets. Class-action lawsuits allow wronged investors and other parties injured by corporate malfeasance to pool resources and seek redress far more effectively and efficiently than any individual could. It's not always pretty, but it's the best solution at hand. Government, for instance, lacks the resources -- and often the incentive -- to handle all business oversight through regulation.

Yes, there have been abuses, but many of the worst were legislated out of existence by the Private Securities Litigation Reform Act of 1995 (which wasn't yet law when Milberg Weiss and Lerach paid off their plaintiffs.) The best outcome of Lerach's fall wouldn't be the demise or even the curtailing of the class-action lawsuit. It would be weeding out lawyers who abuse the system. Such action would assure that legitimate class-action suits get their fair hearing in court.

It's good to read a non-shrill account of the Milberg Weiss fiasco.  The editorial is surely correct that one firm's nondisclosed payments to class reps, while wrongful, does not indicate a need for massive reform.  But I wouldn't have minded if the editorial had taken it a step further and said that in a world with serious litigation abuses (by lawyers for both plaintiffs and defendants), a set of payments to class reps is hardly the biggest thing to worry about.

HME

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