Monday, June 27, 2005
The potential that Milberg Weiss, one of the leading plaintiff class action firms, will be indicted triggered an interesting reaction from the firm, which argued that the government should not indict the partnership for wrongdoing by individual lawyers because of the effect on innocent employees. Earlier posts here and here discuss the indictment of Seymour Lazar for accepting payments from an unnamed New York law firm with California offices -- Milberg Weiss acknowledges that it is the law firm named as an unindicted coconspirator -- for serving as the named or representative plaintiff in over 50 class actions involving consumer complaints, securities fraud, and shareholder derivative claims. An article in the Wall Street Journal (here) discusses the law firm's response to the government investigation in which it cites the prosecution of Arthur Andersen as showing the harm that can befall innocent employees from an indictment of an organization.
Is Andersen an apt precedent? One important difference between the two situations is that Andersen's conduct was not directly related to its primary business as an accounting and consulting firm, and there was never an issue that its accounting at Enron, even if questionable, constituted criminal conduct. If Milberg Weiss attorneys made payments to individuals to serve as representative plaintiffs, and that conduct can be tied to the firm, then this goes to the core of the law firm, which is to represent clients before the courts in an honest and ethical manner. The payments would not only be improper, but more importantly would involve deceiving the court, opposing counsel, and the class members about the firm's involvement in the case. That strikes me as categorically different conduct than Andersen's document shredding, and calls into question the entire culture of the firm.
The impact of an indictment on Milberg Weiss will also have a different effect on the "innocent" employees and partners of the firm than the Andersen conviction. Accounting firms are licensed by the states, and the criminal conviction would have resulted in Andersen losing its license in almost every jurisdiction in which it practiced in the U.S., preventing the firm from providing services to publicly-traded companies. While lawyers are licensed by the states, law firms are not, so lawyers with no involvement in the misconduct will still be able to pursue their trade and can try to switch to a different firm or start their own firm. The support staff will suffer significant disruptions, but the number of law firms is much greater than the number of public accounting firms, so the job market is probably much better for them. While accounting went from the "Big Five" to the "Big Four" with Andersen's demise, there is no such effect on the plaintiff class action bar which has a number of firms that operate, and they may be in the market for experiences lawyers and support staff. The effect of the Andersen indictment went well beyond just that firm because of the oligopoly that exists in public accounting, a problem that will not affect the Department of Justice's analysis of Milberg Weiss as it has on whether to pursue criminal charges against KPMG for its tax shelter business (see earlier post here).
That's not to say that the indictment of a law firm should be pursued without considering the impact of a criminal conviction on its employees and partners. But if a law firm acts unethically in its representation of clients by paying kickbacks to representative plaintiffs, the harm to other clients of the firm will be substantial. While Andersen's other clients were affected by the criminal conviction, Milberg Weiss' clients may be represented by lawyers who do not put the client's interests first. (ph)