Local Lawyers Weigh in on Effect of Bill Lerach’s Guilty Plea

The collapse of William Lerach,not to mention his former firm, Milberg Weiss,was a symbolic blow to the world of aggressive shareholder lawsuits against companies. But the impact of the cases against Lerach and Milberg Weiss stands to be seen. Several lawyers in Orange County said they don’t see any significance from the case, especially on future shareholder lawsuits. Lerach was an isolated incident, they say. Lerach’s other former firm, San Diego’s Coughlin Stoia Geller Rudman & Robbins, will go on with such cases, they predict. There always will be aggressive lawyers looking to strike it rich, local lawyers say.

The Business Journal’s Jessica Lee asked several local lawyers their thoughts on the Lerach case. Each was asked, “What impact will William Lerach’s guilty plea have on shareholder lawsuits?”

Following are their edited comments.


Michael Hornak,

Costa Mesa

I do not anticipate Bill Lerach’s guilty plea to have much of an effect on shareholder lawsuits. Many of us have been adverse to Lerach, defending corporations and board members in class action securities litigation. The amount of that litigation is more related to factors in the marketplace, such as the number of initial public offerings, other public offerings, the movement of stock after those offerings and other factors. Also, the process now for selecting lead plaintiffs’ counsel in class action litigation has changed somewhat, so that it is no longer the first counsel to file that necessarily becomes lead counsel. In short, there is less benefit to plaintiff firms in quickly striking arrangements with potential class representatives in order to be the first to file.

John Cannon,

Newport Beach

Bill Lerach’s and his former partners’ (including Mel Weiss) criminal entanglements will have little or no impact on the business of shareholder lawsuits going forward.

Lerach was one man. He became a recognized figure, but for every Lerach there were and are dozens willing and eager to take his place. We doubt there will be any drop in shareholder litigation resulting from either his criminal plea or any of the other Milberg Weiss partners. They have been and will be quickly replaced by other lawyers willing to file these types of cases.

The only lawsuits that could be directly impacted by the criminal cases against the current and former Milberg Weiss partners are those where they had been appointed lead counsel by the court. Other plaintiffs’ counsel have argued that Lerach and the former firm should be disqualified from representing particular classes. Lerach and his former partners have also lost out on representing institutional shareholders in direct, derivative and class actions.

As part of his plea arrangement, Bill Lerach took steps to allow his most recent firm to continue (resigning as a partner and removing his name from the firm he helped found). We expect that firm will continue to pursue shareholder litigation across the country.

William O’Hare,

Costa Mesa

I do not foresee much of an impact. Bill Lerach’s former firm is strong and active and now is no longer hampered by having one of its current partners under indictment. In addition, there are other national firms that have been competing with Lerach’s firm for years, and are able to fill any void left by his departure.

George C. Rudolph,

Irvine

Neither Bill Lerach’s guilty plea, nor any of the convictions that relate to the Milberg Weiss and Lerach Coughlin investigations are likely to have a direct impact upon shareholder lawsuits.

Lerach became most famous for filing suit on behalf of an investor with only a few shares of stock,as soon as the price of the stock dropped,so that the marginal shareholder became lead plaintiff, controlling actions against the target corporation. The Private Securities Litigation Reform Act of 1995 already significantly changed that practice by, among other things, essentially allowing plaintiffs with the largest losses to control the course of the litigation. The bottom line to me is that a segment of Corporate America still has not accepted the absolute need for complete honesty, transparency and fairness in dealings with prospective investors and shareholders. There are many exceptional corporate lawyers, who are very capable of successfully pursuing claims against corporations, directors, underwriters, brokers, lenders and others involved in selling securities based upon misrepresentation or concealment. As the need arises, those lawyers will surely be available and up to the task.

Todd Gordinier,

Costa Mesa

I litigated against Bill Lerach on many occasions and argued against him in the California Supreme Court in the Mirkin v. Wasserman case in 1993. I have a high regard for his legal acumen. Although there is no question that Lerach has had a significant impact on the nature and force of shareholder lawsuits during the past 25 years, I don’t expect his guilty plea to have any kind of lasting impact on this practice.

Shareholder lawsuits are much more the product of events in the economy at large and in the business community than they are of any one person or law firm. The recent surge in filings is perhaps the best example of this.

As the economic effect of the credit crisis and subprime-related writedowns has filtered through the financial community, we have already seen that the various predictions of the “death” of these actions were premature.

No doubt there have been abuses during the years, and many of these actions are both baseless and opportunistic. At the same time, there is no question that corporate problems exemplified by Enron Corp. and WorldCom Inc. were properly addressed in at least some of these actions. There are still fine lawyers who represent plaintiffs in these kinds of suits (and some who aren’t as highly regarded), but, in my opinion, the volume and gravity of shareholder suits will continue to be a function of events in the larger financial community rather than the identity of any single practitioner or firm.

Michael Meeks,

Irvine

Probably very little impact on future shareholder lawsuits. The charges against Bill Lerach relate primarily to the alleged improper payment of a person who was acting as a class action representative. Although Lerach is a well-known plaintiff’s class action attorney, an attorney’s decision about whether to commence a shareholder lawsuit would depend upon the facts and law relating to the specific case. The type of alleged improper payments to a class representative set forth in Lerach’s case is likely rare and would not affect most attorneys.

Amanda Paracuellos,

Irvine

Bill Lerach was certainly the poster child of the securities class action lawsuit, and the mere mention of his name justifiably made company executives and board members risk averse. Indeed, in our firm’s experience as outside general counsel to public companies, we’ve seen the threat or perceived threat of litigation or other activism on the part of shareholders has unquestionably resulted in greater dependence on outside counsel by boards and management for an ever-widening array of issues.

From the issuer and management perspective, I believe that the impact of Lerach’s guilty plea on the securities class-action bar will likely be nil. The combination of his success and his penchant for publicity spawned an entire generation of aggressive plaintiffs’ lawyers. That generation has come of age at a time when settlements in these types of cases have grown from the tens to the hundreds of millions, and occasionally venture into the billions of dollars. With that kind of money possible, there will always be plenty of aggressive lawyers filing shareholder lawsuits in hopes of striking it rich.

Moreover, the number of companies that are publicly traded,and their market caps,have grown considerably in the past decade. Thus, there are not only more lawyers in this arena, there are also more potential targets for them to shoot at. Lerach was the dean of this group, to be sure, but his success taught many others how to file aggressive claims and extract large settlements, and many of them are no doubt silently cheering that their biggest competitor is out of commission.

Lawyers like Lerach and his progeny will continue to distract issuers, such as those we represent, from focusing on their core business and will continue to require additional investment in lawyers both to help avoid suits and to defend them.

Nick Hanna,

Irvine

It may have been a factor 20 years ago, when Milberg Weiss and, in particular, Bill Lerach, dominated the field, but not now. There are plenty of plaintiffs’ firms vying for these cases and the competition to file securities class actions is fierce. In fact, despite the guilty plea in September, securities class action filings in 2007 are up significantly from 2006 levels. Securities litigation activity particularly jumped in the second half of 2007, fueled in part by an increase in subprime lending-related cases. The pace of securities filings has a lot more to do with increased market volatility than with Lerach.

Debra Deem,

Irvine

Dissatisfied shareholders will continue to file actions against corporations on all the same claims as they always have. Litigants who have been wronged are not reticent about seeking redress and Bill Lerach’s guilty plea will not change that.