• 28 May 2009

A Response to James McDonald’s “Milberg’s Monopoly” in Duke Law Journal Vol. 58

Len Simon - Former Partner, Milberg LLP

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This is a response to James McDonald’s student Note, Milberg’s Monopoly: Restoring Honesty and Competition to the Plaintiffs’ Bar in Volume 58 of the Duke Law Journal.  Click here for the Note.

Although the Duke Law Journal’s article, Milberg’s Monopoly: Restoring Honesty and Competition to the Plaintiffs’ Bar,1 reflects a lot of effort by student author James McDonald, it is a very disappointing article in terms of analysis and reliability of information. Mr. McDonald and the Duke Law Journal are entitled to express their opinions on the important issues raised by class actions, but the article misapprehends many of the realities of class action law and practice, and repeats highly pejorative rumors and speculation about class actions as though they were fact.

By way of introduction and disclaimer, I was a partner in the Milberg Weiss firm for several years, and was an editor of the Duke Law Journal many years before that. I now practice and teach law.

The following are my principal concerns with the article:

1. Milberg Weiss did not suffer an “Enron-like collapse,” (p. 506), and is alive and well.

2. The federal prosecutors never charged, nor could they ever prove, that class members were harmed by the wrongdoing (p. 506). The best they could do when the trial judge asked them whether this was a “victimless crime” was to suggest that competing class action firms might have lost business to Milberg Weiss. The underlying cases were real fraud cases, prosecuted to judgments or court-approved settlements, yielding court-awarded attorneys fees. No client or defendant was disadvantaged by the wrongdoing, which affected only internal issues among class counsel as to leadership of the cases.

3. For the reasons stated in the prior paragraph, it is a gross overstatement to say that the tactics at Milberg Weiss were “as fraudulent and unethical as any action taken at Enron, WorldCom or Tyco.” (p. 507). Stockholders lost billions in those frauds, and the wrongdoing was central to the issuers’ businesses and was widespread. The vast majority of Milberg Weiss’s lawyers were uninvolved in the wrongdoing, and continue to represent investors and others, with court approval. Indeed, the Coughlin Stoia Robbins Geller & Rudman firm, partial successor to Milberg, was appointed to represent the investors in Enron despite ad hominem attacks like those in this article made by competing class action firms seeking competitive advantage from the indictment.

4. The term “strike suit,” (p. 507), is both pejorative and highly ambiguous in meaning. Contrary to the Note’s suggestion, it is most often used to refer to cases that have little merit but are filed to obtain a quick “cost of defense” settlement. That does not seem to be what the author means because few (if any) of the cases the author refers to were settled at that low level. It does not advance understanding of class actions to use such undefined (but highly charged) terms.

5. At page 508, Mr. McDonald says that Milberg Weiss breached its fiduciary duty to clients, but again, the Note provides no backup for that statement, and the prosecutors declined to state a theory for proving it.

6. Securities fraud cases do not pit stockholders against their own company. (p. 511). Rather, they pit stock purchasers during a period of alleged fraud (often far less than all stockholders, and including many ex-stockholders) against those who made false statements (officers, directors, accounting firms, investment bankers, et cetera, plus the company). The fact that business interests attack class actions by misdescribing them this way is not a good reason for the author to parrot this language. (Derivative cases do meet the author’s description, but derivative cases and class actions are different, and a serious legal journal should be able to keep them straight.)

7. To say that “many suits settled quickly for only a fraction of their potential worth” (p. 512) is the kind of vague attack we often hear on Capitol Hill. Nearly every civil case settles for a “fraction of its worth,” the only question being whether the fraction is three-fourths, or one-hundredth. Again, the author is repeating pejorative and empty phraseology employed by those unhappy with the fact that investors can band together and try to recover their fraud losses. Professor Janet Cooper Alexander’s article suggesting that all cases settle for the same fraction of their worth reached that conclusion by extrapolating from a grand total of three cases! It is rebutted in a piece I coauthored in the San Diego Law Review. Possibly the author’s research did not find it.

8. Mr. McDonald says that Mr. Lerach and his colleagues in California (I guess that would include me) “dreamed up” new types of claims and defendants, and went so far as to sue accountants, lawyers and bankers! There is nothing exotic about suing accountants for securities fraud, and lawyers (White & Case) were defendants in the first securities case I ever worked on, years before I joined Milberg Weiss. Bankers paid most of the billions recovered in Enron, so if we dreamed it up, it was a good thing.

9. The Note says that unidentified sources with whom the author has not spoken call Mr. Lerach a “Godfather-like . . . ruthless don” who demanded “tribute” from other law firms. (p. 514 n.60). This seems like a rather reckless statement to make without sources, and seems more appropriate to the pages of People Magazine than of the Duke Law Journal.

10. As the author points out, the 1995 Private Securities Litigation Reform Act (written by people who didn’t like class actions) placed large investors in a favored position as class action plaintiffs on the theory that large investors would know whom to sue, whom to hire as counsel, and when to settle. Thereafter, Milberg Weiss was retained by many large investors—public and union pension funds. Unable to accept a positive point that does not fit into his thesis, the author adds that “rumor suggests that Milberg Weiss paid a share of its attorneys’ fees to labor pension funds it represented.” (p. 532). I do not believe this to be true, nor have I ever read it anywhere else, and in any event, this type of rumor-mongering is really quite outrageous for an academic publication.

11. Mr. McDonald concludes, based on who knows what, that even after the 1995 Act, and separate and apart from the Milberg Weiss wrongdoing, “law firms continue to be chosen [for class actions] using suboptimal criteria such as personal relationships, as opposed to quality of representation.” (p. 533). How did he conclude this? Institutional plaintiffs choose law firms the same way corporate defendants do—location, reputation, prior relationships, price, et cetera. If institutional plaintiffs are choosing the largest, best funded, best staffed plaintiffs’ firms, and often using the same firm more than once, (p. 535) what exactly is wrong with that?

12. Even when the author trips over useful information, he misapprehends it. The reason securities lawyers were puzzled over the Milberg Weiss investigation and dubious about serious charges resulting therefrom (p. 533 n.188) is that they understood that what was being investigated was basically beside the point to securities litigators focused on the merits of their cases. (See next point.)

13. More generally, defense lawyers and other sophisticated players in this field (including judges) understand that the individual plaintiff does not run a class action, his lawyer does (with court oversight), and class action law recognizes this in many ways, for example, permitting counsel to settle a case even if the class representative does not support the settlement. Picayune disputes over who the plaintiff is, and whether he will “supervise” counsel bore serious litigators to death, because they are phony issues entirely collateral to the merits.

14. The author bemoans the lack of small firms obtaining lead counsel status (p. 535), but small firms do not get the defense side of class actions either, probably because these are not small cases.

15. Why should a pension fund that litigates one class action successfully be presumed less qualified to litigate another one (p. 541)? The author believes that constantly changing plaintiffs and constantly changing plaintiffs’ counsel somehow provides a public benefit, but it would appear more of a detriment to investors. Experience counts, and certainly is not a negative.

16. The author suggests that the class action market is dominated by “a few large firms seeking fast settlements.” There is no support cited for the latter half of this assertion, and it is simply wrong. The largest and best firms in this business settle some cases fast, settle some cases on the courthouse steps, and take some cases to trial. It is the smaller firms, and the neophytes, the very firms the author wishes to elevate, who often settle fast before they bankrupt their small law firms with a case that is more challenging than they suspected when they read breezy articles about the riches of class action lawyers.

I am sorry to sound so harsh toward a student piece, but Mr. McDonald chose a controversial topic, and having waded into deep water, he should have known how to swim better than this. I have spent thirty-five years in this field defending, prosecuting, and teaching class actions, and it is sad to read some of these misunderstood points, inaccurate allegations, and outlandish rumors in a publication I once served on, which is published at an institution I care about very much.dingbat

 

Acknowledgments:

Copyright © 2009 Duke Law Journal.

Len Simon is a former Partner at Milberg Weiss and a former Editor of the Duke Law Journal.

This Editorial is a response to the following full-length Note:  James McDonald, Milberg’s Monopoly: Restoring Honesty and Competition to the Plaintiffs’ Bar, 58 DUKE L. J. 505 (2008). Click here for the full version.

  1. 58 DUKE L.J. 505 (2008).

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