The Trial Lawyers' Enron
July 7, 2005; Page A12
WSJ.com
The Justice Department is finally starting to take a hard look at some dubious legal practices, and it isn't a pretty sight. If a recent federal indictment that refers to Milberg Weiss is anything to go by, the trial bar has its Enron.
That indictment, delivered up in late June, charges two California attorneys with conspiracy, fraud, money laundering and obstruction of justice -- among other felonies. Class-action lawsuit giant Milberg Weiss isn't formally charged, though the firm has admitted it is the "New York Law Firm" cited in the indictment as having made numerous illegal payments to plaintiffs. Justice has also made clear that criminal charges against Milberg Weiss partners, or even the entire firm, are possible.
Something like this indictment has long seemed inevitable as trial bar practices have grown ever more outrageous. Sham "screenings" to round up asbestos plaintiffs, forum shopping for friendly juries, "coupon" settlements that enrich only lawyers and frivolous lawsuits have all become staples of today's tort system. Yet they have received almost no media, much less legal, scrutiny.
The California indictment begins to expose some of this corruption. The focus of the charges is retired Palm Springs lawyer Seymour Lazar, who seems to have had a second career as a plaintiff in Milberg Weiss lawsuits. From 1976 to 2004, Mr. Lazar and family members (including wife, son, daughter and mother-in-law) served as named plaintiffs in more than 50 class actions and shareholder derivative actions brought by the giant law firm. Name a deep pocket and Mr. Lazar or his dearly beloved sued: Standard Oil, United Airlines, Lockheed, Denny's, W.R. Grace and Pacific Gas & Electric, et cetera.
According to prosecutors, Mr. Lazar wasn't doing this merely for the settlement money. The indictment claims Milberg Weiss quietly slipped Mr. Lazar and family members a share of some $44 million in attorney's fees that it made from these cases. It did so by secretly funneling at least $2.4 million of these kickbacks to Mr. Lazar's lawyer, Paul Selzer, as well as to others (including Mr. Lazar's own lawyer son).
Mr. Selzer, who is also charged in the indictment, allegedly then used this money to pay Mr. Lazar's legal and other bills, as well as to make investments and political contributions on his behalf. All of this violates legal norms in which lead plaintiffs, such as Mr. Lazar, are obliged to act in the best interest of all parties to the class action.
The larger scandal is that few, if any, of these suits had any real merit in the first place. Several cited in the indictment are the kind of "shakedown" suits that helped make Milberg Weiss famous. Many were filed in response merely to a drop in the company's share price, which Mr. Lazar would use as an excuse to claim in a lawsuit that management had "misled" shareholders.
Companies typically settle these suits rather than endure costly and time-consuming litigation. And while Congress passed a law in 1995 (over Bill Clinton's veto) reining in the worst securities-lawsuit abuses, the trial bar has found ways to work around the prohibitions. Milberg Weiss has filed more than a dozen new cases in the past month alone.
One question is why Milberg Weiss wasn't indicted given the evidence that is already public. The court papers flatly state that the law firm paid these illegal kickbacks, and further say Milberg Weiss then disguised the payments in its own accounting and issued false tax forms. One answer may be that prosecutors hope the indictment causes Mr. Lazar or Mr. Selzer to cooperate with the probe and testify in detail about how Milberg Weiss operated in these lawsuits.
The law firm insists it is innocent and that it is cooperating with the investigation. The two defendants also deny the charges. But we hope Justice pursues this case vigorously wherever it leads, including if necessary to individual Milberg Weiss partners, current or past. Milberg Weiss's former West Coast heavyweight, Bill Lerach, broke away and formed his own firm last year -- after the Justice investigation was under way.
For years now it's been clear that some members of the plaintiffs bar have put the pursuit of riches above their own fiduciary duty. The American tort system was designed to redress wrongs, not to commit more of them.
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