Could lawyergate cascade into Canada?
BEPPI CROSARIOL
From Wednesday's Globe and Mail
theglobeandmail.com
That's the question securities litigators here are asking themselves, following last week's bombshell indictment of the world's most prominent law firm dedicated to shareholder class-action suits.
In a move that has riveted legal watchers on both sides of the border, a U.S. grand jury last Thursday charged Milberg Weiss Bershad & Schulman LLP and two of its chief partners with conspiring to pay millions in kickbacks to clients who agreed to act as lead plaintiffs.
The scandal, teeming with juicy details of hide-a-way safes and jet-setting legal lifestyles, is casting a pall not only over the firm but over the entire plaintiffs' class-action bar, which has long been the scourge of big business and tarred with allegations of questionable motives and tactics.
It also is seen by many as a setback for Canada's own budding plaintiffs' firms, which have begun showing formidable spunk in launching shareholder and product-negligence suits here, as well as striking up alliances on cross-border cases with their aggressive U.S. counterparts, among them Milberg Weiss. "The U.S. has had the advantage of a plaintiff-friendly environment, so if it turns out that Milberg has had to resort to some of the things that are alleged, then I'm even more discouraged about our ability as Canadian plaintiffs' and class-action lawyers to have a vibrant class-action bar here in securities matters," said Joseph Groia, a principal with Toronto securities law boutique Groia & Co..
Payments by law firms to representative plaintiffs in class-action proceedings are illegal in both the United States and Canada because they are seen to conflict with the interests of the class.
In a plot worthy of prime time television, U.S. prosecutors allege Milberg Weiss partners David Bershad and Steven Schulman made payments to plaintiffs in dozens of actions dating as far back as 1981, in some cases using cash stored in a secret safe hidden in a credenza in Mr. Bershad's office.
Perhaps most incriminating is the evidence of retired mortgage broker Howard Vogel, who with his family members has acted as lead plaintiff in about 40 suits. In a plea bargain, Mr. Vogel admitted to $2.4-million (U.S.) in Milberg Weiss payments.
Why would a firm pay a plaintiff to file a suit? Because the first to register a case typically enjoys an advantage in being selected as the representative in a class proceeding, giving his or her lawyers lucrative carriage of the case.
Milberg Weiss, as well as Mr. Bershad and Mr. Schulman, face charges including conspiracy, racketeering, money laundering and filing false tax returns. Melvyn Weiss, co-founder of the 120-lawyer firm, was not named as a defendant and has staunchly denied all charges.
Regardless of the outcome, some defence lawyers say the case has already had the effect of exposing what many denounce as the ugly underbelly of a system driven more by lawyerly greed than full and fair justice. "It's been suspected for a long time," said Patrick O'Kelly, a litigation partner and class-action defence practitioner at Stikeman Elliott LLP in Toronto. "That investigation is six years in the making. It isn't something that's just popped up."
Mr. O'Kelly adds the damning optics can't help but produce fallout in Canada, particularly in Ontario, where a new statute introduced in January makes it easier for shareholders to launch class actions based on a false or incomplete company disclosure.
"I think you're going to see the [Canadian] courts scrutinize more closely who the representative plaintiffs are and what real interest they have in the case."
"The people who know Milberg Weiss will continue to hold them in high regard," said Tony Merchant of Saskatchewan-based Merchant Law Group, which has offices from British Columbia to Quebec. He predicts the case will have no lasting effect on the U.S. firm's stature as a "grade A, class, No. 1" operation, which has recovered more than $45-billion for victims of negligent companies.
Some pundits predict the charges could bring down Milberg Weiss regardless of the case's outcome because prospective new clients, including large pension funds, might be scared off by the taint of scandal. Such was the case with accounting giant Arthur Andersen, which collapsed in the wake of misconduct charges, despite having its conviction overturned by the U.S. Supreme Court. However, others argue that Milberg Weiss's clients tend to be society's underdogs rather than blue-chip corporations and so would not be as concerned with the optics of the current case.
Still others add that judges, too, might be more prone to awarding carriage of class-action suits to competing firms out of fear that Milberg Weiss's troubles could compromise plaintiffs' potential for success. |
