Tim, here is an interesting article regarding the grandaddy of Class Action lawsuits - Bill Lerach:
Trial lawyers have made a thriving business of extracting money from high-tech companies. They're not about to let a federal law stand in their way.
A nice, clean California industry
By Damon Darlin
LAST YEAR, Congress made it harder for plaintiffs' lawyers to use the federal courts to extort money from companies in so-called strike suits. It was a first, welcome step toward tort reform. These suits had fattened the purses of a small number of attorneys who would promptly launch a lawsuit against any company, theoretically on behalf of shareholders, whose stock suddenly dropped. Since technology stocks are extremely volatile, Silicon Valley companies were prime targets and the lawsuits became a serious drain on management time and money in a vital American industry.
Though he had indicated he would sign the reform measure, Bill Clinton reneged in favor of all such lawyers, including William Lerach, the San Diego lawyer who has made tens of millions of dollars from these suits and who has generously shared some of his winnings with various Clinton and Democratic Party funds.
Partly at Lerach's behest, Clinton vetoed the bill. Fortunately, Congress overrode the veto, by a margin of three to one, but Bill Lerach and his friends don't give up so easily. They have a new trick up their sleeve, and it's a beaut. Lerach, who heads the San Diego office of the Milberg Weiss Bershad Hynes & Lerach law firm, and other lawyers specializing in securities class action have written an initiative for California's November 5th ballot. If their Proposition 211 passes, California's state courts will become the easiest place in the country to file and win lawsuits against corporations. Congress be damned.
Lerach and his fellow buccaneers have ample reason to want to thwart the will of Congress. Between 1989 and 1994, Lerach and his ilk have launched class actions against 53 of California's top 100 high-tech companies. The cases rarely go to trial: To save time, money and productivity-draining aggravation, the targeted companies usually settle. Total take from the companies: well over $600 million, of which the lawyers probably got about $200 million. Bill Lerach himself makes between $7 million and $10 million a year (Forbes, Nov. 6, 1995). In the California high-tech community there's even a new verb: to lerach (leh-rack), meaning to extort money from a company legally. Think of leraching as a kind of tax on American high tech and other industries.
Lerach, no fool when it comes to public relations, tried to call Proposition 211 the "Retirement Savings and Consumer Protection Act." The California attorney general officially named it the "Attorney-Client Fee Arrangement-Securities Fraud" initiative. Trial lawyers sued to change it back but failed.
California law, not the laws of Congress, would become the law of the land, superseding the laws of any of the other 49 states.
Whatever it's called, Proposition 211 has nothing to do with protecting the savings of widows and orphans, and everything to do with upholding the incomes of the strike-suit lawyers. Lerach's initiative gives the class-action lawyers more power to coerce a settlement than they had under federal law prior to reform. The Lerach proposal would allow punitive damages in securities fraud cases; this has never been part of federal law. Allowing juries to assess punitive damages greatly increases a company's risk in fighting a case to trial, and puts huge pressure on the company to settle. Which is what leraching is all about. Blackmail seems not too strong a word.
Proposition 211 would also make directors personally liable and would forbid companies to indemnify their directors-further pressure to settle. With their families' finances at risk, directors would urge a quick settlement. Even if a company bought directors' liability insurance--a costly solution--insurance companies facing punitive damages would also urge a payoff to the lawyers rather than a fight. "Passage of Proposition 211 would destroy corporate governance as we know it," warns Intel Chief Andrew Grove.
The Lerach forces--they include plaintiff lawyer friend Ralph Nader--have raised $5 million.
Lerach's proposal would even extend the fraud law to accountants and financial planners. More deep pockets to sue. More worried families pushing to settle.
"People in other parts of the country could smile and say, 'There goes California again,' " says Thomas Lavelle, Intel's group counsel. "But it will affect them, too." Here's why:
Any smart attorney wanting to hold up a company would rustle up a California shareholder (no difficult task) and file in one of the Golden State's courts. The lawyers would then ask the state court to certify a national class of wronged shareholders, even if those shareholders lived in Massachusetts and traded the stock in New York. Where strike suits are concerned, California law, not the laws of Congress, would become the law of the land, superseding the laws of any of the other 49 states.
Lerach, aware that Forbes has been in the vanguard of exposing trial lawyer shenanigans, refuses to discuss his Proposition 211 with us, or hardly anyone else. He leaves that to a mouthpiece: Benjamin Stein, part-time Pepperdine University law professor, sometime financial writer and sometime actor. "I don't care if Bill Lerach makes a lot of money" [if investors gain], fences Stein. "Anything that makes directors pay attention is incredibly useful."
Will California voters go along with the proposition? It's hard to predict. Both sides have fat war chests. "We will raise whatever it takes to defeat Proposition 211," vows Kirk West, California Chamber of Commerce president. Foes of Proposition 211 are airing TV commercials showing well-dressed lawyers alighting from private, out-of-state jets and climbing into limousines: the voice-over warns of the pillage to come.
But you can't easily dismiss the power of Bill Lerach, a man who can get the President of the United States to backtrack. The Lerach forces--they include plaintiff lawyer friend Ralph Nader--have raised $5 million, half of it contributed by Lerach's firm. And they're deft with the cynical sound bite. Queried by Forbes, Lerach flack Stein quipped: "It [securities litigation] is a good, clean industry for my California." |
