Some of the best-known lawyers in the country are now headed for prison. Last week, Richard F. Scruggs, who squeezed hundreds of billions of dollars from tobacco companies, pleaded guilty to trying to bribe a state court judge in Mississippi. And last month a former Milberg Weiss partner, William S. Lerach, was sentenced to two years in prison after pleading guilty to a role in the same kickback scheme that ensnared Mr. Weiss.
These are lawyers who earned tens of millions of dollars in fees, who humbled entire industries and whose names alone could stir fear and vitriol in corporate boardrooms. They have been the targets of criticism for years from business groups that have complained that their lawsuits were frivolous and costly.
The recent guilty pleas have been met with quiet glee in such business circles, as the lions of the trial bar appear to get, in the eyes of their critics, their long-delayed comeuppance for overindulging in litigation. Some legal scholars also frowned on the way members of the plaintiff-side bar handled their cases — including those that had merit.
“It’s a situation where it appears that there has been fraud in pursuit of fraud,” said Joseph A. Grundfest, a former commissioner of the Securities and Exchange Commission who is now a law professor at Stanford University. “And just like mom explained that two wrongs don’t make a right, it follows both that corporate executives shouldn’t lie and the lawyers suing them shouldn’t steal. What’s complicated about that?”
Although the guilty pleas have come one after the other, lawyers and law professors emphasized that the facts underlying each case were different and that lawyers would continue to sue corporations they believe committed some wrong against their clients.
“We should not lose sight of the notion that this was in some ways fortuitous that prosecutors got put onto this by a peculiar kind of constellation of events,” said Richard A. Nagareda, a law professor at Vanderbilt University, referring to Mr. Weiss, Mr. Scruggs and Mr. Lerach. He added that now “there is more awareness that there is some level of abuse going on.”
Mr. Weiss will plead that he conspired to pay off plaintiffs in lawsuits against corporations on behalf of shareholders who contended corporate misconduct had occurred. The scheme, hidden from the courts, was intended to ensure that his firm was best placed to control the litigation and collect the largest share of legal fees, according to prosecutors. Under the plea agreement, he faces up to 33 months in prison and would pay back $9.75 million in “ill-gotten gains” along with a fine of $250,000.
In a statement his lawyer released, Mr. Weiss said, “I deeply regret my conduct and apologize to all those who have been affected, including all of the wonderful and extremely talented lawyers and other employees of the firm, none of whom had any involvement in any wrongdoing.”
Milberg Weiss remains a defendant in the case brought by federal prosecutors in Los Angeles; all but one of the other individual defendants, Paul T. Selzer, a lawyer, have now agreed to guilty pleas. In a statement on Thursday, the firm announced that it was changing its name to Milberg L.L.P. and that Mr. Weiss would resign.
“Having previously believed former leaders’ assurances of their innocence, the firm is now seeking to find a fair and appropriate resolution of remaining issues so that we can continue our work on behalf of injured investors and consumers,” Sanford Dumain, a member of Milberg Weiss’s executive committee, said in the statement. “Last year, management of the firm was taken over entirely by partners who were neither engaged in, nor aware of the wrongdoing. None of the lawyers or staff remaining at the firm has ever been implicated in this misconduct.”
In corporate circles, Mr. Weiss’s guilty plea drew expressions of contentment.
“Bill Lerach and Mel Weiss practically invented the securities class-action lawsuit and used it throughout their careers to cause major harm to our judicial system,” Lisa A. Rickard, president of the Institute for Legal Reform at the United States Chamber of Commerce, said in a statement. “The lawsuits they brought resulted in overcompensating some investors and shortchanging others — all while collecting hundreds of millions of dollars in legal fees for themselves.”
The satisfaction of business leaders illustrates how the perception of trial lawyers has changed in recent years. After the corporate scandals that engulfed Enron, WorldCom and other companies in 2001 and 2002, lawyers for the shareholders could bask in the limelight.
“For so long they were regarded as white knights by many who wrote about them; they were held up as great forces for the integrity of the system,” said Walter Olson, senior fellow at the Manhattan Institute’s Center for Legal Policy who has questioned shareholder litigation practices.
Shareholder advocates could argue before both courts and the public that they defended lowly investors exploited by corporations. Now major institutional investors are plaintiffs in lawsuits against public companies, replacing individual shareholders of the kind Mr. Weiss and his co-defendants represented.
“The irony is that the path he forged is now so well established that the activities that got him in trouble are no longer necessary,” Nell Minow, co-founder of the research firm Corporate Library, wrote in an e-mail message. “Because of what he has accomplished, lawyers do not need to scrounge for plaintiffs.”
With the guilty pleas by Mr. Weiss and Mr. Lerach, some shareholder lawyers expressed concern that courts might be unduly hostile to their claims.
“It’s certainly not good for the environment,” said Stanley Bernstein of Bernstein Liebhard & Lifshitz, a plaintiff firm active in shareholder litigation. “We would hope that the courts would see the overwhelming majority of lawyers, for plaintiffs and defendants, acting in an ethical fashion. The plaintiffs’ lawyers should not be smeared by this any more than all politicians should be smeared by a dirty politician.”
By JONATHAN D. GLATER
Published: March 21, 2008
New York Times