Unsettling Days for King of Class Actions

By Molly Selvin

July 23, 2006 12 AM PT

Times Staff Writer

These days Bill Lerach is either at the top of his profession -- or on his way to jail.

A decade after Congress passed tort-reform legislation written partly to curb Lerach’s growing clout against corporations, the class-action shareholder lawsuits he helped pioneer are booming and Lerach has roared back as one of the field’s most successful practitioners.

He won final approval in May for a $6.6-billion settlement for Enron Corp. shareholders, bringing his total recoveries for those investors to $7.3 billion -- with more money likely to be flowing his way. That came after a string of recent class-action wins.

Federal judges continue to name Lerach’s San Diego-based law firm as lead plaintiffs’ counsel in new class-action suits, a nod to his negotiating muscle that will entitle him to a larger helping of the legal fees.

Lerach’s bulging case files underscore his firm’s top ranking last year from Institutional Shareholder Services, which annually lists the top 50 law firms in securities class actions.

But if these are the best of times for the 60-year-old king of class actions, they could also be among the most unsettling months of his career.

Days before the Enron civil settlements, federal prosecutors indicted the New York law firm of Milberg Weiss Bershad & Schulman and two former partners for fraud and conspiracy.

Lerach was one of the most prominent partners at Milberg Weiss until he left in 2004 after what friends have characterized as a titanic clash of egos with senior partner Melvyn Weiss. Many experts believe that Lerach is “Partner B” mentioned throughout the 102-page indictment, generating speculation that prosecutors may yet bring charges against him.

During a pretrial conference last week, government attorneys said there was “a significant possibility” of additional indictments in the seven-year-long probe.

Stephen Gillers, who teaches legal ethics at New York University Law School, said Lerach “has to be concerned. His name is still in play.”

Meanwhile, Lerach continues to be criticized by business advocates, who say his tactics usually are nothing more than corporate shakedowns designed primarily to enrich lawyers. Should he be indicted, they say, it will be well deserved.

Lerach declined to be interviewed for this story. But one of his law firm partners, Patrick Coughlin, said, “Bill has always acted in an appropriate way in fighting on behalf of victims and consumers to hold companies accountable for their wrongdoing.”

Economist and actor Ben Stein described his longtime friend as “not the slightest bit worried” about indictment. “I don’t think he’s afraid of anything,” Stein said.

Christopher Patti, a University of California lawyer who has worked closely with Lerach since 2001 on the Enron case, said Lerach was “saddened, determined to move forward with respect to his own situation and do his work.”

If Lerach does evade prosecutors’ grasp, the man whose aggressive legal tactics caused corporate executives to gnash their teeth stands to capitalize on Milberg Weiss’ troubles. Ironically, that could make him even wealthier and more powerful than before.

If so, it wouldn’t be the first time that William S. Lerach slipped a lasso meant to catch him. His firm’s fat book of business is also sweet revenge on members of Congress and tort reformers who a decade ago tried to shut him down.

Lerach through the years had wrung billions of dollars out of WorldCom Inc., AT&T; Corp., Royal Dutch Shell, Apple Computer Inc. and a long list of blue-chip corporations. He did that generally through mammoth class-action lawsuits -- triggered by a drop in the target’s stock price -- that alleged that boardroom misconduct and fraud had occurred.

Tort reformers and corporate executives cried foul, slamming Lerach’s suits as meritless shakedowns. Any corporation that had to pay up as a result of his suits, critics said, had been “Lerached.”

The 1995 Private Securities Litigation Reform Act largely was designed to curb Lerach-styled lawsuits. Before the law, the attorney who filed suit first became lead plaintiffs’ counsel, whether his client owned five shares or 5 million shares in the targeted company. The law now gives the edge to the lawyer whose client has the biggest financial stake.

Lawmakers thought the switch would snuff out what they considered rapacious litigation. Instead, experienced firms such as Lerach’s -- along with Milberg Weiss and a handful of others -- proved best positioned to lure large institutional investors including the California Public Employees’ Retirement System and the Regents of the University of California, the lead plaintiff in the Enron shareholder suit.

As a result, “the litigation has been concentrated,” said Francis McGovern, a Duke University law professor.

And it has hardly stopped. Although the fewest securities suits since 1997 were filed last year, the total value of cases settled, excluding outliers Enron and WorldCom, skyrocketed to an all-time high of $3.5 billion, according to recent studies from Cornerstone Research. The median and average settlement amounts also reached unprecedented highs.

Lerach continues to land some of the biggest of those settlements. Since he left Milberg Weiss in 2004, his firm, Lerach Coughlin Stoia Geller Rudman & Robbins, has grown to 160 lawyers and opened offices in nine cities.

In the last two years, Lerach’s efforts have netted $10 billion on behalf of aggrieved investors and consumers, Coughlin said.

In the process, Lerach has pocketed legal fees of more than $400 million.

Stein lauded Lerach as the only thing standing between ordinary investors and “rogue boards of directors” whose behavior is “often self-serving, unethical and fraudulent.”

Jamie Court, president of the Santa Monica-based Foundation for Taxpayers and Consumer Rights, lauded Lerach as “fearless and uncompromising to the point of having a death wish.”

“It must kill [members of Congress] that they can pass laws on Capitol Hill and the guy just keeps doing well,” Court said.

Even former adversaries marvel at his courtroom ability and resilience. Washington defense lawyer John Beisner called Lerach “extremely enterprising, tenacious and gifted.”

Lerach’s ambition was evident early, childhood friend Gene Carney said. The two men, who grew up on the same block in Pittsburgh, played probably “100,000 games” of baseball, football and golf together, he recalled.

“You really wanted to be on Bill’s side because he always played to win,” Carney said.

Law became the focus for Lerach’s competitive streak after his father took him to see Spencer Tracy in “Inherit the Wind.”

“Bill said that movie was a changing experience,” Carney said. “It made him want to be someone who makes his point dramatically in court.”

After graduating second in his University of Pittsburgh law school class, Lerach started out in private practice in the 1970s defending corporations. According to people familiar with Lerach’s firm, he met Melvyn Weiss at a conference and was drawn to Weiss’ fast-growing class-action practice. Lerach soon switched firms and allegiances, joining Milberg Weiss in New York. He eventually migrated West to open that firm’s office in San Diego, where he now lives.

Lerach’s underdog sympathies have since fueled pro bono work on behalf of garment workers and truck drivers who alleged labor law violations and Alaskan fishermen who suffered damages resulting from the Exxon Valdez oil spill, among others.

He’s also been a generous and reliable donor to the Democratic Party and various liberal causes, giving more than $3.6 million since 1983, according to public records. President Clinton acknowledged that largesse in 1998 by appointing Lerach to a seat on the United States Holocaust Museum Council.

Lerach’s skill has made him exceedingly wealthy, with vacation homes in Hawaii and Colorado and an eye for the grand gesture. His 60th birthday party, attended by 300 guests, was held aboard the Midway, a decommissioned aircraft carrier in the San Diego harbor, with his brother Richard emceeing.

He litigates with the same taste for flamboyance -- and a killer instinct. His televised arrival at a Houston courthouse in 2002 with a box of shredded Enron documents -- evidence he termed “a smoking howitzer” in the shareholder suit he filed -- was vintage Lerach.

Lerach’s memory is long, and despite a disarmingly plump face and a halo of gray-blond frizz, his grudges run deep.

His expletive-rich comments about a law school professor who frequently testified for corporations produced some embarrassing moments for Lerach when the man sued him for abuse of process. The case was ultimately settled.

But to his critics, Lerach embodies the worst traits of what Walter Olson, a senior fellow at the right-leaning Manhattan Institute for Policy Research, calls “class actioneering”: combative lawyers targeting honest corporations for lottery-like legal fees.

Lerach is “far from the only lawyer who has concluded that being noisy and unpleasant is good tactics for getting what you want,” Olson said. He stands out because “he’s personalized it in a way that others haven’t done, turning litigation into a contest of peacocks in the barnyard.”

Attorneys have an obligation to act in “a responsible and ethical manner,” Olson said, “not just for the lawyers’ gain.”

Federal prosecutors alleged that Lerach’s old firm, Milberg Weiss, crossed that line. The 20-count indictment charged that the firm and two partners recruited “paid plaintiffs” to buy stocks in anticipation of a drop in value, positioning the firm to take the lead in these class actions. The firm concealed the kickbacks of at least $11.3 million by paying plaintiffs in cash or through intermediary law firms, according to the government.

Milberg has denied any wrongdoing, and co-founder Weiss predicted that the firm would be vindicated. However, since the indictment, several partners and clients have departed.

The specific acts described in the indictment involved cases that occurred over a 25-year period before 2004, when Lerach left Milberg. The document alleged, for instance, that “Partner B” offered former Milberg Weiss plaintiffs 5% to 10% of the fees in future cases they brought to the firm and advised them to “purchase stocks in companies in order to position them and Milberg Weiss to file lawsuits in the future.”

Legal observers are divided about whether prosecutors are still gunning for Lerach.

In February, Lerach and Weiss were notified that neither man faced charges based on evidence that had emerged to that point.

Olson, like others, thinks that means “if they had enough to indict him, they would have done it by now.”

But prosecutors could still come after Lerach if new evidence of wrongdoing emerged -- for example, if one of those already indicted agreed to cooperate with the government.

A former federal prosecutor, speaking on condition of anonymity, said, “It would be an extraordinary departure from [Justice Department] custom and practice to identify a person in a conspiracy indictment, even using a code like Partner B, if it were not the intent of the government to ultimately seek an indictment of that person.”

Lerach has hired his own criminal defense lawyer and in recent months his firm added a former federal judge and former federal prosecutor experienced in white-collar crime. Both men could help plot legal strategy if Lerach is targeted, experts said.

In the meantime, however, life for the king of class actions is dandy.

A father of three children from three former marriages, Lerach is engaged to be married a fourth time.

His firm has launched a barrage of new suits. One alleges, for example, that sunscreen makers have exaggerated claims that their products protect against skin cancer. Another charges that a company that operates red-light cameras at traffic intersections has engaged in the private prosecution of citizens for profit. Others charge a slew of insurance companies with predatory or discriminatory marketing practices.

An even longer list of ongoing securities suits is posted on the firm’s website. Lerach alleges that executives at the targeted corporations -- including heavyweights such as Bausch & Lomb Inc. and Coca-Cola Enterprises Inc. -- made false or misleading statements regarding their companies’ growth potential that resulted in losses for shareholders.

Lerach is like a lizard, economist Stein said. You can cut off his tail but “he’ll grow another one.”