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Judge Rips One NY Firm for Greed, Another for a Possible Conflict

New York Lawyer - December 5, 2007
By Zusha Elinson - The Recorder

Milberg Weiss can't seem to shake the shadow of its criminal probe.

In an order rejecting a class action settlement in a securities case, San Francisco Chief District Judge Vaughn Walker ripped the firm for asking for too much money. He also cited the firm's pending criminal charges at length in a discussion about whether the plaintiffs lawyers were really protecting the interests of the class.

The ruling came Friday in In Re Chiron Corporation Securities Litigation, in which plaintiffs accused the drug company of not disclosing facts about its failure to bring a flu vaccine to market in 2003 and 2004.

A settlement agreement of $30 million plus interest was reached in March between the plaintiffs and the drug company, which is represented by Skadden, Arps, Slate, Meagher & Flom. Walker denied Milberg's motion for preliminary settlement approval in his ruling and has set a case management conference for Dec. 20.

Milberg Weiss has been dogged by a criminal probe into allegations that the firm paid kickbacks to lead plaintiffs in major class actions. William Lerach and other former partners have pleaded guilty, though the Milberg Weiss firm and name partner Melvyn Weiss have pleaded not guilty and are fighting the charges.

In 2004, Milberg Weiss Bershad Hynes & Lerach split into two firms, then known as Lerach Coughlin Stoia & Robbins in San Diego and Milberg Weiss Bershad & Schulman in New York.

In the Chiron case, the plaintiffs lawyers sought $7.5 million -- a 25 percent cut of the settlement -- but Walker said it was too much. Walker wrote that when calculating the firm's hours using typical hourly fees, Milberg's request amounts to a multiplier of eight or even 10. The normal multiplier for class counsel, Walker wrote, is between one and four.

"Class Counsel need to justify both the application of a multiplier and its level as much as they need to show that their hourly rates are in line with competitive norms," Walker wrote.

The judge further questioned whether the lead plaintiff -- International Union of Operating Engineers Local No. 825 Pension Fund -- was an adequate class representative because, he wrote, by approving the big fee for the lawyers, it didn't appear to be trying to maximize recovery for the class.

Finally, Walker raised the criminal probe as a factor in considering the settlement agreement.

"It is against this tableau common to all class action settlement proposals that the criminal charges against lead counsel pose a concern here, because the kickback arrangements alleged criminally are that lead counsel gave the paid plaintiffs a greater interest in maximizing the amount of attorneys fees awarded to lead counsel than in maximizing the net recovery to absent class members," he wrote.

Defense lawyers were not immune from Walker's pen, either. Walker wrote that because Skadden is representing Lerach Coughlin in connection with the criminal probes, "the court is troubled whether Skadden, Arps is able to probe the adequacy of lead plaintiff and/or lead counsel lest a rigorous challenge uncover problems that might be traced back to Lerach Coughlin."

James Lyons, a Skadden lawyer on the case, would not comment on the ruling, but said that Skadden had worked for certain Lerach Coughlin lawyers but not the plaintiffs firm.

"Skadden has represented some individuals at Lerach Coughlin, none of whom had any involvement in the [Chiron] case, and we did not represent the Lerach Coughlin firm," he said Tuesday.

Patrick Coughlin, name partner at Coughlin Stoia Geller Rudman & Robbins -- the Lerach Coughlin firm's new name -- said that his firm, though an offshoot of Milberg Weiss, was not class counsel on the case.

"Whatever he does to Milberg, I feel sorry for them, but it has nothing to do with us," Coughlin said.

A Milberg Weiss attorney declined to comment on the ruling. Walker is known for his skepticism of securities class actions and has had disagreements with the firm before.