Ex-Milberg Partners Sue Crooked Colleagues

Ex-Partners Sue Crooked Colleagues They Say Used Them as a "Human Shield"
The New York Law Journal by Anthony Lin - June 18, 2008

Two former Milberg partners have sued the law firm's founder, Melvyn I. Weiss, and the three other firm leaders recently convicted of participating in a scheme that paid kickbacks to class action plaintiffs, claiming the four men's illegal conduct constituted a breach of their fiduciary duty to their partners.

The suits, which came just one day after federal prosecutors agreed to drop criminal charges against Milberg itself in exchange for the payment of $75 million in fines (NYLawyer, June 17), could be the beginning of a tide of litigation against Mr. Weiss, William S. Lerach, David J. Bershad and Steven G. Schulman, the former Milberg name partners who have pleaded guilty over the past several months to orchestrating the kickback scheme. J. Douglas Richards, one of the two ex-partners to sue yesterday, predicted as much in an e-mail to the Law Journal. "Private litigation by those injured by the misconduct is just beginning," he said. Indeed, Milberg management committee member Sanford Dumain said in interviews Monday with the Law Journal and other publications the firm itself was exploring litigation against its former leaders. Mr. Richards and Michael M. Buchman, both former antitrust partners who left Milberg together in January 2007, filed separate pro se complaints yesterday in Manhattan federal court. Mr. Buchman named all four of the former name partners as defendants but Mr. Richards excluded Mr. Bershad. Mr. Richards declined to discuss this aspect of the case, but the exclusion is presumably to preserve diversity jurisdiction, as both Messrs. Richards and Bershad are New Jersey residents. Each suit is asking for $3 million in damages.

The firm leaders' scheme spanned 25 years and involved the payment of millions of dollars in kickbacks to individuals who agreed to serve as named plaintiffs in class action suits filed by Milberg. Such kickbacks, which expedited the firm's filing of suits, are illegal because named plaintiffs are not permitted to have interests separate from other class members. Kickbacks were paid in 165 cases that ultimately garnered Milberg $239 million in legal fees. Federal prosecutors in Los Angeles have said the conspiring partners took steps to hide their illegal activities from other lawyers at the firm. Both of the suits filed yesterday argue the conspirators owed a duty to their innocent partners to come clean to the government about their illegal activities. "Instead, Defendants refused to acknowledge the truth and continued to misrepresent the facts to government authorities, thereby putting Milberg Weiss as a firm, and the financial and professional interests of Plaintiff and other innocent Milberg Weiss partners in grave jeopardy," Mr. Richards said in his complaint.

Mr. Buchman said in a statement yesterday that the conspiring partners used their colleagues as "human shields" as prosecutors closed in. In his complaint, Mr. Buchman noted Mr. Weiss and the others continued to make defiant statements, both internally and outside the firm via the milbergweissjustice.com Web site they launched, almost until the very end. Both men claim the firm's indictment specifically injured them when it was cited by opposing counsel as grounds for their disqualification in two cases in which they were serving together as lead class counsel. The federal judge who disqualified Messr. Richards and Buchman in one instance noted there was no suspicion of misconduct against either of them personally but that "a clean break is best" since the firm's future was uncertain. Messrs. Richards and Buchman claim they had to withdraw from the firm to maintain their practices. Both are now partners at the New York firm of Pomerantz, Haudek, Block, Grossman & Gross.

The two had led Milberg's antitrust practice, bringing cases over the costs of prescription drugs, Microsoft software and auction house fees. They also participated in the massive case against MasterCard and Visa that produced the largest antitrust settlement in history. Prior to joining Milberg in 2000, Mr. Richards was former deputy general counsel of the Commodity Futures Trading Commission and a former litigation partner at O'Sullivan Graev & Karabell, the New York firm acquired by Los Angeles-based O'Melveny & Myers in 2002. Mr. Buchman, who joined Milberg Weiss in 1996, was formerly an assistant attorney general in the antitrust bureau of the New York Attorney General's Office. Lawyers for Messrs. Weiss, Lerach and Schulman did not return calls for comment yesterday.