Academic journal article
By Casey, Lisa L.
Journal of Corporation Law , Vol. 34, No. 1
Long before their arraignments on federal felony charges last year, class action lawyers Mel Weiss and Bill Lerach stood before the court of public opinion accused of abusing the legal system to enrich themselves. The partners received national attention for filing shareholder lawsuits against some of this country's best known corporations, usually alleging that top company management defrauded investors. Over the course of some three decades, Weiss and Lerach recovered on behalf of shareholders billions of dollars from corporate defendants; companies sued by the partners almost always chose to settle the fraud claims rather than risk judgment at trial. Compensated with multimillion dollar fee awards, Weiss and Lerach built their law firm, Milberg Weiss,1 into a litigation juggernaut, became multimillionaires themselves, and contributed generously to Democratic Party candidates and causes. In the process, Weiss and Lerach made numerous powerful enemies in executive suites from coast to coast. Directors and officers of public companies reviled Milberg Weiss and railed against defending lawsuits filed by its lawyers.2
In the early 1990s, Corporate America, Wall Street, and the accounting industry joined forces to lobby Congress for relief from securities fraud litigation. These politically influential interests complained to federal legislators that the plaintiffs' bar filed frivolous securities class actions and employed unethical, "abusive" litigation tactics to extract settlements from law abiding companies,3 thereby profiting at the expense of the shareholders whom they purported to represent.4 Proponents of litigation reform depicted Milberg Weiss and its two (in)famous senior partners as the primary corruptors.5 Congress received testimony that Milberg Weiss failed to investigate its fraud charges before racing into court and filing boilerplate allegations against innocent companies, often within hours of a significant decline in the companies' stock price. Legislators also heard that Milberg Weiss-rather than its shareholder clients-controlled the lawsuits, making even the most critical decisions without consulting the named plaintiffs representing the class. How did Milberg Weiss find compliant shareholders willing to lend their names to the lawsuits on such short notice? Rivals claimed that the law firm utilized a stable of "professional plaintiffs," small investors paid by the lawyers to serve as class representatives in dozens of cases.6 Stockbrokers who referred professional plaintiffs to the law firm received compensation, too.7 Weiss and Lerach did not deny to Congress that Milberg Weiss recruited shareholders to serve as plaintiffs. However, what most seemed to influence federal lawmakers of the need for securities litigation reform was a statement made by Lerach outside the hearings, away from Capitol Hill.8 In a 1993 magazine interview, Lerach had boasted: "I have the greatest practice of law in the world. . . . I have no clients."9
Milberg Weiss's foes spent almost $30 million on their lobbying and public relations campaign10 before they persuaded Congress to enact reforms, both procedural and substantive, restricting securities class actions. Thus was born the Private Securities Litigation Reform Act of 1995 (PSLRA).11 And yet, the PSLRA's formidable limits on securities class actions did not destroy Milberg Weiss's lucrative practice. Nor was the firm decimated by a subsequent federal law barring securities class actions from state courts.12 Even multiple adverse decisions from a Supreme Court hostile to securities litigation did not devastate Milberg Weiss's practice.13 In fact, Milberg Weiss solidified its position as the foremost plaintiffs' securities firm in the country.14 Rather than killing off the firm, securities litigation reforms gave Milberg Weiss-with its superior resources and ability to invest in riskier lawsuits-a competitive advantage over rival plaintiffs' law firms at the turn of the century. …