Risk Management

Ganging Up on the Lawyers

There's trouble of a historic nature for the plaintiffs' bar, a Stanford study shows, to go along with the legal mess at Milberg Weiss.
Roy HarrisJuly 11, 2007

If the plaintiffs’ bar is being undercut by the criminal investigation of Milberg Weiss, it is only the latest blow to what seems to be a declining historical interest in class-action suits.

The Stanford Law School Securities Class Action Clearinghouse, working with Cornerstone Research, recorded only 59 filings during its regular six-month review of class-action suits, for January through June 22 this year. That represents a 42-percent drop from the the average semi-annual filing rate of 101 over the last decade. It was the fourth consecutive six-month period of filings well below historical averages, the research found.

Stanford professor Joseph Grundfest, director of the Clearninghouse and co-director of the Rock Center on Corporate Governance, said of the latest results: “This is starting to look like a permanent shift, not a transitory phenomenon.” He acknowledged two possible causes: less corporate fraud — the result of heavier government enforcement action — and a strong stock market. Traditionally, the research has found that increased filings correlate with stock-market volatility because of the sharp losses suffered by potential claimants.

The research did not comment on the volatility currently affecting the plaintiffs’ bar, what with major splits having occurred in the traditional class-action law firms and the government probe targeting New York-based Milberg Weiss.

In the latest round of troubles facing that firm, former senior partner David Bershad has agreed to cooperate with prosecutors who have targeted high-profile attorneys, including Melvyn Weiss and William Lerach. The case is built around allegations that secret payments were made to named plaintiffs in class actions.

The latest wrinkle in the case was yesterday’s guilty plea from a Beverly Hills doctor who said he had accepted $6.1 million in kickbacks for serving as a lead plaintiff in securities lawsuits filed by Milberg Weiss, according to Bloomberg News.

The Stanford report on the lower historical trends in class actions did acknowledge two recent factors that could be affecting filings, though. On the side of further dampening suits, it cited the Tellabs v. Makor Supreme Court decision toughening the standards for the filing of such litigation by requiring there to be convincing evidence of fraud before a suit can be considered. New suits are resulting from the subprime lending scandal, however, according to the report, with at least three having been filed already.

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