Concocted Cases

Very clearly, one of the most interesting legal stories of 2007 was the criminal prosecution of renowned class action lawyers William Lerach, Dickey Scruggs and Melvin Weiss. Lerach, together with other members of the former Milberg Weiss firm, entered a plea agreement and likely will serve jail time. Scruggs and Weiss have vowed to fight the charges through trial.

Some will celebrate these prosecutions as a form of poetic justice. That, in my view, would be shortsighted. It would be far better if they caused critical judicial and legislative examination of the legal circumstances that gave rise to the conduct at issue.

The Lerach and Weiss prosecutions involve allegations that these lawyers and their firms paid individuals to serve as plaintiffs in class actions. Why, one might ask, would two of the most well-known class action lawyers in the country have to pay clients? Lerach and Weiss, after all, claim to be victims' rights lawyers who have brokered billions of dollars in settlements in their cases. The answer is simple --speed.

In today's world of tort and securities litigation, the lawyer who gets his case on file first has a leg up in the race to serve as class representative--a role that can determine which firm garners the largest fee. Having a Rolodex of ready and willing claimants avoids the problem of having to wait to be retained by a real live aggrieved party. Interestingly, the Scruggs prosecution involves allegations of judicial bribery in connection with a dispute between lawyers over how legal fees would be split.

It is an unfortunate feature of the U.S. legal system that major litigation can be commenced and conducted with little or no input from the real parties in interest. For example, in early 2007 a newspaper reported the federal government was close to reaching a monetary settlement with Chevron in connection with the UN Oil-for-Food program. Within hours of that report, an enterprising plaintiffs' lawyer filed a shareholder derivative suit against the company alleging little more than was reported in the newspaper. It is hard to imagine that shareholder opposition to the settlement had crystallized within hours of the first press report or that any real client would file suit based solely on a rumored settlement.

Also in 2007, Chevron won monetary sanctions against a Massachusetts lawyer who filed a class action on behalf of indigenous people of Ecuador alleging health claims from oil operations in that country. As it turned out, the named plaintiffs not only did not have the health problems alleged in the complaint, but had not authorized the lawyer to file suit on their behalf.

The ease with which lawyers can concoct and sponsor tort and securities litigation is one of the main reasons there is so much of it. Cases can be filed by and for the lawyers, without regard to whether the alleged victims would commence suit on their own. And, without the intermediation of real clients, it is easy for the lawyers to garner the lion's share of the economic benefit of these cases.

These criminal prosecutions will provide a unique window into the world of class action litigation at the highest levels. They will examine not only the relationships between these lawyers and the individuals they have enlisted to serve as serial plaintiffs, but also between the groups of lawyers who file these cases and then jockey to split up the fees. I sense it will not present a flattering picture.

With any luck, this heightened scrutiny will create greater impetus for real class action reform and will encourage judges to look more critically at the class action litigation and settlement process. Among other things, these cases could lead to stronger ethical rules governing the commencement of litigation, if not real criminal penalties for lawyers who invent lawsuits and then invent clients
to file them.

Charles A. James is vice president and general counsel for Chevron Corp.

Staff Writer

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