Wednesday we reported that law firms might rest a little easier in the wake of a decision by Manhattan federal district court judge Gerard Lynch in the Refco securities class action. Lynch dismissed Mayer Brown and partner Joseph Collins as defendants, concluding that the Supreme Court's recent ruling in Stoneridge gave the plaintiffs no basis to sue them, even if they had engaged in fraud.
Well, don't sleep too soundly. It's now apparent that Lynch was bothered by his decision, and -- in a revised version of the original ruling -- is urging Congress to change the law. After his ruling was first published, Lynch issued a corrected opinion with a lengthy new footnote that faults the legal system for failing to provide shareholders the right to sue guilty accomplices. (It's footnote 15 on page 25).
"It is perhaps dismaying that participants in a fraudulent scheme who may even have committed criminal acts are not answerable in damages to the victims of the fraud," the footnote begins. "This [law] may be ripe for legislative re-examination," Lynch continues. "A bright line between principles and accomplices may not be appropriate."
Lynch offered the Mafia as a colorful example. "When the Godfather orders a hit, he is only an accomplice to murder -- one who 'counsels, commands, induces or procures,' but he is nonetheless liable as a principal for the commission of the crime."
"I hope Congress is listening," said John "Sean" Coffey of Bernstein Litowitz Berger & Grossman, one of the Refco plaintiffs lawyers.
"Basically, Stoneridge made the world safe for those who make money helping others cook the books. Lynch has pointed out the absurdity of the state of the law."
John Villa of Williams & Connolly, who represented Mayer Brown in this case, could not be reached for comment.
This article first appeared on The Am Law Litigation Daily on AmericanLawyer.com.
