X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
When news broke in June about the intended split of Milberg Weiss Bershad Hynes & Lerach, attorneys familiar with the firm were buzzing about a pair of letters. On May 30, William Lerach had written warning missives to two law firms that were acting as co-lead counsel in the massive securities fraud case involving WorldCom Inc. in the Southern District of New York. In an effort to retain control of the WorldCom litigation, Lerach had filed suits in state courts on behalf of 41 pension funds. But U.S. District Judge Denise Cote had rejected Lerach’s three motions to return his clients’ cases to state court. In his letters to the lead counsel firms, Lerach warned them that they could be held liable if they put his clients’ cases in jeopardy. A famed California litigator, Lerach had upset the New York securities bar. Enough, in fact, that his senior partner, Melvyn Weiss, followed up just days later with a letter of his own to the two firms apologizing for Lerach’s remarks. Weiss’ motivation was clear: The lead plaintiff in the federal class action is the New York State Common Retirement Fund, a client of Milberg Weiss’ New York office. The tension behind the letters, which Weiss and Lerach decline to discuss, may indeed have hastened the firm’s dissolution. But the rapidly growing plaintiffs firm had been feeling increased pressure for some time. Wildfire growth had meant more mouths to feed. Congressional reforms had established hostile new rules to navigate, and federal probes had created an atmosphere tinged with apprehension. Plus, the firm had long operated offices on two coasts that led largely unconnected lives, with different styles and separate clients. The bicoastal marriage was increasingly strained, and major domestic unrest had erupted into a string of key departures in early 2003. So, as with any divorce, the reasons behind the break are many and varied. That the pair have resigned themselves to going their separate ways, however, hardly means that all the serious stress is behind them. Breaking up is hard to do. ONE STEP FORWARD, TWO STEPS BACK Things still looked rosy last summer. In July 2002, East Coast-based partners gathered in a midtown hotel conference room in Manhattan to introduce a new organizational structure that could address the firm’s growing caseload and staff. Sitting at the head of the table were members of a new leadership committee: name partners Weiss and David Bershad, plus younger partners Steven Schulman and Keith Fleischman. The committee’s purpose was to elevate Schulman and Fleischman to the role of day-to-day managers of the New York office. The new hierarchy would also allow Weiss and Bershad to keep their hands in management while focusing more on the firm’s major cases and its long-term strategy. News of the change in leadership later appeared in an internal memo, which glowingly concluded, “We are very excited about this new structure, which we think will enable us to reach even greater heights.” What resulted hardly fulfilled those hopes. Within nine months, starting in early 2003, the firm began hemorrhaging partners, losing seven from the East Coast and 10 in all by March. The defections included such lawyers as Samuel Rudman, who as one of New York’s principal “case starters” helped get the firm in position for lead counsel appointments; Kenneth Vianale, who ran the firm’s Florida office; and trial specialist Fleischman, the very partner whom the firm had seemingly just designated as an heir apparent. Another wrinkle: Five of the departures were former government attorneys, which raised speculation that they had concerns about the severity of the ongoing federal investigations into the firm — or qualms about the firm’s handling of those probes. The losses were followed in May by a change in Milberg Weiss’ firmwide executive committee. San Diego-based partner Darren Robbins, who was widely seen as Lerach’s right-hand man, was added to the group. The addition raised the total from six to seven, imbalancing a rough parity that had existed for most of the past 10 years by giving the West a four-member majority. Then, after heated discussions among executive committee members over a few days in June, the firm came to the conclusion that it would be better off in smaller parts. The import of the talks was subsequently leaked to The New York Times. And on June 11, the entire business community knew the fate of the firm. The 67-year-old Weiss, who co-founded the firm with the late Lawrence Milberg in 1965, didn’t want to handle his firm’s future this way. In an interview with The American Lawyer shortly after the Times story ran, Weiss sounded upset that the internal news had been made public. Still, he says the split is “amicable” and that the two firms will work together in the future. Lerach, who started the firm’s California operation in 1976 as the lone lawyer, also promises a collegial breakup. “I was in New York yesterday with my arm around Mel, and we had tears in our eyes,” said Lerach a week after the breakup became public. “Guy’s like a father to me, and I’m like a son to him. Did we have arguments? Well, what father and son don’t have arguments?” Lerach and Weiss say that the size of the firm ultimately became too unwieldy to manage. It had grown to about 200 lawyers, more than four times the typical competitor. Plaintiffs lawyers agree that feeding so many attorneys is difficult under the contingent-fee model, in which overhead costs are constant but revenue is not. The current era of huge securities class actions exacerbates those difficulties. “It’s much longer between resolutions of cases,” says Andrew Entwistle of Entwistle & Cappucci. “They’re more costly to prosecute . . . and require greater amounts of time and resources. . . . The revenue stream is more uneven, and the risks are much higher.” It’s also especially hard to keep so many partners financially satisfied when the top brass takes the lion’s share of profits — as Lerach, Weiss, and other senior partners have done in the past. (Details of the firm’s finances came to light during its 1999 trial against the economic consulting company Lexecon Inc., which sued Milberg Weiss for allegedly bringing a frivolous suit against it. During the court proceedings, it was revealed that Weiss and Lerach were each taking home about $12 million a year on wildly fluctuating profits that averaged $61.7 million between 1988 and 1998.) Some ex-Milberg Weiss partners were not surprised by the breakup and concluded that money was likely part of the equation. There had been a fight over money at the end of almost every year, they say. While the two coasts operated independently, decisions about where profits went were made by the executive management committee. According to two former Milberg Weiss partners, California outperformed New York last year. But Weiss and Lerach insist that the breakup is not about money. “If we’re splitting up for money, we’re the stupidest people,” says Lerach. “There’s plenty of money to go around.” While not exactly a revolving door, Milberg Weiss has lost high-profile partners before. The most celebrated departure came four years ago, when former executive committee member Alan Schulman left for Bernstein Litowitz Berger & Grossmann. He didn’t want to leave and had asked Weiss and members of the executive committee to oust Lerach. Weiss refused, and Schulman walked. ‘VICTIMS OF OUR SUCCESS’ Since its founding by Weiss — a tough native New Yorker who is considered a dean of the securities class action industry — the firm has attracted a variety of talent: lawyers with Ivy League pedigrees, attorneys from big defense firms, and seasoned government prosecutors with major trial experience. But such luminaries have never prevented Weiss and Lerach from dominating the spotlight. “Each of these guys is so dynamic and egocentric,” says Robert Lieff of Lieff, Cabraser, Heimann & Bernstein, in explaining how both men had consequently fashioned their respective offices “in their own image.” The result? “It’s hard to keep the best people.” But the firm always thrived, whatever talent might walk out the door. Not even passage of the Private Securities Litigation Reform Act of 1995 (PSLRA) led to the business collapse that many had predicted for Milberg Weiss. Widely viewed as legislation to impede Lerach-style litigation (before it became law, the bill in the House of Representatives was named H.R. 1058, the same last four digits of Milberg Weiss’ San Diego phone number), the law changed the way lead plaintiffs were chosen — from first-to-file to the biggest financial victim. In response, the firm went out and brought in as clients some of the most well-respected pension funds in the country. It is no small irony, then, that since the act was passed, the firm has more than doubled in size, one of the reasons that Lerach likes to call it the “law of unintended consequences.” According to a recent study by Cornerstone Research, Milberg Weiss has served as lead or co-lead plaintiffs counsel in more than half the cases settled since 1995. In this year’s first quarter, Milberg Weiss ranked No. 1 in lead counsel appointments in federal securities class actions with 14, according to the Verteris Corp., which tracks performance by plaintiffs counsel. Another unintended consequence: Lerach cites the firm’s volume of cases and clients as a big part of the decision to break up. Often, the firm’s two coasts found themselves representing fund clients with opposing interests. The WorldCom fracas was just the most recent example. “I think we were victims of our success,” says Lerach. Where do things go from here? No one disputes Weiss’ will or ambition, but the recent departures before the June split would appear to hurt the New York operation more than Lerach’s. Very few of Milberg Weiss’ cases go to trial, but having courtroom experience gives clients and adversaries confidence that if all else fails, the plaintiffs’ lawyers know their way around a courtroom. Fleischman was widely viewed as one of its most talented trial lawyers and as someone who could sell the firm to reputable institutional clients. The 45-year-old joined the firm in 1992 after eight years as a prosecutor at the district and federal level. At Milberg Weiss, Fleischman successfully argued a key case on behalf of shareholders of the Ann Taylor Stores Corp. before the U.S. Court of Appeals for the 2nd Circuit. The court’s ruling in 2000 established a low pleading standard under the PSLRA that helped reinforce the federal courts in New York as a preferred venue for plaintiffs in securities litigation. Fleischman, who is an athletic 6 feet 1 inch tall and an experienced rock climber (he’s tackled Aconcagua in Argentina, the highest mountain in the Western Hemisphere), doesn’t lack ambition. When he was appointed to the new leadership committee for New York and Florida last summer, it appeared he had taken his place in line as a possible successor. But only six months later, Fleischman announced that he would join a smaller competitor, Bernstein Liebhard & Lifshitz. After signing a nondisparagement agreement, Fleischman and the firm issued a joint statement offering compliments and best wishes but no clear explanation of his departure. (Neither Weiss nor Fleischman will discuss why he left, though Fleischman does say that he was not contemplating the departure when he was elevated last summer. Instead, he emphasizes the “cultural fit” he felt with Bernstein Liebhard.) Even those familiar with Fleischman say they’re unsure what caused him to exit. But the inference, says one former Milberg Weiss colleague, was that he “was not getting the authority he was [promised].” Others on the East Coast left on seemingly more transparent and cordial terms. Vianale, who also joined the firm as a former federal prosecutor with trial experience, went to open his own class action boutique, something he says he always wanted to do. Abraham Rappaport, who led the firm’s $141 million settlement with the Sunbeam Corp. last year, left to join a competitor for what he calls “higher risk for higher reward.” Rudman, a former Securities and Exchange Commission lawyer, also left to join a competitor to do better financially. Some in the class action securities bar were not surprised by the firm’s losses. “Class action lawyers are a different animal,” says Paul Geller of Cauley Geller Bowman & Rudman, who hired Rudman away from Milberg Weiss. “The best class action lawyers are entrepreneurial, aggressive, and perhaps a bit egotistical. It’s no wonder that some of Milberg’s most talented young partners would choose to leave the Milberg institution to try to make their own mark at a smaller firm.” The West Coast was not immune to the departures. In the first quarter, it lost three partners, including antitrust specialist Dennis Stewart, a former U.S. Department of Justice lawyer who spent 14 years at the firm. Stewart left to go work at a smaller firm with former colleagues. LOOKING AHEAD As for clients, each coast developed its own list. Some ex-Milberg Weiss lawyers and competitors say the West Coast operation appears better suited to succeed in the post-PSLRA environment, in which institutional investors drive much of the major securities litigation. Over the past several years, Lerach has aggressively courted those clients. He has been a regular at investor conferences, giving speeches on the Wall Street scandals. Lerach’s firebrand oratory plays especially well to the labor unions. His client California Public Employees’ Retirement System is the largest public pension in the country. True, Weiss’ New York office has attracted institutional investors of its own. But Lerach, who is more charismatic and 10 years younger than Weiss, seemingly has a competitive advantage in landing clients in the future, though he doesn’t acknowledge that publicly. Lerach says that the firm’s current clients would have to make up their own minds about which firm they will work with in the future. “I was the firm representative who talked to the clients, but they are the firm’s clients,” says Lerach. The California operation may also have a natural territorial advantage. There is less competition among the securities class action bar in the West. For Lerach’s operation, that means it doesn’t have to cut other firms in on a piece of the action in cases as often as New York does. In New York, firms are more likely to form lead counsel coalitions. In theory, the New York and California offices divided litigation in the United States down the Mississippi River, although in practice, there were many exceptions. Going forward, Weiss and Lerach don’t intend on signing a territorial agreement; both have plans to operate a nationwide practice. If they do, then the former partners seem destined to compete for lead counsel slots. There is also the matter of that federal gorilla sitting in the living room — though exactly how large it is remains to be seen. The Los Angeles-based investigation into the firm is reportedly looking into improper tactics employed by Milberg Weiss to get clients. Some competitors raised their eyebrows when Milberg Weiss’ former government lawyers left with the federal investigations ongoing. First reported last year, the investigation doesn’t appear to have played an overt role in the departures. But one lawyer who left says that it was in the back of minds of most at the firm. Prosecutors appear to still be interested in the firm. According to ex-Milberg Weiss partners, “several” former partners have been contacted by the U.S. Attorney’s Office in Los Angeles in the last few months. And as late as March, lawyers in the plaintiffs’ bar were receiving letters from Washington, D.C.-based Zuckerman Spaeder, known mostly for its white collar criminal defense work, indicating that the firm was representing Milberg Weiss in requests for documents. The letters, which were sent to lawyers who have appeared in cases with Milberg Weiss, were identical to those sent by Williams & Connolly, which once confirmed that it was representing Milberg Weiss in the L.A.-based federal investigation. That probe was reportedly looking into improper tactics employed by Milberg Weiss to recruit plaintiffs. Lawyers from Zuckerman Spaeder and the U.S. Attorney’s Office decline comment. Lerach and Weiss deny that the firm’s decision to split or the partner losses had any connection with the grand jury investigation. On the more workaday level, the offices are still deeply entangled. Members of the executive committee are negotiating a series of difficult problems — from how the firm’s capital is divided to how to establish separate accounting systems. Even which partners will go where has to be worked out. Patrick Coughlin, a member of the firm’s executive committee, initially thought the question would be easy. Those in the East would stick with Weiss, and those in the West would stick with Lerach. “But as Mel brought up to me, we don’t get to make those decisions for them, which I guess is right,” says Coughlin. For now, Coughlin denies speculation that the firm would splinter into three firms: “Not unless I left.” The post-Milberg Weiss world, then, is very much a work in progress. But it still could be every bit as feisty as its predecessor. It doesn’t take an oedipal analysis to find the seeds of continuing rivalry in the “father-son” dynamic of Weiss and Lerach. “At one point, Bill was out here with one lawyer,” says San Diego-based partner Darren Robbins. “At some point, he went from becoming a child to an adult. . . . It’s like when you go off to college. You come back and visit, but your relationship changes.” Andrew Longstreth is a reporter at The American Lawyer, an American Lawyer Media magazine.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.