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NEW YORK — The painstaking process of breaking up the giant plaintiffs law firm Milberg Weiss Bershad Hynes & Lerach is taking several months longer than expected due to a number of complications, sources within the firm report. The delay stems from the complexity of issues, including how to account for the assets that exist as future profits from scores of pending contingency fee cases, each potentially worth millions of dollars in fees. New York-based Milberg Weiss is the nation’s largest plaintiffs securities litigation firm. There are other obstacles to deal with as well, the sources say, including lenders, existing leases, pension funds and 401(k) accounts, third-party relationships with people such as expert witnesses and existing job offers. Another problem is how to handle potential exposure to malpractice or other claims. According to attorneys inside the firm as well as attorneys who have left, Milberg Weiss had hoped to finalize the restructuring by the end of 2003, with an outside date of February. “We are 85 percent of the way through,” a lawyer close to the negotiations said. “We just need more time to reconcile the accounting, and we are now looking at March.” Negotiations are being done by members of the executive committees from the firm’s East Coast and West Coast offices, in New York and San Diego. The 200-lawyer firm said in June that it was dividing into an eastern firm led by senior partner Melvyn Weiss and a western one led by partner William Lerach. At the time, Weiss said the law firm had become too large to administer. Both he and Lerach denied there were any hard feelings, but other sources suggest otherwise. Weiss declined to comment for this story. Lerach did not return phone calls. David Neff, a partner in the Chicago office of Piper Rudnick who has handled the breakup of several major law firms but isn’t involved in Milberg’s, said, “It would appear on its face that they could have a fairly clean breakup” because of the existing east-west division of lawyers and cases. An in-firm source agreed, saying 99 percent of the attorneys want to stay where they are, and “very few cases, maybe a couple” have both East Coast and West Coast involvement. The firm also has offices in San Francisco, Los Angeles and Seattle on the West Coast; and Philadelphia and Boca Raton, Fla., in the East. Clients will be allowed to choose which new firm to go with, the sources said, and at some point Milberg Weiss must send out a required communication informing them of the choice. Among some widely publicized suits in which the firm is involved are those against Enron Corp. and the company controlled by Martha Stewart, Martha Stewart Living Omnimedia Inc. California attorney Daniel Callahan said, “The accounting of future receipts on cases at different levels of completion is the major obstacle in any split. It is always a very contentious issue.” In the past month, Milberg Weiss lawyers have filed an average of more than one new class action a week — nine suits since Nov. 1. The firm lists another 48 current cases on its Web site. Callahan, founding and managing partner of Callahan & Blaine in Orange County, speaks from experience, having gone through a firm breakup in 1995, as well as having represented another firm that was splitting. “Partnership breakups rarely go smoothly, and the longer it takes, the more people grow bitter,” he said. Potential liabilities could be a problem for Milberg Weiss, after several recent incidents involving the California offices. In June, Milberg attorneys were accused of misleading a judge and faced a motion for sanctions over a shareholders’ derivative action in California involving Titan International Inc., an industrial wheel maker. Milberg Weiss avoided sanctions by promising never to sue Titan again. Another potential liability is the investigation by federal authorities in Los Angeles of whether the firm wrongly paid clients or illegally paid stockbrokers and lawyers for client referrals. Finally, there is the problematic WorldCom Inc. situation. Denied lead counsel status in the class action alleging securities fraud, Lerach persuaded some plaintiffs to leave the class action and filed more than 40 individual claims in state courts throughout the country. Attorneys close to the WorldCom case said Milberg Weiss may be open to liability after a federal judge ruled in November that Milberg Weiss had misled the WorldCom plaintiffs, and had omitted that some state actions were time-barred. The judge dismissed with prejudice two time-barred state actions. On May 30, Lerach sent a letter to the two law firms acting as co-lead counsel in WorldCom, warning them that they could be held liable if they jeopardized his clients’ cases by opposing the state claims. Days later, Melvyn Weiss sent a letter to the two law firms apologizing for Lerach’s comments. One attorney said Lerach admitted that the May 30 letter led to the breakup and was “the straw that broke the camel’s back.” Sue Reisinger wrote this story for The National Law Journal , a Recorder affiliate based in New York City.

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