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As Mercury Interactive Corp. contemplates suing its former officers in a derivative action linked with options backdating, the company has sent clear signals it won’t step on plaintiff lawyer William Lerach’s toes. The Mountain View company shed its CEO, general counsel and two others in connection with options problems last year. Now � according to a report compiled by Mercury’s special litigation committee � if the company pursued civil derivative claims against its former officers, it would do so only in Santa Clara County Superior Court. Such suits would probably be consolidated with Lerach’s cases in the same court. Mercury made no mention of Lerach in its report. Multiple court actions “will greatly increase the expense and distraction resulting from the prosecution of these claims,” the report said. Thus, the company would like to see such claims consolidated in Santa Clara County, according to the report. That’s where Lerach Coughlin Stoia Geller Rudman & Robbins could pursue them all. Teaming up with Lerach in such a proceeding would be an unusual move in what is typically an adversarial process, observers say. By cooperating, Mercury appears to be attempting a civil version of when a company tries to avoid criminal indictment via full cooperation with prosecutors. Mercury Interactive makes software for testing and monitoring business applications, including those that help tech departments comply with Sarbanes-Oxley regulations. Its discovery of improperly dated stock options in 2005 has led to numerous securities fraud and shareholder derivative lawsuits. The company set up a special litigation committee � which hired law firm Munger, Tolles & Olson � to look into backdating. Mercury’s committee recommended that it pursue claims against former CEO Amnon Landan separately with its own counsel, while former CFO Douglas Smith, former GC Susan Skaer and former COO Kenneth Klein would remain defendants in Lerach’s derivative suit. Columbia Law School professor John Coffee said that barring a serious conflict, the company has the option � and the right � to assert control in the litigation and push Lerach out. But according to the report, it appears Mercury prefers cooperation. “If they want to cooperate, the best way to do it is in one proceeding, jointly,” he said. Had the company pursued its own action, any settlement reached with its former executives might be suspect. “I think their No. 1 desire is to make it very clear that this is not a sweetheart settlement,” Coffee said. A Mercury spokesperson declined to comment. Bernstein Litowitz Berger & Grossmann securities litigator Bob Gans said this brand of cooperation is rare, particularly in backdating cases. “And it is kind of a shame that it is unusual,” he added, “because it really makes sense. Lerach represents the same entity that the board is representing.” Rather than fight over whether the board can independently pursue derivative claims, better to let Lerach have at it and avoid that cost, Gans said. “For a special litigation committee to be effective, it has to be able to take an unbiased view of the circumstances,” Gans said. “That seems to be difficult to find in options backdating cases.” A source involved in the case who requested anonymity said it looked like an economic decision for Mercury to allow Lerach to pursue the derivative suit at his own cost while the company itself pursued Amnon Landan, the wealthiest of the four former officers. “I think they scapegoated the three executives. They felt strongly enough about their claims to force their resignation,” the source said. “But they didn’t feel strongly enough to pursue the claims themselves.” But Lerach lawyers view the report as admission of breathtaking wrongdoing, not cooperation, according to Darren Robbins, a partner with Lerach Coughlin. He said Mercury left out specific factual findings, saying in its report that it isn’t in the company’s best interest to give such details. “They’re not in some mood to be cooperative,” Robins said. “Their cooperation is something akin to saying the Japanese cooperated in September 1945. They don’t have a lot of choices. The wrongdoing here was egregious to say the least.”

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