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When Reed Kathrein opened a San Francisco office for the country’s biggest plaintiff firm 12 years ago, he was a solo with a couple of big cases. When he departs the firm now known as Lerach Coughlin Stoia Geller Rudman & Robbins at the end of the year, he’ll find himself in roughly the same position. Kathrein is leaving his partnership at the Lerach firm to start his own shop � the result, he said over lunch this week, of a set of priorities that have diverged from the firm’s focus on securities litigation. “The firm is a very well-oiled machine,” Kathrein said. “It’s got strong direction at the top, and there are things I wanted to do that don’t necessarily fit in with what the firm wants to do.” Those things include environmental and consumer cases � in short, Kathrein said, things that “may have a great impact on the lives of our kids, but may not make much money.” In recent years he’s had a chance to do some of those cases, including suits over Y2K software issues, overcharging by hospitals of uninsured patients, and online advertising of Internet gambling. Most recently � and most publicly � Kathrein has also been one of the lead lawyers in a suit against AT&T for cooperating with a secret government wiretap program. But such cases were never a comfortable fit for a firm that’s gained fame, notoriety and many millions of dollars by specializing in securities fraud. With the AT&T case, he said, “it was the right thing to do, and the firm swallowed and said OK.” And with the partnership ranks having, at any given time, tens of millions of dollars tied up in ongoing cases, firm leaders aren’t particularly enthusiastic about suits with such doubtful payout potential. “These are things that would be unfair for me to ask my partners to do, because the profitability is more suspect,” he said. William Lerach, the firm’s lead partner, would agree. “His emphasis is now on the consumer kind of stuff, which we’re not going to emphasize going forward,” he said. “Our emphasis is going to be on securities and corporate derivative cases.” So Kathrein will open his own office next year, most likely with two or three other lawyers � he won’t say whom yet � who are also planning to leave the Lerach firm. With those lawyers’ identities still secret, Kathrein can’t reveal the name of his new firm. “I’m hoping it’s something other than The Law Offices of Reed R. Kathrein,” he said. STILL A BIG FISH? While Kathrein’s new focus will be different from his old firm’s, he and Lerach said they will collaborate on future securities class actions. Still, the move to a small firm is a big one for a lawyer who’s spent the past 12 years with the relative security of a big firm � relative because the Lerach firm’s payments all come on contingency. The class action bar is dominated by a very small number of very large firms. Lawyers with smaller shops � which tend to have a hard time attracting the institutional investor clients needed to get lead counsel status � play a different role than partners at firms like Lerach Coughlin. But for a lawyer like Kathrein, who has longstanding connections in the plaintiff bar, being at a small firm shouldn’t keep him out of even large securities suits. “My impression is that the work has spread out to smaller firms,” said Melvin Goldman, a partner at Morrison & Foerster who has frequently opposed Kathrein. “I fully intend to go after institutional investors,” Kathrein said. “But it would probably be years before I’ll be able to develop the critical mass in the firm where I can handle the cases myself.” Goldman said there was plenty of talk among the defense bar early this week when lawyers heard that Kathrein was departing. And that’s not surprising � for the last 15 years or so, Kathrein has found himself with a role in many high-profile disputes that have helped define how securities litigation is handled in the Northern District of California. Through that time, he’s gained a reputation � which may or may not be a good thing � for being a nice person in an industry dominated by big egos and loud mouths. Lerach called him “a terrific guy,” as did defense lawyers and one judge whose skepticism of the securities bar has caused unending consternation among its lawyers. “He’s a very able lawyer and a professional, and a good guy,” said Vaughn Walker, the Northern District’s chief judge. Kathrein was on the losing side of one of the first securities cases Walker presided over, and the two have seen each other many times since then. Two years ago, Walker appointed Kathrein to a panel to evaluate magistrate judges, and said he plans to reappoint him next year. SWIMMING WITH SHARKS Kathrein, who’s 52, came to the Bay Area in 1988, leaving a partnership at the Chicago corporate defense firm now known as Arnstein & Lehr in 1988. “I’d grown up in Chicago,” he said. “The way I say it is I didn’t want to die in Chicago.” Since making that decision, he’s seen plenty of California-specific turmoil. The San Francisco federal court has been a notoriously eventful place for securities plaintiff lawyers. And on a personal note, Kathrein’s oldest son, Jonathan, was attacked by a great white shark off Stinson Beach in 1998 (he survived the attack, and this fall published a children’s book called “Don’t Fear the Shark” based on the experience). Kathrein fell into plaintiff work after a job search in San Francisco led him to a firm then known as Gold & Bennett, where the late name partner David Gold was one of California’s top securities litigators. That arrangement worked well for about five years, at which point Kathrein � in a situation he doesn’t much like to revisit � left the firm after Gold refused to make him a partner. Kathrein went solo, and brought with him a couple of large cases. They made him an attractive lateral partner two months later, when the firm then called Milberg Weiss Bershad Hynes & Lerach (the current Lerach firm was formed in 2004 by splitting off Milberg’s West Coast operation) decided to open a San Francisco office. Since Kathrein opened it, the office has grown � it has about 30 lawyers and a heavy load of cases � but it took awhile; after the office opened in 1994, a federal law was passed that made it extremely difficult to file new securities cases. Indeed, Kathrein said he can’t remember a significant case filed by the San Francisco office between 1995 and 1999. During that time � and since then � Kathrein was in the middle of contentious disputes with defendants and the judiciary over the handling of securities cases. In 2000, for example, he was the lead lawyer in a case filed simultaneously in St. Louis federal court and San Francisco Superior Court. When the St. Louis judge issued an order accusing Milberg Weiss of forum shopping, Kathrein was forced to ask S.F. Superior Court Judge William Cahill to put in a good word for him (Cahill obliged, on the record). Kathrein’s firm was also one of several fighting an ultimately unsuccessful attempt by Walker to award lead counsel status to the plaintiff firm that entered the lowest fee bid. CHARTING HIS OWN COURSE In recent months, the Lerach firm’s San Francisco office has become a beehive of activity, as lawyers scramble to pursue dozens of cases against Silicon Valley companies accused of backdating their stock options. But Kathrein’s time has largely been spent on other cases, including the Internet gambling suit in state court and the well-publicized AT&T case, both of which he’ll take with him. Finding new cases shouldn’t be terribly hard, he said, since he can still work with his old firm, and has contacts throughout the plaintiff bar. And in some situations, he said, having his own firm may allow him to work with some co-counsel and clients who would be reluctant to team up with Lerach Coughlin. A seven-year federal criminal probe of Milberg Weiss’s relationship with clients before the Lerach firm split off has cast a long shadow, especially since Milberg Weiss and two of its name partners were indicted early this year. Lerach himself remains under investigation. “Other law firms expressed a reluctance to file something with us; they’re fearful that because of the pending investigation and articles in Fortune and things like that, the judges will not appoint us lead,” he said. “I don’t think that’s a justified reason, but unfortunately, there are firms that have used it against us in cases,” he added. Kathrein and his future partners aren’t the only lawyers exiting the San Francisco office. Kimberly Epstein, another partner, is also leaving the firm. She didn’t return a call by press time. Kathrein said the prospect of going off on his own is somewhat daunting now, though such decisions are less complicated at this point than when he left Gold & Bennett to join Lerach. “My mortgage is paid off,” he said. “It wasn’t in 1994.”

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