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The sentencing of Seymour Lazar, an eccentric lawyer turned professional plaintiff, may mark the beginning of the end of the sordid tale of the Milberg Weiss law firm. Three former partners of the once mighty securities class action firm have pleaded guilty to fraud and conspiracy charges, and other defendants are awaiting trial. But it ought to also mark the beginning of some serious discussion of the real implications of the case. A broken system allowed and even encouraged systemic corruption. Good intentions Sadly, the class action system these defendants so thoroughly trashed was created with the best of intentions. When large companies do something wrong that harms a large group of people, it may be unreasonably time-consuming and expensive for the individuals who are harmed to bring separate cases � as well as a burden on the courts. It may be better to allow a single action on behalf of the entire “class” of people in the same situation. To get the suit started, there must be some named individuals and lead counsel. Those “class representatives” and their lawyers have an important duty to all the other members of the class to act fairly and watch out for their interests. Lazar as a lawyer had a long history of questionable litigation. But he discovered that the big bucks were in securities litigation as a paid plaintiff. The first “victim” in the courthouse door can reap great rewards for plaintiffs’ class action firms. He or she can help decide which firm is lead counsel, help approve settlement and fee agreements and take other important actions. That turns the system on its head. Instead of long-standing shareholders suing because they were wronged and choosing the best counsel for the class, these professional plaintiffs bought stock in order to race into court for their patron law firms. Lazar bragged, “If I read The Wall Street Journal, I can come up with a class action a day.” According to the investigation, Milberg Weiss paid a small group of professional plaintiffs millions of dollars to bring more than 150 securities class actions. The paid plaintiffs would then help “select” Milberg as lead counsel, and approve settlements that paid Milberg hundreds of millions in fees. False certifications were filed Congress recognized the danger in 1995, when it passed a law requiring all “class representatives” to sign sworn certifications that they did not buy the stock just to file suit, and that they were not getting paid to be class representatives. But there’s no oversight, and the lawyers who file these certifications with the court are the ones who profit most from a corrupt system. Time and again, Lazar signed, and Milberg attorneys filed, false certifications. Class actions are a powerful weapon. When brought by well-funded firms such as Milberg, they are difficult and expensive for companies to defend against. It’s not surprising, then, that many companies choose to settle. And with each settlement, Milberg got more money and momentum for the next case. The firm built a reputation, and a fortune, based on a corrupt system. We would be foolish indeed to just blame one law firm and not take a hard look at the system itself. Here are a few ideas to help that discussion. • Limit the number of times one person (or family) can be a class representative. Lazar (and his wife, children and mother-in-law) were paid plaintiffs over and over again. But a system based on professional plaintiffs is profoundly wrong and open to corruption. This is not limiting anyone’s right of access to the courts � as a member of a class � only the privilege of being a class representative. • Limit class representatives to true shareholders. Require some minimum number of shares and length of time of ownership so that a class representative is more likely to have the interests of the class in mind � not the lawyers. • Hold the lawyers accountable. The lawyers in the case should also sign the class representative certification � under oath. • Limit attorney fees. In December, a judge in San Francisco rejected a proposed settlement in a class action brought by Milberg in which the repeat “class representative” had agreed to legal fees that were as much as 10 times what would have been paid using typical hourly rates. That’s money right out of the pockets of the rest of the class. Set a limit. Milberg Weiss loudly proclaimed itself the champion of the little guy. In fact, it was just the opposite: taking money out of the less powerful class members’ pockets to feed its own seemingly endless greed. The firm was able to do it because its lawyers knew how to abuse a broken system. It’s tough medicine, but if we punish the abusers, but don’t fix the system, we can only expect more abuse. Dan Small is a partner in the Miami office of Duane Morris, involved in white-collar defense, civil litigation and witness preparation. He is a former federal prosecutor and lecturer at Harvard Law School, and the author of several ABA books on litigation, including Preparing Witnesses (2d ed. 2004). He is a frequent CLE speaker and media commentator.

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