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Judge T.S. Ellis’ Alexandria, Va., courtroom was so crowded with lawyers that counsel were eyeing the jury box for an open seat. Everyone knew each other, and everyone wanted the same thing: to be tapped as lead plaintiffs’ counsel in the current class action securities litigation against MicroStrategy Inc. It was a cozy gathering of competitors ready to rip each other to shreds. One lawyer slammed another lawyer’s affidavit as “indecipherable.” One raised questions about whether another’s client even belonged in the case. And even Ellis wondered whether one group of plaintiffs was “put together by lawyers so that the lawyers can control the litigation.” At the end of the day, Ellis chose as lead plaintiff the client of Pomerantz, Haudek, Block, Grossman & Gross, a staid New York firm that beat out eight others to lead the attack against MicroStrategy in the Eastern District of Virginia. It’s a battle that could yield tens of millions of dollars in damages for investors, with the lion’s share of the attorney fees set aside for lead counsel. Washington, D.C.’s Cohen, Milstein, Hausfeld & Toll won the consolation prize. It’s serving as local counsel to Pomerantz. As far as Pomerantz partner Stanley Grossman is concerned, the daggers thrown at the hearing are just part of the game. “After all,” he says, “people were vying for an important position.” The assemblage of attorneys reminded Ellis of the old days, when he was a litigator at Richmond, Va.-based Hunton & Williams. “Back in the sixties and the seventies, I did some aviation crash litigation, and it was the same crowd everywhere,” he said, according to a transcript of the June 2 hearing. “I imagine it’s the same thing in securities litigation: It’s the same crowd. And I think this is that crowd.” Indeed, it was. In addition to Pomerantz and Cohen Milstein, which does a lot of securities work in the region, those present included New York’s Milberg, Weiss, Bershad, Hynes & Lerach and several other Wall Street firms. Williams & Connolly D.C. partners Andrew Vees, Steven Farina, and John Villa represented MicroStrategy at the hearing. FOLLOW THE LEADER To be selected lead plaintiff in a stock-drop case, the complainant must meet several requirements set out in the Private Securities Litigation Reform Act of 1995. The lead plaintiff must be “typical” of the class, and must also have suffered the greatest financial loss as a result of the alleged shenanigans of the defendant. In Ellis’ courtroom, the plaintiff must also come close to the judge’s strict interpretation of Congress’ intent in drafting the law, which was to wrest control of the litigation away from attorneys, who routinely bring such cases. “At work here is the statutory purpose of ensuring that clients, rather than lawyers, control the litigation,” Ellis explained. And that’s where the arguments of so many of the attorneys gathered in Courtroom 900 fell short. Take, for example, Grossman’s reaction to Milberg, Weiss partner Stephen Schulman’s argument that Grossman’s client didn’t really want to be lead plaintiff: “My friend, Mr. Schulman, is an excellent lawyer, and I have seen him many times make a silk purse out of a sow’s ear — and today he is trying to do the opposite,” Grossman told the court. Besides Grossman’s client, two other client sets — the MicroStrategy plaintiffs’ group and the MicroStrategy institutional group — sought lead plaintiff status. There was also a wild card. Two D.C. firms, Margolius, Mallios, Davis, Rider & Tomar and Boies, Schiller and Flexner, along with New York’s Beatie and Osborne, asked the court to hold an auction to determine lead plaintiff. In an auction, the court awards the lead role to the attorneys who offer to take the least amount in fees, thus promising the largest possible return for the class. None of the other firms liked that idea at all. And Ellis rejected it, as have most trial judges across the country, though he said he found the concept “intriguing and to have a significant amount of merit.” Although legal wrangling over the securities litigation reform act is common in other courts, it seemed relatively new to Ellis. On several occasions during the day-long hearing, Ellis asked what conclusions his colleague, Senior Eastern District Judge James Cacheris, had reached in another stock-drop suit. Cacheris has been shepherding the securities class action against Dulles, Va.-based Orbital Sciences Corp., and has already ruled on many of the issues Ellis faces in the MicroStrategy litigation. Jonathan Plassey, a partner at New York’s Goodkind, Labaton, Rudoff & Sucharow and counsel to MicroStrategy plaintiff Kazim Acar, is lead plaintiffs’ counsel in the Orbital case, which is set for trial July 19. At one point, Plassey, in response to Ellis’ query, noted that Cacheris had certified a class that included those with common stock and those with options. “Well, then, I will certainly find that to be persuasive,” Ellis said, “maybe not determinative, but it may be persuasive.” In determining who should serve as lead plaintiff, Ellis looked to the losses suffered by both individual and institutional investors. But that wasn’t the only factor he considered. Grossman’s client, New Yorker Dominick Mazza, contends he lost between $717,000 and $850,000, but he was not the one who claimed the most damages. That honor goes to Wolverine Trading, represented by New York’s Kirby, McInerney & Squire. Wolverine alleged losses of $2.8 million on a combination of stock and stock options, but the records to support that sum were “inscrutable,” according to Ellis. Ellis concluded that the group did not meet the lead plaintiff requirements because its sophisticated trading techniques and its blend of stock and options were not representative of the class. Schulman’s firm, Milberg Weiss, represents the kind of client most plaintiff firms love to have, an institutional investor. Pension Local 144 claims to have lost only $600,000 — far less than Mazza — and Schulman decided not to ask for lead plaintiff position for the Local. Instead, his firm banded together with two other New York firms to “aggregate” clients and allege a larger loss and more representative class. Judge Ellis was not moved. Ellis asked Schulman whether his client had come to the firm and said, “how about putting us together with some other folks to make us lead plaintiff?” Schulman answered yes and stammered, “They, we exchanged — “ Ellis jumped in. “I’m fairly skeptical about that,” he said. Later he said, “To permit this group to proceed as the group to become the lead plaintiff would be, in the Court’s view, a circumvention of the purpose of the statute, because it would have the lawyers putting together a group so that the lawyers can control the litigation.” Meanwhile, a group of investors represented by Bala Cynwyd, Pa.’s Schiffrin & Barroway and New York’s Kirby, McInerney & Squire was skewered by all sides. Pomerantz partner Grossman offered up the affidavit of Richard Wasserman, supposedly a member of the investor group, saying he never gave his investment company authority to add him to the case and did not sustain the financial loss alleged. “We would all be very surprised if we woke up one morning and we understand that a suit has been brought on our behalf without consulting us,” Grossman said. Richard Schiffrin, an attorney for the institutional group, eventually stated that he thought “everyone is wrong,” but he withdrew the investment company as a candidate for lead plaintiff. In every class action is the question of why a plaintiff, who must withstand depositions and other indignities, would want to take the lead. In his argument for Mazza as lead plaintiff, Grossman said that “some people want to lead the battle, and they are that angry.” Why the lawyers are so interested in taking the lead is much less of a riddle. The attorney fees in this sort of litigation are usually between 20 percent and 30 percent of the final award or settlement. Counsel for the lead plaintiff get the largest piece of the pie. Andrew Friedman, a partner at Cohen, Milstein, says that as local counsel for Pomerantz his firm expects to play a significant role — and earn a big chunk of the fees, depending on how much work they do. “In terms of work, it will be up to lead counsel to make assignments in the case,” Friedman says. “We are one of the pre-eminent plaintiffs’ firms and will, I assume, get a large number of assignments.” While Ellis never came out and said plainly that he would take responsibility for the run of the litigation, attorneys at the hearing say he signaled his desire to see it through. He told Grossman to file a consolidated complaint by June 12. Ellis seemed energized by the challenge of interpreting the 1995 securities statute — and keeping lawyers from running the show. “As I said at the outset, and I may have said it with a little more annoyance than is justified, Congress doesn’t have any notion of how difficult it is going to be,” Ellis said. “They haven’t even begun to appreciate how difficult it is to wrest litigation away from the control of lawyers.”

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