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Milberg Weiss Bershad Hynes & Lerach, the pre-eminent securities class action firm, appears headed for a breakup, with partner William Lerach poised to lead a new West Coast operation. “Milberg Weiss will continue, but another firm will most likely be led by Bill,” said the head of the firm’s New York office, Melvyn Weiss. “It’s amicable, it’s mutual and it’s based on the realization that we’ve reached the size that’s unusual in the annals of law for a contingent firm.” With all the legitimate reasons for a 220-lawyer class action firm to break up, though, sources familiar with the situation say it’s come to a head because of a feud between Lerach and Weiss over the handling of the WorldCom litigation. Though the firm’s large offices in New York and San Diego already operate largely independent of each other, the latest development may have been precipitated — or at least sealed — by the actions of Lerach, the firm’s famed, flamboyant and, to some, notorious partner. Lerach has tried unsuccessfully to get a remand to state court for a group of more than 40 public pension funds he represents in a case pending against former WorldCom executives and the investment banks and auditors related to the bankrupt telecom company in New York. U.S. District Judge Denise Cote gave lead counsel status to New York’s Bernstein Litowitz Berger & Grossmann and Philadelphia’s Barrack, Rodos & Bacine. She appointed Neil Selinger of Lowey Dannenberg Bemporad & Selinger as liaison counsel for numerous other plaintiffs — including Lerach’s — for purposes of discovery, leaving Lerach largely out of the loop. Lerach fired off an angry letter suggesting Bernstein Litowitz would be sued for malpractice for its handling of the suit, according to sources familiar with the situation. However, Bernstein Litowitz’s lead client is the New York State Common Retirement Fund — which is represented by Milberg in unrelated litigation. “I’ve had [the letter] described to me,” said Selinger. “I haven’t seen it, so I’m not in a position to comment on it.” Weiss, according to the sources, followed up immediately with an apology to Bernstein Litowitz. “I’m just not going to comment on that,” Weiss said. Nor would Bernstein Litowitz’s Max Berger or a representative of the fund itself. No one doubts that having so many mouths to feed can be an issue at a firm that relies largely on contingency fees. But Weiss said the firm’s size creates other difficulties as well. “You have people litigating in their own styles, and you want to have one approach,” Weiss said. Lerach didn’t return calls seeking comment, but was quoted in the Houston Chronicle Tuesday as saying the firm is “restructuring.” Patrick Coughlin, head of the firm’s San Francisco office, said any breakup is still in its early stages. “We haven’t done anything with the capital accounts, with the insurance, anything,” Coughlin said. But Weiss expects the San Francisco office to stay with Lerach’s San Diego base, creating an East-West split. “I look at this as a Lerach and Coughlin enterprise,” Weiss said. The talk of a breakup comes amid what should be Milberg’s finest hour. While Brobeck, Phleger & Harrison crumbled because it was too invested in the high-tech industry, Milberg only stands to gain from corporate collapses. In fact, it is the lead firm in hundreds of consolidated actions against former dot-coms and the investment banks that underwrote their IPOs. “This is a whole lot different than the breakup of a firm like Brobeck,” said Paul Geller, a plaintiffs’ lawyer at Boca Raton, Fla.’s Cauley, Geller, Bowman, Coates & Rudman. “This is a situation where both [the New York and San Diego] offices are extremely busy and for whatever reason Mel and Bill have decided they’d be better off parting ways.” Lerach has long cut an immense figure in the legal industry. The frizzy-haired, bespectacled litigator employs a take-no-prisoners approach to litigation and does not apologize for it. Corporate America hates him. He has shouted long and hard that executives of publicly traded companies are corrupt. But revelations over the past few years have convinced some detractors that Lerach was right. He’s made the most of it. When vying for lead counsel in the Enron case, Lerach paraded in front of television cameras with a box of shredded documents he said came from the company. He made several television appearances to rail against the recent run of financial scandals. And in an appearance symbolic of his newfound standing as the prophet of corporate doom, he was invited back two weeks ago to give the commencement address at his alma mater, the University of Pittsburgh Law School. He still has plenty of detractors, and doubts about his methods persist. While the firm awaited word on whether it would get the Enron case, word leaked out that the firm is the target of an unresolved federal grand jury probe in Los Angeles. In 1999, Milberg agreed to a $50 million settlement in a case accusing the firm of maliciously prosecuting a financial expert who testified against it. It is often said that the 1995 Private Securities Litigation Reform Act was directed at one man — Lerach. But the legislation seems only to have solidified his position. The firm has continued to win lead counsel roles, and the size of settlements in securities cases has been steadily increasing. Weiss didn’t put a timetable on the breakup. “We have people looking at it in a very serious way right now,” Weiss said. “We’re working the details out. It’s complicated.” Without a doubt, the securities bar was buzzing with the news Wednesday. But most lawyers doubted a split would have much impact on them. Milberg competes with other plaintiffs’ firms for cases, but Geller said there’s enough work to go around. “Even with Milberg intact we’ve been getting our share,” Geller said. The impact on the defense bar would be similarly minimal. “At the end of the day, I don’t think it means much. The same defenses that were available to our clients are going to remain available,” said James Kramer, a Clifford Chance partner in San Francisco. One San Francisco-based Milberg partner said he didn’t expect many changes. Since the offices have always operated with autonomy, “I don’t think it’s going to have any impact on our work day to day,” partner Sanford Svetcov said. Though both sides say the parting is amicable, the first test will come when the two sides have to compete for lead counsel status in a securities class action, when firms sometimes trash each other in hopes of running the litigation. “It will be interesting to see how that plays out,” Kramer said.

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