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When New York hedge fund manager Robert Knapp was looking for a lawyer to sue the directors he thought were mismanaging one of his fund’s holdings, he immediately turned to the white-shoe firms he had used in the past. Their response was not what he expected. “They were very, very hesitant,” said Knapp, a managing director at Millennium Partners, which has $3 billion under management. “They sort of became slow to return my calls.” With the large corporate firms not eager to go on the offensive, Knapp sought help from an unlikely quarter: plaintiffs’ firm Lowey Dannenberg Bemporad & Selinger. Best known for its work in securities class actions, Lowey Dannenberg took the case on an hourly basis and successfully sued to oust the management of meVC Draper Fisher Jurvetson Fund 1, a closed-end technology mutual fund of which Millennium was the largest shareholder. “In retrospect, I should have gone to a plaintiffs’ firm from the beginning,” said Knapp. That he did not is a function of the psychological and cultural chasm separating much of the corporate and financial world from plaintiffs’ lawyers, often regarded as corporate America’s implacable foes. Many large companies instinctively call on corporate defense firms to represent them, even when they themselves are the plaintiffs. Lawyers at White Plains, N.Y.-based Lowey Dannenberg would like to see that change. “Corporations should definitely hire plaintiffs’ firms when they are plaintiffs,” said Stephen Lowey, one of the six partners at Lowey Dannenberg. “We do a lot better job on the plaintiffs’ side.” The firm’s enthusiasm for corporate clients is driven partly by economic necessity. Ever since the advent of the 1995 Private Securities Litigation Reform Act, which consolidated control of securities class actions in the hands of the lawyers representing the largest group of shareholders, a host of firms that once thrived on securities class actions has been relegated to the margins in many such suits. “The rules have changed,” said Lowey, who is married to U.S. Rep. Nita M. Lowey, D-Westchester. “A lot of firms that have traditionally represented large groups of shareholders are finding it’s harder to get by.” Not that Lowey Dannenberg is a slouch in the shareholder arena. The firm is currently representing New York City’s pension funds in the WorldCom shareholder litigation, and partner Neil Selinger in March was appointed liaison counsel responsible for coordinating discovery requests for plaintiffs nationwide. The firm also was recently appointed co-lead counsel in shareholder litigation arising from alleged financial fraud at HealthSouth Corp. But shareholder cases on behalf of more traditional plaintiffs like pension funds now account for only about half of the firm’s cases, said Lowey. An increasing proportion are now on behalf of corporate clients whose previous experience with plaintiffs’ firms has largely been adversarial. Lowey Dannenberg has focused particularly on representing health insurers suing pharmaceutical companies for anti-competitive behavior designed to delay the rollout of cheaper generic drugs. Lowey and partner Richard Cohen are now representing Aetna, Blue Cross and Blue Shield and other insurers Cohen describes as “prototypical corporate defendants.” “We may be the only plaintiffs’ firm to have made a conscious decision to only be on one side when it comes to the health insurance industry,” said Cohen. Indeed, Milberg Weiss Bershad Hynes & Lerach has led class action cases in several states against insurers by doctors claiming fraudulent reimbursement policies. In federal court in Miami, Milberg Weiss, along with fellow plaintiffs’ firms Lieff Cabraser Heimann & Bernstein and Cohen, Millstein, Hausfeld & Toll, has charged that Aetna and other insurers violated the Racketeer Influenced and Corrupt Organizations Act. SUCCESS FOR INSURERS Lowey Dannenberg’s representations of insurers have met with some success. In June, the firm and co-counsel Berman DeValerio Pease & Tabacco of San Francisco won an important victory for lead plaintiff Aetna when the 6th U.S. Circuit Court of Appeals affirmed a ruling by the U.S. District Court for the Eastern District of Michigan that drug manufacturers Hoechst and Andrx had colluded to delay the launch of generic Cardizem, a heart drug. In April, the 2nd Circuit reversed the dismissal of a case the firm brought on behalf of Blue Cross of Louisiana against pharmaceutical manufacturer Warner-Lambert over the rollout of a generic version of diabetes drug Rezulin. Gerald Lawrence, a counsel with Aetna’s legal department, said the company has typically used firms such as Gibson, Dunn & Crutcher and Andrews & Kurth for major national litigation. For the antitrust suits against the drug makers, Aetna considered firms like Washington, D.C.’s Porter Wright Morris & Arthur. But the prospect of all those billed hours meant they were open to other options, said Lawrence, not that everyone was enthusiastic about hiring a plaintiffs’ firm. “When we were first approached by the Lowey firm in 1997, there was certainly some resistance to Aetna’s hiring a traditional plaintiffs’ firm,” he said. “They’ve proven themselves and we’ve developed a comfort level with them over time.” Not so with other plaintiffs’ firms. Aetna and perhaps most of the nation’s major health insurers withdrew from a class action that three plaintiffs’ firms filed in the U.S. District Court for the Southern District of New York against the makers of anti-anxiety drug buspirone on behalf of all “end-payor plaintiffs.” The three firms were Milberg Weiss, Lieff Cabraser and Cohen Millstein, the same three firms suing the insurers for racketeering in Florida. The economics of hiring a plaintiffs’ firm definitely make sense, said Lawrence. Lowey Dannenberg works for the health insurers on a contingency basis, so the matters are still fraught with the uncertainties that attend shareholder class actions. “It’s appealing for them that they don’t have to go over our bill every month,” Lowey agreed. For the firm, however, the occasional shot of regular cash flow from hourly billing can be appealing as well. Cohen said he expects hourly billed corporate governance actions like the one filed on Knapp’s behalf to become a bigger part of the firm’s practice mix. SEAMLESS PERFORMANCE Knapp said he was pleased with the seamless way Lowey Dannenberg worked with Millennium’s regular outside counsel at Schulte Roth & Zabel, perhaps the city’s premier law firm representing hedge funds. Schulte Roth defended Millennium when meVC’s management hit back with their own lawsuit and performed magnificently, said Knapp. After the technology fund’s management was ousted, Schulte Roth stepped in to act as regular outside counsel to the new management of the fund, now called MVC Capital. “We do what we do best and Schulte did what they did best,” said Cohen. “Millennium had the wisdom to use the two firms in ways they were best suited to.” That wisdom may continue to elude some in-house counsel, he reckoned. “I think you’ll always see white-shoe firms acting as plaintiffs’ counsel for some of their longtime clients,” said Cohen. “There’s the old attitude that no one ever got fired for hiring Cravath.” In the health insurers’ cases against the drug companies, Dewey Ballantine has been a noteworthy white-shoe firm on the plaintiffs’ side, representing longtime client Empire Blue Cross and Blue Shield. The firm has recently taken a page from the plaintiffs’ firm though. The firm worked on contingency for Empire Blue Cross in a case against the tobacco companies, with Eastern District Judge Jack Weinstein awarding them $38 million in fees last year. Paul J. Bschorr, the partner heading Dewey’s representation of Empire Blue Cross in a case against TAP Pharmaceutical, the maker of prostate cancer drug Lupron, declined to comment on arrangements with his client. For his part, Knapp needs no convincing that he will use plaintiffs’ lawyers again. Not only did the Lowey Dannenberg lawyers strike him as “fantastic strategic thinkers,” he said, but he also found it unexpectedly thrilling to be facing down the big-firm lawyers from Shearman & Sterling and Dechert who came out for meVC’s management. “It really showed what underdogs these guys were,” said Knapp. “I liked being the underdog.”

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