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A federal judge in Arkansas has turned down class certification in a lawsuit against Sidley, Austin, Brown & Wood and accounting firm KPMG accusing the firms of selling illegal tax shelters to former clients. The decision is a setback for Bernstein, Litowitz, Berger & Grossman. Bernstein Litowitz, along with Texas firm Patton Roberts McWilliams & Capshaw, was trying to become lead counsel, a move the judge also rejected. Milberg, Weiss, Bershad & Schulman has filed a related class action in New Jersey federal court. In June, the lawyers in the Arkansas suit filed the class certification and lead counsel motion in reaction to Milberg Weiss’ settlement talks with the defendants. Milberg Partner Melvyn Weiss, who had been in the talks for months, said a settlement could soon be reached. Bernstein Litowitz has accused Milberg Weiss of using a “reverse auction.” In a reverse auction, plaintiffs lawyers discuss settlement terms with potential defendants without first filing a suit. It is a common practice among litigants in civil cases but could undermine the interests of members uninvolved in the negotiations in a class action setting. In court papers, Bernstein Litowitz claimed Milberg Weiss began negotiating with KPMG and Sidley Austin nearly one year before filing its suit and that the structure of the settlement would favor claimants who did not sue over those who did. “I was attacked and smeared … in a very unjustifiable way,” Weiss said of the charges. “Facts as they evolve,” he added, will indicate that he acted ethically and in the best interests of class members. Weiss said the Arkansas action is unlikely to have an adverse impact on the New Jersey case.

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