The Manhattan Institute's Walter Olson has a subscription-only op-ed on the Milberg Weiss indictment in today's WSJ. Olson writes:
Milberg Weiss lawyers have been in the forefront of efforts to define kickbacks broadly and punish them with rigor. The firm's Web site boasts that it "has sued major providers of private mortgage insurance for kickback violations, resulting in substantial settlements." Melvyn Weiss and others at the firm have expressed indignation at, and filed lawsuits over, alleged kickbacks in the contexts of Wall Street initial public offerings, mutual fund sales, insurance brokerage commissions and doctors' prescribing of pharmaceuticals.There's more at Overlawyered.com.
Although there are many debatable cases, concealed payoffs to named plaintiffs in class actions aren't one of them: They're clearly improper under virtually any analysis. As the indictment states, both plaintiffs and their lawyers are under obligation 1) not to place a named plaintiff's interests above those of absent class members; 2) not to behave deceitfully or unethically toward the court or absent class members; and 3) not to withhold from the court "any fact" that might call into question the representativeness of the plaintiff (a financial dependence on the lawyer would be one such fact). As a class action proceeds, plaintiffs repeatedly swear under oath to these matters. Bonus payments to compensate named plaintiffs for their time and trouble are permitted at settlement, but they must be disclosed to absent class members and approved by the judge.
These rules have a purpose. With other class members absent, named plaintiffs are one of the few watchdogs against self-dealing or misconduct by the lawyers -- specifically, the pursuit of settlements that result in high legal fees, whether or not they serve the interest of the class. It's true that law firms do seek docile, loyal or merely clueless persons to serve as their named plaintiffs, which means it's rare (though not unheard of) for them to contribute an independent point of view in a case. But if the Justice Department's allegations are correct, Milberg was taking no chances on the watchdogs staying pacified: It threw regular chunks of raw liver into their cages. Significantly, Justice alleges that payoffs were computed not as a share of the class's eventual recovery, but as a share of Milberg's own fee haul -- incentivizing the named plaintiff to side with Milberg's interests should the two clash.
The WSJ itself also has a subscription-only editorial on the matter, titled "Very Rough Justice." The editorial is of mixed minds on the indictment, and begins:
Let's all admit it. Across the country last week, millions of Americans were indulging in Schadenfreude -- the enjoyment of another's misfortune -- at the indictment of class-action tort giant Milberg Weiss. Yet even the many victims of Milberg Weiss should think twice about cheering the Justice Department's blunderbuss tactic of indicting the entire law firm.The editorial continues, noting that the evidence against Milberg Weiss attorneys seems to be quite strong, but the Justice Department's tactics were excessively heavy-handed.
Despite the impressive evidence, the problem with this case is that Justice has chosen the nuclear option of indicting the entire Milberg Weiss firm. As in the Arthur Andersen case, this may well mean a death sentence for the law firm whether or not it is convicted. More troubling is that, even if Milberg is convicted, the larger cause of justice and deterrence may not be served. . . .
. . . The Justice Department essentially held a gun to Milberg Weiss's head and threatened to indict unless the firm waived attorney-client privilege and agreed to label its own partners criminals. Never mind the irony that this is similar to the methods that Milberg Weiss has used itself against countless law-abiding businesses.
The practice is still a dangerous precedent that can be used -- and surely will be -- against more honest business enterprises. Justice played the same rough game with KPMG, deciding not to indict that accounting firm only after it agreed to renounce the tax shelters it had been selling and throw many of its partners over the side. The threat of a corporate death sentence is an abuse of prosecutorial discretion against any but the most corrupt criminal enterprises -- namely, the mob.