As famed class-action lawyer William S. Lerach steps before a federal judge in Los Angeles today to learn his sentence in a wide-ranging fraud and conspiracy probe, his misdeeds and those of former colleagues may be helping to alter the way securities law is practiced.
The number of class actions filed on behalf of disgruntled investors has been dropping, and legal experts say that is partly because practitioners are distancing themselves from the aggressive tactics that made Lerach, 61, and his former partners courtroom legends and lightning rods for critics of the civil justice system.
In some instances, judges have balked at certifying class actions they have deemed frivolous and in others have rejected settlements for paying attorneys at the expense of plaintiffs, sometimes citing the ongoing prosecution of Lerach's former firm, once known as Milberg Weiss Bershad & Schulman.
Lerach left in 2004 to found a San Diego class-action practice now called Coughlin Stoia Geller Rudman & Robbins. Lerach resigned from that firm in October, days before he pleaded guilty to one count of conspiracy.
"What you're watching is a bit of a transition from a world in which class-action practice did have some disreputable aspects to a different model that's much more responsible, publicly oriented and closely regulated," said Stephen Bundy, who teaches law at Boalt Hall, at UC Berkeley.
Lerach's trademark vitriol -- he famously threatened to "destroy" companies that balked at settling -- and his fondness for television cameras may belong to the past. Lawyers who now dominate the field are far less confrontational, Bundy said, and their resumes resemble those of their big-firm opponents.
Several factors may explain the drop in securities class-action filings from the peak years of 2000 to 2004, including, until recently, rising stock prices.
Bundy said, though, that the decline also reflects an evolution from "smaller, informal and slightly shady firms" to more mainstream law practitioners.
Federal rules helped push the change.
Until 1995, the first law firm to file suit could direct the class action and reap the largest legal fees. The rules favored firms with a stable of ready-made plaintiffs: people with a few shares in many companies who were willing to immediately lend their name to litigation. That year, Congress changed the law so the lead law firm should be one that represents the plaintiff with the most significant holdings at risk.
