NYT on Milberg, Weiss

An interesting article on the breakup of the securities class action firm. Incomplete, though -- not as good as Jeffrey Toobin's New Yorker article from a couple of years ago, which at least mentions the Lexecon/Fischel $50 million abuse of process recovery from Milberg. The Times article also fails to mention Bill Lerach's famous quotes -- ""I have the greatest practice of law in the world, no clients." And the one about Fischel that got Lerach in so much trouble -- that Lerach wanted, in his words, to "put the little fucker out of business."

The NYT article is worth considering in light of Congress' pending action on tort reform. The abuses of plaintiffs' lawyers have been much documented. Plaintiffs' lawyers have also done some good -- I think it's a fair bet that they were primarily responsible for uncovering the asbestos problem. Also, as I have previously posted, class action lawyers are not entirely without social value. Indeed, my article (with Bruce Kobayashi), Class Action Lawyers as Lawmakers, focusing on Milberg, Weiss, makes a case for rules that enable class action plaintiffs' lawyers to be compensated for constructing novel and complex litigation theories.

But I think it's fairly clear that the tort system has gotten out of hand, and that tort litigation now does more harm than good. That's particularly true of state tort actions, like those in Madison County, Illinois, which are decided under local rules that favor in-state plaintiffs' lawyers over out-of-state companies, consumers and shareholders. But it's also true, at least historically, of federal securities class actions, at least in the bad old days prior to the Private Securities Litigation Reform Act.

A couple of things worth keeping in mind, though, as we consider regulation. First, the law of unintended consequences operates with this, as with other, regulation. As my article, and NYT and NY articles show, the PSLRA actually helped strengthen the Milberg firm against its competitors.

Second, the usual arguments against federal law remain, even if the state law it's aimed at is pernicious. The multi-state "laboratory" of rules arguably should be given a chance to operate, so we can be sure of not regulating away the good lawsuits, or making the situation even worse. One might say that the states have no incentive to reform. But in fact they do, because big companies have a strong incentive to avoid doing business in states that will abuse these firms in their courts. Kobayashi and I analyze how this could lead in the long run even to efficient regulation of the Internet, which superficially seems to be an appropriate area for federal regulation: State Regulation of Electronic Commerce, 51 Emory L.J. 1 (2002), draft here.