Government
Aug. 8, 2002
Hiring of Milberg Weiss Draws Heavy Criticism
LOS ANGELES - A state pension fund's decision to retain Milberg Weiss Bershad Hynes & Lerach for a securities fraud claim is drawing heavy criticism from California officials angered about that law firm's recent legal battles against the state and repeated lawsuits against California companies.
The California Public Employees' Retirement System and two smaller pension funds are seeking recovery of losses totaling $318.5 million from a May 2001 WorldCom Inc. bond issue.
The bond lost value after the company announced it was filing for bankruptcy. CalPERS is suing both WorldCom executives and several underwriting banks.
According to representatives of the pension fund, CalPERS chose Milberg Weiss because of its successful track record in similar fraud cases.
But critics cite an appeals court decision striking down the Milberg firm's recent $88.5 million fee in a successful challenge to the state's smog impact fee.
In a concurring opinion issued July 22, Justice Richard Sims of the 3rd District Court of Appeals wrote, "The fact that attorneys even requested a fee award of that absurd magnitude from the taxpayers is a testament to the unreal world of greed in which some attorneys practice law in this day and age." Jordan v. Department of Motor Vehicles, C038339 (Cal. App. 3rd Dist. July 22, 2002).
The $88.5 million fee would have compensated the attorneys at a rate in excess of $8,000 per hour, which Sims described as "in outer space, totally over-the-top."
State Controller Kathleen Connell said Tuesday that CalPERS should not use Milberg Weiss as outside counsel.
Connell, who serves on the board of administration at CalPERS, filed the complaint refusing to pay the $88.5 award fee determined by the arbitrators.
She cited not only Milberg Weiss' treatment of the state in the attorney fee dispute but also its hostility to important California companies.
"The firm has showed a strong antipathy to many of California's high-tech companies, which has radiated back to the firm from these companies," she said. "I do not dispute the quality of the firm, but I am sensitive to the concerns of these companies."
Another critic, state Sen. Ray Haynes, R-Riverside, last week also expressed dismay that the pension fund hired Milberg Weiss, which he described as "ambulance chasers of the securities industry" and a menace to California taxpayers.
Connell explained that Milberg Weiss is on a roster of firms used by CalPERS and that it's normal for the firm to be hired periodically. She said she did not know whether the fee award controversy would lead CalPERS eventually to drop Milberg Weiss from this roster, something she has urged the pension fund to do.
In 2000, after Gov. Gray Davis decided to settle a 1995 suit challenging the $300 smog impact fee for out-of-state vehicle owners, the state Legislature created a $665 million fund to refund motorists who had paid the fee.
An arbitration panel decided that the plaintiffs' attorneys, Milberg Weiss and four other law firms, were entitled to 13.3 percent of $665 million, or $88.5 million, in attorney fees.
The amount outraged many in state government, including Davis, and later was thrown out by the Sacramento Superior Court in 2001.
The plaintiffs' attorneys, led by Milberg Weiss, appealed the ruling to the 3rd District Court of Appeal. The court affirmed the trial court decision last month.
The court ruled that the arbitrator cannot issue an award in excess of $18 million, an amount determined at an earlier phase by the trial court.
CalPERS representatives defend their choice of Milberg Weiss, which they say has unparalleled experience in bringing securities fraud cases.
The firm gives the pension fund a greater chance of recovering its losses, spokesman Brad Pacheco said Monday.
"We felt that Milberg Weiss was the appropriate firm to handle the suit, given its expertise in the field," Pacheco said.
CALPERS representatives also have said that the pension fund's fee arrangement with Milberg Weiss - a 12 percent contingency fee with a possible 5 percent performance-based increase, worth up to $54 million - is a bargain.
Firms bringing securities fee cases can earn a contingency fee of up to one-third or more of a recovery or settlement, according to experts in the field.
Milberg Weiss, meanwhile, has filed a petition for rehearing or modification of the appellate court decision.
In the petition filed Tuesday, the firm disputes Sims' critical language and argues that any "dicta regarding the reasonableness of the fee award" should be removed from the concurring opinion.
The issue before the appellate court, the petition states, was whether the arbitration award was an unconstitutional gift of the public funds.
The petition also suggests that the appeals court de-publish the concurring opinion.
"Certainly the comments were intended to send a message to the parties, and that message has been sent irrespective of the publication status," the petition states.
Earlier this year, Milberg Weiss faced a federal grand jury investigation into alleged schemes to solicit investors and fabricate shareholders when bringing its class actions, according to sources familiar with the investigation.
Assistant U.S. Attorney Michael Emmick in Los Angles and Williams & Connolly attorney Gerald Feffer, a Washington, D.C.-based attorney who has represented Milberg Weiss on the matter, said they could not comment on the status of that investigation.
John Ryan
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