If there's a moral in this week's felony settlement by class-action lawsuit giant Milberg Weiss, it's this: Prosecutors should keep digging into tort-bar practices. The details are even worse than the headlines.
Milberg admitted its crimes and will fork over $75 million, rather than go to court to fight federal charges over a kickback scheme. The agreement ends a seven-year probe that also resulted in four former Milberg partners -- including trial bar barons Bill Lerach and Melvyn Weiss -- admitting to felonies.
The firm perfected what's known as a "strike suit," in which a corporation is sued over a dubious claim of "fraud" merely when its stock price falls. Milberg now admits that, over 30 years, seven former partners (three remain unnamed) paid secret kickbacks to plaintiffs in 165 suits. Those suits earned the firm some $240 million in fees.
The plea deal itself reveals how elaborate these strike-suit cons were. In addition to paying plaintiffs, Milberg was also funneling kickbacks to New York-area stockbrokers who referred clients for Milberg suits. One of these was Paul L. Tullman, who received some $9 million in finder's fees over 24 years. Milberg Weiss was also illegally paying at least one class-action expert witness, a man named John Torkelsen, on a contingency-fee basis. Torkelsen, now serving jail time for defrauding the government, was famous for providing the court with estimates of the "damages" owed to shareholders. Since he was getting a cut, he had every incentive to pump up the numbers.
In short, Milberg was a corrupt enterprise that perpetrated a vast fraud on our system of justice. Legitimate tort claims involve injured individuals who need a lawyer to seek redress. Milberg paid stockbrokers to recruit plaintiffs who weren't injured to sue companies that weren't guilty. Then it paid off both those plaintiffs and the "expert" witnesses who would inflate the amount of injury, thereby raising the value of damage settlements and the riches the firm's lawyers received.
We dislike indictments against entire companies or firms, yet it's revealing how vigorously Milberg had fought the Justice Department until it was indicted. Milberg tried to hide behind attorney-client privilege. As part of the settlement, Milberg was required to admit that, even after it was aware of the federal probe, it had refused to conduct an internal investigation or to take any action to stop the wrongdoing.
The defense by the rest of the tort bar is that these are exceptions who shouldn't tar an entire industry. And of course not all tort lawyers are crooks. But it's worth noting that no less an authority than Bill Lerach continues to assert, even from his jail cell, that what Milberg and his partners did was merely standard "industry practice."
He has a point. One problem is the practice of mass-tort claims, which give an incentive for settlements divorced from actual justice. They are a form of extortion. For further evidence, we recommend Peter Boyer's recent New Yorker profile of Dickie Scruggs, the Mississippi tort king who has also copped to a felony. As one of Scruggs's admirers told Mr. Boyer, "The risk to a defendant of having liability imposed on several hundred cases was a risk that was more than that defendant wanted to reasonably bear. It created an atmosphere to settle the cases."
In a better world, our politicians would attempt to prevent such legal abuse. But Democrats in Congress have yet to hold a single hearing on tort-lawyer corruption. They are instead working hard to create more opportunities for mass-tort extortion by adding more causes of action to every bill they pass.
Milberg, Lerach and Scruggs are industry leaders. Add the evidence of legal fraud in asbestos and silicosis cases, and the Justice Department has every reason to continue cleaning up a tort bar that Congress refuses to police.