Lerach firm will fight client to stay in Halliburton case

December 13, 2006, 3:41 PM UTC

On Tuesday night, Bill Lerach’s firm, Lerach Coughlin Stoia Geller Rudman & Robbins, filed papers indicating that it will vigorously fight the lead plaintiff’s request that it withdraw as lead counsel in a high-profile class action against Halliburton (HAL).

The lead plaintiff, a charitable foundation known as the Archdiocese of Milwaukee Supporting Fund (AMS Fund), made the request in Dallas federal court on November 22, stating only that its relationship with both Lerach Coughlin and co-lead counsel Scott + Scott “had deteriorated,” and asking that David Boies of Boies Schiller & Flexner be substituted as the new lead counsel.

In an interview, however, an outside attorney for the AMS Fund, Neil Rothstein, says that the ongoing criminal investigation of Bill Lerach and the publicity surrounding that investigation played a role in the fund’s decision to seek Lerach’s ouster. Until 2004, Lerach was a name partner at the firm then known as Milberg Weiss Bershad Hynes & Lerach. The successor firm, Milberg Weiss Bershad & Schulman, was indicted in May 2006, along with two its name partners, David Bershad and Steven Schulman. (The AMS Fund request to substitute the Boies firm for Lerach’s came about three weeks after my colleague, Peter Elkind, wrote a cover story in Fortune about the circumstances surrounding the indictment, which you can read here.)

Since the indictment, rival class action firms have made a handful of challenges to allowing the indicted Milberg Weiss firm to serve as lead counsel–with mixed results–but, thus far, there have been no sustained attempts to hold the indictment against the Lerach Coughlin firm. One group of plaintiffs did mount an attack upon Lerach Coughlin last June in Philadelphia federal court, requesting that the firm be rejected as lead counsel in a consolidation of shareholder suits against GMH Communities Trust. But the group mysteriously withdrew its motion without explanation just three days later. The abandoned motion, filed by class action powerhouse Cohen Milstein Hausfeld & Toll, had cited the indictment’s repeated references to a “Partner B,” widely reported to be Lerach, and argued that the accusations went “to the very core of a class counsel’s duties to the class and the court.” (The indictment accuses Milberg Weiss of secretly paying three individuals to serve as its plaintiffs in more than 150 class actions over more than two decades, and lying about that fact in numerous court filings.)

This time, it looks like battle may be fully joined. The papers the Lerach firm filed yesterday argue forcefully that substituting lead counsel at this advanced stage in the case will cause “delay, duplication of effort, and extra fees and expense.” It also says that three pension fund class representatives (though not currently designated as the lead plaintiff) want Lerach Coughlin to remain as lead counsel, and it alleges that the proposed substitute firm, Boies Schiller, has a conflict of interest.

The contentions can only be understood against the backdrop of the case’s unusual procedural history. In 2002 a series of shareholder actions were filed against Halliburton, alleging improper accounting on company financial statements during the period when Halliburton’s CEO was Dick Cheney, now the vice president of the United States. The law firms representing three of the four original lead plaintiffs then proposed a quick settlement with Halliburton for just $6 million. The AMS Fund was the sole dissenter, contending that the settlement was far too cheap; in addition, it wanted to add charges arising from Halliburton’s vast underestimation of its asbestos liability. In September 2004, Judge Barbara Lynn ruled for the AMS Fund and rejected the settlement. At that time, the AMS Fund was represented by Scott + Scott, where Neil Rothstein was then a partner. Rothstein and Paula John, an AMS Fund executive vice president (and attorney) went to law school together 22 years ago, according to Rothstein. John’s mother is president of the AMS Fund.

In January 2005, three pension funds, represented by Lerach Coughlin, moved to intervene in the case. The AMS Fund welcomed Lerach Coughlin’s assistance, and Judge Lynn appointed it co-lead counsel. The AMS Fund remained the sole “lead” plaintiff, but the three pension funds became additional class representatives.

Then in November 2005 Rothstein–who had always been the AMS Fund’s chief contact at Scott + Scott–took a leave of absence from that firm. In March 2006 he severed his ties completely, and founded a corporation called Truth in Corporate Justice, which, he says, “provides litigation ethics oversight.” At Paula John’s request, Rothstein remained “special counsel to the AMS Fund.”

In November 2006, Rothstein and a Dallas attorney retained by John filed the AMS Fund’s motion seeking to substitute Boies Schiller as lead counsel for both Lerach Coughlin and Scott + Scott.

In Lerach Coughlin and Scott + Scott’s response papers filed last night, the firms contend that the Boies Schiller firm has a conflict, in that it is currently defending Tyco in shareholder litigation in which one of the lead plaintiffs is the Plumbers and Pipefitters National Pension Fund. That fund is one of the three that Lerach Coughlin brought into the Halliburton case in January 2005. In addition, the City of Dearborn Heights (Michigan) Police and Fire Retirement System fund, another class representative Lerach Coughlin brought into the Halliburton case, is a class member in the Tyco litigation.

[See CORRECTION below.] On the other hand, Lerach Coughlin’s three pension fund clients–the third is the Laborers National Pension Fund–may raise some issues for Lerach Coughlin. On June 22, the Chicago Tribune reported that William K. Cavanagh, a legal adviser to several Illinois pension funds that have served as plaintiffs for both Lerach Coughlin and Milberg Weiss, had received $750,000 in fees from those firms which had allegedly not been disclosed to the judges overseeing the cases, and for which Cavanagh had no corroborating records. Cavanagh told the Tribune that he hadn’t keep track of hours because he knew he’d be paid on a contingency. A Lerach Coughlin attorney was also quoted stating that “Their conduct here was not only consistent with law, but with longstanding contingent fee practice throughout the United States.” He also accused the Tribune of writing the article in retaliation because Lerach Coughlin was suing its parent, the Tribune Company in shareholder litigation. (Similarly, Bill Lerach told me in an interview, “Make sure you put in that your parent company [i.e., Time Warner] is being sued by us for $3.5 billion.”)

In any event, one of the three pension funds Lerach brought into the Halliburton case may be related to one of the Cavanagh funds. While Lerach brought the Plumbers and Pipefitters National into the Halliburton case, the Plumbers and Pipefitters Local 137 was one of the Cavanagh funds discussed in the Tribune article. The AMS Fund can be expected to explore this subject.

Do readers have any predictions or suggestions as to how Judge Lynn will or should resolve this dispute?

CORRECTION as of 12-17-06: I have rewritten and deleted portions of the last three paragraphs of this article. Originally, I confused the National Laborers Pension Fund with the Central Laborers Pension Fund, which is a second Cavanagh-related Fund discussed in the Tribune article.