Sausage factory II: lawyer presses Lerach for referral fee

June 8, 2007, 8:06 PM UTC
Fortune

[See update at end]  

After class action king Bill Lerach avowed in an affidavit last month that his firm never had an agreement to pay a Florida attorney 10% referral fees, that lawyer responded with a declaration listing names of 15 cases that he says he referred to the firm since 1998 and for which, he claims, Lerach’s firm (or its predecessor) paid him in full. The Florida lawyer, Bruce Murphy, is seeking 10% of a $2.5 million fee Lerach Coughlin and its co-lead counsel received in a 2004 settlement in a class action against Tut Systems, which is now a unit of Motorola (MOT).

(Lerach is under scrutiny in connection with an unrelated criminal probe that has already led to the indictment of the firm he formerly co-ran, Milberg Weiss Bershad & Schulman, and two of that firm’s name partners. All defendants have pleaded not guilty. The probe appears to be at a critical stage, and Lerach, 61, has acknowledged that he is considering retirement. See posts here and here.)

The earlier back-and-forth in the referral fee dispute between sole practitioner Murphy, of Vero Beach, Florida, and the class action powerhouse Lerach Coughlin Stoia Geller Rudman & Robbins, has been described in an earlier posting here. The suit against Tut Systems was filed in 2001. Though Lerach and Murphy are listed in the court docket as co-counsel for the three original named plaintiffs, Murphy claims that in 2001 he was cut off the service list (i.e., the list of attorneys who are to receive court documents as they are filed) and that neither he nor the named plaintiffs were ever notified of the 2004 settlement of the case, which they first found out about in October 2006.

In a declaration filed in federal court in Oakland, California, on May 31, Lerach swore, “In connection with the initiation of this case, I did not agree, nor was there any pre-existing arrangement, that Mr. Murphy would receive a 10% referral fee for filing this lawsuit in association with my firm.” Lerach’s partner, Dave Walton, who oversaw the filing of the original Tut complaint, also submitted an affidavit saying he “did not agree to pay Mr. Murphy any type of referral fee and . . . was not aware of a pre-existing fee arrangement with Mr. Murphy.” In Murphy’s reply, filed yesterday, the Florida solo lists 15 cases in which he says he, in fact, received a full 10% referral fee from either Lerach Coughlin or Milberg Weiss. He says that Lerach personally made the promise to pay him a 10% referral fee in a telephone call in 1998, when Lerach was a name partner at Milberg Weiss, and that the promise was repeated in a 1999 telephone conversation with Milberg Weiss partner Steve Schulman (now indicted) and Sam Rudman (now a name partner and executive committee member of Lerach Coughlin).(Lerach and the rest of Milberg Weiss’s West Coast office broke away from Milberg Weiss in May 2004, forming Lerach Coughlin.) Of the 15 cases in which Murphy claims to have been paid his full 10% referral fee, he says he made one of those referrals directly to Lerach, one directly to Walton, nine others to Rudman, three to Darren Robbins (another name partner and executive committee member at Lerach Coughlin), and the last to different Lerach Coughlin lawyer. (Neither Robbins nor Rudman submitted affidavits in connection with Lerach Coughlin’s May 31 filing.)

I’ve just emailed Lerach, Walton, Robbins, and Rudman seeking comment on Murphy’s filings and this posting. (They have not responded to any of my calls or emails on recent previous posts.) If they respond, I promise to print in full their response so long as it takes up no more words than I have used here.

(There is no discussion of the ethics of referral fee payments in either Murphy’s papers or Lerach Coughlin’s. According to ethics professor Stephen Gillers of New York University School of Law, the usual ABA rule in effect in most states is that an attorney can get a referral fee if he either works on the case or if he accepts responsibility for the other lawyer’s work. The California rule, Gillers writes in an email, is that attorneys from different firms can’t share in a fee unless the client has consented in writing after full disclosure. In a class action, Gillers adds, the court may need to be informed as well.)

My previous post on this dispute left one other open question. In response to Murphy’s original suggestion that the three original named plaintiffs — Carlos Yusty, Andres Jaramillo, and Rodrigo Jaramillo — had missed out on their opportunity to recover from the settlement fund, Lerach Coughlin countered that that fund, though fully distributed, probably still had enough money in it (due to interest payments) to pay off the named plaintiffs’ claim if Murphy would simply file the necessary paperwork. They claim further that Murphy has thus far failed to do so, notwithstanding recent urgings and invitations to do so from Lerach Coughlin and the fund’s claims agent. In his reply papers Murphy suggests that the settlement, “mere pennies on the dollar,” would be fairly meaningless, and he hopes, therefore, to get larger sanctions and damages for the plaintiffs in light of Lerach Coughlin’s conduct. (The plaintiffs’ stock trading losses allegedly came to about $25,800.)

UPDATE ON 6/13/07:

Judge Claudia Wilken ruled on Murphy’s motion today, and turned him down.  “Even if there was a ten percent referral fee agreement in place, which Lerach Coughlin denies, under the Court’s order Mr. Murphy would not be entitled to the $200,000 he seeks,” she wrote.  “No fees were awarded to Mr. Murphy because he did nothing more than contact Mr. Walton, review the complaint drafted by Milberg Weiss and forward the draft complaint to his clients for review and approval. His involvement in the case stopped in December 2001. Then he seemingly forgot about this case until October 2006, when his clients contacted him to inquire about the status of the case. . . . The Court defers to Lerach Coughlin’s decision not to allocate any attorney’s fees to Mr. Murphy.”

As for the other part of Murphy’s motion — his request for damages and sanctions on behalf of the allegedly neglected named plaintiffs — she dismissed the motion without prejudice (i.e., without having any negative binding impact on the plaintiffs) because Murphy, a Florida lawyer, wasn’t admitted to practice in California, and therefore wasn’t qualified to represent those plaintiffs.