The Ten Roads to Riches

by Ken Fisher

  Confusing subject matter. Sympathetic client. You’re halfway there.

  Legal Scapegoats

  Folks like finger pointing when something goes awry—it’s human nature—whether in medicine, in investing, in love, anything. Scapegoats help us cope. Behaviorists call this regret shunning. PLs succeed by pointing at scapegoats for otherwise random or nonrandom tragedies (or nontragedies). Scapegoats pay PLs to make the finger pointing stop.

  Former senator, vice presidential and presidential candidate John Edwards is legendary for actually taking cases to trial. He repeatedly claimed cerebral palsy is entirely avoidable—caused by physician error during birth. In one famous case, he “channeled” his young client, addressing the jury as if he were the young girl in her mother’s womb begging them to do the right thing—that is, find for his client. They did. Edwards’s client walked with $2.75 million from the hospital and $1.5 million from the doctor—$4.25 million in all.17 His success spawned a mini-industry. You’ve seen the commercials: “If your child has cerebral palsy, it may be medical malpractice. You can sue! Call Dewey, Cheatem & Howe.”

  Cerebral palsy cases are perfect. They involve afflicted kids and a little-understood disease. One Florida couple sued the Jacksonville Naval Hospital for $150 million.18 But according to the American College of Obstetrics and Gynecologists, cerebral palsy is in all likelihood linked to genes, prenatal infection, or other issues beyond doctor control more than anything else.19 Try telling that to a jury or the media when they’re witnessing tear-jerking theater.

  Tort Is Just Part of Extort

  Our tort system is extra tough on small firms. Legal defense costs and public relations damages may overwhelm relative to their size—making extortion threats more successful for you. Small corporate defendants are always scared to death and prone to caving in. Many PLs seek targets they suspect can’t afford not to cave. As the case starts, they privately demand to be paid to go away. Usually, the defendant settles. Settlements are usually covered by the firm’s insurance, making it easier for the defendant to do it. It’s so much easier to pay PLs to go away than fight that this becomes your opportunity.

  Even better, in this process these settlement discussions aren’t admissible at all in court. The defendant can’t scream at the judge, “But he told me if we would just pay $1.5 million he would drop everything—this is so bogus.” Isn’t that cute? Protects you as a PL.

  So ideally, you want targets that are either big and visible—so the suit hurts their reputation with customers and shareholders, like with Erin Brockovich—or you want many small firms that frighten easily.

  There’s a step in normal court proceedings where the defendant routinely asks for dismissal. Judges almost never grant these. This is good for you as a PL. You get more extortion time. Judges believe they should be judicious and hear the matter to ensure they don’t dismiss something real with real damages. The judge, by acting judiciously, decreases the odds his or her decision gets overturned later on appeal. Getting overturned is maybe what judges hate most. So the case runs and you can keep scaring and damaging the defendant into settling.

  Once started, defendant damage grows daily whether the defendant ultimately prevails or not. Here, there is no such thing as innocent until proven guilty. Defendants never really “win.” Trials take two to four years if the defendant prevails through the end. Defendant costs easily exceed $2 million—bigger cases, much more. But you as a PL have minimal costs—your time, minor travel, expert witnesses, copying, clerical—not that much. This stacks the odds in your favor. Every month costs them much more than you. The actual payout may be covered by insurance, but defendants’ defense costs aren’t unless they allow their insurance firm to run their defense, which means giving up control—usually meaning lousy legal work. So simply by moving forward every month, you put increased pressure on the defendant, motivating them to pay you to go away since they didn’t get that message at first. You want to ask to be paid to go away immediately, then again after the judge refuses the defendant’s request for dismissal, and then about every four months right up until the end.

  If defendants do go all the way through the trial, it means they either are confident they did nothing, are tough, or, in ways you as a PL may not understand, consider themselves simply unable to settle. (We’ll get to that later.) But if they prevail all the way through the trial, you again ask for money, much less, or else you threaten to appeal. If they won’t pay you, then appeal. That will be another year, easy, and you can keep asking to be paid to go away. From beginning to end, you want to keep hitting them with body blows. What kind of blows are best?

  Playing to the Press

  PLs pretend they don’t seek media coverage—doing so irks judges. But they usually do, and on this road you need to milk the media as hard as you can, particularly if the defendant has brand value you can damage—like the Erin Brockovich case. A little-known, major dirty secret in our culture: PLs are one of journalists’ most important sources. Most negative articles are pirate-initiated. Journalists will do anything to keep their “source,” the PL, concealed (again, the judge would hate it). Under First Amendment protection, they can.

  The media is your partner on this road because you feed them good dirt, and dirt equals bad news, which sells best. Meanwhile, the media campaign scares away your defendant’s customers and potential customers, making the defendant more settlement-prone. If, as PL, you contact a major business journalist offering an exclusive on your new suit filed against a high-profile corporate defendant, I promise you will receive a warm reception.

  Our tort system is set up for this process to run to your advantage. The defendant has two choices: Fight to the end, enduring damages and costs to prevail, which they’ll never recover; or pay you to go away. Most will pay.

  As a defendant (all business owners become a defendant, multiple times, once they get over a certain size—and it’s smaller than you think), I try to be rational about this as a business cost. My legal team considers each case individually. But sometimes as a defendant, we see things in ways you as a PL might not quite fathom. Example: Some years ago, we were attacked by a San Diego–based PL attempting to bring a class action against my firm, claiming misleading advertising via a slimy law provision the judge said didn’t apply for such suits. The suit sought a return of fees to all our clients. I not only knew they were dead wrong and hence we should be able to prevail in court, but also believed that if I paid them to go away to save the costs and media nightmare, my firm’s clients would never believe we hadn’t done something wrong. If we hadn’t done anything wrong, why would we settle?

  In an integrity matter like that—claiming we misled clients when we knew otherwise—my stance hardened to no settlement, at any price, at any time. Our client reputation was on the line. In my field, that is critically important. And by our standards, the PL wasn’t overly frightening. So we fought—all the way. We prevailed. But the whole way through, the PL kept asking to be paid and couldn’t fathom why we simply wouldn’t. My lawyers kept bringing me their latest offer and I kept returning them with a simple message: Go to hell, PL.

  To me, it was worth the millions we spent and the time our senior people, me included, diverted from our primary functions to conclude and prevail. I wasn’t going to have our clients see us paying for something we hadn’t done and have that hang over our heads forever. That would have damaged our integrity! At first, the PL wanted big bucks to go away, and at the end asked almost nothing—the amount stair-stepped down as the years ran. But the PL never got that we wouldn’t pay under any circumstances. If you go down this road, you will run into these kinds of cases, and you’re better served to figure them out quickly. When the defendant simply won’t pay, make sure you really have a case. You probably don’t and should stop wasting your time immediately.

  More Stacked in Your Favor

  Another great feature for you as a PL is when you run a really rancid suit and screw up terribly—maybe yo
u sue the pope for child molestation and embezzlement with no evidence at all, pushing it all the way through trial, losing huge, and in the process breaking basic procedural rules like lying to the judge—it’s still very hard for the defendant to collect damages against you. When they do, it’s piteously small. You just don’t have that much to lose. In the aforementioned case, we won right down the line and the PL made some egregious errors. We did win the almost impossible standard of being awarded costs—beyond rare. Still, all we got was a measly $13,000. You, as a PL, have a tough time losing more than your time. Great for you!

  I’ve paid PLs to go away twice, totaling $5 million. Both involved class action complaints against my firm, alleging we violated California employee wage and hour laws. These suits are routine and don’t justify a trial defense. We did nothing wrong. But employment laws on this are murky. And it would’ve cost more to defend ourselves than to pay these guys to leave. And these suits aren’t about something like fraud impacting clients’ perceptions. They were about how we treat our employees—who already know exactly what we are and aren’t—so their views of us couldn’t possibly be hurt by these silly claims.

  Pretty much all California firms have these once they hit a certain size. It’s just a cost of business in some states (see Chapter 9). The PL doesn’t want to go to court—it just wants the booty. It’s cheaper to settle than fight. Fighting wins nothing. It’s great and easy PL booty with scant work. There’s a whole industry doing this—your industry on this road. You can hit a group of employees at a firm once—then you need a different employee group. The key is figuring out which firm has just become big enough to merit going after. It happens at about 500 employees. It’s like finding an undefended treasure ship at sea. Just be there first and do it before another pirate finds it.

  TARGET PRACTICE

  Beyond socially sympathetic clients (workers, kids), you want a corporate target that can pay and wants to settle early before you work much. Big business is easy to demonize.

  Pharma

  Pharmaceutical firms are great targets. The big ones are massive—huge market caps, hence big settlements. And big profits make them unsympathetic to our society. Pharma is a perfect marriage of sympathetic clients, complicated, technical subjects, and easy-to-villainize targets. Recall Merck’s Vioxx hoopla? Vioxx is a COX-2 inhibitor (complicated), intended as a pain reliever for folks with osteoarthritis and sensitive stomachs—meant to be taken for brief periods. Further testing (done by Merck) showed increased cardiovascular problems if taken beyond 18 months. So Merck yanked it from shelves.20 But Vioxx wasn’t meant for long-term usage—so no worries, right? Wrong. When the news hit, Merck’s stock tanked. Soon, its credit rating was cut by ratings agencies fearing litigation and payouts.21

  By October 2007, Merck was named in approximately 26,600 lawsuits. 26,600! Some could be yours. At last count, the company had paid about 35,000 claimants, shelling out at least $6 billion overall in penalties, judgments, and settlements. Of that, $950 million went to the federal and state governments in 2011, and most of the rest to claimants and PLs. One case settled as late as January 2016, for $830 million plus attorneys’ fees.22 Estimates say PLs will have pocketed nearly $2 billion overall when all is said and done.23 Can you make your client sympathetic enough to collect huge fees from a “villainous” target?

  Tobacco

  When I was young my father taught me to look both ways when crossing the street and never smoke. Forget there’s been a surgeon general’s warning since 1965 that cigarettes cause cancer. Anyone habituated since then was duly warned. But PLs keep finding new angles. You can, too. Tobacco firms look bad, always.

  Other Targets

  Asbestos is a great target. Asbestos may eventually outshine tobacco as a cash cow. There are 50,000 to 75,000 new asbestos lawsuits filed yearly. Most of them—over 600,000 by year-end 2000—were filed by defendants who didn’t have any asbestos-related disease and may never get one.24 Great pirate’s work!

  A hot recent target is vaccine manufacturers for an alleged link to autism from thimerosal—a mercury-based preservative. (Complicated chemical—sick kids—big pharma!) Probably the increase in autism diagnoses is because they actually diagnose it now—10 and 20 years ago, these kids would just be called “slow” or “off.” But maybe I’m wrong. Either way, it’s hot for suing.

  You can also get in on the phthalate craze! This chemical makes plastic bendy and near-indestructible. It’s used in children’s toys, and also IV bags and other hospital gadgets. Greenpeace decided it’s “bad” and California issued a statewide ban. Greenpeace prefers a replacement compound that makes plastic more brittle—meaning your kids’ toys break more easily into handy, choking-size pieces. We’ll likely soon be phthalate-free and choking-suit rich! Never mind the founder of Greenpeace himself thinks phthalates are fine and perfectly safe.25 It’s complicated and near unpronounceable!

  With targets the media loves skewering—big business, pharma, tobacco—your odds improve.

  Securities Litigation

  A classic is suing public stocks whose prices plummet. Pirates find one shareholder and sue, alleging the firm should have disclosed something earlier or somehow otherwise avoided the drop (through magic?). These never made sense, but they’re ubiquitous. The media loves them—painting firms as evil and intentionally defrauding the shareholder proletariat.

  It works like this: Firm X trades at $50 a share—worth $10 billion. Earnings turn sour. When news hits, the stock drops 20 percent to $40—down $2 billion. A PL sues on behalf of shareholders for the full $2 billion. Firm X settles for $60 million. The PL gets $20 million. Note: Corporate payments to shareholders come from shareholders—it’s zero sum. The only difference is, some past shareholders may no longer be shareholders and new shareholders may have bought in. All current holders pay and suffer for the benefit of a few prior shareholders, so now current shares are worth even less. This is like stealing from Peter to punch Paul in the face. If you were and remain a shareholder, it’s like getting a small dividend and paying the PL a 30 percent finder’s fee. These suits are common.

  WHEN A PIRATE BECOMES A VILLAIN

  So when does legal piracy become illegal? When you break the law. Ask Melvyn Weiss and Bill Lerach (of the well-toned scotch arm). For decades, no two words struck more terror in CEO hearts than “Milberg Weiss.” (Well, maybe the word “Lerach” did.) Founded in 1965 by Melvyn Weiss, Milberg Weiss claimed to fight for blue-collar workers duped by evil corporations into losing life savings on crummy stocks. As the workers’ savior, Milberg Weiss collected over $45 billion from firms for “cheated investors.” $45 billion! In 1976, Bill Lerach joined in the fun, opening Milberg West in San Diego, and was as feared as Weiss (if not more so).

  They eventually had over 200 lawyers nationally—bigger than any rival—a machine, bringing in a case a week at their peak. Lead partners made hundreds of millions. They took on everyone! Some firms multiple times. Ninety percent of cases settled—they weren’t interested in trying cases.26 Lerach was famous for personally threatening CEOs with poverty and worse.27 Pirate talk. Arrr!

  To get these cases, you must file in court before another PL does. This is called the race to the courthouse steps. He who files first gets the case. How can you make sure you’re first? Weiss and Lerach knew. Every class action needs a lead plaintiff—a normal person who represents typical damages. Finding one takes time—slowing you in the courthouse race. So Weiss and Lerach built a stable of potentials with predrafted complaints.

  How can you have a plaintiff and complaint beforehand? Weiss and Lerach drafted folks to buy tiny positions in thousands of stocks and wait. When one tanked they went straight to court. For this, that draftee got a cut—say, 7 to 15 percent of the lawyers’ take—leading to a $1 million-plus payout one time. They reused plaintiffs—40 times for one man. This is illegal—a felony. Lawyers are routinely asked if they made additional payments to plaintiffs. For decades, Weiss and Lerach lied und
er oath. As did these star plaintiffs.

  News flash! Stocks are volatile. Sometimes they drop. Them’s the risks. Punishing firms for normal volatility just redistributes profits and hurts shareholders and stock prices. This doesn’t help the little guy. This is simple extortion. But firms settle just to make PLs go away.28

  A formal investigation started in 2001. You might think Weiss and Lerach would slow down. No! Their scheme continued—at least until 2005. In all, prosecutors claimed they paid kickbacks in over 150 class action cases.29 Lerach pleaded guilty and got two years and a $7.75 million fine.30 Weiss pleaded guilty, too, to racketeering (like a mafia Don!), and got 33 months and paid $10 million.31 The firm settled for $75 million to avoid a criminal trial (interesting a law firm is so anxious to avoid court).32 Despite guilty pleas and fines, Bill “Scotch Arm” Lerach still insists that what they did “was merely standard industry practice.”33 Yikes.

  On this road or any other, never, ever break the law. You don’t want to end up in the big house like Lerach and Weiss, even if you can retire to your own big house afterward. As I detail in the next chapter on “Other People’s Money,” breaking the law is always bad business. On any road, orange prison jumpsuits are just ugly. Be a PL. Steal it . . . but do it legally, never illegally. Don’t Lerach yourself.