The class action lawsuit, Howard J. Vogel v. Valero Energy, was filed in San Antonio on August 20, 1991. Vogel recruited Gary Lozow, his fraternity brother at Indiana University, to be his go-between. Lozow was practicing criminal law in Denver. (He would later represent the family of Columbine killer Dylan Klebold.) Like Paul Selzer, Lozow had never represented members of a class action securities claim. Two months from filing the lawsuit, Bershad sent Lozow a retainer agreement, promising to pay him 14 percent of its Valero fee, should it earn a jury award or settlement. Two months later, the case settled for nearly $20 million. Milberg Weiss collected $4.75 million for its work on the lawsuit. Milberg Weiss cut Lozow a check on December 28, 1992, for $637,223, knowing it would be passed to Lazar.
Steven Cooperman too was now deep into the action. By the beginning of 1993, he had collected more than $1.6 million from Milberg Weiss on wins that included American Continental/Lincoln, for which he received separate checks of $440,000 and $250,000 within eight months, with another $330,000 due.
Cooperman had also hired an intermediary—two actually. The first was Richard Purtich, a Los Angeles real estate lawyer, who had represented Cooperman in previous deals. The second was James Tierney, also from Los Angeles. Tierney was an entertainment lawyer, with actor Timothy Hutton and singer Gloria Estefan in his portfolio. Together over nearly a decade Purtich and Tierney would handle more than forty checks, plus cash, totaling $6.5 million. As it turned out, even that would not be enough for Cooperman, whose greed would inadvertently bait the trap for America’s most feared and loathed law firm.
BILL LERACH, WEARING KHAKIS and a polo shirt, remained long after most of his colleagues had left the office. On his desk was a draft of one of the most important projects he’d worked on all year. It was the annual breakdown of his office’s income and expenses. It showed Milberg Weiss West now returning more than 80 percent of the firm’s income in 1992. The aggravating part was reconciling the inequitable remuneration from the New York office. Lerach had been hearing from his San Diego partners about this for months. For the first time he sensed a possible flight of his own hand picked attorneys, even Alan Schulman, who was becoming his nemesis.
Lerach had made Schulman managing partner of the West Coast office, which meant Schulman was responsible for the books. Knowledge of the firm’s financial pipeline was power. The authority Lerach handed Schulman allowed him a peek behind the curtain at how Lerach exercised what he felt were his own financial prerogatives—paying favored cooperating law firms, underpaying others when he felt they hadn’t performed up to his standards, and funneling millions to his friend and expert witness John Torkelsen. When Schulman confronted Lerach over the inflated bills, Lerach would explain impatiently that on cases the firm lost or settled for less than anticipated, Torkelsen would also lose. It had to be made up, according to their contingency arrangement; otherwise they might lose their star witness to their competitors. This explanation disturbed Schulman. Lerach was making up the rules as he went, Schulman would complain sotto voce to other attorneys in the firm. In some cases, when Lerach learned from Torkelsen that Schulman had refused to pay certain invoices, an audible confrontation could be heard between the two partners. The noise reached New York through back channels. Schulman was now delivering disquieting reports to Mel Weiss and Dave Bershad.
Still, Lerach felt obliged to include Schulman among the partners who deserved more money, thinking a raise might placate him. But a law partnership is a zero-sum game. Taking money from New York would mean persuading the partners there to forfeit some of their own shares—even as they were raking in unprecedented profits. On the face of it, Lerach let himself think, this should be logical. Deep down he knew better. He had grown to hate the annual executive retreats where these issues would rear up. “Knife fights,” he characterized them, admitting to his closest allies and his wife that he’d grow sick to his stomach on the eve of these events. Weiss had recently added fuel to the fire, at least in Lerach’s mind. He’d been deferring more and more internally to a tough new partner, who, as far as Lerach could tell, did not give a second thought about mixing it up over perks and her own percentages. When the suggestion arose of redistributing her own take from the firm, Patricia Hynes could be as shrewd and tough an in-fighter as anyone in the firm, which was saying a lot.
A graduate of Queens College and Fordham Law School and a former executive U.S. attorney for Manhattan, Pat Hynes had joined the firm in 1982 as a complex litigation specialist. Moreover she had handled several big cases for the firm, and she had delivered. Having her name on their letterhead as a name partner, Mel had repeatedly reminded his West Coast protégé, was an asset. Lerach anticipated a fight, and so on the plane from San Diego to Dallas, where an executive retreat was to be held at the exclusive Rosewood Mansion on Turtle Creek, he’d decided to tend to it with a preemptive strike. He launched it during the firm’s first evening session.
Asking for the floor, Lerach circulated documents drawn from the drafts he had completed just the day before. As his partners studied the numbers, he began his opening argument, as if he were, once again, facing a jury. “You can see from the figures, there is a big disparity between what our office is delivering and what we are receiving. I’m asking each of you to give up points so that our lawyers who have been working out there can be made whole,” he began. Immediately Pat Hynes interrupted. Scattering the papers before her as if throwing down the gauntlet, she looked at Mel Weiss and sneered: “This is nothing but a piece of paper.”
In more normal circumstances, this act might have led to a family feud, with the patriarch, Mel Weiss, mediating a mutually agreed-upon outcome. But Lerach reflexively stood, his face red, his fist clenched, and directed a fusillade of profanity at Hynes that even he, in retrospect, thought intemperate. Fueled by indignation and alcohol, he fumed aloud until he could fume no more. Then he slammed the table and walked out.
The next morning, in the tree-shaded courtyard by the pool, Lerach encountered Mel Weiss pacing, coffee cup in hand. To Lerach, he looked to be in a state of mourning. And he was. “Pat Hynes left this morning,” Weiss said gravely. “She’s gone back to New York.”
Lerach surprised even himself with his response to his old mentor. “Well, you guys go fuck yourselves. I tried to make a rational presentation. My guys are earning all the money you guys are pocketing. Something better give, and if it’s her, she can go fuck herself, too.”
Weiss stared at his protégé long enough to make Lerach feel he wished he’d bitten his tongue. It wasn’t as if the two had never laced disagreements with profanity. This was different. In front of the whole firm, Bill Lerach had drawn a battle line. What he now saw in his mentor’s wounded eyes was the future of the firm. And it was not rosy.
* There was nothing subtle about where the editors of Wired stood on class action securities lawsuits: the headline of their Lerach piece was “Bloodsucking Scumbag.” Showing perverse pride, Lerach responded by including the article in his packet of press clippings he’d hand to journalists who came to interview him.
15
REVENGE OF THE REPUBLICANS
Although his legal practice—the business of suing businesses—was booming, the forces arrayed against Bill Lerach by 1993 stretched from California to the East Coast. They were beginning to reach critical mass, especially among top officials in the political party that Lerach had once belonged to and now openly disdained.
The signs of a counterattack began in California, where some plaintiffs (those not receiving special considerations from Milberg Weiss) began raising hell about how much money the attorneys in these class action suits were making, and how small a return was being repatriated to the shareholders who had been defrauded. In August the shouts of one disgruntled shareholder rang through the halls of the federal courtroom in San Diego. Magistrate Harry McCue was putting the last touches on a Lerach-orchestrated settlement of $14.6 million against the directors of a failed thrift called Great American B
ank when seventy-two-year-old Eugene Novidvor, who had owned 2,000 shares of Great American stock, voiced displeasure at rumors that the plaintiffs were to receive as little as three cents per dollar for their shares.
“So far, I’ve only heard what the attorneys will get!” Novidvor shouted at Lerach. “But we never know what the shareholders will get.”
Lerach answered evenly that Novidvor’s share of the settlement was unknowable until the court had concluded the process of evaluating and verifying claims from all responding shareholders.
“Give me a hint,” Novidvor replied angrily. “Look me in the eye and tell me you have no idea.”
The discontent with Lerach, his firm, and its methods spread to Texas, where a federal jurist said aloud what many had been thinking: Milberg Weiss kept presenting the same plaintiffs in lawsuit after lawsuit. That summer U.S. District Court Judge Joe Kendall dismissed a class action against a company called Urcaro with a notation that seemed more wry than ominous: “Plaintiffs seek to represent a class of investors who were allegedly defrauded by the concerted bad acts of this litany of wrong-doers, and have among their ranks one of the unluckiest and most victimized investors in the history of the securities business, Mr. Steven G. Cooperman, who spends a good deal of his time being a plaintiff in class action securities fraud suits,” Kendall wrote. “He has been a plaintiff in 38 class action securities fraud cases.”
The ill winds of 1993 were blowing in Chicago too, where Fischel’s lawsuit made the American Bar Association Journal. Melvyn Weiss described the lawsuit as “ludicrous,” while Joe Cotchett opined to the bar journal that he found “the whole thing extraordinary.” Lerach himself uncustomarily declined comment. So did Fischel, who preferred then as always to do his speaking about Bill Lerach and Mel Weiss in court. Alan Salpeter, Fischel’s attorney, confidently told the ABA that he intended “to prove every word” in Fischel’s legal complaint.
In New York, Weiss dealt with the brushfire Lerach had started at the Turtle Creek Mansion in Dallas by publicly elevating Pat Hynes to the stature of “name partner,” one of the few women so honored by a major American law firm. Thus did Milberg, Weiss, Bershad & Lerach, with its eighty-two attorneys in New York and San Diego, officially become Milberg, Weiss, Bershad, Hynes & Lerach. “She’s a superstar as a lawyer,” Mel Weiss told Crain’s New York Business. Lerach toed the public line, telling his colleagues that he was pleased Mel Weiss had elevated such an upstanding attorney for the New York office—and trying to sound sincere when he said it. Privately, he fretted that another name partner meant another big share, money that Lerach could be paying one of his own budding superstars.
The most direct challenge facing the firm and its two principal partners, however, was in Washington, D.C., where Republicans led by Newt Gingrich had formulated an agenda that they hoped would put their party in control of Congress for the first time since the Eisenhower administration. One of their campaign tactics was to target greedy lawyers; and one of their stated goals, if they took power, was to curb class action securities lawsuits and put Bill Lerach out of business.
TORT REFORM HADN’T BEEN a partisan issue when President Reagan began talking about it regularly during his second term in office. It wasn’t even called tort reform. Nor were class action securities suits often mentioned in Washington during Reagan’s time in the White House, and never once by the president himself. What animated Reagan, and ultimately the Republican Party, were so-called “frivolous” lawsuits, whose causes of action seemed tortured in their logic, or civil cases in which the verdict sounded comically excessive: $3 million in damages to the New Mexico woman who put her hot McDonald’s coffee cup between her legs—and was scalded when she opened the lid by pulling it toward herself; $2.7 million to the West Virginia convenience store clerk who claims she hurt her back opening a pickle jar; another $2 million to a doctor from Alabama who sued when BMW touched up his new car with paint without telling him. The phrase Reagan used to describe such judgments was “absurd results.” Gradually, the political positions of the two parties would harden into polarized partisan camps. By 1991 Vice President Dan Quayle sought to burnish his conservative credentials, and prop up his own popularity, by going after lawyers directly at the American Bar Association convention in Atlanta.
“Our system of civil justice is, at times, a self-inflicted competitive disadvantage,” said Quayle, who noted that he chaired the President’s Council on Competitiveness. “Does America really need seventy percent of the world’s lawyers? Is it healthy for our economy to have 18 million new lawsuits coming through the system annually?”
A year later, when he accepted the Republican presidential nomination for the second time, President George H.W. Bush warned of “sharp lawyers running wild” to the point that doctors were “afraid to practice medicine” and some mothers and fathers shied away from coaching Little League for fear of being sued. “I am fighting to reform our legal system, to put an end to crazy lawsuits,” Bush said that night. “If that means climbing into the ring with the trial lawyers, well, let me just say, round one starts tonight. After all, my opponent’s campaign is being backed by practically every trial lawyer who ever wore a tasseled loafer. He’s not in the ring with them; he’s in the tank.”
The most visible and controversial of those loafer-wearing lawyers helping Bill Clinton was Bill Lerach. And far from ending the debate on the issue of legal reform, Clinton’s victory over Bush in 1992 only hardened the battle lines. A showdown was coming on Capitol Hill, where Lerach would not only be the designated stand-in for all the perceived ills of the plaintiffs’ bar but the single combat warrior representing class action securities lawyers.
WHILE GROWING UP IN St. Paul, Christopher Cox’s father, a former Californian, would tell his son while they shoveled the Minnesota snow, “You wouldn’t have to do this if you lived in Southern California.” After high school Chris Cox dutifully set out for the University of Southern California, where he earned a degree in three years, then headed for graduate school at Harvard, earning a joint degree in business and the law. In 1987, while eating in the White House mess hall where he worked in the counsel’s office, Cox learned of an open seat in a reliably Republican California congressional district. Impulsively he decided to run for it, a decision that would put him on a direct collision course with Bill Lerach.
In 1994, as House Republicans geared up for the midterm elections, Newt Gingrich and his lieutenants produced a ten-part platform called the Contract with America. The ideas weren’t new—most had been cribbed from various Reagan State of the Union addresses—but packaged together they constituted a quick compendium of conservative thought on how to shrink government or make it less powerful. Item number nine was litigation reform. The Republicans promised, if given control of Congress, to pass a legislative package that they dubbed the Common Sense Legal Reform Act; the catchy name was chosen by an up-and-coming young Republican political pollster and consultant named Frank I. Luntz. When Gingrich and House Republican leader Dick Armey asked for Luntz’s help framing the argument, he told them to start by never saying the phrase tort reform again.
“Nobody knows what a tort is,” Luntz told the Republican leaders and their staffs. “They think it’s a French pastry.”
In his focus groups, Luntz had learned that although Republicans might detest “trial lawyers,” the American public didn’t. When voters heard that phrase, they thought of Perry Mason or, if they were younger, of the popular television series L.A. Law. “A trial lawyer—that’s Jimmy Smits,” Luntz told Republican congressional leaders. “But a personal injury lawyer is an ambulance chaser.”
And so the GOP went about the task of trying to make Bill Lerach into an ambulance chaser. Their legislation called for uniform product liability laws, a “loser pays” rule for those who bring lawsuits to court, ending contingency fees for witnesses, and various other measures targeted at “strike suits”—class action securities fraud cases filed against companies that expe
rienced a drop in their stock prices. Milberg Weiss was the number one generator of those suits. There was simply no denying it, and the Republicans didn’t try: the proposed legal reforms enumerated in the Contract with America were aimed directly at William S. Lerach.
“Bill Lerach was the guy whose picture had the target on it,” Mark Nebergall, a software industry lobbyist recalled after the 1994 political campaign ended. “When you thought of securities litigation reform, you thought of trying to put Bill Lerach out of business. He was—he was the Antichrist, if you will.”
The GOP subsequently romped to victory in the ’94 midterms, gaining control of both houses of Congress for the first time since 1954. It caught the political commentariat with its collective pants down, but it did not surprise the trial attorneys. They had feared such a result; endeavoring to forestall it, they had donated $49.5 million to congressional candidates in the 1993–94 election cycle, most of it to Democrats.* Now had come payback time, and Lerach knew it. The night of the election he was on the phone with Jonathan Cuneo, the lawyer-lobbyist who looked out for Milberg Weiss’s interests in Washington. “Man the barricades, Jon,” Lerach said. “Here they come.”
Circle of Greed Page 25