3 Wall Street foes get knocked out
With today's conviction of powerful plaintiffs attorney Richard Scruggs - on top of Eliot Spitzer's implosion and Bill Lerach's sentencing - executives everywhere are surely rejoicing.
(Fortune) -- In just over a month, corporate America has seen the downfall of three of its most vilified legal opponents.
Bill Lerach, the former securities class action king, was sentenced to two years in prison on February 12; Eliot Spitzer, the one-time scourge of Wall Street, announced his resignation as New York's governor on March 12; and Richard Scruggs, the master of giant tobacco and asbestos cases, pleaded guilty today to one federal count of "conspiracy to corruptly influence a state circuit court judge." He faces up to five years in federal prison.
Although Spitzer's tumble was the most dramatic, it's Scruggs and Lerach whose descents loom largest for corporate general counsel these days. After all, Spitzer had graduated from his role as prosecutor (to be replaced by Andrew Cuomo, who seems to be emulating the aggressive approach of his predecessor).
And, equally important, Scruggs and Lerach were brought down for transgressions directly related to how they handled one or more cases.
The result is a satisfying "I told you so" in corporate boardrooms.
"The guilty pleas validate the notion that [Scruggs and Lerach] were gaming the system," says Tom Lehner, director of public policy for the Business Roundtable, the association of big-company CEOs.
And Lisa Rickard, president of the U.S. Chamber of Commerce's Institute for Legal Reform, asserts that "we seem to have a growing culture and acceptance of corruption in the plaintiffs bar." (She notes that Lerach's former partner Mel Weiss was also indicted last fall. Weiss has pleaded not guilty.)
The guilty pleas of Scruggs and Lerach, says Lehner, are "definitely a shot across the bow for plaintiffs lawyers."
Whether the shot will be heard is less clear. When it comes to legal conduct - and nobody believes that Lerach and Scruggs represent the majority - plaintiffs lawyers have shown an uncanny ability to overcome attempts to clip their wings.
In 1995, Congress passed the Private Securities Litigation Reform Act, to stanch the wave of big class actions by making it harder to file and win cases. The unintended result: Plaintiffs lawyers rebounded with stronger and stronger suits and the settlements only got bigger.
Similarly, there's little sign that federal class action reform legislation in 2005 has had a major impact. Securities class action filings dropped from 226 in 2002, according to the Stanford Law School Class Action Clearinghouse, to 115 in 2006. But then last year, bolstered by a spate of suits related to the subprime meltdown, the number of class actions rebounded to 166.
"One thing we can bet the farm on," says Darren McKinney of the American Tort Reform Association, is that Scruggs and Lerach will soon be replaced by a new generation of entrepreneurial plaintiffs lawyers.
He adds that Milberg Weiss, the once-feared plaintiffs firm - and Lerach's former employer - has "regained its footing" in recent months after being indicted for allegedly paying kickbacks. (The firm pleaded not guilty.)
Lerach and Scruggs will likely never practice again, as convictions generally mean the automatic forfeiture of an attorney's license. (Lawyers can re-apply years later, but there's no assurance they would succeed.)
As for Scruggs, one prominent legal publication was already questioning his record even before his guilty plea. "Scruggs' reputation as a giant killer of the plaintiffs bar is outdated," the American Lawyer magazine concluded earlier this month.
"Even before the indictment, his career was in decline. In the 10 years since the tobacco settlement, Scruggs had taken on a series of quixotic cases. These matters were much ballyhooed in the press, but in the end they shared only two things: big enemies and bad results."
And there was this surprise: "The only major success he's seen in the last decade hasn't been on behalf of the underdog plaintiffs that he champions, but for a big corporation that he defended in a product liability case."