A move is underway to clamp down on the massive fees earned by plaintiffs lawyers suing behalf of public pension funds.
Florida recently capped the fees its lawyers can earn at $50 million per case. Alabama, Iowa, Mississippi, and Oklahoma have introduced bills that would force states to disclose their contracts for legal services. Several states have already enacted similar measures.
This movement could be bad for business at San Diego’s Coughlin Stoia Geller Rudman & Robbins LLP, a politically-connected firm that has extracted huge settlements in class-action corporate lawsuits.
As I noted last week, Coughlin Stoia is cozy with Phil Angelides, the former California treasurer who is now leading a congressional inquiry into the causes of the financial crisis.
Byron Georgiou, of counsel to Coughlin Stoia, is a member of the Angelides commission.
For an excellent example of how the firm operates, there are few better examples than Coughlin Stoia’s 2006 lawsuit against UnitedHealth Group on behalf of CalPERS, the giant California pension fund.
The firm — known then as Lerach Coughlin — sued UnitedHealth over the company’s practice of backdating stock options granted to its executives.
A month after filing suit, Coughlin Stoia and its attorneys contributed $107,000 to Angelides’ gubernatorial campaign. Angelides was an influential member of the CalPERS board.
CalPERS became lead plaintiff in the lawsuit and Coughlin Stoia became lead counsel.
CalPERS’ general counsel, Peter Mixon, and Lerach Coughlin negotiated the firm’s compensation a year later.
The deal anticipated a billion-dollar settlement. Lawyers on the case were to receive 11 percent of the first $250 million recovered; 12 percent of the next $250 million; and 13 percent of anything exceeding $750 million.
Sure enough, UnitedHealth Group settled in 2008 for $925 million — the largest settlement ever in a stock options backdating case.
Under its fee arrangement, CalPERS’ attorneys were entitled $110 million, most of which would have gone to Lerach Coughlin.
Judge James S. Rosenbaum wouldn’t allow it. He cut Lerach Coughlin’s golden egg nearly in half to $65 million.
In his ruling, Judge Rosebaum said that while Lerach Coughlin may have been pursuing in its own interests, CalPERS was not. The judge found no signs that the pension had used its enormous leverage to shop around for another law firm. Nor had it tried to negotiate a lower fee before filing the complaint.
Another problem was that the firm’s lead attorney, William Lerach, hadn’t bothered to tell the judge that he was under federal investigation. Lerach is serving two years in prison for paying kickbacks to his clients.
In fact, Lerach’s firm told Judge Rosenbaum in 2006 that the government “has notified Mr. Lerach that it does not intend to take any action against him.”
“Had the truth been timely and fully disclosed to the Court, in all likelihood the Court would never have appointed his firm as lead counsel,” Judge Rosenbaum wrote.
It could also be said that had the truth been fully disclosed, Lerach Coughlin/Coughlin Stoia wouldn’t have been able to bill $900 an hour for the services of prisoner Bill Lerach.