Lawsuits without Clients
The notice in the mail promised nearly $15 million to the lawyers and as little as 7 cents a share to some stockholders at the expense of the rest of us.
by Jerome F. Winzig
Since I am self-employed and have a self-directed IRA account, I receive all sorts of strange lawsuit notices in the mail. One such recent notice was addressed to persons who purchased stock in Procter & Gamble between January 25 and June 7, 2000 and sustained a loss. The ten page mailing explained the $49 million settlement "is not an expression of any opinion by the Court as to the merits of any claims or defenses asserted by any party in this action, or as to the fairness or adequacy of the proposed Settlement."
Thirty percent of the settlement (i.e., $14.7 million) plus $200,000 in "expenses" goes to the attorneys. The remaining $34.1 million will be spread among the 100 million shares that exchanged hands during that time period, at $2.10 per share, 49 cents per share, or 7 cents a share, depending on when the stock was sold.
My retirement fund stock in P&G was purchased during that time period but I did not sustain a loss, so I don't qualify as a client in this lawsuit. However, I do qualify as a victim, since I will, as a stockholder, have to help pay the $49 million settlement, in addition to the costs of distributing settlements as small as 7 cents a share. I couldn't help but wonder who sues and settles for 7 cents a share?
An editorial in the Feb. 6 issue of the Wall Street Journal described how a Los Angeles grand jury is investigating whether the law firm of Milberg, Weiss, Bershad, Hynes & Lerach paid plaintiffs to sign onto class action lawsuits. The editorial quoted the firm's Bill Lerach, who recently posed before TV cameras with a cartoon of what he said were shredded Enron documents, as saying, before a group of corporate directors, "I have the greatest practice of law in the world. I have no clients."
Clientless though he is, Lerach's law firm, according to the Wall Street Journal, "accounts for the lion's share of all federal shareholders' lawsuits, and in California Mr. Lerach is approaching Bill Gates levels of market share."
Waite, Schneider, Bayless & Chesley, the law firm that sued P&G, has other class action lawsuits -- against handgun manufacturers over handgun deaths, the manufacturers of the Fen/Phen for up to $4.83 billion, the state of Florida and election system companies over Florida's punch card voting systems, and Microsoft over its Internet Explorer browser.
Class action lawsuits such as these purport to protect the little guy against big corporations. In too many cases, however, the real beneficiaries are the law firms. The victims are the stockholders, many of whom are pension funds or individual small stockholders. In the Procter & Gamble case, for instance, the lawsuit alleges that corporate officers misstated the company's financial condition, thereby supposedly defrauding some stockholders. But the people who are being penalized in real dollars for these alleged offenses are not the corporate officers but other stockholders.
The consequences are profoundly disturbing. The huge settlements in some of these cases is helping fund a new special interest group -- class action law firms -- that are increasingly independently wealthy and accountable to no one. Some lawsuits threaten the existence of major corporations. An editorial in the Feb. 11 issue of the Wall Street Journal reported that because of its merger with Dresser Industries, Halliburton has recently been hit with four asbestos verdicts totaling $152 million, and faces 250,000 other claims. Last week, Honeywell was among 48 defendants hit with a $53 million asbestos settlement. All three of the large automobile manufacturers face 20,000 brake-related asbestos claims because one of their suppliers, Federal-Mogul, declared bankruptcy. It's estimated that asbestos claims could total $275 billion.
If 30 percent goes to the lawyers, that's $82 billion. With expenses for experts and others, the non-plaintiff total could reach $136 billion. The money for these settlements will come from the American people, who own the vast majority of corporate stock through their pension funds, mutual funds, IRA accounts, and individual investments.
If we continue to enrich and empower this new elite at the expense of the rest of us, against whom will they turn their legal guns next? Will there be anyone left who is rich and powerful enough to stand against them?