After federal officials indicted Milberg Weiss on criminal racketeering charges for kickbacks to lead plaintiffs in class-action suits, Brooklyn attorney Theodore A. Bechtold asked a federal judge last year to remove the embattled law firm from a multi-million dollar securities lawsuit.
Bechtold argued before Judge Shira A. Scheindlin of the Southern District of New York (SDNY) that Milberg Weiss was so preoccupied defending itself that it couldn't properly represent plaintiffs as lead counsel in the case of In re: Initial Public Offering Securities Litigation.
Scheindlin had the case because her judicial district is ground zero for securities class-action cases. With its proximity to Wall Street, one of every 3.5 such suits since 1996 was filed in the SDNY, according to the Securities Class Action Clearinghouse at Stanford University.
Bechtold's motion was denied.
"There is simply no evidence that Milberg Weiss' representation has suffered at all as a result of its defense or that it will in the future," Scheindlin said. "I will not disqualify and remove Milberg Weiss solely on the basis of the allegations in the indictment." She also expressed concern about the financial impact on the firm if it were removed.
In another ruling in the IPO case, Scheindlin said "a great deal of reliance upon the expertise of [lead] counsel is to be expected" in securities class-action cases. Her use of a lower standard of proof to certify Milberg Weiss's claims of an injured class in the case was later vacated by an appeals court.
Bechtold didn't know Scheindlin had been a guest at an upscale resort for a conference hosted by the Institute for Law and Economic Policy (ILEP), an obscure, Philadelphia-based tax-exempt foundation founded to advance the plaintiffs side of class action lawsuits and managed for many years by Milberg Weiss attorneys.
"No kidding? No, I didn't know that but it doesn't surprise me," Bechtold told The Examiner. "It's a small club here in New York, they all work together and it amazes me that people put up with it."
Scheindlin did not return a telephone call seeking comment, nor did she respond to written questions from The Examiner given to her by SDNY District Executive, Clifford Kirsch, the court's chief administrative staff officer.
The federal investigation of Milberg Weiss became public in 2002. Scheindlin was reimbursed for her travel, meals and lodging expenses for attending ILEP's April 2004 annual conference at the Doral Golf Resort and Spa in Miami. The conference theme was "Protecting the Public: The Role of Private and Public Attorneys." She was also a panelist at ILEP's 2007 conference at the Los Cabos Resort in Mexico, but it could not be determined if ILEP paid her expenses for that trip.
Federal judges can be reimbursed for such conferences as long it is disclosed, doesn't create an actual or apparent conflict of interest, and the topic under discussion doesn't primarily "relate to practice before the judge's own court," according to the Judicial Conference's Committee on Codes of Conduct. Participation is permitted if the seminar topic is primarily related to the judge's court, but no compensation can be paid and the sponsoring organization must be a not-for-profit entity.
ILEP was formed as an academic advocate for aggressive securities class-action litigation, according to former SEC Commissioner Harvey Goldschmid and Duke University law professor James W. Cox, both of whom have participated in the foundation's programs since its founding.
But whether ILEP's reimbursements create a real or apparent conflict of interest could not be determined since the foundation's leaders won't disclose where they get their funding and because, according to a spokesman, the Judicial Conference advises only federal judges.
Scheindlin and 13 other federal judges have attended ILEP conferences since 1997, according to conference programs, with the foundation paying expenses for nine of the 14 through 2004, according to data from Community Rights Counsel (CRC) data. CRC monitors judicial reimbursements but has not completed updating its database to the present.
Five SDNY judges have attended ILEP events. Four of them have heard a combined total of 281 securities class-action cases. The fifth, Attorney General Michael Mukasey, had his expenses paid by ILEP for attending its 1997 conference.
The Stanford database records that Scheindlin has presided over 46 securities class-action Southern District cases since 1996, 27 more than the judge with the next highest total. Milberg Weiss represented the plaintiffs in 38 of Scheindlin's cases. The judge with the next highest total who also attended ILEP events had only 8. Scheindlin ruled for plaintiffs in 19 of the 38 cases, for defendants in 14 and issued five mixed decisions.
Cases are assigned "by lot for all purposes" and are administered "in such a manner that all active judges, except the chief judge, shall be assigned substantially an equal share and kind of work of the court over a period of time," according to SDNY's web site.
The fact that Scheindlin heard nearly 60 percent more securities cases than any other judge on the SDNY bench struck some analysts as irregular.
"It is statistically significant," said William Beach, director of The Heritage Foundation's Center for Data Analysis. "It appears to go well beyond random selection or rotating assignment."
Asked how one judge could be assigned significantly more securities cases than any other on the district bench, Kirsch said "if cases before a judge are 'related' or if a judge gets a multi-district litigation, the judge can very well have a larger number of cases than another judge.'
"If Milberg Weiss and Bill Lerach wanted to cultivate favorable opinion among law professors, opinion makers, and judges, they seem to have found the perfect vehicle in ILEP," notes Walter Olson of Overlawyered.com.
Editor's Note: One of the cases assigned to Scheindlin was Merrill Lynch v Qwest. Examiner owner Philip F. Anschutz was a defendant in that case, but it was moved to another court and Scheindlin made no substantive rulings in it.