Fear and Loathing of Milberg Weiss
Bloggers and journalists are having a field day with the recent indictment of Milberg Weiss and reports of (alleged) illicit hidden payments of cash to cooperating lead plaintiffs. There are a couple of puzzles associated with the news thus far. One is why the payments (assuming for the sake of the puzzle that the reports are correct, though I think that is most unlikely) would need to be so large (allegedly in the millions). There are many possible representative plaintiffs in most of the securities and other cases that Milberg Weiss becomes involved in; why would any need to be paid, or be paid so much? Hundreds of lawyers hate the firm and they are quick to say that plaintiffs are paid to lie, to agree to settlements that are not in the interest of other class members, to lie about having been consulted about conflict of interest questions, and so forth. Some of these possibilities seem implausible, or at least somewhat puzzling, in a world in which named plaintiffs are rarely consulted at all, and in which judges must approve settlements (for better or worse) but are hardly accused of paying too much attention to the wishes of the named, nominal plaintiffs. And so even if the plaintiffs' firm gains by having a cooperative "client" who expects to be a repeat, long term player with the firm, it is hard to see why this teamwork comes at such a high price.
A second source of puzzlement concerns the underlying rules of engagement. The somewhat contrarian view, that is antagonistic to the government's indictments, is built on the idea that the underlying rules are misguided. Why not just accept that named plaintiffs are simply a response to obsolete legal rules? The real question must be whether the "fraud" that Milberg Weiss goes after is really socially wasteful fraud, and then whether the rules encourage efficient deterrence of that fraud. We don't usually get worked up over violations of rules that are thought to be anachronistic or counterproductive in the first place. (I say this mostly for the sake of argument; One may think that some drug should be legalized, but at some point if the majority bans it, one must follow the criminal law and not argue later that the law was silly. Still, in the business and regulatory contexts, we usually pay more attention to the purpose and wisdom of the subatntive rules.) Here is one asymmetry of a sort: The rules allow potential defendants to pay retainers to law firms in order to keep them on the sidelines. They are kept on the sidelines by conflict of interest rules. But these payments seem about as opportunistic as payments to plaintiffs to allow their firms to manage cases as they see fit. Or is that incorrect?