Lawyers Cut Deal on CA Claims to Grab Fat Fees
Newsday
Tribune Company
November 26 , 2007
Four class-action law firms that negotiated a 2003 settlement of civil accounting-fraud charges against Computer Associates walked away from potentially billions in shareholder claims by prematurely settling a 2002 action so they could reap exorbitant attorneys' fees, a suit filed Friday claims.
The suit filed in State Supreme Court in Manhattan by Texas billionaire Sam Wyly and related investors accuses the law firms, including Milberg Weiss LLP, of legal malpractice, fraud, unjust enrichment and breach of fiduciary duty.
In addition, the suit claims that one starting point for the 2003 settlement was a previously undisclosed meeting between CA board member Alfonse D'Amato and Melvyn Weiss, the principal of Milberg Weiss.
The suit charges that D'Amato and another director "said they knew Mel Weiss and that he would be reasonable -- so long as the company understood his objectives and self-interest."
The meeting took place in the summer of 2003, according to the suit, and afterward, D'Amato allegedly reported to CA's board that "Mel" indeed would be "reasonable."
The following fall, the law firms and CA agreed to a "global" settlement of all pending actions against the company that included a clause protecting CA board members and executives, past and present, from being sued in the future. In exchange, the company agreed to support the law firms' request for attorneys' fees of up to $1,000 per hour, according to the suit.
In addition to Milberg Weiss, the suit names as defendants securities law firms Stull, Stull & Brody; Schiffrin, Barroway Topaz & Kessler; and Coughlin Stoia Geller Rudman & Robbins. Representatives for the firms did not respond to calls seeking comment. A spokesman for CA declined to comment, and a spokeswoman for D'Amato didn't return a phone call.
The suit claims that while the settlement with CA netted shareholder victims "not even a penny on the dollar" of their accumulated losses, the law firms received some $40 million. The suit seeks unspecified damages, access to all legal papers previously withheld in the suits, and disgorgement of the $40 million in fees.
The heart of Wyly's claim is the distinct difference between two sets of shareholder lawsuits filed against CA -- one in 1998 following a sharp drop in CA's share price, and another in 2002 following revelations of federal probes of CA's accounting.
Wyly's attorney, William Brewer, called the law firms' decision to effectively drop the claims in the 2002 suit "one of the most egregious cases of [legal] malpractice I've seen in 23 years."
The suit takes exception with the law firms' claims that allegations in the two suits were largely similar and therefore could be combined for the purposes of a settlement. The suit claims that if allegations in the latter suit had been properly researched and argued, the settlement would have been much larger. Instead, Wyly's suit argues, the 2002 suit never even reached the discovery phase.
The suit also notes that while the settlement was being reached, officials at Milberg Weiss were under federal investigation for an alleged scheme in which individuals were paid improper fees to serve as "professional plaintiffs" in shareholder cases, including the CA suits. The Milberg Weiss firm and Melvyn Weiss have since been indicted on those charges, to which they have pled not guilty.
