Mark Tapscott, The Examiner
2007-10-12 07:00:00.0
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WASHINGTON -

When Sprint agreed last month to a $57.5 million settlement, it escaped a multi-billion dollar class action securities suit by paying only a tiny percentage of the damages claimed by plaintiffs.

The settlement represented only 4.4 percent of the $1.3 billion the plaintiffs said represented the minimum of damages they allegedly suffered when the Kansas City telecommunications firm combined two tracking stocks.

In court documents, the company said it agreed to the settlement to avoid the risk and costs of litigating the suit to a conclusion in court. Put another way, Sprint paid to make the suit “go away.”

Lots of companies have in recent years found the better part of valor in settling out of court to avoid the possibility of suffering a verdict that could put them out of business.

Nowhere is this trend more evident than in California where, according to Trial Lawyers, Inc., out-of-control liabilities lawyers have feasted on high-tech companies by using threatened litigation to gain lucrative settlements.

Leading this charge for many years was recently convicted class action securities star William Lerach, who accounted for more than $6 billion in settlements between 1997 and 2004, with an estimated $2 billion of that going to his New York and San Diego-based law firms.

Lerach recently pleaded guilty to a felony count for participating in an $11.8 million kickback scheme that federal prosecutors said involved more than 150 cases and generated more than $200 million in fees paid to the New York-based Milberg Weiss law firm where for many years he was a major partner.

Silicon Valley is especially vulnerable to such suits, according to Trial Lawyer Inc., a Manhattan Institute-based project that aggressively tracks and researches the activities of liabilities lawyers.

“High-tech companies’ shares and revenues are inherently volatile, and whenever these businesses must restate their finances or suffer a drop in stock price, they become prime targets of the plaintiffs’ bar,” TLI said in its 2005 report on California.

Between 1997 and 2004, nearly half of all class action securities suits filed in federal courts were against high-tech firms in California and elsewhere. The Golden State’s Ninth Circuit was by far the favorite locale for the suits, with 456. Following the Ninth Circuit were New York’s Second Circuit and Florida’s 11th, with 341 and 180 cases, respectively.

In terms of settlements, California also led the way, with the Ninth Circuit compiling 131 and New York’s Second 70, according to data compiled by TLI. Pennsylvania’s Third Circuit just edged past Florida’s 11th with 51, compared with the latter’s 50.

 Next on the liabilities lawyers’ list of targets are such industries as bio-tech. Suits against bio-tech firms across the country have been on the rise in recent years, tripling between just 2001 and 2003, according to TLI. California and Maryland, which have the largest concentrations of bio-tech companies, will likely be hit hardest.

"Lawyers Gone Wild" is a series of special reports by The Examiner looking at the cost and consequences of class action lawsuit abuse in the United States. Read the latest articles in the series.