by the Way . . .

The largest class action law firm, Milberg Weiss, has been indicted. So that the action can be enjoyed by lay persons who have not yet been involved, this post will explain the key concepts supporting the country's second most profitable profession. We must analyze the class action, the contingent fee, the race to the court house, and the settlement. As you will see, each interrelated element is the way it has to be.

The class action is when a bunch of similar claims are bundled together in a single lawsuit in order to involve enough money to support sufficient legal fees. If an individual had to pursue a relatively small claim on his own, he couldn't afford a lawyer. Further, even when you bundle a bunch of claims, you still can't expect all those plaintiffs to kick in for the fees, so you have to do it on a contingent fee. That is when the lawyer only gets paid when he is successful. "Successful" usually means agreeing to a big settlement, as few of these deals actually go to court.

Now let's kill two birds with one stone here, and make full disclosure and explain the race to the court house in one swoop. The various companies I have been with have been sued numerous times by Milberg, Weiss, or their birds of a feather who got to the court house first. It was always over acquisitions or buyouts. You announce one at the end of the day and the next morning 3 or 4 lawsuits are filed claiming the transaction isn't fair. How do they do that? Well, they have to have the complaint already in their computers so that they can just fill in the names and print. That may sound funny to you, but you have to do it that way. If you waited until you could find out any of the facts, the New York lawyer down the street will have filed his lawsuit first. This matters because the lawyer that files first gets to be the lead lawyer. The lead lawyer gets almost all the fees, and the slowpokes get chicken feed.

Now we are closing in on the Milberg, Weiss problem. There is another peculiarity in the law. Lawyers can't just sue on their own. If they could it might look like they were just in it for the money, so they have to be representing some little guy who is actually the plaintiff in these affairs. And the little guy has to have a patina of being wronged. These are difficult hurdles when you have to file your suit within hours of hearing about the presumptive unfairness. And there is another, even more serious hurdle. Each wronged little guy ("WLG") doesn't end up with much. It is usually only pennies on the dollar of the qualifying shares (those are the shares you bought that you were wronged about). And worse, the law does not allow any WLG to get more than any other, even if he happens to be the named plaintiff. So how do you get a WLG to stand by to sue by already having his name in the computer? If you can figure out how to do that without kicking back some of the fees to him, you have a great future in the law.

More problems. It is also illegal for a lawyer to pay anything to a plaintiff for bring a lawsuit. Otherwise, we would give new meaning to "Katy, bar the door." Actually, that could result in a shortage of lawyers, which may be what the law was intended to prevent.

To sum up, you can't win the lead lawyer spot without a ready WLG, but the WLG can't get much from the settlement, and you aren't supposed to cut him in on the deal. This doesn't work, so it is that last parameter that has to slide a little. It turns out the named plaintiffs do get a little extra. According to the indictment, a retired California lawyer or members of his family served as plaintiff in nearly 70 suits and got about $2.4 million. Another plaintiff, a Beverly Hills ophthalmologist, served in nearly 70 suits, and got $6.5 million. It is not clear why one professional WLG got so much more than the other professional WLG. Maybe there ought to be a law.