Thinking Through the Prosecution's Case

I'm still trying to think through some of the implications of the Milberg Weiss prosecution, with its now-looming settlement. There's a good deal of "At last! Bravo!" commentary in the blogosphere this weekend that seems directed not at MW in particular but at a broader target.

There's a feeling afoot that "ambulance chasers" do something inherently suspect, and that the corporate version of the form -- class action and shareholder derivatives action attorneys like MW which sue large publicly-held corporations, are the worst of the lot, regardless of the specific rent-a-plaintiff facts alleged.

Attorneys in the field will tell you that they've been targeted as a cynical matter by the corporate elite which doesn't want to be held accountable in the courts, and a lapdog media that spreads horror stories about any threats to that elite.

I don't generally see myself as a middle-of-the-road kind of guy, but in this case I have to take my stand in ... the middle of the road. I hope there's a safe traffic island there, with some grass. I can't buy either the "scavenger/parasite" theory or the "hero/martyr" theory of attorneys who bring private actions (class actions or otherwise) against publicly held corporations.

Anyone with libertarian sympathies should see one argument in their favor at once. They aren't government regulators or prosecutors. If corporations are to be held accountable at all, shouldn't it be in decentralized fashion, by private plaintiffs who themselves can be required to show the harm that gives them an interest in the matter, and by the attorneys those plaintiffs hire -- who work, after all, in a competitive marketplace with one another, and who work for the profit motive? It seems that what MW has been doing represents a free market alternative to a big-regulatory state, not a wing of the same.

Yet there are counter arguments to that. I'm not aware of any real see-saw effect. In other words, good times for private plaintiffs' attorneys don't seem to coincide with a decrease in the extent of government regulation or prosecution. Indeed, the two seem to be correlated, so a theoretical preference for one as an alternative to the other may not mean much if, in empirical observation, they rise and fall as a package.

And does plaintiffs' counsel really play the corporate-abuse-checking role if what he does is to draft a complaint after some regulatory authority has already made waves? That's what often seems to happen. For example, New York's attorney general began a very public investigation of late-trading in mutual funds in 2003, and soon Milberg Weiss and other firms were bringing class actions against the same fund management companies that were already in Eliot Spitzer's sights. It isn't clear that MW brought anything new to the table. It shot the wounded horse lying on the track.

On the other hand -- is this a third "hand" or are we back to the first one or what? -- perhaps the Spitzer/MW relationship simply proves that plaintiffs' counsel, like most of us in one way or another, have to be weaned from the public teat. If Spitzer wasn't around then MW would have to invent him -- in-house. Which is what policy pragmatists should want.