When federal authorities arrested Sheldon Silver in January, journalists covering the story focused mainly on the bribery and public corruption charges against the former New York Assembly Speaker and the Empire State’s second-most powerful Democrat.
Nearly lost in the ensuing hub-bub was how the Silver case illustrated that, even though some of the country’s most prominent legal figures have gone to jail in recent years for doing it, buying plaintiffs and related abuses remain common tactics in trial lawyer class-action litigation.
Federal prosecutors alleged in a 35-page complaint filed in the U.S. District Court for the Southern District of New York that Silver directed $500,000 in state funds to a clinic run by a Manhattan cancer doctor. In return, the doctor sent patients to Silver, who then steered them toward Weitz and Luxenberg, a trial lawyer firm that depends heavily on asbestos litigation and that employed the speaker.
In addition to a base annual salary of $120,000, the firm paid Silver $3 million over the years for such referrals, according to federal officials. An undetermined number of Silver’s referrals subsequently became plaintiffs in asbestos suits that generated untold millions of dollars in fees for the firm.
“Records reflect that Silver was credited with referring more than 100 clients to the firm, the majority of which were referred for potential asbestos litigation rather than negligence or other types of personal injury litigation, as Silver had claimed publicly,” the complaint said.
Shortly after the charges against Silver were announced, Perry Weitz said he and his colleagues at the firm “were shocked to learn about the allegations against him of impropriety in the referral of cases to our firm. We have asked Mr. Silver to take a leave of absence until these allegations are resolved.”
Nobody else at the firm or elsewhere in New York state government was charged in the actions brought by federal officials against Silver, but Manhattan U.S. Attorney Preet Baharara cautioned that his investigation is continuing and he described other “people we’re looking at” as “very big.”
Journalists may have downplayed the plaintiff-buying scheme alleged by federal investigators but leading advocates of reform in how class-action and plaintiff injury cases are handled were quick to note the connection.
“The allegations in this case and in other recent scandals remind us how easily the mass torts system can be manipulated by those who control it, primarily for their own benefit, rather than for the benefit of their clients,” said Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform.
The charges against Silver also suggest that William Lerach — perhaps the most infamous of all trial lawyers — was right when he said seven years ago that buying plaintiffs was standard “industry practice” among he and his former colleagues.
A lot has happened since 2008 when Lerach and three of his former partners at the Milberg Weiss firm pleaded guilty for their roles in a plaintiff-buying scheme that generated an estimated $200 million in legal and settlement fees in 150 cases litigated over a 22-year period.
The scheme involved paying individuals to buy stocks in targeted corporations, then to choose the firm as lead counsel in class-action suits against those same companies. Being lead counsel typically earned the designated firm the lion’s share of legal and settlement fees awarded either in out-of-court settlements or verdicts in cases that went to trial.
Beginning in 1981, Milberg Weiss pioneered the use of class-action litigation as a legal weapon so potentially devastating that the mere threat of it was often enough to induce corporate defendants to pay hundreds of millions of dollars in out-of-court settlements. Doing so was often cheaper than risking an adverse jury verdict that could force even a giant corporation into bankruptcy.
New York has long been ground zero for such litigation, both because Milberg Weiss’s main office was there and Eliot Spitzer, the state’s former attorney general, was nicknamed the “Sheriff of Wall Street” by virtue of his frequent resort to threaten litigation to induce settlements against vulnerable corporations and individuals.
The firm paid $75 million to the Department of Justice to settle charges that it had functioned as a criminal enterprise and agreed to have a compliance monitor in its offices for two years thereafter. None of the individuals now employed by the firm were involved in the activities for which Lerach and the other partners were prosecuted.
Still, the plaintiff-buying aspect of the case against Silver is shocking if only because so much has happened since 2008 to expose the practice and discourage it and related corruptions, particularly in cases involving asbestos.
Most recently, for example, a federal judge granted lawyers defending the Garlock Sealing Technologies company unprecedented access to documentation in 17 cases in which individuals were compensated after claiming asbestos exposure as a result of handling gaskets made by the corporation.
What Garlock’s lawyers discovered was that many of the plaintiffs who told the court their exposure was only to Garlock products also filed claims against other companies paying asbestos compensation from trusts set up for that purpose. In other words, both the plaintiffs and their firms were perpetrating fraudulent claims and trying to cover it up by routinely asking the court to seal trust proceedings.
More than 600,000 cases were filed against Garlock, which established a $1.4 billion trust to cover compensation paid to proven victims. After reviewing the evidence of plaintiff misrepresentation submitted by Garlock’s attorneys, the federal judge said last year that the prior payouts were “infected by the manipulation of exposure evidence by plaintiffs and their lawyers.”
Republican leaders in Congress are pushing legislation designed to address abuses like those described in the case against Silver. Earlier this month, the House Judiciary Committee held a hearing on the Furthering Asbestos Claim Transparency Act of 2015, introduced by Rep. Blake Farenthold, R-Tex., which would open up compensation claims submitted to trusts established in asbestos litigation.
The committee has also scheduled a Feb. 27 hearing on “the state of class action 10 years after enactment of the Class Action Fairness Act.”
Mark Tapscott is executive editor of the Washington Examiner.
