Class-action 'squeegee boys' get comeuppance
© St. Petersburg Times
Once upon a time in a distant kingdom, a man knocked on the door of a local lord. The man had traveled far. But his fearsome reputation as a legal advocate preceded him.
"I represent the poor serfs down the road," the man warned the local lord. "They were wronged when you bought their lands for less than their true value. I have made a formal complaint with the local judge."
"Surely we can work something out," the local lord said. The two men put their heads together and settled the dispute. The local lord agreed to pay the legal advocate well for his time and effort, and the legal advocate in turn agreed to drop the complaint, go away richer and never return.
Oh yeah, as for the poor serfs, they got nothing.
Some shenanigans, it seems, are timeless.
In the fall of 1999, a shareholder of St. Petersburg's Florida Progress sued the company's directors, claiming they failed to get the best price when they agreed to sell the power company to Carolina Power & Light (now called Progress Energy). CP&L had agreed to buy Florida Progress, the parent of Florida Power, for $5.3-billion in cash and stock, or $54 a share.
The case was brought as a class action, in the name of shareholder Lisa Fruchter, by the 800-pound legal gorilla for the class-action lawsuit industry: Milberg Weiss Bershad Hynes & Lerach.
This single law firm brings the overwhelming bulk of this country's class-action lawsuits claiming securities fraud. The targets are usually corporations involved in mergers or going through periods of weak earnings. In California, Milberg Weiss filed 85 percent of the securities class-action suits last year.
This is also the firm notorious for now legendary frivolous lawsuits. Like the suit against singing group Milli Vanilli for lip-synching its songs. Like the suit against cardmaker Pokemon, brought on behalf of parents of preteens for encouraging "illegal" gambling. Like the suit against boxer Mike Tyson for biting Evander Holyfield.
Such stunts aside, the firm is considered formidable. It was chosen two months ago to lead the mass of securities fraud cases against Arthur Andersen and former executives and directors of Enron Corp. The lead plaintiff is the University of California, even though Florida's state pension fund lost more (over $300-million) than any other Enron investor.
Last fall, ever so quietly, Milberg Weiss and Florida Progress decided to settle their differences in the Fruchter case. Their tentative deal called for Milberg Weiss to receive as much $375,000 in fees and expenses. And Florida Progress won an unusually broad release from Milberg Weiss in the settlement from any future liability.
Oh yeah, as for the poor Florida Progress shareholders -- the so-called plaintiffs in this case -- they got nothing. Zilch.
Okay, you cynics out there. Start working up a lather. So what else is new? Ambulance-chasing class-action lawyers do this stuff all the time just to get paid off and go away. Actual plaintiffs often get little in class-action suits while the lawyers get the big bucks!
Often true. But not this time.
The details of last fall's settlement caught the attention of W. Douglas Baird, a circuit judge in Pinellas County. Judge Baird did not like what he saw. The judge rejected the Milberg Weiss-Florida Progress deal, making a marvelous comparison to a common shakedown on big city streets.
"This action appears to be the class litigation equivalent of the "squeegee boys' who used to frequent major urban intersections and who would run up to a stopped car, splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off," Judge Baird said.
Florida Progress shareholders, he wrote, are "in precisely the same financial and legal position today as they would have been had this litigation never been filed."
Bingo. Game over. Bravo, Judge Baird.
Some of the credit must go to retired University of Arizona securities law professor and Florida Progress investor Junius Hoffman for blowing the whistle on this bogus settlement. When he learned about it last fall, he recruited Arizona law professor Elliott Weiss in Tucson to help file an objection in the Pinellas County circuit court.
If the proposed settlement does not benefit Florida Progress investors -- who are, after all, supposed to be the plaintiffs -- don't approve it, Professor Weiss wrote. And please, he said, do not award Milberg Weiss any attorney fees in this charade.
He tells me this is the third time he or colleague Hoffman have objected to class-action settlements that give nothing to the plaintiffs. It won't be the last time.
"What the judge did in this case, and the publicity of it, is potentially important in alerting other judges and investors," Weiss says. "If they object to these settlements and call these matters to the court's attention, they may have some success" in halting their proliferation.
The whole process, Professor Weiss says, "is a holdup." Milberg Weiss did not return repeated phone calls seeking comment on the case.
Just in recent months, the Milberg Weiss legal factory has filed mostly cookie-cutter securities lawsuits against Gerber Scientific, NTL, Stillwater Mining, Tyco International, Gemstar-TV Guide, Concord Camera, Calpine, JDS Uniphase, Circuit City, Bristol-Myers, Adelphia Communications, Saf T Lok, Textron and many other companies.
And what of poor shareholder Lisa Fruchter, the named plaintiff in the Florida Progress suit?
Fruchter, it seems, is little more than a convenient name to be placed on a Milberg Weiss lawsuit. (A federal grand jury this year began investigating the law firm to see whether it improperly paid people to serve as plaintiffs.)
In 1999, the same year Fruchter's name appeared on the Florida Progress class-action suit, she also appeared as the name plaintiff in a Milberg Weiss suit against Silicon Valley's Alza Corp. That suit was filed to derail Alza's planned $7.3-billion acquisition by Abbott Laboratories. Fruchter alleges Alza, like Florida Progress, did not get the best price for the company shareholders.
Milberg Weiss later dropped its Fruchter suit against Alza.
Now, courtesy of Judge Baird's denial of last fall's settlement, Milberg Weiss has filed notice to drop its Fruchter class action against Florida Progress.
All that effort and expense for nothing.
Until next time, when the class-action "squeegee boys" come calling again.
-- Robert Trigaux can be reached at email@example.com or (727) 893-8405.
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