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Judge and Counsel

Legal superstar Bill Lerach and prominent Judge Lawrence Irving, now colleagues in Lerach’s San Diego-based firm, are mutually committed to slaying dragons in corrupt corporate kingdoms near and far.

“He has experience, wisdom, judgment, stature,” said Lerach, 60, in a recent interview about Irving. “What’s not to like? He is a priceless asset, and really is in many ways the dean of San Diego’s law community. There is nobody like him.”

On May 1, Irving, a former U.S. District Court judge for the Southern District of California, joined Lerach Coughlin Stoia Geller Rudman & Robbins LLP as special counsel and will advise the firm’s institutional investor clients regarding securities matters. Irving also will act as Lerach Coughlin’s liaison with the Regents of the University of California , the lead plaintiff in an Enron Corp. securities class-action lawsuit, where recoveries to date exceed $7 billion.

Irving, 71, recently served as a consultant to the Regents and the Office of the General Counsel in that case.


Lay Opinion

The big ticket these days has been the fraud and conspiracy trial of Enron founder Kenneth Lay and former chief executive Jeffrey Skilling. They are accused by the government of misleading investors and employees about the company’s fiscal health.

“I have been watching the cross-examination of Ken Lay, and it’s a fascinating experience to see the trial,” said Irving in a recent interview. “It’s a circus, with cameras everywhere, like locust.”

But Irving said he doesn’t think this case will have much bearing on the civil case, which is set for trial in October.

“Depositions are ongoing,” he said. “Seven banks are left in the case.”

Nor does Irving think that any deterrents to Enron-style shenanigans will be found in the civil suit.

“I’m hoping what will be a deterrent will be the criminal cases,” he said. “Under federal sentencing laws, there is no parole. You get 15 percent good time, and have to do 85 percent in custody. If one of these corporate thieves gets 25 years, that’s a life sentence if you’re 60 years old.

“This is not just a civil issue, and maybe they’ll get away with it, or, if they get sued, the insurance company comes in and pays the money,” he added. “Lay and Skilling are testifying for their lives.”

Previous Enron employees have taken falls already, and the harsh sentences are justified, said Irving, when you “steal money and break shareholders.”

“The tragedy of Enron is that many lost their life savings and pension plans, with all the cooking of the books,” he said.


Changing Course

Appointed to the federal bench by President Reagan in 1982, Irving resigned in 1990 because of his stance against guideline and minimum mandatory sentencing laws.

“It was the best of all the judicial positions, and it was hard for me to leave,” said Irving, who resides in Coronado.

But being forced by the system to hand down stiff sentences to minor miscreants became too much to bear.

“I’m not talking about violent crime,” said Irving. “There were a lot of smaller players , kids caught on a wire tap, they might be delivering a package, or picking up money. But it was in for a penny, in for a pound, and they were subjected to 10 to 15 years. I felt it was not an appropriate way to sentence these people. When they go to prison, they don’t come out choir boys.”

For several decades, Irving served as a judge and mediator in complex securities cases and expects to continue to advise pension funds about their options. Irving now is serving as a mediator in the ongoing controversy involving the legality of San Diego pension benefits.

“I’m doing it pro bono,” said Irving. “I am a native of San Diego and am upset and saddened by this. Everybody in town is. I told the city attorney, the mayor and the council that I would do anything I can to help them. It’s just starting, and we’re doing our best. These are very difficult issues.”

Irving is a great believer in mediation.

“The civil jury trial is vanishing in the United States, with fewer and fewer now,” said Irving. “These are so expensive for the average person who can’t afford to go to one of the big law firms.”

This also is true for some of the big corporations, which often are forced to settle, he said.

“The cases are so large, the companies can’t afford to take a chance on losing, which can break companies,” said Irving. “The cost to companies when they are sued is so horrendous, even with insurance, if it’s not enough to cover the company if the amount awarded is more than the insurance can pay.”

Mediation is an increasingly popular way to settle cases, and judges often order the parties to take this route, he said.

“Many people want to catch these cases early, so you can settle them,” said Irving.


New Challenge

Irving said that he is looking forward to his latest legal challenge , being part of Lerach’s team.

“I am a great believer in career changes,” said Irving. “The proof is in the pudding. I will still maintain my contact with the Regents, and this gives me a chance to expand the role and spend time on the largest case in the history of the United States, and the most interesting in legal challenges.”

Irving also will continue working as a consultant to the Regents on the AOL/Time Warner class-action lawsuit, which involves charges of securities violations.

Irving said he considers Lerach to be “a premier lawyer.”

“He is one of the best lawyers in America,” said Irving. “He is an extremely bright guy, and, with all of my deals with him, has been completely honest and ethical.”

Robert C. Fellmeth, a professor at the University of San Diego School of Law and founder of its Center for Public Interest Law, considers the Lerach-Irving union a potential win-win.

Not that he wasn’t surprised by the news.

“(Irving) is a Republican, a very well-respected liberal Republican, a Rockefeller Republican,” he said. “I guess he’s going to have to give to two different political parties.”

While both Lerach and Irving stand to gain from the relationship, Fellmeth thinks Lerach stands to reap the most.

“I think Lerach will benefit from the prestige and wisdom of probably the best retired judge we have, and one of the best jurists we’ve ever had in this county,” said Fellmeth, one of the original “Nader’s Raiders” consumer advocates, a former deputy district attorney for San Diego County and a former U.S. attorney for the Department of Justice in San Diego.

“I appeared in front of Judge Irving as an attorney years ago, and I found him to be a very, very fair judge , a careful judge, a wise judge,” said Fellmeth. “If I had my life at stake, he is the judge I would want, and some of my best friends are judges. There is no one I would praise more highly.”

James R. Copland, director for the Center for Legal Policy at the Manhattan Institute, a think tank critical of Lerach, in particular, and corporate class-action suits in general, agreed that Irving “is well respected.”

But Copland also worries about the potential for conflicts of interest.

“He has a direct advisory role with the California Board of Regents, particularly the Enron case,” said Copland. “We have been critical of the potential for abuse with pension funds supporting class-action lawsuits as lead plaintiffs.

“Here you’ve got a guy who is an adviser to a pension fund and will have a direct relationship with Lerach Coughlin,” said Copland. “There is a potential for conflict.”

Frank Partnoy, a professor at the University of San Diego School of Law and specialist in financial markets, corporate law and white-collar crime, has met Lerach and Irving.

“I think very highly of both of them,” he said. “They are very impressive people. They are both very smart, enormously capable people, and I think whatever anyone thinks of their politics or business, these are two icons.”


Sue City

With more than 175 lawyers throughout the country, Lerach Coughlin has recovered more than $35 billion from its myriad lawsuits.

In the Manhattan Institute’s “Trial Lawyers, Inc.: A Report on the Lawsuit Industry in America 2003,” the authors wrote: “Within days of a drop in a company’s stock price (usually a high-growth technology stock with a naturally high share-price volatility), Trial Lawyers, Inc. swoops in to file a claim , often lacking any real proof of corporate wrongdoing. Corporations faced with the inevitable, extremely onerous discovery process must defend themselves at great expense; little wonder that such cases typically settle, with one-third of the proceeds going to Trial Lawyers, Inc.”

In recent testimony before the House of Representatives’ Financial Services Committee, Copland observed, “Securities litigation remains a significant competitive disadvantage for American capital markets. While private securities lawsuits, rightly conceived, can complement the SEC’s regulatory authority, our system continues to permit too many meritless suits, often filed against our highest-growth companies.”

Lerach doesn’t see it that way.

“That has been a constant and frequent refrain of the Manhattan Institute and other corporate flacks who spew out their viewpoint,” he said. “The fact is, people who have done nothing wrong have all the resources in the world to defend themselves, and some have done so successfully.”

As for America being a litigious society, Lerach observed, “If you say that America has more lawsuits than any other society, it also has a more complex economy in the world, the safest products, the best securities market in the world and IP (intellectual property) protection in the world. Maybe it’s because we have a highly sophisticated legal system is the reason why entrepreneurs succeed here, and foreign investors put their capital here. It feels safer. There are two sides to this story.”

The constant refrain that the United States is lawsuit-crazy is overblown, said Irving.

“We all read about cases, and we shake our head and say, ‘What is wrong with this system?’ ” said Irving. “But we have the best system that I have heard of.”

Judges should and are helping to “clean up” any excesses, he added.

The Lerachs of the world are filling a niche, said Fellmeth.

“That firm is a major white-collar crime police that treads where regulators are trepidatious and shouldn’t be,” he said, adding that Irving should provide perspective.

“He will bring wisdom and restraint to that enterprise, and he will want cases to have strong merit,” said Fellmeth. “He will insist on it and this will help the firm’s credibility and performance.”

As for Irving’s gain, said Fellmeth, Lerach Coughlin’s “energy will be helpful to him.”

“He will be able to apply his talents to a wide range of cases regarding securities fraud,” Fellmeth added.

According to Partnoy: “The number of class actions filed has not been going up. The numbers filed in 2005 were actually down pretty substantially from 2004. It’s hard to interpret. A lot of lawsuits were filed after the big corporate scandals.

“We had an extraordinary set of scandals during the early 2000s that hasn’t been repeated,” said Partnoy. “I also think the plaintiffs bar is being more careful about which lawsuits they file.”


Sarbanes And Scandals

All of the corporate scandals in past years have left a sour taste in the mouths of the public, said Lerach, who resides in La Jolla.

“I think it has badly impaired the standing of corporate CEOs in the eyes of the public,” he said. “We see that in the jury profile we do in preparation for cases. There is a tremendous increase in inherent hostility and skepticism of corporate CEOs.

“Has it changed the way they act? I don’t think so. There is a continuation of corporate fraud and greed. They are as brazen as ever in their view of the world, but their stature has been diminished.”

Sarbanes-Oxley and other efforts to curb corporate corruption have helped “at the margin,” said Lerach.

“We have a free-market economy and the best economic system in the world, and we have produced the most massive amount of wealth in the history of the world,” he said. “But that kind of system has to provide freedom for entrepreneurs to create wealth, and that creates opportunities to abuse it. We are going to have to live with that. We can’t pass a law saying the people have to be honest. We have had that forever, and they are still dishonest.

“We need checks and balances, and that should include very vigorous government oversight and regulations that are now lacking, and a healthy legal system where people who take advantage and mistreat each other face the prospect of personal adverse consequences,” said Lerach. “Our system is impaired and not as effective as it ought to be.”

Partnoy isn’t particularly optimistic that the excesses of corporate culture have been greatly curbed by Sarbanes-Oxley.

“Shareholder class actions are a fact of life,” said Partnoy. “They will always occur because we will always have corporate fraud.”

The scandals reached a peak in the early 2000s, he said, and lawmakers reacted.

“Sarbanes was passed in the heat of the moment,” he said. “Now Congress and the SEC (Securities and Exchange Commission) are going back and rethinking some provisions. It looks like the pressures are now toward less regulation, for better or worse.

“There was one moment when the public outcry from Enron and WorldCom was sufficient enough to motivate Congress,” said Partnoy. “But the public outcry has died down. It is unlikely there will be regulatory changes in the coming years. Congress responds to heat, and it was hot during 2002, but now it’s cooled off.”

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