Last week, I wrote that in class actions, divining the motives of plaintiffs’ firms can feel like Kremlinology; this week it seems more like missology. The Florida State Board of Administration (which oversees Florida’s retirement funds) has conducted a “beauty contest” for its next securities counsel, and done so with what various observers have called unparalleled transparency. The result is a trove of publicly-available data on the securities plaintiffs’ bar’s practices and priorities.
The American Lawyer’s Litigation Daily managed to obtain the various submissions from the securities firms that bid for the SBA’s business. And the submissions – from noted plaintiffs’ firms Coughlin Stoia, Lieff Cabraser, Barrack Rodos & Racine, Berman DeValerio, Bernstein Liebhard, Bernstein Litowitz, Entwistle & Capucci, Granet & Eisenhoffer, Kaplan Fox, Labaton Sucharow, and Pomerantz Haudek – reveal a number of interesting facts about the competing firms. Among them:
• A number of plaintiffs’ firms have their own proprietary software systems for monitoring their clients’ investments. When an investment loses value, and the firm can correlate it to some fraud or other mismanagement, they recommend filing a lawsuit.
• In addition to monitoring investments, a number of these firms employ teams of in-house forensic accountants. At least one (Lieff Cabraser) also employs a former FBI agent for “identifying and conducting interviews with witnesses and performing other investigative tasks.”
• In response to the SBA’s question about litigation financing, most firms answered that they were sufficiently capitalized to handle motions practice, discovery, and the retention of experts.
• The SBA is very concerned with dismissal rates of lawsuits.
• Despite the fact that they weren’t asked, a number of firms discussed the number of times that they had been appointed Lead Counsel or – more interesting – the number of times they had won Lead Counsel motions.
There are a number of inferences defense firms can draw from the information in these submissions. Among them:
• Intelligence is very important to plaintiffs’ firms. Each of these firms invests a lot of money in monitoring stock prices and performing preliminary research
• For plaintiffs, the Motion to Dismiss is the critical motion. Because class-action defense firms want to rid themselves of a case early and completely, they often structure their defense around each of the dispositive motions that occur in a class action, starting with the motion to dismiss, but including the certification motion and summary judgment. Securities plaintiffs and their lawyers really emphasize the 12(b)(6) motion.
• Plaintiffs’ counsel are subject to intense competition. The other motion that the various firms tout is the Motion for Lead Counsel, which indicates that this is another landmark. (The intense investment in pre-lawsuit research also suggests intense competition to be “first to file.”)
• Reputation is paramount. Firms that compete regularly to represent public pension funds must work extremely hard to avoid the appearance of impropriety. (This beauty contest offers two examples. One firm was anonymously accused of various shady practices – including diverting cy pres settlement funds to a partner’s synagogue – into which the SBA is looking. In addition, Coughlin Stoia’s response to questions on restructuring and ethics issues labors to avoid mentioning founding partner William Lerach’s legal difficulties.)
• These firms’ business models are built around settlement. When touting their “wins” each of these firms promoted settlements that had resulted in large payments, as opposed to trial wins. This is no surprise (very few securities class actions go to trial), but it is helpful to remember that securities class-action practice is less about trial victory than it is about leveraging a successful settlement.
These aren’t universal observations. These are the firms at the top of the food chain, so their practices will not be the same as other plaintiffs’ firms. Also, these were submissions for beauty contests, which – as defense lawyers know – require a firm to put its best face forward. Still, knowing the structural differences between plaintiff and defense firms can be instructive in figuring out how best to respond to plaintiffs.