House Members Seek Clinton Aid in Shareholder Lawsuit Reform : Law: Legislators say some companies, particularly in high-tech fields, are unfair targets of fraud allegations.


As the national campaign for tort reform becomes increasingly entangled with the Orange County bankruptcy, an unusual bipartisan group of 26 California House members has sent a letter to President Clinton seeking his support for new protections for companies targeted by securities fraud lawsuits.

The legislators said some firms, particularly in the volatile high-tech field, are unfairly targeted for shareholder lawsuits and that higher standards for legal action are warranted.

But opponents, including trial lawyers and some consumer groups, charge that a drastic change in the law might have crippled efforts to sue Charles H. Keating Jr. after the S&L; scandals and would interfere with investors seeking to recoup losses in the Orange County bankruptcy.

When companies are sued, they are often "forced by mounting litigation costs and the threat of enormous damages to settle cases quickly, draining the company of both time and money," the lawmakers said in a letter sent to Clinton last week. A copy was made available to The Times.

The letter was signed by 13 Republicans and 13 Democrats, with members ranging across the political spectrum from conservative Robert K. Dornan (R-Garden Grove) to liberal Esteban E. Torres (D-Pico Rivera).

The House begins hearings Thursday on the Republican proposal for tort reform contained in the GOP Contract With America. The proposal would require those filing suit to provide more information about the alleged fraud, and it would make the losers in the case liable for court costs.

Extensive debate is expected on the possible implications for the recovery of losses in the Orange County financial collapse.

Rep. Christopher Cox (R-Newport Beach), the author of the GOP proposal, insists it would help eliminate frivolous suits but still protect the ability to file lawsuits in connection with the collapse of the county's investment pool, which suffered losses of more than $2 billion. He said the current system makes Americans pay a "litigation tax."

"Without any change in the current system, Orange County taxpayers will be on the hook not only for the real sins of (former Treasurer) Bob Citron, but also for legal fees and settlements of . . . the ambulance-chasing cases that are sure to be filed," Cox said in a telephone interview Monday.

"Real victims of fraud" will be helped by his legislation, Cox said.

High-tech firms are promising targets for lawsuits because their stock prices are highly volatile and the development of new products and markets is uncertain, according to the letter to Clinton from Cox and 25 other members of the California delegation.

Those who want to change the law say a chief executive in the high-technology industry may predict a profitable year linked to the development of a long-awaited new product. However, if the technology isn't ready on time, profits don't materialize and the stock suffers. Then the company will be hit with lawsuits alleging fraud, said John Endean, vice president for the American Business Conference, which represents high-growth firms.

"We are attacking a very, very enriching niche these lawyers have found," Endean said Monday.

The lawyers specializing in these cases have a different view.

If the GOP proposal in the Contract With America was the law today, "many thousands of people who hold investments backed by the Orange County bond pool would not be able to bring their cases to court," said John Russonello, spokesman for the National Assn. of Securities and Commercial Law Attorneys. "One of the largest financial frauds of this decade would go without average investors being able to recover."

Some major consumer groups, including the American Assn. of Retired Persons and the Consumer Federation of America, have opposed previous proposals in Congress to make major changes in the laws governing securities lawsuits.

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