High Court Makes It Easier to Transfer Lawsuits

Ruling in a case stemming from the costly collapse of Lincoln Savings & Loan, the U.S. Supreme Court on Tuesday made it easier to transfer complex lawsuits from one federal trial court to another.

The high court said that federal judges who are assigned to hear pretrial matters in numerous related lawsuits filed nationwide cannot refuse later to send the cases back to the trial courts, then preside over the trials themselves.

The unanimous decision involves Lexecon Inc., a Chicago economic consulting firm that had prepared financial reports for Charles H. Keating Jr.’s Irvine-based S&L.;

The ruling deals with arcane laws involving federal jurisdiction, but has broader stakes. Such lawsuits typically involve the most contentious and potentially lucrative issues: disaster claims, defective consumer products, antitrust violations and securities fraud.

The decision also marks a setback for business groups that wanted the high court to set down a rule letting judges consolidate multiple, related lawsuits for trial in a single court district.

Tuesday’s decision gives new life to Lexecon’s effort to win part of its malicious-prosecution lawsuit against a securities lawyer who represented investors in suits over the 1989 failure of Lincoln, the nation’s second-costliest thrift failure.

Investors in Lincoln’s parent company, American Continental Corp. in Phoenix, sued Keating and a host of professional advisors, including Lexecon. The Chicago firm paid more than $700,000 to investors in 1992 to resolve the claims against it.

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Lexecon and Daniel R. Fischel, a University of Chicago law professor who was one of Lexecon’s owners, then sued two of the investors’ law firms, alleging that the firms had sought to destroy Lexecon’s business by destroying its reputation.

The suit was filed in U.S. District Court in Chicago against Milberg Weiss Bershad Hynes & Lerach in New York City and Cotchett Illston & Pitre in Burlingame.

But the case was transferred to Tucson, Ariz., where the investors’ lawsuit against Lincoln was still active. The transfer was ordered under a federal law that allows cases from around the country with similar issues to be transferred to one judge for handling all pretrial matters.

U.S. District Judge Richard M. Bilby in Tucson killed most of Lexecon’s lawsuit against the two law firms, allowing just one defamation claim against Milberg Weiss to survive pretrial maneuvering.

But rather than send that claim back to the federal court in Chicago for trial, the judge kept it in Tucson. A jury there ruled against Lexecon. Lexecon and Fischel appealed, arguing that the case should have been transferred back to Chicago.

The U.S. 9th Circuit Court of Appeals, in a 2-1 vote, ruled that Bilby had acted within his authority. But the Supreme Court decided that the appeals court was wrong.