Milberg Weiss Bershad Hynes & Lerach, the largest U.S. securities law firm, won't be able to pursue a lawsuit in state court on behalf of New York City pension funds against J.P. Morgan Chase & Co. and other WorldCom Inc. investment banks, a federal judge ruled Monday.
The funds may be forced to become part of a shareholder class-action lawsuit filed in federal court in New York against officers and banks employed by ailing WorldCom, the second-biggest U.S. long-distance company, lawyers said.
The New York State Common Retirement Fund was named lead shareholder in that class-action suit and controls settlement talks and trial strategy.
The ruling by U.S. District Judge Denise Cote may be used to bar 12 similar suits filed by Milberg Weiss pension fund clients in California, West Virginia, Illinois and Washington state courts because they too are related to WorldCom's bankruptcy proceedings, the judge ruled.
"Under the bankruptcy laws, efficiency and reorganization goals favor coordinating actions related to a bankruptcy in federal court," Cote wrote in a 51-page decision.
Forced participation in the shareholder class-action suit also may mean smaller legal fees for New York-based Milberg Weiss.
Shareholders already have their own lead law firm, which usually earns the largest share of legal fees in class actions. Lead counsel is Bernstein Litowitz Berger & Grossmann of New York.
Milberg Weiss sued WorldCom's underwriters in state courts on behalf of pension funds that lost $584 million on bonds as the market value of the Mississippi telecom company collapsed after disclosure of accounting irregularities. The state suits, against J.P. Morgan Chase and other investment banks, as well as former WorldCom officers, may have moved more quickly than the federal class action, lawyers said. A quicker conclusion would have allowed Milberg clients first access to bank assets to satisfy any judgment.
Milberg Weiss lawyer William Lerach, who is based in San Diego, and Sean Coffey, a Bernstein Litowitz lawyer, declined to comment.