Milberg Case Hits Delays as Five Judges Withdraw

The landmark fraud and conspiracy case against law firm Milberg Weiss Bershad & Schulman has run into unexpected delays because five federal judges in Los Angeles who had been assigned to it recused themselves from hearing the matter.

The recusals have caused arraignments to be postponed for two defendants who had agreed to plead guilty.

The withdrawals by the judges, who cited previous involvements with Milberg, its securities class-action cases or companies named in them, highlight the New York law firm’s large footprint on the legal system.

It has also left legal experts wondering whether what should have been a plum judicial assignment has instead turned into a hot potato.

“This is a unique situation,” said Stephen Gillers, a New York University law professor. “I’ve never heard of five judges taking themselves out.”

Prosecutors brought a 20-count indictment against the firm last month, charging Milberg and two partners with paying at least $11.3 million in illegal kickbacks to clients over a 25-year period.

Milberg has denied any wrongdoing, and co-founder Melvyn I. Weiss predicted that “we will be vindicated.”

The firm, which pioneered securities class-action suits in the 1980s, claims to have recovered more than $45 billion on behalf of defrauded investors, collecting billions in legal fees in the process.

Milberg’s targets have been a who’s who of corporate giants, including Raytheon Co., Enron Corp., Rite Aid Corp. and Prudential Insurance Co.

The government alleged that Milberg lawyers recruited “paid plaintiffs” to buy stocks in anticipation of a drop in value, positioning themselves and their firm to take the lead in securities class actions, which entitled them to extra fees. The firm concealed the kickbacks by paying plaintiffs in cash or through intermediary law firms, according to the indictment.

Two individuals have agreed to plead guilty as part of the wide-ranging investigation. Retired real estate investor Howard J. Vogel was scheduled to be arraigned Monday on a criminal charge that he took more than $2.4 million in kickbacks from the law firm. That hearing has been postponed until June 26, said Thom Mrozek, spokesman for the U.S. attorney’s office in Los Angeles.

Arraignment and sentencing have also been postponed for Richard Purtich, a Century City lawyer who last month agreed to plead guilty to a felony tax charge related to allegations that he funneled money to a Milberg client.

Purtich’s arraignment is now set for July 10, Mrozek said.

Prosecutors want one judge in the downtown federal court to hear proceedings against all of the defendants. However, Milberg’s far-flung clients and the firm’s long list of corporate quarry have made that difficult.

Although the recusals have gotten the case off to a slow start, Mrozek predicted that the delays ultimately would not have a bearing on the outcome.

The latest jurist to bow out was U.S. District Judge R. Gary Klausner, who last week recused himself because he owned stock in “at least two of the alleged corporations” that were the target of a lawsuit by the firm, according to an order the judge filed.

Federal law requires judges to recuse themselves when their impartiality might reasonably be questioned.

Judge Christina A. Snyder, who drew the case before Klausner, passed it on because she had heard “at least one lawsuit” brought by Milberg in which she had approved attorneys’ fees and costs, according to her self-recusal order. Because the firms’ attorneys’ fees are an issue in the criminal case, Snyder wrote, she was mindful of avoiding the appearance of partiality.

Judge Dean Pregerson, who had the case before Snyder, noted on his recusal statement that former Milberg partner William S. Lerach had backed his appointment to the bench in 1996. Pregerson also said he had approved attorneys’ fees and costs for the firm in “at least one lawsuit.”

Two other judges, Ronald Lew and Edward Rafeedie, who had earlier been assigned the case, also recused themselves. Lew noted “personal knowledge of disputed evidentiary facts,” and Rafeedie simply cited the federal statute governing disqualification.

The case is now assigned to Judge John F. Walter.

Case assignments for the 23 federal judges in the district are made randomly by the court clerk, using a computer.

The federal Administrative Office of the Courts does not keep statistics on recusals, spokesman David Sellers said, and judges are not required to explain why they transferred a case out of their courtroom.

Sellers acknowledged that the number of judges assigned to the Milberg case was unusual. The only parallel, he said, has been the rare occasion when a judge was indicted, usually prompting his or her colleagues to bow out of the case. In those instances, a judge from another courthouse has been assigned, he said.

Barring conflicts, however, “a judge has an ethical duty to take any case that comes before him or her,” former Los Angeles County Superior Court Judge Lawrence Crispo said.

Law professor Gillers predicted that many judges would welcome the opportunity to hear the case, calling the legal issues it presents “intellectually a feast.”

Among them are questions of whether a law firm can be held liable for the alleged misdeeds of individual lawyers, whether the government can pierce attorney-client confidentiality and, if the firm is convicted, whether prosecutors can pursue the personal assets of Milberg lawyers who have not been indicted.

The case is also attractive, Gillers said, because “a lot of judges would see this as an opportunity to have their work seen publicly.”