Settlement rejected over Milberg fees
A federal judge in San Francisco has rejected a proposed class-action settlement negotiated by law firm Milberg Weiss, citing outsized legal fees and questions about whether a firm accused of criminal wrongdoing should represent shareholders.
Once the largest shareholder class-action litigation firm, Milberg Weiss has seen its caseload drop and lawyers defect since federal prosecutors targeted the New York-based firm. It has been indicted for criminal kickbacks and faces trial next year.
The case is unrelated to the matter in San Francisco, where Milberg represents a pension fund acting as the lead plaintiff in a lawsuit against biotech firm Chiron Corp., but shows the broadening effect on the firm of its own legal issues.
The lawsuit accused Emeryville, Calif.-based Chiron, now a unit of Swiss drug maker Novartis, of failing to disclose problems at a vaccine-making facility, which cut production of the Fluvirin influenza virus during a 2004 U.S. flu vaccine shortage. The production problems hurt the company’s financial results, harming shareholders, according to the lawsuit.
The proposed settlement would require Chiron to pay $30 million in cash plus interest, an amount that includes $7.5 million in legal fees.
In a written ruling last week, U.S. District Judge Vaughn Walker balked at the fees, which he described as “eight to 10 times typical hourly attorney fees.”
He also discussed in the ruling whether the indictment, which accuses Milberg of paying kickbacks to clients to secure lead counsel status in past cases, should exclude it from acting as lead counsel in the Chiron case.
The allegations in the criminal proceedings “go to the very heart of the fiduciary duties owed to absent class members by a lead plaintiff and lead counsel in a class action,” wrote Walker, who set a new hearing for Dec. 20.
A Milberg spokeswoman was not available for comment.
Milberg and a founding partner, Melvyn Weiss, have pleaded not guilty to conspiracy charges handed up by a federal grand jury in Los Angeles last year after a six-year federal investigation.
Three other former Milberg attorneys and three former firm clients have pleaded guilty to charges stemming from the kickbacks probe.
