Legal News

Federal Judge Unruffled by Allegations of Law Firm Pay-to-Play

By Nathan Koppel

It's no secret that many plaintiffs' securities class actions firms are active politically, showering donations on state candidates across the country.

But why, exactly, do the firms do this? Are they just civic minded? Or do they hand over campaign checks in the hopes of landing work from pension funds that are answerable to state politicians? An alternative question, to put the onus elsewhere: do state office holders improperly award legal work based on which firms contribute the most?

The issue of pay-to-play got a rare airing yesterday from a federal judge in a securities class action against Countrywide Financial Corp. Plaintiff shareholders allege that the mortgage lender failed in 2007 and 2008 to adequately disclose its deteriorating financial condition.

In a ruling yesterday certifying the case as a class action, Los Angeles federal judge Mariana Pfaelzer seemed none too troubled by campaign contributions from one of the lead counsel in the case, Labaton Sucharow, a heavyweight of the securities class-action bar.

Attorneys at the New York firm donated $50,000 to New York state Comptroller Thomas DiNapoli, who is the sole trustee of New York State Common Retirement Fund, one of the lead plaintiffs in the 2007 suit.

The judge at first noted that pay-to-play issues could potentially defeat a class certification motion. Contributions might cause a lead plaintiff to be more loyal to the wishes and demands of the law firm than to the rest of the class members whose interests the plaintiff is charged to represent.

Still, the judge said it is "speculative" to surmise that Labaton's contributions created some attorney-class conflict.

"Attorneys are free to donate to politicians who support their views," she wrote. "Similar political-donation freedom exists for lawyers and parties on the defense side."

As a footnote, she added this doozy: “Courts have long been less enamored of securities litigation pay-to-play arguments than litigants and the press.”

The New York state fund, she added, picked Labaton based on its proposal for handling the case and the fact that it had already filed a complaint against Countrywide on behalf of another plaintiff.

Labaton senior partner Joel Bernstein says the judge got it right. “Lawyers have a right to freedom of speech just like every other citizen in our country.” As long as pension funds chose cousnel for the rights reasons, and not based on contributions, “there is nothing wrong,” he says.

Full post as published by Law Blog - WSJ.com on December 10, 2009 (boomark / email).