By Nate Raymond
NEW YORK, Oct 10 (Reuters) - Milberg and two other plaintiff
law firms convinced a federal appeals court Wednesday to block a
state-court malpractice case by the Texas businessman Samuel
The lawsuit had accused the law firms of putting their own
interests ahead of Wyly and other investors in a class action
against Computer Associates Inc.
But writing for the 2nd U.S. Circuit Court of Appeals, Judge
Jose Cabranes ruled that the federal court had the authority to
stop the malpractice case because a federal district court in
Brooklyn had awarded $40 million in attorneys' fees in the case.
That award, said Cabranes, allowed the 2nd Circuit to toss the
malpractice suit to avoid relitigating how effective the law
firms' efforts were.
The decision "further erodes the already limited ability of
class members to control the conduct of class counsel," said
William Brewer, a lawyer for Wyly at Bickel & Brewer, in a
Gregory Joseph, who argued for the plaintiffs' firms, didn't
respond to a request for comment.
The case dates to a series of purported class actions, filed
in Brooklyn federal district court starting in 1998. The cases
accused Computer Associates' officers and directors of scheming
to inflate the company's stock price and revenues. Milberg and
Stull, Stull & Brody were named co-lead counsel in the 1998
More lawsuits against Computer Associates followed in 2002,
including some accusing the company of securities law
violations. Milberg and the firm now called Kessler Topaz
Meltzer & Check served as co-lead counsel on those cases.
In August 2003, U.S. District Judge Thomas Platt in
Brooklyn approved a settlement between the plaintiffs and
Computer Associates, providing $130 million to $150 million in
stock to the class.
The plaintiffs' law firms under the settlement were to
receive $30 million to $40 million in stock as their fee, which
Platt called "fair and reasonable."
In September 2004, following more than two years of
investigations by the Justice Department and the Securities and
Exchange Commission into Computer Associates' accounting
practices, the company agreed to a $225 million settlement and
to enter into a deferred prosecution agreement.
Two days later, The Wall Street Journal reported that
Computer Associates had withheld 23 boxes of documents from the
government and in the class actions.
Wyly and other investors then asked the plaintiffs' law
firms to seek to vacate the settlement, but the lawyers
declined. Three years of litigation over the issue ended in 2009
with Platt ruling that the missing 23 boxes didn't justify
re-opening the class action.
Following that decision, Wyly sued the plaintiffs' law firms
in 2007 in New York Supreme Court.
But on request from Milberg and Stull, Stull & Brody and
Kessler Topaz, Platt enjoined the malpractice case in 2010. The
judge said an injunction was "necessary in aid of its
jurisdiction" and needed to avoid relitigation.
The 2nd Circuit reversed Platt on the jurisdictional
grounds, finding there was no overlap between the claims in the
state and federal court cases to justify the decision.
But the appeals court said Platt was within his rights to
enjoin the malpractice case, given his decision on the fees.
"Even a cursory review of the allegations in the
(malpractice) complaint belies (Wyly's) contention that the
state court action does not seek to relitigate the District
Court's determination that class counsel's representation was
reasonable," Cabranes wrote.
Cabranes was joined by Circuit judges Amalya Kearse and
Wyly continues to separately defend himself against a
lawsuit by the SEC accusing him and his deceased brother of
orchestrating a $500 million securities fraud.
The case is Wyly v. Weiss, 2nd U.S. Circuit Court of
Appeals, No. 10-4785.
For Sam Wyly: William Brewer, Bickel & Brewer.
For Milberg: Gregory Joseph, Gregory P. Joseph Law.
Follow us on Twitter @ReutersLegal | Like us on Facebook