Smacking Down a Plaintiffs' Law Firm

Lie down with dogs, wake up with fleas.

That seems to be the latest lesson for the folks at Coughlin Stoia Geller Rudman & Robbins — William S. Lerach's former law firm.

Yesterday, the firm got with a sanctions ruling, ordering the payment of some of the defense's legal fees, in a securities class against SS&C Technologies Inc. The case stemmed from a July 28, 2005 deal in which Carlyle Investment Management agreed to take SS&C private.

That day, the investment firm Paulena Partners filed a lawsuit, and several days later, on Aug. 3, 2005, a dentist represented by Coughlin Stoia filed another lawsuit. Oh, the research that must have gone into these complaints!

Weirdness followed: First, the parties settled the case in October 2005, but never advised the Delaware Chancery Court of their deal.

Once they asked for approval of the settlement, Vice Chancellor Stephen Lamb refused to grant it, finding the record did not support a finding that the plaintiffs' counsel adequately represented the class. He also noted that the plaintiffs' lawyers failed to "correctly identify basic terms of the transaction or the basic set of legal issues thereby raised."

But here is where the dogs come in: Despite the adverse ruling, Coughlin Stoia and their co-counsel, the Brualdi law firm of New York, continued to prosecute the case.

And once discovery was conducted, the defense found that the Paulena investment firm's managing partner, Dean Drulias, actually owned just three shares in SS&C — it began as two shares but got to three through a stock split.

Drulias, it turns out, has a stake in four partnerships — all of which have less than a handful of shares in roughly 60 to 80 companies — and these partnerships have filed "an unusually large number of stockholder lawsuits," according to Vice Chancellor Lamb's opinion.

About 30 cases, according to his deposition testimony — in which the Brualdi law firm has "consistently" represented him. Drulias attributes the lawsuit volume to his interest in good corporate governance.

On the other hand, SS&C's defense lawyer, Jeffrey Rudman of Wilmer Hall, called Drulias's operation a "litigation kennel" that functions as a "professional plaintiff."

Lamb didn't adopt a dog analogy in his decision, but did observe that Drulias's history in his investment partnerships raises "very disturbing questions and may well disqualify those partnerships or the persons associated with them from serving" as plaintiffs in shareholder class actions in the future.

For now, Lamb sanctioned the plaintiffs' firms, ordering them to pay the attorneys' fees associated with the sanctions motion to Wilmer Hale and to Cadwalader, Wickersham & Taft, counsel for defendant William Stone, SS&C's chief executive, as well as the local Delaware counsel. Let the hourly billing sheets come in!

Meanwhile, Coughlin Stoia's client, Dr. Stephen Landan, a dentist who owned several hundred shares of SS&C stock, had his own "troubling issues," Lamb wrote in his opinion.

Among other things, Landan "demonstrated a striking lack of knowledge of the SS&C litigation and testified to very little participation in its prosecution."

He had "no knowledge" of the terms of the proposed settlement, which he called "fair, reasonable and adequate" in a declaration under oath.

He testified that he remembered "'filling out some kind of form on the Internet" to oppose the buyout of SS&C. He could not remember seeing a copy of the complaint before the folks at Coughlin Stoia filed it in court.

(This reminds us of a famous line attributed to Lerach, a founding partner of Coughlin's Stoia. He is said to have bragged that he had the best practice in the world because he had "no clients.")

Neither Coughlin Stoia nor the Brualdi firm returned requests for comment.

Gregory Markel of Cadwalder, lawyer for C.E.O. Stone, said his client pursued the sanctions motion "because he believes that other people in his position should not have this happen to them."

Now, about that litigation kennel....

by Karen Donovan