(Reuters) - When it comes to presiding over class actions, U.S. District Judge William Alsup of San Francisco has some unusual practices. You probably remember the furor over the judge’s rule prohibiting defendants from discussing settlement with plaintiffs lawyers until the class had been certified. In September, the 9th U.S. Circuit Court of Appeals rejected a mandamus challenge (784 Fed.Appx. 514) to the judge’s gag rule, although the appeals court signaled discomfort with the blanket prohibition. Judge Alsup isn’t backing down from his standing order, based on the transcript of a hearing last month in a securities class action against Granite Construction.
The judge cautioned an official from the presumptive lead plaintiff, the Police Retirement System of St. Louis, that if his fund was selected to serve as lead plaintiff, he would not be permitted to discuss a settlement until the class was certified. “I don’t think I go too far overboard here, but I’m on the end of the spectrum of judges that will do just about everything possible to protect the absent class members,” Alsup said.
But the gag rule was not the only unusual requirement Judge Alsup imposed on the fund: He also instructed the official, executive director Mark Lawson, to conduct a competition for plaintiffs’ firms that want to represent the St. Louis pension fund in the securities class action.
The Robbins firm (previously named Robbins Arroyo) signed the St. Louis fund’s briefs seeking appointment as lead plaintiff. The firm asked Judge Alsup simply to appoint Robbins to represent the fund in this case, noting that Robbins had worked with the fund for six years and had already been vetted by fund officials.
Judge Alsup was unpersuaded. “You can’t just select the lawyer that brought you here,” he told Lawson, the fund official. “You have to interview candidates and you have to select the one that is best for the class rather than the lawyer who brought you there.”
The judge also said that the St. Louis fund had better look for a fee deal that will benefit the class, suggesting a “reverse auction” in which lead counsel candidates vie to underbid each other. (Alsup didn’t use that phrase but described how he once oversaw a class action in which Lieff Cabraser Heimann & Bernstein was selected as lead counsel after agreeing to accept just 8% of the class recovery instead of the 33% proposed by other candidates.) If Lawson, the fund official, decided not to pick the lowest bidder, Alsup said, he’d have to explain why to the judge.
Judge Alsup was particularly insistent that the St. Louis fund provide him with assurances that no fund officials had received campaign contributions from the law firm it selected to serve as lead counsel in the Granite case. Even after Lawson said that his board members are fairly remote from the plaintiffs firms that represent the fund, the judge said he would require the pension fund director to swear under oath that fund officials were not influenced by gifts or other inducements from plaintiffs firms. “Pay to play is not in the interest of the class,” he said. “That is just a lawyer gimmick to rake money off on the side. And I’m not accusing you of this at all. I don’t know the facts yet, but I have had it in other cases.”
Last week, after the hearing, the judge issued an order formalizing his instructions from the hearing. He appointed the St. Louis fund, which alleged bigger losses than an Alaska pension fund that also sought to be named lead, as lead plaintiff. He directed the fund to conduct a robust search for a law firm to represent it, advertising for bids and interviewing candidates.
“The lead plaintiff may consider its current counsel along with all other candidates but it may not give current counsel any special preference,” the judge wrote. “Considerations should include each candidate’s fee proposal, its track record, the particular lawyers to be assigned to the case, the candidate’s ability and willingness to finance the case (and) the candidate’s proposals for the prosecution of the case.”
The fund’s motion for approval of its choice, which is due on Jan. 9, must describe the selection process, justify the choice of counsel and certify that no pay-to-play arrangement was involved.
I should note that the Granite class action is not the first time that Judge Alsup has directed a lead plaintiff in a securities class action to conduct a competition to pick a law firm. His order in the Granite case tracks a similar order the judge issued last year in a securities class action against Symantec. That case offers some solace for the Robbins firm: After conducting the search Judge Alsup insisted upon, the institutional investor appointed to lead the Symantec case ended up picking its original counsel, Bernstein Litowitz Berger & Grossmann, as lead counsel against Symantec, even though Bernstein was not the lowest bidder. Judge Alsup agreed to that choice after reading the fund’s explanation.
The director of the St. Louis fund in the Granite case, Lawson, declined to comment on Judge Alsup’s order, although he said by email that the pension fund issued a request for proposals that is open to any law firm that wants to serve as lead counsel. “The window is still open for candidates to submit proposals,” Lawson said. “When it closes, any proposals submitted will be evaluated and a selection will be made from among those proposals.” Robbins partner Craig Smith, who appeared for the St. Louis fund at the hearing before Judge Alsup, did not respond to my email.
Granite is alleged to have misrepresented and concealed information about four joint venture civil construction projects. Granite counsel Achyut Phadke of Munger Tolles & Olson did not respond to my email requesting comment on the lead counsel process and the underlying allegations.