Preempting Unintended Consequences

There is something called the “Law of Unintended Consequences.” Who enacted this law, who enforces it, and its exact scope are obscure. However, from time to time it manifests itself, most recently having made an appearance in some of the fallout from the Private Securities Litigation Reform Act of 1995 (“the Act”). One unintended or, perhaps more accurately, unforeseen consequence of the Act has been the increasing appearance of the Milberg, Weiss firm as plaintiffs’ counsel in securities class action litigation. This firm, seen by many advocates of reform as the incarnation of all they dislike in class litigation, has become an ever more commanding presence on that scene. Milberg, Weiss has extraordinarily competent and experienced lawyers in class action litigation who have been extremely successful in securing substantial verdicts and procuring huge settlements. Their increased ascendancy and heightened visibility in the class action arena cannot be a source of joy to the promoters of the Act. The reason for the firm’s rise is very simple: One consequence of the Act has been the lengthening of proceedings. Milberg, Weiss, with its deep pockets and vast experience, is better able than most other smaller plaintiffs’ firms to sustain this lengthy process without suffering crippling financial strain. Another unintended consequence of the Act was the initial migration of securities litigation to the state courts. Most states do not have laws that impose the stringent pleading requirements of the Act, set the hurdles so high in prevailing on fraudulent forecasts, provide for separate and proportionate damages, or place other impediments in the path of success in class actions like those created by the Act. While there initially appeared to be a major move toward state courts, this trend subsequently abated, and at the present writing the pendulum has swung back toward the federal system, both as a proportion of total litigation and in absolute numbers. Not surprisingly, most of the state litigation was initiated in California, largely as a consequence of the fact that