Consider the Source

Consider the Source

Copyright 2002, Traffic World Magazine

The Hub Group Inc. has been hit with a class action shareholder lawsuit that is nothing but naked opportunism.

Is there anyone in the logistics and freight transportation industries who doesn''t know Hub Chairman Phil Yeager? Phil has written an annual review of the intermodal industry for Traffic World for years and has been a notable figure in this business for decades.

On the other side is a law firm led by Bill Lerach. Fortune magazine called him "the most loathed and feared lawyer. What makes him loathed is that he is mean: a belligerent, vengeful, foul-mouthed bully," the magazine said in a profile published 18 months ago.

What disturbs me most about this Hub episode is that the lawsuits personally and viciously attack Phil, his son David and other Hub Group executives without ever suggesting that there is any evidence to back up the accusations that each had access to "adverse undisclosed information" in internal corporate documents. The lawsuits were brought too quickly after Hub itself disclosed an accounting problem in just one of its 26 subsidiaries.

The lawyers suing Hub Group can''t possibly know of any incriminating internal corporate documents. Their claims are boilerplate accusations that pop up in lawsuit after lawsuit that are nothing more than "greenmail" - shareholder litigation that exploits a sudden drop in a corporation''s stock value. Greenmail lawsuits always blame a price drop on mismanagement of the company and seek reimbursement for the shareholders'' losses. If successful, the lawsuits bring a small sum for the plaintiffs and riches for the plaintiffs'' lawyers.

Lerach is known as the king of the class action lawsuit. In 1995 Congress passed the Private Securities Litigation Reform Act. Its sponsor called lawsuits of the type that Lerach specialized in "legalized piracy." Lerach and his chief expert witness were both large donors to the Democratic Party, which didn''t hurt their cause when President Bill Clinton vetoed the bill. Congress overrode the veto.

Fortune wrapped up its profile of Lerach by documenting the $45 million judgment an expert witness won from Lerach''s firm after suing it for abuse of process and by listing some of the firm''s most frivolous class action suits: against the ersatz singing group Milli Vanilli for lip-synching its songs; against boxer Mike Tyson for biting Evander Holyfield; against Pokemon card makers on behalf of parents of preteens for promoting "illegal gambling."

You''ve read about Lerach''s law firm, Milberg Weiss et al, in Traffic World before. They are the lawyers who sued executives at Union Pacific Corp. and Overnite Transportation Co., claiming that an anti-union effort at Overnite was an economic disaster for the company. Three of the 10 plaintiffs are Teamsters on strike at Overnite.

Lerach and his firm have been in the national news lately - they have been named the lead counsel in investors'' lawsuits against Enron. In analyzing the judge''s decision to give Lerach that profitable position, The Wall Street Journal was no kinder last month than Fortune was.

The newspaper reported that a Los Angeles grand jury was investigating whether Milberg Weiss paid plaintiffs to sign onto class action lawsuits, and that in another large class action suit the judge denied Milberg Weiss the lead-counsel position because its fees were too high.

The Wall Street Journal opinion piece concluded by saying that "it is about time (Lerach) got some adult legal supervision. The tort bar has become so rich, increasingly at the expense of its own clients, that its abuses need to be reined in for the good of the broader society."

Good idea.