Trial Lawyers Inc. California
   A Report on the Lawsuit Industry in California, 2005

Trial Lawyers Inc.


Trial Lawyers, Inc. has its hands in the California taxpayer's wallet.

As already noted, Trial Lawyers, Inc. injects millions of dollars into California politics, including roughly $10 million to state legislative and statewide campaigns in each of the two most recent political cycles.[110] The litigation lobby is quite strategic about how it spends its cash, typically pouring it into the races of vulnerable legislative supporters or using it to influence key state members of the executive branch, such as insurance commissioner John Garamendi (see box on page "Pension Politics"). And in recent years, the government-relations arm of Trial Lawyers, Inc. has focused particular attention on the states' mammoth public-employee pension funds: the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS).

Why? Much of today's shareholder litigation is driven by such funds, which are enormous investors. CalPERS and CalSTRS are the nation's largest and third-largest public pension funds, respectively, and together they manage over $300 billion in shareholder assets.[111] Recent legislation has made these funds the 800-pound gorilla in securities litigation, and the political appointees on their boards—invariably beholden to the litigation industry—have been all too happy to play politics with their funds, and reward their legal contributors with business in the process.

The Origins of the Problem

When the 1995 Private Securities Litigation Reform Act (PSLRA) mandated that the biggest stockholders should act as lead plaintiffs in securities class actions, public pension funds took charge of much shareholder litigation merely as a function of their size. They have responded enthusiastically. According to a study released last year by PricewaterhouseCoopers, securities cases with public pension funds as lead plaintiffs rose steadily from four in 1996 to 56 in 2002 (see graph below).[112]

Unlike mutual funds and hedge funds, whose ability to retain investors is dependent on their performance, public pension funds have captive investors who are promised defined benefits, i.e., taxpayers have to pick up the shortfall should the funds lose money. Realizing that it could profit handsomely by encouraging these funds to litigate and taking the legal fees for itself, Trial Lawyers, Inc. has invested heavily in the political appointees on the funds' union-dominated boards. In 2002 alone, Milberg Weiss gave $250,000 to the California Democratic party, several members of which sit on the CalPERS board, including state treasurer Phil Angelides, state controller Steve Westly, and former San Francisco mayor Willie Brown.[113] Angelides, an ex officio member of the CalPERS and CalSTRS boards, received 8 percent of his campaign contributions from the plaintiffs' bar when he was elected in 1998, for a total of over $296,000.[114] For his reelection in 2002, those contributions increased to over $375,000.[115]

In recent years, the government-relations
arm of Trial Lawyers, Inc. has focused
particular attention on the states'
mammoth public-employee pension funds.

In turn, Angelides has been the most vocal proponent of using pension funds' clout to try to change corporate behavior. He has spurred CalPERS to oppose politically unpopular mergers, sue companies involved in labor disputes, and urge companies to settle "Holocaust restitution" lawsuits.[116] Says Angelides, "Shareholders should start acting like the owners they are. . . . The age of investor complacency must be replaced by a new era of investor democracy."[117]

The Cost of Pension Politics

Ultimately, however, the shareholder activism of CalPERS and CalSTRS hurts both investors in targeted companies and California taxpayers. A study released this February by Lawrence McQuillan of the Pacific Research Institute (PRI) surveys published research on the topic and concludes that "[t]he overwhelming consensus among academic researchers is pension-fund activism does not create additional net social value."[118] PRI awarded CalPERS with its 2004 "Golden Fleece" Award, noting: "From 2000 to 2004, [CalPERS's] investments under-performed and [the fund] suffered severe cash-flow problems, forcing taxpayers to pick up the tab" (see graph).[119]

The easy solution to pension fund shenanigans is removing political control from state employees' retirement savings. Governor Schwarzenegger has come out in support of a proposed state constitutional amendment, ACAX1, that would place state employees' retirement funds under their control in defined contribution plans similar to 401(k)s.[120] Hopefully, Californians can pass such a commonsense measure against the certain fight from Trial Lawyers, Inc.

A Good Insurance Policy

How might trial lawyers ensure their market share? By investing in the campaigns of government officials who can later hire them to do work for the state. In October, California's insurance commissioner John Garamendi hired Bill Lerach's firm to file suit on the state's behalf against insurance brokers and insurers over the bid-rigging and contingent- commission scandals at Marsh & McClennan and elsewhere. [121] (Lerach's firm has also filed private suits against many insurers and brokers, under the state's "private attorneys general" statute, "which allows virtually anyone to file a lawsuit on the public's behalf.")[122] From 2002 through 2004, Lerach and his law firms contributed $55,000 to Garamendi’s political action committees.[123]

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110. See Political Spending 2002, supra note 23; California Statewide Races 97-98, supra note 23

111. CalPERS’s investment portfolio market value was $182.8 billion as of December 31, 2004, see Facts at a Glance: Investments, at visited Mar. 7, 2005). CalSTRS’s investment portfolio market value was $123.3 billion as of January 31, 2005, see Current Investment Portfolio, at (last visited Mar. 7, 2005).


113. Contributions data for Milberg Weiss come from the website of the California Secretary of State, at (last visited Mar. 7, 2005).

114. California Statewide Races 97-98, supra note 23.

115. Political Spending 2002, supra note 23.

116. See Press Release, At Urging of California Treasurer Angelides and CalPERS President Sean Harrigan, CalPERS Will Actively Oppose Controversial Merger of Wellpoint Health Networks, Inc. and Anthem, Inc. (June 14, 2004), at (last visited Mar. 7, 2005); Thomas J. Donahue, CalPERS Needs Reforms, S.F. EXAMINER, June 24, 2004, available at (last visited Mar. 5, 2005) ("[S]tate Treasurer Phil Angelides[ ] appears to be exploiting the Safeway issue as a platform for his expected gubernatorial bid."); California State Treasurer's Office: Holocaust Restitution, at (last visited Mar. 7, 2005) ("California State Treasurer Phil Angelides has long been active in seeking reparations and justice for Holocaust survivors, both in his role as State Treasurer and as a member of the boards of the California Public Employees’ Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) . . . .").

117. Nicole Gelinas, Corporate America's New Stealth Raiders, CITY J., Winter 2005, available at (last visited Mar. 5, 2005).

118. Lawrence J. McQuillan, Pacific Research Institute Briefing, CalPERS' Corporate Activism Does Not Help Shareholders or Pensioners, Feb. 2005, at 2, available at (last visited Mar. 7, 2005).

119. Anthony P. Archie & Lawrence J. McQuillan, Pacific Research Institute, Flawed and Outdated Public-Pension System Earns California Golden Fleece Award, CAL. GOLDEN FLEECE AWARDS NO. 10 (2005), at (last visited Mar. 3, 2005).

120. See McQuillan, supra note 118, at 1.

121. See Theo Francis & Vanessa Fuhrmans, Class-Action Threat Added to Challenges Facing the Insurers, WALL ST. J., Oct. 20, 2004, at C1.

122. See Angela R. Thompson, United States: Insurance Industry Under Fire over Bid-Rigging and Contingent Commissions, JORDAN BURT LLP/MONDAQ, Oct. 28, 2004, at (last visited Mar. 7, 2005).

123. See website of the California Secretary of State, supra note 113.