Judge rejects proposed Milberg class-action pact

By Gina Keating

LOS ANGELES (Reuters) - A San Francisco federal judge has rejected a proposed class-action settlement negotiated by law firm Milberg Weiss, citing outsized legal fees and questions about whether a firm accused of criminal wrongdoing should represent shareholders.

Once the largest shareholder class-action litigation firm, Milberg Weiss has seen its caseload drop and lawyers defect since federal prosecutors targeted the firm. It has been indicted for criminal kickbacks and faces trial next year.

The case is unrelated to the matter in San Francisco, where Milberg represents a pension fund acting as the lead plaintiff in a lawsuit against vaccine maker Chiron, but shows the broadening effect on the firm of its own legal issues.

The lawsuit accused Chiron, now a unit of Novartis AG, of failing to disclose problems at its UK vaccine plant, which cut production of the Fluvirin influenza virus during a 2004 U.S. flu vaccine shortage. The production problems hurt the company's financial results, harming shareholders, according to the lawsuit.

The proposed settlement would require Chiron to pay $30 million in cash plus interest, an amount that includes $7.5 million in legal fees.

In a written ruling last week, U.S. District Judge Vaughn Walker balked at the fees, which he described as "eight to ten times typical hourly attorney fees."

Walker also discussed in the 37-page ruling whether the criminal indictment, which accuses New York-based Milberg of paying kickbacks to clients to secure lead counsel status in past cases, should exclude it from acting as lead counsel in the Chiron case.

"(T)he allegations in the criminal proceedings go to the very heart of the fiduciary duties owed to absent class members by a lead plaintiff and lead counsel in a class action," Walker wrote.

The judge set a new hearing in the case for December 20.

A Milberg spokeswoman was not immediately available for comment.

The ruling marks at least the second time that the long-running criminal case has marred litigation results for the law firm. A Minnesota federal judge excluded the firm from serving as lead counsel in a case against Medtronic Inc last year.

Milberg and a founding partner, Melvyn Weiss, have pleaded not guilty to criminal conspiracy charges handed up by a federal grand jury in Los Angeles last year after a six-year federal investigation.

Three other former Milberg attorneys and three former firm clients have pleaded guilty to charges stemming from the kickbacks probe.

(Reporting by Gina Keating)