Many mortgage suits to come, but tougher to win

By Gina Keating - Analysis

LOS ANGELES (Reuters) - U.S. law offices plan a hiring spree as they ready a new volley of lawsuits for consumers who lost houses and investments in the mortgage industry meltdown.

But new legal rules make it tougher to win than in the days of high-dollar class action victories over companies such as Enron Corp and WorldCom Inc.

Bank failures and allegations of suspect lending practices and risky investments in mortgage-backed securities should "easily keep lawyers busy for a decade," said Joseph Grundfest, Stanford University law professor and former commissioner with the U.S. Securities and Exchange Commission.

Nearly half of U.S. law firms plan to hire in the next 12 months, with bankruptcy, litigation, and ethics and corporate governance attorneys on the top of wish lists, according to a survey by Robert Half International Inc's (RHI.N) Robert Half Legal, a legal staffing service.

With the drop in stock and property values, investors lost some $5 trillion in value -- a total that dwarfs the dotcom bust, Grundfest said.

"I think the strong claims will have no problem surviving," Grundfest said. "To the extent that lawyers are looking to recover on weaker claims, they may well have a more difficult time; but perhaps that's the more appropriate result."

WALL STREET 'RUN WILD'

Among the new legal bugbears for plaintiffs' attorneys are U.S. Supreme Court decisions that could block investors from reaching into the pockets of companies not directly involved with fraud (Stoneridge Investment versus Scientific-Atlanta) and that stop consumers from suing federally regulated industries (Riegel versus Medtronic).

Plaintiffs also could have a tougher time keeping lawsuits from being dismissed for lack of evidence as a result of Bell Atlantic versus Twombly and Makor versus Tellabs. Up until those cases, courts that saw strong arguments had wide discretion to give plaintiffs access to company information to make their cases.

Also weighing on lawyers' minds is a 2005 federal law, the Class Action Fairness Act, that pushes more class-action litigation onto crowded dockets of federal courts to curb "forum shopping," in which attorneys choose to file lawsuits in states with the most advantageous laws for investors.

The plaintiffs' bar was already reeling from recent guilty pleas by former attorneys at class action powerhouse Milberg LLP, including firm co-founder Melvyn Weiss and former senior partner William Lerach, to charges stemming from a client kickbacks scheme.

Joseph Cotchett, who represented investors in the failed Lincoln Savings and Loan in the early 1990s, said loss recovery this time around will be "hugely difficult because of the roadblocks that the administration put in the way of lawsuits.

"This crisis came about because nobody was regulating," said Cotchett, of Cotchett Pitre & McCarthy LLP in Burlingame, California. "Isn't it amazing how all of the oversight (resulting from the dotcom bust) has dissipated and Wall Street just continued to run wild?"

Cotchett added, however, that the "greed of certain lawyers" played a role in "the closing of the courthouse doors" to investors.

NO VIABLE SOURCE OF RECOVERY