Judge Delays Preliminary Ruling On Proposed KPMG SettlementBy Jonathan Weil; Staff Reporter of THE WALL STREET JOURNAL
October 8, 2005; Page B6 A federal district judge in New Jersey declined to grant preliminary approval to a proposed $225 million settlement by KPMG LLP and the Sidley Austin Brown & Wood LLP law firm over past tax-shelter sales to hundreds of wealthy Americans. The postponement was unusual, because preliminary approvals by courts usually are routine affairs in class-action settlements, and because the dispute over the settlement's fairness pits some of the nation's highest-profile class-action firms against each other. At a hearing Friday, U.S. District Judge Dennis M. Cavanaugh of Newark said he wasn't yet comfortable with the proposed pact negotiated by the plaintiffs' law firm, Milberg Weiss Bershad & Schulman LLP, following objections by competing law firms. Those rival firms accused Milberg of ethical breaches and engaging in collusive settlement negotiations with the defendants. "I believe some issues have been raised that must be looked at, so I can feel more comfortable," Judge Cavanaugh said. "I am just not comfortable approving preliminarily the settlement at this time." He added that he was "not at all suggesting" that he would disapprove of the accord. The judge scheduled a full-day hearing on the issue for Oct. 28, at which lawyers who negotiated the KPMG settlement likely will be called to testify in open court. Milberg and the defendants denied the accusations by the objecting law firms -- including Bernstein Litowitz Berger & Grossmann LLP of New York, Cohen Milstein Hausfeld & Toll PLLC of New York, and Marino & Associates of Newark -- which represent other former KPMG tax-shelter clients pursuing their own litigation. The deferral means no formal notices of settlement will be sent, for the time being, to the 275 potential class members covered by the proposed accord. Under the deal, KPMG would pay about 80% of the settlement, and Milberg would receive as much as $30 million in fees. The allegations against Milberg and the defendants include a complaint by former Milberg client Mark Kottler that the firm failed to notify him for more than a year that it had begun confidential class-action settlement negotiations with KPMG, while at the same time representing him in his own separate tax-shelter lawsuit against KPMG. Mr. Kottler fired Milberg shortly after the firm in June filed the putative class-action suit against KPMG and Sidley Austin, and his lawyers have filed a motion to disqualify Milberg from representing the class of former KPMG clients. At the hearing, Milberg senior partner Melvyn Weiss denied his firm acted unethically and defended the settlement as fair, as did lawyers for KPMG and Sidley Austin. Milberg didn't dispute that it waited about a year before telling Mr. Kottler about the settlement talks. In a sworn affidavit to the court, another Milberg partner, Rachel Fleishman, wrote that she spoke with Mr. Kottler about the firm's lawsuit against KPMG and Sidley Austin, as well as the status of mediation discussions, shortly before Milberg filed the suit in June. As part of a separate, $456 million settlement agreement with the Justice Department in August, KPMG avoided federal prosecution but admitted criminal wrongdoing in connection with the same tax shelters at issue in the New Jersey lawsuit. A former Sidley Austin partner had written legal opinions supporting many of the shelters. |
