Most Ridiculours Lawsuits: Botched Facebook IPO Spawns Botched Lawsuit With Wrong Plaintiff

The lawyers at Johnson & Weaver were lightning-quick to accuse Facebook and its underwriters of a multitude of errors after the social-networking giant’s botched initial public offering on May 18. Only there was a problem, a big one: The law firm apparently never had a client.

San Diego-based Johnson & Weaver supposedly found a plaintiff named Matthew Pilgram, fully investigated his claims and filed a lawsuit in San Mateo County Court in California on May 23, just three business days after Facebook went public.

In the 17-page complaint, attorney Frank Johnson accused Facebook, Mark Zuckerberg, Morgan Stanley and some 50 other defendants of making “materially false and/or misleading” filings in connection with the IPO. A collection of prominent class-action firms including Barrack Rodos & Bacine, Glancy Binkow and Wolf Haldenstein soon joined in the effort to represent the disgruntled investor.

After the case was removed to federal court Pilgram learned about it, and on Monday he sent an e-mail to the court saying “apparently a lawsuit has been filed on my behalf that I did not authorize.”

Attorneys contacted me regarding litigation after learning I had bought IPO shares. I discussed the potential case with them but never authorized them to file a lawsuit and cut off communications with them. Today, through a Google search I find they have filed a lawsuit.

What’s the penalty for filing a lawsuit based on the false premise that you have a client? Nothing, apparently. On Tuesday, Johnson quietly filed a dismissal of the Pilgram case, saying that “based upon a miscommunication with Plaintiff” (who in fact was not a plaintiff), “counsel hereby dismisses this action without prejudice.” He filed it “without prejudice,” meaning he reserved the right to revive the lawsuit with a different, and presumably real, plaintiff.

Johnson also offered to fall on his sword so that other lawyers could continue with the valuable work of getting to the bottom of the falsehoods and misstatements that led to such heavy losses for investors who are, as of today, down about 13% on Facebook stock.

My law firm was appointed co-lead counsel for the related cases in state court prior to removal. So that dismissal of this action and Plaintiff’s public communications do not become a distraction or unfairly prejudice the ongoing efforts by the plaintiffs and counsel in the related actions who are seeking proper remand of these actions, my law firm will request to withdraw as one of the co-lead counsel if and when the related actions are remanded.

This is hardly the first time that class-action lawyers have been caught with fake plaintiffs. Bill Lerach basically went to jail for paying people to serve as plaintiffs in his class actions, and I’ve detailed other such whoops! moments in class-action land here and here.

The problem, of course, is that class actions need a plaintiff to exist, but the lawyers who bring these cases often consider the client to be a mere vehicle for what is an extraordinarily lucrative way to earn fees. So it’s understandable, if not excusable, that in their haste to file these lawsuits they might sometimes make a mistake. It’s not like they’re going to get sued over it.

The reason this occurs is that the biggest law firms, like Barrack Rodos; Lerach’s old shop, Robbins Geller; and convicted felon Mel Weiss’s old firm, Milberg; preside over a rigidly hierarchical ecosystem where the smaller firms know they will almost always have to cede control of the big cases to them. The best way to insure a piece of the fees on a Facebook-class settlement is to get to the courthouse first and mount a credible threat that you won’t surrender your class action unless the big boys give you a piece of theirs.

This time, that gambit failed for Johnson & Weaver. I wasn’t able to raise them on the phone immediately after the filing but it will be interesting to see if they share in the ultimate fee split. With more than 20 cases jostling in courts around the country, the odds are good that plenty of firms will share in the booty.

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