A lawyer I know sent me the following email exchange relating to an interview for employment at a trusts & estates firm in Boston. I verified its authenticity from both ends of the exchange, but have taken pity on the law firm, and will withhold its name and that of its administrator. The exchange demonstrates the importance of examining email addresses closely for unexpected things like middle initials or appended numbers. (For ease of reading, I've rearranged the thread so you can read from top to bottom.)

From: [A.L.]
Date: February 14, 2007
Subject: Law clerk position
To: [Samuel F.]

Hi Sam,

I am in touch with you regarding your email to M[.] L[.] about employment with our firm. We are currently looking for a temporary law clerk.

I'd be happy to meet with you. Please let me know when you're available.

Thanks!

A[.] L[.]
Administrator
[Law Firm and address omitted]
Boston, MA 02108

From: Samuel F[.]
Date: Feb 20, 2007 6:25 PM
Subject: Re: Law clerk position
To: [A.L.]

Dear Ms. L.,
Your message was a pleasant surprise. Regrettably, I must decline. My schedule as a second-grader is quite hectic already. Moreover, I am very busy planning my eighth birthday party next month.
I will of course keep you in mind when I graduate from law school in 2024.

Yours,
Samuel F[.]

Yesterday I spoke to A.L., who said she'd meant to write to a different Samuel F.--a recent graduate of American University Law School who had submitted a resume to the firm--but had inadvertently omitted a character from the email address.
Since the Samuel F. who received the email also happens to be the son of a lawyer, I have my suspicions that his father may have lent him some assistance with his reply.

On Monday a judge ordered the removal of the nation's most prominent class action lawyer--Bill Lerach--and his firm as lead counsel from a high-profile shareholder suit against Halliburton (HAL).

Over Lerach's strenous objections, U.S. District Judge Barbara Lynn of Dallas granted the request of lead plaintiff Archdiocese of Milwaukee Supporting Fund to replace Lerach Coughlin Stoia Geller Rudman & Robbins with Boies Schiller & Flexner, the firm of renowned litigator David Boies. Representatives of the AMS Fund had cited Lerach's ongoing criminal investigation as an important factor among several that had led to the "deterioration" of its relationship with Lerach. (See earlier posts here, here, and here.)

(Judge Lynn also removed Lerach's co-lead counsel, Scott + Scott. Though the AMS Fund had originally asked Scott + Scott to help it seek Lerach's removal, the firm had refused and sided with Lerach instead. The AMS Fund then asked for Scott + Scott to be tossed, too.)

In removing Lerach Coughlin as lead counsel, Judge Lynn wrote, she was not intimating that Lerach or his firm had done "anything unethical, immoral, or otherwise improper." She was merely recognizing, rather, that the lead plaintiff AMS Fund's relationship with his firm was "no longer productive."

The ouster appears to represent the first express professional fallout that Lerach
or his firm have suffered as a result of the May 2006 indictment of a different class action firm, New York's Milberg Weiss Bershad & Schulman. Lerach co-ran the indicted firm's predecessor, Milberg Weiss Bershad Hynes & Lerach, until 2004, when he and Milberg Weiss's west coast office split away to form Lerach Coughlin. Since the indictment goes back about 25 years--it accuses Milberg Weiss of secretly paying plaintiffs and lying about in about 180 cases--most of the charges relate to the period when Lerach co-led the firm. (Both the Milberg Weiss indictment and a more recently filed related indictment allege actions by a "Partner B," who is widely believed to be Lerach.)

Bill Lerach did not immediately return a phone call or email seeking comment on the ruling.

Since its indictment, the Milberg Weiss firm itself has been denied or stripped of lead counsel status in certain cases, but has been allowed to attain or maintain that role in others. Some observers have suggested that Lerach Coughlin might be the ironic, unintended beneficiary of the Milberg Weiss indictment, because of lessened competition from the indicted firm. But Friday's ruling might foreshadow a rockier road ahead for Lerach Coughlin.

ADDENDUM: COMMENT FROM LERACH COUGHLIN, received today, Feb. 28, 2007.
Statement from name partner Darren Robbins

"AMSF's decision to switch counsel is a win for Halliburton, a win for Vice
President Dick Cheney and a loss for Halliburton shareholders. Based on
facts developed by Lerach Coughlin, it appears that Dick Cheney, Vice
President of the United States, was involved in some questionable activity
while serving as the CEO of Halliburton.

"Lerach Coughlin is the most successful securities litigation firm in the
country because it holds the most powerful institutions in society -- such
as the Vice President and Halliburton -- responsible for their misconduct
and accountable to shareholders. We appreciate the fact that the Court made
clear that the decision was not based on the conduct of the law firm but,
rather, on the right of a lead plaintiff to select and retain counsel of its
choice."

ADDENDUM2: COMMENT FROM NEIL ROTHSTEIN, SPECIAL COUNSEL TO THE AMS FUND, received today, March 23, 2007.

Dear Roger:

I have always heeded the words of the Honorable Melinda Harmon from the Enron Securities Litigation, "It is the competent lead plaintiff, not the lawyers, who directs and controls the litigation." Those words took on added meaning in the Archdiocese of Milwaukee Supporting Fund, Inc. et al, v. Halliburton Company, et al., N0. 3:02-cv-1152-M ("AMS Fund"). The Order and Opinion rendered by the Honorable Barbara M. G. Lynn was a wise and carefully worded six pages that brought life to Judge Harmon's admonition.

The AMS Fund was a lead plaintiff from the inception of this litigation. It was the only lead plaintiff to take its duties seriously. The Private Securities Litigation Reform Act of 1995 ("PSLRA") confers discretion upon courts to use common sense when choosing the most qualified lead plaintiff. The PSLRA was not intended to be a vehicle for pension funds to become career plaintiffs. The presumptive lead plaintiff is the plaintiff that has the largest interest in the case that is financial and concurrently, it must also adhere to the highest standards under Rule 23 of the Federal Rules of Civil Procedure. These standards have been proven to be more important than actual dollar loss when the lead plaintiff is appointed. This case is proof that the plaintiff with the largest actual dollar loss does not necessarily make the best advocate for the class.

The Lead Plaintiff expressed several reasons for moving for substitution of counsel. One was the AMS Fund's concern regarding the ongoing investigation of William S. Lerach. Next came the concern about Lerach's response to Judge Harmon's order in the Enron Securities Litigation, where the AMS Fund is a formal, certified representative plaintiff to the debt bondholders. When the court had ordered him to pay the fees and costs of counsel to one of the defendants, he bargained his obligation away in lieu of taking an appeal of that order. Then there was the attack on Vice President Cheney in William Greider's article in The Nation. It's easy to take on the Vice President when he is not named as a party in this case. During the time when he could have been named, Lerach's firm wanted nothing to do with the case.

It was Milberg, Weiss, Bershad, Hynes & Lerach, Lerach's firm of over 25 years that filed the first action and declined to name the Vice President in 2002. When another chance arose for Mr. Lerach to get involved in the case by offering his service, he again would not name the Vice President as a defendant. Darren Robbins, a friend, colleague and partner at Lerach Coughlin (and previously at predecessor firm Milberg Weiss) does both shareholders and the securities bar a great disservice by claiming that his firm is the only firm brave enough or powerful enough to take on Halliburton or Cheney. Cheney is not named as a defendant in the operative complaint and for a partner from the Lerach Coughlin firm to make statements in the media that this decision is a "win" for Halliburton and Cheney is not only misleading, but improper. If Lerach Coughlin were the type of firm that Robbins characterizes it to be, where were they for the first three years of the case and why did his firm, no matter what you call it, decline to get involved then?

A plaintiff has the unfettered right to pick and choose its counsel as long as that counsel is capable. When one of the trial attorneys is currently charged with ethical violations and another is faced with an ongoing investigation, it is prudent of the lead plaintiff to seek new counsel before these issues affect the case. With the best interests of the class in mind, the lead plaintiff sought and retained counsel that will be able to take on those who committed the alleged fraud.

I had left my firm to pursue other goals in my life and this turn of events that thrust this upon me came at a great risk to many in various ways. Fortunately, I had the skills and wherewithal to endure, and for that I give credit to my former mentor and legal scholar, William S. Lerach. My values stem from my family and late grandfather, attorney Benjamin Bancroft Goldman, a pioneer in establishing the rights of the mentally disabled. My deepest appreciation and gratitude, however, is to the fearless client, the AMS Fund, who had the independent courage to go where no man, woman or institutional investor had gone before. One lone voice can make a big difference as proven by the AMS Fund. No act of Congress is needed when a bold plaintiff and a wise jurist remember that their duty is to the class-not the lawyers.

Neil Rothstein
Special Counsel to the Lead Plaintiff
Truth in Corporate Justice LLC
Neil.rothstein@worldwidetree.org
800/610-4998

Whenever the U.S. Supreme Court sets aside a punitive damages award on constitutional grounds, I suppose it must be seen as a victory for business. Still, while the Court's 5-4 ruling today in Philip Morris v. Williams definitely qualifies--the Court set aside a $79.5 million punitive damage award that an Oregon state jury had tried to award the widow of one individual smoker--it's a narrow ruling and, frankly, a confusing one.

First, and importantly, here's what the ruling is not. It's not a strengthening or even broad reaffirmation of the principle, articulated by the Court in 2003 (in State Farm v. Campbell), that punitive damages awards should generally be no more than nine times the amount awarded in compensatory damages. In this case, plaintiff Mayola Williams, was suing for the death of her husband, Jesse, who started smoking in 1950 and died of lung cancer in 1997. The jury awarded $821,000 in compensatory damages (of which $21,000 were economic and $800,000 noneconomic). So the punitive award here was almost 100 times the compensatory award. Nevertheless, none of the five majority justices reached the question of whether the award was excessive for that reason alone, and all four of the dissenters seemed comfortable ruling that it wasn't, because of the egregiousness of the company's wrongdoing--deceitfulness about the health hazards of smoking--presented at trial.

Instead, the majority, in an opinion by Justice Stephen Breyer, struck down the punitive damages award on the grounds that the Oregon courts may have improperly allowed the jury to base its award on its desire to punish Philip Morris for harming "persons who are not before the court"--i.e., thousands of other Oregonian smokers--and not just the plaintiff's husband, Jesse Williams. Such an award for alleged harm to nonparties would unconstitutionally take Philip Morris's property without due process, Breyer wrote.

What makes the ruling confusing, though, is that the majority conceded--as did even Philip Morris!--that it was perfectly proper for the Oregon jury to take into account harm the company caused to people who were not before the court in the course of gauging the "reprehensibility" of Philip Morris's conduct, which is a proper factor to consider when setting a punitive damages award. So on the one hand a jury violates a defendant's due process rights if it inflicts punishment for harm caused to nonparties, but on the other it can properly take into account "that conduct that risks harm to many is likely more reprehensible than conduct that risks harm to only a few."

Get the difference? Neither do I. And neither did the dissenters. "This nuance eludes me," wrote Justice John Paul Stevens, while Justice Ruth Bader Ginsburg, writing for the three other dissenters, said the distinction "slips from my grasp."

The ruling sends the case back to the Oregon Supreme Court to determine what to do next, though Breyer's implication was that it should order a new trial on punitive damages, at which a new jury would be read a puzzling instruction embodying today's elusive holding.

One thing the ruling clearly does, however, is provide further proof that politically conservative justices are not necessarily pro-business justices. Today's weird split had Justices John Roberts, Samuel Alito, Anthony Kennedy, and David Souter joining Breyer in the majority, while Justices Clarence Thomas, Antonin Scalia, Stevens, and Ginsburg were all in dissent.

In fact, what might be the ruling's best news for the business community is that both of the newest justices--Chief Justice Roberts and Justice Alito--voted in the majority, for striking down the award. Since Justice Sandra Day O'Connor had been a strong advocate in favor of reining in punitive awards, there had been considerable interest in how the new Justices would come down on that question.

ADDENDUM
I had put calls into a few experts, but so far only one has been able to read the ruling and get back to me. Michael Lyle, the co-head of Weil Gotshal & Manges's product liability and mass torts practice group, appears to see the ruling as a more unambiguous victory for business defendants than I had. (Weil Gotshal also worked on an amicus brief for the Washington Legal Foundation, a conservative, pro-business group.) "This is an important confirmation of the Supreme Court's jurisprudence as it seeks to limit punitive damages," says Lyle. He sees the "reprehensibility" half of the ruling--the part that does let juries look at harm to nonparties--as relevant mainly to determining whether "this is the kind of conduct we want to punish. Does it pose grave risk? But in terms of the dollar amount of the award," he says, "you're limited to looking at particulars before the court: this case; this conduct; this plaintiff; this defendant."

Potentially devastating antitrust accusations against Intel (INTC) were buried inside a recently filed shareholder suit against Dell Inc. (DELL). Though the Wall Street Journal did write about the suit here, the allegations do not seem to have attracted much attention. Maybe the suit got overlooked because it was filed the same day Dell CEO Kevin Rollins quit, and founder/chairman Michael Dell retook the company's reins. Or maybe people are just understandably skeptical of naked accusations contained in shareholder suits brought by class-action impresario Bill Lerach. (See earlier feature or post on Lerach.)

Still, the charges Lerach leveled in federal court in Austin on January 31 are hard to ignore. For one thing, they are tantalizingly detailed--describing, for instance, the goings on at "weekly server group staff meetings" and "quarterly server group town hall meetings" at Dell--suggesting that a Dell insider might be cooperating with Lerach. In any case, if the claims turn out to be true, the Olympian reputations of Intel founder Andy Grove and Dell founder Dell could be due for some unflattering makeovers--like those endured by sluggers Mark McGwire and Barry Bonds after the BALCO steroid inquiry.

Lerach's suit alleges, among other things, that from at least 2003 to 2006 Dell received massive, undisclosed, end-of-quarter rebate payments from Intel in exchange for Dell's agreement not to ship any computers using microprocessors made by Advanced Micro Devices (AMD). The payments were allegedly never less than $100 million per quarter and, in at least one year, totaled about $1 billion. (During this period Dell represented about 20% of the worldwide market for the x86 processors both Intel and AMD made.) Intel forbade Dell from disclosing the payments, the complaint says, so as not to draw scrutiny from antitrust regulators. The payments were allegedly known to only about 15 top Dell officers, and were negotiated with personal involvement by Grove, Michael Dell, and Rollins. Since 1999, according to the complaint, Dell Computer would secretly design AMD-powered computers every year, but it would never ship them "due to the large sums of money the Company would lose from Intel for breaching the exclusive Dell/Intel processor relationship." These payments were allegedly in addition to, and nearly an order of magnitude larger than, the "market development funds" that Intel was known to be paying Dell and other customers under co-branding programs like "Intel Inside." Lerach's suit, which is brought on behalf of several institutional Dell shareholders, alleges only securities law violations, not antitrust claims, and names Intel and PriceWaterhouseCoopers (Dell's accountants) as co-defendants.

A Dell spokesperson declined comment on the suit. In a telephone interview, Intel spokesman Chuck Mulloy was extremely dismissive of it. "Our preliminary review suggests that much of it is largely made up," he says. "We plan to move very quickly to defend ourselves." He also stresses that neither the SEC nor Justice Department investigators have ever approached Intel in connection with their on-going probe of accounting issues at Dell, which started, according to Dell's disclosures, in August 2005. That SEC probe is thought to focus on possible earnings manipulation relating to the way Dell accounted for warranty revenue and expenses.

Still, Lerach's allegations have a ring of plausibility about them, in that nearly everyone in the industry has wondered why it took Dell until late 2006 to begin offering AMD-powered computers, when AMD's microprocessors were widely seen as having attained technological superiority over Intel's by early 2003. The complaint's accusations also raise eyebrows because they dovetail so explosively with allegations AMD made in a mammoth antitrust suit it filed against Intel in Delaware federal court in June 2005. (See "Intel's Worst Nightmare," here, about that case.) (About 80 antitrust class actions have subsequently been filed against Intel on behalf of consumers seeking treble damages from Intel for allegedly having paid inflated computer prices.)

The centerpiece of AMD's suit was the claim that Intel was paying so-called loyalty rebates to numerous major computer makers in exchange for varying degrees of exclusivity--80%, 90%, and, in some cases, 100%. In March 2005 the Japan Fair Trade Commission had found that Intel was, indeed, paying such rebates to five major Japanese computer makers (presumably Sony, Toshiba, NEC, Hitachi, and Fujitsu, though the companies are unnamed in the public version of the JFTC order) and that the rebates violated Japanese competition law. (Intel settled the JFTC matter shortly thereafter without admitting wrongdoing.) In its suit AMD alleges that Intel has been paying manufacturers so-called first-dollar rebates, meaning that at the end of the quarter, if the customer has achieved the level of exclusivity Intel seeks, it will get a retroactive discount on every Intel processor it purchased that quarter; if, on the other hand, it falls short, it gets nothing. Unlike conventional volume discounts--from which consumers can only benefit--many competition authorities believe loyalty rebates can become illegally coercive and exclusionary when offered by a dominant industry supplier. (Intel supplies about 80% of the worldwide market for x86 processors.)

Intel has so far insisted--notwithstanding the JFTC ruling--that it does not use such rebates. "We don't buy exclusivity," Intel general counsel Bruce Sewell told Fortune last fall, staking out the position his company still stands by. "We offer a discount program," he said then, "which is stepped at basically 20%, 40%, 60%, 80%. So if you buy below 20%, you get no discount. If you buy 20% to 40%, you get a discount, but it applies only to the units between 20% to 40%. . . . You don't have this dramatic incentive, where you get nothing below 90%, and everything above 90%. In our view, this is a very traditional discount that scales with volume."

CORRECTION: Earlier version incorrectly referred to Bobby Bonds, when I meant his son, Barry. Thanks to "Bob in St. Louis" for noticing.

Brocade's indicted ex-CEO Greg Reyes filed a nervy motion in federal court Monday whose fate could have an enormous impact on the 200 or so other public companies now under scrutiny for options backdating.

In it, Reyes asks that the fraud charges against him be dropped on the grounds that the backdating of which he stands accused had such a trivial impact on Brocade's financial statements that no reasonable investor would have paid it any mind when deciding whether to buy or sell a share of Brocade (BRCD) stock. The argument--that the backdating was not legally "material" to investors--is more persuasive than you might expect. You Apple (AAPL) investors out there, desperate to keep Steve Jobs out of harm's way from options-timing issues at Apple and Pixar, should certainly be cheering the motion on.

Written by Richard Marmaro of Skadden Arps Slate Meagher & Flom, Reyes's motion may be the most skillful formulation to date of the point-of-view--popular in Silicon Valley--which regards most options backdating as having been a victimless pecadillo that's been demonized by ex post facto moral indignation. It's unfair, we've been told, to look back at bubble-era conduct through our contemporary, SOX-colored glasses. But Marmaro goes beyond these mushy generalities, and scores some hard-headed points.

Marmaro is defending Reyes against both a federal criminal indictment and a civil SEC enforcement action. The motion was filed in the civil case, but its logic should impact the fraud charges in the criminal case, too, and the same judge is hearing both. (He's U.S. District Judge Charles Breyer in San Francisco; his brother Stephen sits on the U.S. Supreme Court.)

Of course, it's important to remember that even if the motion were have the greatest success conceivable--knocking out both the criminal and civil fraud charges--Reyes would still face remaining criminal and civil charges stemming from alleged books and records violations. Still, the most serious charges he faces are securities fraud counts (and mail fraud counts, too, on the criminal side), and those are what the motion takes aim at.

Reyes and Brocade's former human resources chief, Stephanie Jensen, have been charged with systematically backdating the options granted to scores of Brocade's employees and new hires from 2000 to 2004, and with falsifying board minutes, job offer letters, and other employment documents to make everything look copacetic. (Former CFO Antonio Canova is also charged in the SEC case.)

Marmaro's bold argument is this: Assuming, for the sake of argument, that Reyes did all that, investors could not have been defrauded because no reasonable investor at that time was paying any attention to the non-cash expenses the government claims Brocade should have been recording on its income statements.

"Investors deciding whether to purchase a technology growth stock like Brocade . . . analyzed revenues and revenue growth, cash flows, and cash operating expenses," Marmaro writes, all of which Brocade correctly reported. In fact, Wall Street analysts who covered these stocks routinely drew up "pro forma" income statements that intentionally excluded non-cash expenses because they were regarded as obscuring true operating performance, Marmaro continues. "The backdrop," he writes, was "a marketplace in which [employee stock option] expenses were widely regarded as having little or no relation to the economic value to employees of the [options] issued or the costs incurred by the companies issuing them." That was so, in part, because of the multiple uncertainties surrounding whether the options would ever vest and be exercised. In Brocade's case, for instance, 95% of the options at issue never vested, or were never exercised, or were cancelled, or expired underwater.

In a more unexpected argument-and a bit of a serpentine one-Marmaro also argues that, in essence, Brocade actually did disclose (in the notes to its financial statements) the impact options expensing would have had on its income statements, in case there were any investors out there who really cared. Here's what he means.

Prior to 2005, companies did not have to expense at-the-money options at all. However, since 1995 they were required, under Statement of Financial Accounting Standards No. 123, to lay out in the notes to the financials what the impact on revenues would have been if such options had been expensed. Most companies, including Brocade, used Black-Scholes calculations to comply with that rule. So if you go to Brocade's 10-Qs and 10-Ks for the relevant years, you'll see the impact options expensing would have had on its income statements.

Wait a minute, the reader may be saying. The Black-Scholes calculations of the at-the-money options Brocade claimed to be granting would not have generated the same numbers as Brocade should have been reporting had it properly expensed the in-the-money options it was really awarding. That's true. But, ironically, because the rules for expensing in-the-money options employed a different valuation technique (not Black-Scholes), the options expenses Brocade actually reported in the notes to its financial statements always showed a higher charge against earnings than the proper calculation would have! (I.e., a higher charge against earnings than the one that ultimately appeared in the restated financials after the backdating was discovered.)

Interesting. But will it fly legally?

I think Marmaro's motion goes far toward explaining what people in Silicon Valley have been trying to tell us when they've protested that there's something trumped up and ex post facto about the furor over backdating. At the same time, it's hard to believe Marmaro's arguments will really get anyone off the civil or criminal hook. Seems like reasonable investors might have attached material significance, for instance, to knowing that Brocade was routinely granting in-the-money options to its employees, if for no other reason that such options don't serve the incentivizing purposes that at-the-money options are supposed to. It's also just hard to believe that top corporate executives would have jumped through so many hoops to avoid having to disclose something, if they'd truly regarded it as immaterial to investors.

Sometimes legal arguments just seem too clever to win. I'm doubtful of this one.

What do people think?

COMMENT FROM RICHARD MARMARO: The only thing with which I disagree is your conclusion which I think trivializes a substantial argument supported by 3 expert opinions. Obviously you are entitled to your opinion, but your position did not seem to refute any of our experts' opinions. Thanks. Rich

Altria's spinoff of Kraft, announced two days ago, could not have occurred even two-and-a-half years ago. At that point, Altria's Philip Morris USA unit was still mired in three multi-billion-dollar appellate court battles, and a loss in any one of them could have left the company strapped, if not insolvent.

If you remember, in the Fall of 2004 Altria was asking the Florida Supreme Court not to reinstate a $145 billion judgment against the industry ($74 billion of it against PMUSA) in the Engle class-action in Florida; urging the Illinois Supreme Court to overturn a $10.1 billion judgment in the Price class-action in Illinois (over Lights cigarettes); and requesting a federal court of appeals in Washington, D.C., to nullify the government's attempt to impose $280 billion in disgorgement penalties in its civil RICO case against the major tobacco companies.

Altria's law department, led by associate general counsel Bill Ohlemeyer, pulled off the hat trick--essentially, it won all three appeals--and more. It also won a federal appeals court ruling in New York decertifying another potential game-ender: a nationwide punitive damages class action (the Simon case) that had been certified in federal court in Brooklyn. I poked fun at Ohlemeyer in a November 2004 Fortune article called "The Month of Living Dangerously," because I thought it unlikely he could achieve this clean sweep, but the joke was on me. (That now-embarrassing article is available here.)

To be sure, PMUSA still faces the challenge of several Lights cigarettes class actions around the country, and Altria faces the possibility that the plaintiffs in the Schwab class-action (a nationwide Lights cigarette class-action brought under the RICO statute) may yet even try to enjoin the Kraft spinoff before its targeted close on March 31. "We have contingency plans depending on what they announce," Schwab lead plaintiffs counsel Michael Hausfeld told me in December. "It would concern us if it may alter the responsibility of Philip Morris or make it more difficult, if not render impossible, its ability to pay any judgment."

But Altria chairman and CEO Louis Camilleri appears to have solid grounds for expressing confidence--as he did repeatedly to anxious analysts on January 31--that such an attempt, if made, would fail. To win such a challenge Hausman would have to argue that Altria is, in effect, already legally "insolvent" because of the liability it will eventually face due to the Schwab suit, and that the spinoff of Kraft therefore amounts to a fraudulent conveyance under the bankruptcy laws--i.e., an attempt to sneak assets out of the estate before they can be divvied up properly among creditors. That will be a tough sell given that Altria's balance sheet, even without Kraft, currently shows total assets of $48 billion, cash of $4.8 billion, and shareholder equity of $12.7 billion, according to Camilleri's presentation. (It's 2006 net income ex-Kraft was $9.3 billion.)

Does the spinoff say anything broader, however, about an improved litigation climate for business generally? Both The American Lawyer, in a story called "It's Over," and Business Week, in a story called "How Busines Trounced the Trial Lawyers," each had recent cover stories discussing the improved litigation environment for business in the mass torts arena. (AmLaw story available here; BW story here.) But attributing the Kraft spinoff to such a phenomenon would probably be pushing it.

Like every piece of journalism, including mine, the AmLaw and BW stories were more nuanced than their headlines. They focused mainly on important victories the Chamber of Commerce has won with respect to state tort reform legislation and the election of sympathetic justices to state supreme courts, primarily in Texas, Mississippi, and Alabama. These victories don't happen to have been the crucial ones for tobacco.

Tobacco's big landmark victories have been the Cipollone case in the U.S. Supreme Court in 1992, which limited failure-to-warn challenges after 1969, when Congress began requiring beefed up mandatory warnings on cigarette packs; the Rhone-Poulenc and Castano federal appellate rulings of 1995 and 1996, in which the federal courts signalled hostility to personal injury class-actions; and the U.S. Supreme Court ruling in State Farm v. Campbell in 2003, which said that, in all but extraordinary cases, punitive damages could not be greater than about nine times compensatory damages.

When combined with the industry's no-settlement litigation policy (excepting, of course, the massive $246 billion Medicaid reimbursement settlement worked out with the state attorneys generals in 1998), increased sophistication of the media and Wall Street (e.g., recognition that a $100 million jury award is very likely to be slashed on appeal), and, possibly, general judicial fatigue over tobacco litigation, the industry does seem to be operating now in a more predictable, business-as-usual environment than a decade ago.

Still, tobacco industry lawyers may yet understate the threat they face from the ongoing Lights class actions. Industry lawyers usually argue that courts have rejected class actions in tobacco cases, but in fact they have unambiguously rejected only class actions in personal injury cases. The Lights cases are typically brought as consumer class actions, which are fundamentally different, and the class certification rulings have gone both ways so far. The plaintiffs in these suits are not claiming that they were injured by cigarette smoking (inherently requiring an individualized inquiry), but merely that the advertising was misleading. Some state consumer protection laws are so broad that they adopt objective standards of misleadingness--i.e., they ask only whether a reasonable person would have been misled, not whether any individual plaintiff really was misled. Whether or not such laws are wise, they present questions that are unquestionably more plausible candidates for class treatment.

"Schwab will be cutting edge in the economic tort arena," says Hausfeld, noting that its implications will extend far beyond the tobacco industry. In fact, the degree to which class actions will be allowed in the realm of consumer class actions is clearly one of the most critical questions now confronting courts nationwide in the mass torts arena.