(FORTUNE Magazine) – HOUSTON-BASED HALLIBURTON HAS spent much of the new millennium laboring to resolve a string of giant, self-inflicted headaches (see "The Truth About Halliburton," on fortune.com). But the company will likely soon face another migraine--class-action lawyer Bill Lerach, a CEO's worst nightmare.

In May 2003, Halliburton thought it had quickly put to rest a score of shareholder class-action lawsuits, and for an absolute pittance to boot: just $6 million. The oilfield-services giant had reached a tentative settlement with the lead plaintiff in its shareholder litigation, which had been filed just months earlier in Dallas after asbestos woes and news of an SEC fraud investigation had sent the company's shares plummeting. When the two sides reach a deal in such cases, swift court approval usually follows.

But not this time. Instead of going along, one of the other institutional investors in the suit, the Archdiocese of Milwaukee Supporting Fund, decided to fight, complaining the case had been settled far too cheaply, after too little effort and consultation. Its lawyers filed new court pleadings alleging a fresh array of accounting deceits and casting Dave Lesar, now Halliburton's CEO, in the role of the scheme's "mastermind." The damages expert for the archdiocese placed investors' proper recovery at between $799 million and $4 billion.

Not surprisingly, Halliburton yelped, calling the new allegations a "smear," a publicity stunt, and an attempt to "extort money." In June 2004, the presiding federal judge had granted preliminary approval for the settlement. But before the agreement could be finalized, the judge withdrew from the case, disclosing that he had purchased Halliburton shares for his two children. He was replaced by a new judge, Barbara Lynn--who, surprisingly, in September sided with the archdiocese.

In rejecting the settlement, Lynn noted that after attorneys' fees and expenses, it would leave less than $3 million, giving an investor with 100 shares as little as $1.24. After a court-ordered mediation attempt failed, the original plaintiffs lawyers took the humiliating step of asking to withdraw--and Lerach, the hyperaggressive lead partner in a San Diego plaintiffs firm, is now petitioning to take over as co-lead counsel, a matter which will be decided in late April. If history is any indication, Lerach will put the company through the wringer before a new settlement is eventually reached--at a considerably richer price. -- Peter Elkind