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May 1, 2000


The opinion of the court was delivered by: Whyte, District Judge.


The request of lead plaintiff to prohibit and remedy certain solicitation practices was heard by the court on March 31, 2000. The court has read the moving and responding papers and heard the argument of counsel.*fn1 For the reasons set forth below, the court enters an order regulating certain solicitation practices and remedying the effects of solicitations already sent to class members. The court also strikes three expert declarations proffered by the Much Shelist firm.


This is a putative securities class action alleging massive market losses based on revelations by defendant McKesson HBOC, Inc. that HBOC, one of its predecessor corporations, improperly recognized some 40 million dollars in revenues.


In November 1999, the court consolidated 53 class action complaints relating to the alleged accounting fraud at HBOC. In consolidating the class actions, the court expressly rejected the argument of numerous plaintiffs' attorneys that speculations about purported conflicts among class members militated against consolidation. In particular, the court declined to maintain separate actions for open-market (as opposed to exchange) purchasers or McKesson (as opposed to HBOC) shareholders. While recognizing that the possibility of conflict among class members might ultimately require appropriate steps at the class certification stage, the court held that such concerns were not implicated in the initial consolidation determination, which focused largely on the predominance of common questions of law and fact.

At the end of December 1999, the court appointed the New York State Common Retirement Fund as lead plaintiff in the consolidated class actions, based on its claimed damages of more than 50 million dollars, stemming from open-market and exchange purchases of both McKesson and HBOC stock. The court also approved lead plaintiff's selection of the Bernstein Litowitz and Barrack Rodos firms as lead counsel.

Meanwhile, two firms whose lead counsel bids had been rejected by the court initiated a solicitation campaign to recruit individual McKesson shareholders to assert non-class claims based on Section 14(a) of the Securities Act. This advertising campaign is the subject of the instant motion.


The solicitations in question were made jointly by the law firms of Milberg Weiss Bershad Hynes & Lerach LLP (Milberg Weiss) and Much Shelist Freed Denenberg Ament & Rubenstein, P.C. (Much Shelist).

The joint solicitations consisted of a massive mailing campaign and pages on the firms' World Wide Web sites. The solicitations are directed at persons who held McKesson shares in the fall of 1998, when McKesson management issued an allegedly false proxy statement endorsing a merger with HBOC. According to the solicitations, the court's previous consolidation order denied separate representation to such shareholders, who, the solicitations represented, had the most valuable claims against McKesson. The solicitations further argued that the court had "diluted" these claims by lumping them together with HBOC claims. The solicitations made no reference to the fact that lead plaintiff claims that it held more than 500,000 such "proxy" shares, in addition to various other holdings. Indeed, they made no reference whatsoever to the court's selection of a lead plaintiff or lead counsel.

The mailed solicitations, which were captioned "Notice of Opportunity to Join McKesson HBOC/Proxy/Breach of Fiduciary Duty Litigations" were distributed through a national mailing company to a number of brokers with instructions to "promptly forward" the "important shareholder notice" to persons who held McKesson stock on November 27, 1998. Only at the end does the mass mailing reveal: "This letter constitutes Attorney Solicitation/Advertising." The solicitation requested a reply by February 10, 2000, with no explanation of the importance of that date. (As far as the court is aware, the date was an arbitrary deadline.)

Enclosed with the mailing (and also available on various Internet web pages) were a one-page "Authorization To File McKesson HBOC Acquisition Claim" and a three-page "McKesson Master Retention Agreement," incorporated by reference into the one-page Authorization. The three-page Master Retention Agreement (but not the one-page "Authorization" that the client signs) informs the client that he or she is:

— agreeing "to abide by the decisions of the Steering Committee," a body appointed by the attorneys, which will consist of an unspecified number of other shareholder clients;
— authorizing his or her attorneys to "opt the Client out of any class action proceeding relating to the claims authorized herein"; and
— agreeing to pay costs to the attorneys out of any recovery obtained even if he or she terminates the representation for any reason.

There is no evidence as to the number of clients that Milberg Weiss and Much Shelist recruited through their marketing campaign.

Lead plaintiff has now moved to enjoin such solicitations, and to prohibit any contact by the soliciting attorneys with putative class members. In response, Milberg Weiss agreed to cease its solicitation efforts, leaving only the Much Shelist firm to defend against this motion for injunctive relief.*fn2


Rule 23(d) of the Federal Rules of Civil Procedure gives the court broad powers to make "appropriate orders" to ensure efficient and fair proceedings in a class action. Specifically, the court is authorized to enter orders

(2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and ...

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