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Archive: 2017

Fee Allocation Dispute Action Filed Against Milberg

March 27, 2017

A recent New Jersey Law Journal story by Charles Toutant, “Milberg Targeted in $10.6 Million Legal Fees Fight Linked to Merck Drug,” reports that a Louisiana law firm's seeking $10.6 million in legal fees from class action firm Milberg for securities litigation against Merck & Co. painkiller Vioxx was moved to the District of New Jersey.  Milberg, formerly known as Milberg Weiss Bershad & Schulman, is accused in the suit of underpaying law firm Kahn, Swick & Foti of Madisonville, Louisiana, which received $400,000 for its work on the Vioxx securities case.

Kahn Swick claims in the suit that its fees from the Vioxx securities case were reduced by strategic measures undertaken by Milberg as the firm and two of its principals were indicted in 2006 on charges of paying kickbacks to class action plaintiffs.  Milberg principals Steven Schulman and David Bershad were each sentenced to six months in prison in that case.

The Vioxx securities suit, filed in 2003, sought to recover damages on behalf of shareholders for allegedly false statements the company made about Vioxx, a pain medication that was withdrawn from the market amid reports it caused heart problems.  In June 2016, U.S. District Judge Stanley Chesler gave final approval to a settlement that included $830 million for class members and another $232 million in attorney fees and expenses.

The criminal indictment prompted challenges to Milberg's status as co-lead counsel in the Vioxx securities case, Kahn Swick said in its complaint.  Milberg retained Carella, Byrne, Cecchi, Olstein, Brody & Agnello of Roseland as local counsel, and consented to the appointment of two New York firms, Bern­stein Litowitz Berger & Grossman and Brower Piven, as co-lead counsel.  As a result, Kahn Swick saw its role in the case reduced.

Kahn Swick filed its fee suit in state court in the Parish of Orleans, Louisiana, before it was removed to federal court in the Eastern District of Louisiana and then to the District of New Jersey.  Milberg asserted in court papers that New Jersey is a suitable venue because a substantial portion of the events behind the claim occurred in that district.  Furthermore, an analysis of factors weighed in favor of transferring the case to New Jersey for the convenience of the parties and witnesses and in the interest of justice, the firm said.

The suit brings a petition for damages and seeks declaratory judgment and a preliminary and permanent injunction against Milberg.  Besides Milberg, the suit names Mark Whitehead III and the Whitehead Law Firm of Lafayette, Louisiana, as defendants. Whitehead and Milberg were co-liaison counsel in the Vioxx case in Louisiana state court.  Milberg claimed in its removal motion that Whitehead and his firm are fraudulently joined defendants because there is no reasonable basis to think the plaintiff will prevail against them.  Therefore, their citizenship must be ignored for removal purposes, Milberg claimed.

Milberg first approached Kahn Swick in 2003 and asked the firm to serve as its local counsel in Louisiana for Merck securities litigation, the suit claims.  The two firms entered into an oral agreement giving Kahn Swick 10 percent of Milberg's proceeds from the litigation, plus Kahn Swick's lodestar for its own work as liaison counsel.  The terms were placed in writing in 2005, according to Kahn Swick.

The Judicial Panel for Multidistrict Litigation transferred the Merck securities case to New Jersey for pretrial proceedings before U.S. District Judge Stanley Chesler.  After the settlement was reached, Special Master Layn Phillips was appointed to oversee the division of attorney fees.  Ultimately, Milberg was awarded $25 million.

Lewis Kahn of Kahn Swick said in a statement about the fee dispute, "We are pleased to be back in New Jersey, where we sought to have this contract dispute resolved initially through the court-ordered Special Master process, and look forward to moving forward to the merits of the case.  We believe our firm fulfilled our obligations under our written joint venture with Milberg and, notwithstanding Milberg's indictment and subsequent diminished role in the Merck litigation, believe that Milberg must honor this agreement."

Milberg, formerly known as a high-flying securities class action firm, was hurt badly by the 2008 financial crisis.  The firm notified the state of New York in late 2016 of its plans to lay off 32 employees by late December, according to a document filed with the state Department of Labor in September 2016.

NALFA Hosts CLE Program with Sitting Federal Judges

March 24, 2017

Today, NALFA hosted the CLE program “View From the Bench: Awarding Attorney Fees in Federal Litigation”.  This program featured a panel of sitting federal judges.  This is the third CLE program NALFA has hosted with an all-judicial panel of sitting federal judges. 

The U.S. District Court Judges, the Honorable Frederic Block, Senior Judge from the U.S. District Court for the Eastern District of New York and the Honorable David R. Herndon, District Judge from the U.S. District Court for the Southern District of Illinois, discussed a range of attorney fee and legal billing issues in federal litigation.  The panel addressed fee shifting cases, prevailing party issues, and fee calculation methods. The panel also took questions from the audience.

This live and remote CLE program was approved for CLE credit hours in California, Florida, Illinois, and Texas.  CLE credit hours are still pending in Ohio and Pennsylvania.  Over 75 attorneys from across the U.S. registered for this multi-state CLE program.  This 120-minute CLE program was recorded and is available for purchase on-demand.

$175M in Attorney Fees in $10B VW Settlement

March 22, 2017

A recent Courthouse News Services story by Nicholas Iovino, “Lawyers Share $175M Payday in VW Settlement,” reports that a federal judge awarded $175 million in attorneys’ fees and costs to lawyers that helped secure a $10 billion settlement in the Volkswagen diesel-gate scandal.

U.S. District Judge Charles Breyer approved the $10 billion package in October 2016 as part of a larger $15 billion deal, which included $4.7 billion in air quality improvement programs to mitigate the impact of cars that violated emissions standards.

The $15 billion deal was the most costly settlement Volkswagen has paid thus far for its use of emissions-cheating software in some 11 million cars worldwide.  The German automaker has paid more than $20 billion in U.S. civil settlements and criminal fines, and U.S. prosecutors have charged six of its executives over their roles in the scandal.

As part of the $15 billion deal approved last year, Volkswagen agreed to spend up to $10 billion buying back or modifying nearly 600,000 2-liter diesel engine vehicles tainted by defeat devices.  Defeat devices allowed the cars to mask emissions during tests while spewing up to 40 times more nitrogen oxide on the road than allowed under federal law.

Breyer found $167 million in attorneys’ fees and $8 million in costs requested by the plaintiff class lawyers was “reasonable and fair” given the “extraordinary result” achieved for the class.  The judge said the settlement put owners of affected vehicles back into the same position they were in before the scandal was made public in September 2015.  Volkswagen offered to buy back cars based on their pre-public scandal value or to repair them with EPA-approved emissions-reducing modifications.

Awarded attorneys’ fees make up 1.7 percent of the $10 billion settlement package.  The award will be shared among 21 law firms that made up the plaintiff class steering committee, headed by lead counsel Elizabeth Cabraser of Lief Cabraser Heimann & Bernstein.

The lawyers and their staff worked 98,000 hours litigating the case and negotiating the settlement.  They expect to spend an additional 21,00 hours processing claims over the next 26 months, according to Breyer’s March 17 ruling.

The average hourly rate for class attorneys’ work was $529, amounting to a $63.5 million lodestar, or total cost of litigation hours.  Breyer found applying a 2.63 multiplier to the lodestar was justified given “the complexities of this case and the extraordinary result achieved for the class.”

Lead attorney Elizabeth Cabraser said in an emailed statement, “The award will be allocated by lead counsel among firms who performed authorized common benefit work, based upon relative value of contributions to the case and time that was reported and complied with guidelines set forth by the Court.  These fees will not be deducted from any class member’s recovery amount.”

Judge Reduces Fee Request in Rita’s Water Ice Class Action

March 21, 2017

A recent Legal Intelligencer story by P.J. D’Annunzio, “Lawyers Want $1M Fee, Get $651K in Rita’s Class Action,” reports that the attorneys handling the Rita's Water Ice class action over the company sending unsolicited text messages asked for $1 million in fees, but a federal judge said that price is too steep.

On March 16, U.S. District Judge Timothy J. Savage of the Eastern District of Pennsylvania granted class counsel's request for $40,000 in expenses and $10,000 in incentive awards, but denied their request for $1 million in legal fees, instead awarding them $651,000.  That reduced fee represents roughly 22 percent of the litigation's settlement fund.

According to Savage's opinion, more than 110,300 people are eligible for a piece of the $3 million settlement fund, and of those noticed, roughly 25,500 filed valid claims.  "The amount each class-member claimant will receive is not significant, but rather modest," Savage said, and because there were more claimants than class counsel had anticipated, each would get less than previously thought.

"Counsel claim that they extracted the largest settlement possible for the class in light of Rita's ability to pay," Savage said.  "Yet, rather than adjust the attorney fees to increase the amount available to the class, counsel propose a lesser recovery for the class members."

The class action was filed in 2015 by Sherry Brown and Ericka Newby.  The two claimed that Rita's sent them "Cool Alerts" text messages announcing when certain water ice flavors and other products were available at local stores.  They alleged that the lists were generated using a database of telephone numbers that the owners did not provide to Rita's.  They also claimed that they kept receiving messages after texting "STOP" in response to the texts' instructions to stop receiving future notifications.

A settlement agreement was reached between the parties in March 2016 and was approved by the judge shortly thereafter. Brown and Newby received $5,000 each as class representatives.

Nortel Creditors Challenge $4M in Fees in Chapter 11 Case

March 20, 2017

A recent Law 360 story by Matt Chiappardi, “Nortel Creditors Seek $4M Cut to Indenture Trustee Fee Bid,” reports that two hedge funds that held senior notes issued by a Nortel Networks Inc. unit pushed the Delaware bankruptcy court to cut their indenture trustee’s roughly $8 million attorney fee request in half, arguing that Delaware Trust Co. didn’t properly discharge its duties.

During a daylong hearing in Wilmington, PointState Capital LP and Solus Alternative Asset Management LP argued that roughly $4 million of Delaware Trust’s fee request comes from work connected to the defunct telecom’s official committee of unsecured creditors, the massive allocation dispute to decide how to divide $7 billion in sale proceeds among Nortel’s global units, fighting to protect its legal fees, or other duplicative efforts, none of which benefited the noteholders directly.

The hedge funds argued that as an indenture trustee, Delaware Trust has a duty of undivided loyalty to its constituency, but didn’t manage its professionals in such a way that limited the scope of their work to tasks directly benefiting the noteholders, and is looking for an outsized fee that doesn’t comport with its role in the case.

Arguing for the hedge funds, attorney James C. Tecce of Quinn Emanuel Urquhart & Sullivan LLP stressed that the dispute was not about the “qualifications, caliber or integrity” of the counsel Delaware Trust retained, but how the trustee chose to utilize them and whether the fee request, some of which could be taken out of their recoveries, now pending is reasonable.

“This is not an objection we took lightly,” Tecce told U.S. Bankruptcy Judge Kevin Gross.  “The duty was not properly discharged … [professionals] were not managed in a way to avoid duplicating expenses.”  Delaware Trust countered that its fee bid was indeed reasonable, calling the Nortel case “unprecedented, complex and massive,” and arguing that it, and its predecessor Law Debenture Trust Co. of New York, “carried the torch” for the noteholders throughout the eight-year-long case.

Decisions about where to focus efforts were prudently made on a day-to-day basis throughout the case, and that work ultimately led to the noteholders receiving a full recovery on their roughly $300 million in claims, Delaware Trust attorney Daniel A. Lowenthal of Patterson Belknap Webb & Tyler LLP said in court.  “The irony is that now that they are receiving a 100 percent recovery, they now object to the amount of the work done,” Lowenthal said.  “These are the same holders who demanded we not sit on the sidelines.”

The issue stems from an objection the hedge funds lodged against Nortel’s Chapter 11 plan, which Judge Gross confirmed in January, not to the strategy itself, but to the fees, and how it plays out could have wide-reaching implications for indenture trustee fees in bankruptcy cases.

Indenture trustee attorney fees that are not covered by a debtor’s estate are typically paid by the noteholders or charged against their recoveries, but the hedge funds argue that the full amount of such costs are not reasonable when the indenture trustee is also working as a member of a statutory committee with different or overlapping constituents.

The hedge funds additionally argue that the indenture trustee is mischaracterizing its arguments, claiming that they object to its decision to sit on the unsecured creditors committee when they only take issue with charging fees for work there.  They also contend that the indenture trustee hadn’t kept the hedge fund in the loop about the expenses, only springing them at the end of an eight-year case.

Delaware Trust took issue with that argument, asserting that the noteholders were informed about the expenses at periodic intervals during the case.  Judge Gross did not rule, but did question whether the hedge funds were engaging in a “hindsight exercise.”  He said he would issue a decision in writing shortly.

The fee dispute is only one of several vestiges left hanging after Nortel came to a major peace deal that allowed for confirmation of a Chapter 11 plan earlier this year for a case that has been pending since 2009.  The major sticking point was how to divide more than $7 billion raised in asset sales, a good potion of it intellectual property transactions, among the various Nortel units around the globe, a dispute that was adjudicated through an unprecedented simultaneous cross-border trial in Delaware and Toronto in 2014.

Professional fees throughout the case have been estimated to exceed $2 billion, making it one of the most expensive Chapter 11 cases in history.  The case is In re: Nortel Networks Inc. et al., case number 1:09-bk-10138, in the U.S. Bankruptcy Court for the District of Delaware.