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Attorneys Decry “Irrational’ Fee Request in ICO Class Settlement

September 24, 2020 | Posted in : Contingency Fees / POF, Expenses / Costs, Fee Allocation / Fee Apportionment, Fee Award, Fee Dispute, Fee Entitlement / Recoverability, Fee Fund, Fee Request, Practice Area: Class Action / Mass Tort / MDL, Settlement Data / Terms

A recent Law 360 story by Emilie Ruscoe, “Attys Decry Co-Counsel’s ‘Irrational’ Fee Bid in ICO Suit,” reports that half of a co-lead counsel team cried foul play over the allegedly "irrational" disbursement of an $8.3 million counsel fee following settlement of an investors' securities offering fraud suit against Swiss blockchain company Tezos Stiftung.  In the motion for distribution of attorney fees, attorneys from Hung G. Ta Esq. PLLC, LTL Attorneys LLP, the Restis Law Firm PC and Lite DePalma Greenberg LLC — who are part of the counsel team for co-lead plaintiffs Pumaro LLC, Artiom Frunze, Hayden Hsiung and Gijs Matser — asked U.S. District Judge Richard Seeborg to order attorneys from Block & Leviton, another firm that's part of the legal team for the plaintiffs, to put funds back into the escrow account holding the $8.3 million that the plaintiffs' counsel team was awarded for their work on the case.

The HGT law counsel group also asked Judge Seeborg to order Block & Leviton to give HGT Law access to the escrow agent and to let HGT law "conduct an accounting of the escrow trust account."  They also asked the judge to officially state that HGT Law and associated firms are entitled to 57% of the attorney fees and Block & Leviton, Hagens Berman Sobol Shapiro LLP, Robbins Geller Rudman & Dowd LLP and Taylor-Copeland Law can have 43% of the sum.

The HGT counsel group also said if the judge preferred, he could just disqualify Block & Leviton from handling fee allocations and put HGT Law in charge instead, so they could dole out the money "fairly, reasonably and in good faith based on the law firms' relative contributions and benefits provided to the class."

Court records show that Judge Seeborg approved the multimillion-dollar counsel fee in August.  But "despite its best efforts, co-Lead counsel HGT Law has been unable to secure the agreement of the other court-appointed co-lead counsel, Block & Leviton LLP, to a fair, rational and good faith allocation of the fee award," HGT law said in a memo accompanying the motion.

"In fact, in complete disregard of its duties to its co-lead counsel, Block & Leviton has proceeded, without HGT Law's authority, to distribute attorneys' fees to itself and several other firms with which it is aligned," HGT Law added, telling Judge Seeborg shouldn't permit "such brazen misconduct."

The HGT firm claimed that its proposed fee percentages were "extremely generous to the firms in the Block group" because the much of the Block group's work on the matter was on a state court case that was "essentially a tagalong case that was duplicative of, and significantly trailed" the federal action.  Nonetheless, according to HGT Law, the Block group has "proceeded to unilaterally distribute fees" so that Block & Leviton and Hagens Berman receive 25% of the total fee and 50% of the fee goes to Robbins Geller.

"This proposal is irrational and unreasonable," the HGT group contended, suggesting that Block & Leviton was trying to "maintain good relations with Robbins Geller and ensure favorable treatment from Robbins Geller in other cases.'  Indeed, HGT said, the proposal was so irrational that "the court can infer the existence of an undisclosed side agreement," which would mean the members of the Block group had "violated numerous ethical duties and guidelines" in connection with the arrangement.

Records show the parties to the case reached a $25 million cash settlement agreement in March, ending claims the Tezos defendants held an unregistered securities offering in July 2017.  Alongside Tezos, the suit also names other defendants including Dynamic Ledger Solutions Inc., which owns the Tezos source code and Dynamic's founders Arthur and Kathleen Breitman.

The $8.3 million counsel fee comprised a third of the settlement fund, and the attorneys who worked on the case on behalf of the proposed investor class would also get $300,000 to cover their litigation costs, according to the settlement terms.