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on behalf of shareholders for allegedly false statements the company made about Vioxx, a pain medication that was withdrawn from the market amid reports it caused heart problems.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.