February 5, 2019
A recent Law 360 story by Aaron Leibowitz, “Acacia Shareholders’ Attys End Up with $725K in Fee Fight,” reports that the attorneys who brought a derivative suit against Acacia Communications Inc. and its executives will receive $725,000 in fees and expenses in the litigation after reaching a compromise on the amount with the company, according to a Boston federal court order approving the deal. Lawyers for the suing shareholders and the fiber optics company reached the compromise before U.S. District Judge William G. Young could bring in a Harvard Law School scholar to testify, a step the judge said he was prepared to take at a December hearing about the fee dispute.
The shareholders initially requested $1.75 million in fees plus more than $30,000 in expenses, a figure that Acacia contended was outlandish. In putting forward that number, the shareholders' attorneys said the internal reforms proposed at Acacia in the settlement of the case, which involved insider trading allegations, would increase stockholder value. But Acacia pointed to a settlement in a similar case involving internal reforms in which the plaintiffs' team was awarded about $200,000.
Now, the two sides have reached a middle ground. "The parties have engaged in extensive arms-lengths negotiations, as per the court’s directive, on the attorneys’ fees and expense award and have reached an agreed fee award of $690,633 and an agreed expense award of $34,367," the shareholders' attorneys said in a proposed order. Judge Young accepted the order as it was proposed the next day.
The shareholders' attorneys had filed a declaration by Harvard Law School scholar Matthew D. Cain, estimating the internal reforms at Acacia would net between $68 million and $82 million for the company's shareholders. Judge Young said in December that he would like to hear from Cain in person as he took on the difficult task of determining a fee amount for a settlement that isn't monetary, but involves changes to the oversight of insider trading at Acacia.
"You say you are the catalyst that caused [these reforms] to be put in place," Judge Young said to the shareholders' attorneys at the December hearing. "How are you gonna value it?" The consolidated cases allege that Acacia executives and private equity backers obtained early releases from so-called lockup agreements, allowing them to sell off their shares two weeks before announcements from the company's two largest customers led to a significant drop in Acacia's stock price.
The settlement, which Judge Young approved in part in December while the fee dispute dragged on, mandates the creation of a trading compliance committee to oversee Acacia's insider trading policy, review requests to waive stock sale lockups and report quarterly to the company's audit committee, which will approve any waivers. Acacia also agreed to amend its insider trading policy to give the company the right to terminate employees and disgorge profits if the policy has been violated. And the board will be required to add a new independent director.
Geoffrey Johnson of Scott & Scott Attorneys at Law LLP -- co-lead counsel for the shareholders along with Robbins Arroyo LLP – said in December that finding the right fee amount is more art than science, but he said the Harvard expert used "very conservative assumptions" on how the reforms would boost Acacia's worth. The shareholders' attorneys said they expended nearly 1,690 hours on the case and used a multiplier of 1.72 to calculate the award.
Acacia countered by citing a settlement in a recent case involving internal reforms at Aveo Pharmaceuticals, in which the plaintiffs requested over $800,000 in attorneys' fees but were instead awarded about $200,000 by U.S. District Judge Denise J. Casper, also in Boston. "The requested fee here is just way too high," Daniel Halston of WilmerHale, representing Acacia, told the judge last month. "It's just out of bounds." In addition to the internal reforms and the fee award, the settlement provides $2,500 to each of the five shareholder plaintiffs who brought the case, to be pulled from the larger attorney fee pool.
The case is Tharp et al. v. Acacia Communications et al., case number 1:17-cv-11504, in the U.S. District Court for the District of Massachusetts.