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Category: Fee Reduction / Fee Denial

Court Ends Fee Dispute in Acacia Derivative Action

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.

Select Income REIT Challenges Fee Request in Merger Suit

January 30, 2019

A recent Law 360 story by Reenat Sinay, “REIT Fights Investor’s Attys’ Fee Bid Merger Suit,” reports that Select Income Real Estate Investment Trust hit back at an investor’s request for “an exorbitant $350,000” in attorneys’ fees in his putative class action over a proposed merger with Government Properties REIT, arguing in New York federal court that the shareholder’s counsel is not entitled to a fee award under federal law.  Select Income said Monteverde & Associates PC, which is representing lead plaintiff Jesse Chen, cannot collect attorneys’ fees because the Private Securities Litigation Reform Act (PSLRA) bars awards in cases where the class did not receive damages or a monetary settlement, such as this one.

Chen had alleged that Select Income violated federal securities laws by not disclosing “certain immaterial minutiae” in filings related to the proposed deal.  Chen’s suit was followed by a host of copycat lawsuits in which other minor shareholders accused Select Income of failing to disclose “superfluous details” surrounding the transaction, the trust said.  Select Income reached an agreement with the other plaintiffs and released supplemental information in December about its now-completed merger with Government Properties “solely to avoid any further nuisance, distraction and expense,” it said.  After those additional disclosures, Chen withdrew his motions for preliminary injunction and expedited discovery, according to the opposition.

“Crediting this litigation conduct would encourage meritless nuisance litigation and contravene the express goals of the PSLRA,” Select Income said.  “As a threshold matter, plaintiff’s fee petition should be denied outright pursuant to the PSLRA because plaintiff has conferred no monetary benefit on the putative class.”  Chen filed suit on Nov. 9, ahead of a planned Dec. 20 shareholder vote on the merger.  He alleged that the company’s October proxy statement was misleading because it lacked details about Select Income’s financial projections, the valuation analyses performed by UBS Securities LLC and any potential conflicts of interest faced by UBS, among other information.

The trust responded by accusing Chen of merely following a recent trend of investor suits over company mergers and of presenting no real allegations of unfairness, false statements or breach of fiduciary duties on the part of its board of trustees.  Select Income also accused Monteverde of developing a pattern of filing award-seeking “strike suits” in federal court after a recent wave of criticism of such suits in various state courts.

It opposed the “extravagant” fee requested by Chen on behalf of Monteverde, arguing that the calculation does not make sense and is not warranted by the settlement result.  “Plaintiff’s fee demand is based on a 3.16 lodestar multiplier, which implies an average hourly rate of $1,683.50,” the trust said.  “This should be a nonstarter.  The boilerplate nature of plaintiff’s disclosure claims and the lack of any appreciable contingency risk in this case justify, at most, a nominal fee award.”

Select Income also contended that the terms of the settlement with the other plaintiffs, in which extra merger details were divulged in return for dismissal of all claims, provided very little actual benefit to those shareholders and therefore would not justify such a large fee award.  “Even if the PSLRA did not bar the fee petition (and it does), plaintiff has failed to establish that he pled a meritorious claim or that the supplemental disclosures provided a substantial benefit to SIR’s former shareholders, as required for an award of fees under the pre-PSLRA case law on which plaintiff extensively relies,” the trust said.

The case is Chen v. Select Income REIT et al., case number 1:18-cv-10418, in the U.S. District Court for the Southern District of New York.

No Attorney Fees for Non-Class Counsel in VW Settlement

January 23, 2019

A recent Metropolitan News-Enterprise story, “No Fees for Non-Class Counsel in Volkswagen Settlement,” reports that the Ninth U.S. Circuit Court of Appeals yesterday rejected a bid by several law firms to claim attorneys’ fees in connection with the recent multi-billion dollar Volkswagen diesel vehicle class action settlement despite not being class counsel because the firms didn’t provide a compensable benefit to the class.

The opinion was written by Circuit Judge Milan D. Smith Jr. It affirms the denial by U.S. District Judge Charles R. Breyer of the Northern District of California of 244 separate attorneys fee applications in the multidistrict litigation (“MDL”), consolidating seventeen of the eighteen appeals from those fee motions (the eighteenth firm filed a notice of appeal but did not join either of the two briefs submitted on appeal).

The litigation against Volkswagen was sparked by accusations in a notice of violation (“NOV”) by the U.S. Environmental Protection Agency that the company had utilized a device designed to spoof emissions tests in 500,000 of its diesel vehicles.  Those accusations were prompted by a study commissioned by the California Air Resources Board to look into discrepancies between the emissions numbers of American and European models of certain vehicles.  Audi and Porsche, two German marques also owned by the Volkswagen Group, were also sued in the class action, which resulted in a settlement of more than $7 billion, as well as $175 million in class counsel fees, agreed to by the parties.

Breyer, responding to several motions for attorney fee liens from lawyers who were not class counsel, noted that the purpose of the settlement was to give class members opting into the agreement’s buyback program “sufficient cash to purchase a comparable replacement vehicle and thus facilitate[] removal of the polluting vehicles from the road.”

He continued: “An attorneys’ lien on a Class Member’s recovery frustrates this goal. By diverting a portion of Class Members’ compensation to private counsel, a lien reduces Class Members’ compensation and places them in a position where they must purchase another vehicle but lack the funds to do so.  Put another way, attorneys—notably, attorneys who did not have a hand in negotiating the Settlement—stand to profit while their clients are left with inadequate compensation.”

The judge enjoined state court proceedings related to any class member’s attorney’s lien on his or her recovery, but noted that some lawyers “may have provided Class Members with compensable services,” and implemented a procedure whereby such attorneys could apply for reimbursement.  That scheme resulted in the 244 applications for fees.

Nagel Rice LLP of New Jersey wrote the lead brief on appeal, joined by 15 other firms. They argued that the appeal presented “an issue of first impression in the Ninth Circuit: whether Independent Counsel who performed services and incurred costs in a multi-district litigation prior to the appointment of Lead Counsel are entitled to an award of fees and costs, or are only the firms appointed to leadership roles entitled to a fee award for services performed prior to their appointment.”  Smith responded: “In truth, however, the central issue before us is narrower: whether the district court abused its discretion when it denied Appellants’ motions for attorneys’ fees.”

The jurist noted that under Federal Rule of Civil Procedure 23, courts are permitted to award attorneys fees “authorized by law or by the parties’ agreement,” and that such awards are available even to non-class counsel in class actions.  Nevertheless, he said, a trial court must determine whether an attorney fee award is reasonable.  According to Nagel Rice, its commencement of hundreds of lawsuits against Volkswagen before the class action was commenced, its filing of discovery and other motions, and other research and communications benefitted the class.

Smith agreed with the plaintiffs in the case as to the pre-trial work done by Nagel Rice and its co-objectors, who noted on appeal that “even assuming these activities are all attributable to the Appellants, [they] fail to establish how, precisely, these activities benefitted the Class.”

He wrote: “Appellants may have filed complaints and conducted preliminary discovery and settlement work on behalf of their clients before consolidation of the MDL and appointment of Class Counsel, but they do not appear to have discovered grounds for suit outside of the information contained in the widely publicized NOVs, or otherwise provided guidance or insights that were later used in securing the Settlement.  In short, Appellants have not demonstrated that, in Plaintiffs’ words, ‘they engaged in serious settlement efforts, much less that any such efforts contributed to the class settlement framework that was ultimately reached, approved, and successfully implemented.’ ”

He also rejected the appellants’ claim that their work after class counsel was appointed, consisting largely of actions to “remain updated on the case,” helped the class, especially in light of a pretrial order stating: “Only Court-appointed Counsel and those attorneys working on assignments therefrom that require them to review, analyze, or summarize those filings or Orders in connection with their assignments are doing so for the common benefit.  All other counsel are reviewing those filings and Orders for their own benefit and that of their respective clients and such review will not be considered Common Benefit Work.”

Smith said: “We are sympathetic to Appellants, and have no doubt that many of them dutifully and conscientiously represented their clients. This is not necessarily a case where latecomers attempt to divide spoils that they did not procure. But Appellants’ efforts do not entitle them to compensation from the MDL, when the record indicates that they did not perform work that benefited the class, and that they neglected to follow the protocol mandated by the district court. We commend the district court’s efforts to successfully manage a massive and potentially ungainly MDL, and conclude that the court did not abuse its discretion when it determined that Appellants were not entitled to compensation.”

The opinion also rejects the attorneys’ contentions that Volkswagen had agreed to pay fees to them or that they were entitled to recovery on a theory of quantum meruit, which would itself require them to have benefitted the class by their work.  The case is Bishop, Heenan & Davies v. Volkswagen Group of America, No. 17-16020.

Chancery Court Trims Fees in Shareholder Merger Action

January 18, 2019

A recent Law 360 story by Vince Sullivan, “Chancery Trims Fee Award in Miramar Class Merger Challenge,” reports that a Delaware Chancery Court judge reduced an award of attorneys' fees requested by plaintiffs' counsel in a shareholder merger suit alleging conflict of interest against the directors of medical technology company Miramar Labs Inc. before approving a $410,000 cash settlement.  During a hearing in Wilmington, Chancellor Andre G. Bouchard said the Delaware Supreme Court had recently offered guidance on appropriate amounts to be awarded to attorneys when settling a lawsuit in the chancery court, saying that the 25 percent requested by attorneys for plaintiff Matthew Steve was too high based on the point in the proceedings when the settlement was reached.

"Twenty-five percent has really been recognized as the upper boundary when a case is settled before trial, but has been fully prepared for trial," Chancellor Bouchard said. "This is not that case."  While lauding the $410,000 cash settlement in the suit over Miramar’s acquisition by Sientra as a positive result in the case, the court noted that the settlement came before the defendant's motion to dismiss had been decided.  Chancellor Bouchard cut the fee award down from the requested 25 percent to a 20 percent portion of the settlement fund, or about $82,000 in fees and $14,000 in expenses.

Plaintiff attorney Juan E. Monteverde of Monteverde & Associates presented the settlement to the court, saying the proposal had gone out on notice to 1,200 shareholders and had not received any opposition.  "I am pleased to inform the court that he have not received a single objection to the settlement amount, the proposed attorneys' fees, the certification [of the class] or any other component," Monteverde said.

The settlement worked out to about 29 cents per share held by minority stockholders, he said, which would have been the same per share award of damages sought by the plaintiffs at trial.  The deal avoids the risk of litigation, where Monteverde said proving those damages would have been a difficult task.  "I don't think going to trial would have been in anyone's best interests," he said.  The settlement amount will be awarded to minority shareholders certified as members of the class who held shares at the time of the $20 million acquisition of Miramar by Sientra Inc. in 2017.  The $410,000 will be split pro rata among those stockholders and will awarded on top of the merger consideration already received.

Chancellor Bouchard approved the settlement itself, saying it was an easy call to make in this situation.  "I am satisfied this is a fair and reasonable settlement," he said.  "In fact, I think it's an excellent result."  But he cited recent guidance from the state's supreme court on attorneys' fees and incentive awards in giving greater scrutiny to the terms proposed in the stipulated settlement.  Specifically, he asked for more information from Monteverde about the participation of Steve, the named plaintiff in the case, to justify the requested $1,000 incentive award.

Monteverde said his client had spent at least 20 hours working directly with counsel on the complaint and on the valuation analysis conducted in advance of the settlement, working out to about $50 per hour for his efforts.  Chancellor Bouchard said he would approve the payment of the incentive award out of the attorneys' fees award, ruling that it was a modest request in this case.  The June 2017 merger agreement called for a base price of 31 cents per share, which could be increased to 33 cents or $1.02 if Miramar reaches certain sales milestones.  The total base price for the company is at least $20 million, going as high as $34 million if the highest sales target is hit.

The case is Matthew Steve v. Patrick F. Williams et al., case number 2017-0563, in the Court of Chancery of the State of Delaware.

Fee Expert John O’Connor Wins 60 Percent Fee Reduction in Federal Court

January 11, 2019

In a case in the U.S. District Court for the Central District of California, Jayantibhai Patel, et al. v. City of Long Beach et. al., NALFA member John D. O’Connor of O’Connor & Associates in San Francisco served as an expert witness on the reasonable of attorney fees on behalf of the non-prevailing party, the City of Long Beach.  Plaintiffs’ attorney Frank Weiser requested $344,000 in fees for prevailing in a claim against the City of Long Beach that its ordinance allowing unannounced inspection of hotel records amounted to an unreasonable search and seizure. 

Attorney fee expert John O’Connor recommended the fee request at $122,000.  The court ultimately awarded $143,880 in attorney fees, reducing plaintiffs’ fee request by 60 percent.  The court keyed in on several issues raised by O’Connor.  U.S. District Judge Andre Birottee cited John O’Connor’s expert declaration several times in the fee ruling.  On hourly rates, Judge Birotte, said, “The Court finds Mr. O’Connor analysis more compelling”. 

For more on John O’Connor, visit www.joclaw.com.