A recent Law 360 story by Celeste Bott, “Ill. Judge Needs More Info To OK $57M Chicken Antitrust Fee”, reports that an Illinois federal judge overseeing a sprawling antitrust litigation against broiler chicken producers said he couldn't rule on class counsel's renewed bid for a $57 million attorney fee award thrown out by the Seventh Circuit last year without more information on one of the firm's graduated fee arrangements in a similar 2015 antitrust case, which wasn't disclosed in the first go-around.

U.S. District Judge Thomas Durkin said during a remote hearing that he wanted more briefing from the both plaintiffs' firms — Hagens Berman Sobol Shapiro LLP and Cohen Milstein Sellers & Toll PLLC — and from class objector John Andren as to what effect the 2015 case has had in assessing the attorney fee award in the $181 million deal for chicken buyers.

In the earlier case, Cohen Milstein took on some of the nation's largest investment banks while representing the Public School Teachers' Pension and Retirement Fund of Chicago, a sophisticated plaintiff which negotiated attorney fees ex ante, or ahead of case resolution.

In that case, the plaintiff adopted a graduated scale.  If the same scale were to be used in the chicken case, class counsel estimated they would be entitled to $44 million for the $181 million settlement, or roughly 26%.  But the counsel argued they would have negotiated a higher rate in the broiler chicken case because it doesn't involve a trillion-dollar financial market.

Andren, meanwhile, said Judge Durkin should apply a similar fee schedule agreed to by Chicago Teachers, which entail fee brackets that decline both by the size of the settlement and by the stage of settlement.

"The latter is as important as the former, because sophisticated plaintiffs realize that trials are expensive and risky," Andren said in his opposition to the firms' renewed bid for a $57 million fee award in the chicken case.  "To align the incentives of class and counsel, attorneys need to receive a larger share of the recovery for more procedurally-advanced settlements and verdicts. This cannot occur when relatively early settlements are paid at 33%."  Judge Durkin also noted Tuesday that both are large, complex antitrust cases with many defendants and astronomical damages.  "There's enough similarities where I want to hear from both sides," he said.

The law firms, however, have contended "there is an ocean" between the size of the potential recovery, and potential fee awards, in both cases, and noted that in the chicken case, they represent indirect purchasers, which increases the risk relative to the banking cases.

"Indirect purchasers face defendant attacks that direct purchasers do not, and these attacks increase the chance of waking away with nothing.  And even though they take on this additional risk, the total damages indirect purchasers can recover based on state law claims is about half of what direct purchasers can recover for their federal claims," the firms said in a renewed fee motion filed in September 2023.

In that motion, they argued the court applied the correct methodology for determining fees the first time and came to the correct conclusion in awarding just over 33% of the settlement fund.  "Not only does the original award align with other awards in this specific case, it also aligns with the best available data on negotiated rates in antitrust cases," the class counsel said.  The fee award is back for reconsideration by Judge Durkin after the Seventh Circuit held last year that he failed to adequately consider bids made by class counsel in auctions in other cases and fee awards in different circuits.

Andren had taken issue with the roughly one-third cut of the settlement that Hagens Berman and Cohen Milstein were to receive in a deal the firms had struck with Fieldale Farms Corp., Peco Foods Inc., George's Inc., Tyson Foods Inc., Pilgrim's Pride Corp. and Mar-Jac Poultry.

Private plaintiffs began suing the nation's largest broiler-chicken producers in September 2016, claiming the producers coordinated and limited chicken production to raise prices and exchanged detailed information about capacity, sales volume and other data through statistical research compiler Agri Stats Inc.

The settlements at issue in this appeal were reached with Tyson for $99 million, Pilgrim's for $75.5 million, Peco for $1.9 million, George's for $1.9 million, Fieldale for $1.7 million and Mar-Jac for $1 million.  The agreements were awarded final approval by a district judge in December 2021.

A three-judge Seventh Circuit panel complimented the lower court in August 2023 for its "fine job of shepherding" the complex litigation, but said it made a mistake when it discounted bids made by one of the two firms serving as class counsel in other cases because the proposals had declining fee scale award structures.

Andren had also argued that the lower court should have taken into account that class counsel frequently did work in Ninth Circuit district courts, which employ a lower 25% "benchmark" for presumptively reasonable attorney fees.  The Seventh Circuit panel agreed the Illinois district judge shouldn't have categorically assigned less weight to Ninth Circuit cases in which counsel was awarded fees under a mega-fund rule.  In addition to vacating the fee award, the panel remanded the matter for "greater explanation and consideration" of the factors it laid out, noting it expressed no preference as to the amount or structure of the award, just the need for further review.

A recent Law 360 story by Jeff Montgomery, “Epic Tesla Fee Bid May Blaze Extraordinary Chancery Path”, reports that an unprecedented $5 billion-plus stock-based fee award sought by class attorneys who recently short-circuited Tesla CEO Elon Musk's 12-step, $51 billion compensation package has set up an equally unprecedented test for Delaware Court of Chancery fee guidelines and a potential award one law expert described as "dynastic wealth."

Class attorneys who have battled Tesla's compensation scheme for Musk since mid-2018 last week sought more than 11% of the 266,947,208 Tesla shares freed up Jan. 30, when Chancellor Kathaleen St. J. McCormick ordered rescission of the options that Tesla's board awarded to Musk in an all-stock compensation plan.  The value had been estimated initially at $5.6 billion, but would fluctuate with the value of Tesla's stock.

While the process of seeking a stock fee award instead of cash is not unprecedented, it is an unusual posture for Delaware Chancery litigation, and its scale is likely to reopen what were once considered settled questions over counsel risks, rewards, and just how much attorneys can command for corporate benefit fees, experts told Law360.

"Given the order of magnitude here, I suspect that the case will not set any records in terms of percentage of the recovery awarded to the plaintiffs attorneys, but in absolute terms it'll still amount to dynastic wealth," said University of Connecticut School of Law professor Minor Myers. He described the fee as "destined to be epic, if only because it involves the invalidation of a pay package that was itself comically large."

Chancellor McCormick put the fee in play with an order rescinding Musk's 12-tranche, all-stock compensation plan Jan. 30, after a week-long trial in November 2022.  The ruling cited disclosure failures, murky terms, conflicted director architects and Musk's own conflicted influence in Tesla's creation of an Everest-sized mount of fast-triggering stock options.

"Plaintiff won complete recission of the largest pay package ever issued," the fee motion, filed last week, said.  "Our research demonstrates that the court's decree of recission, conservatively valued, was the largest compensatory award in the history of American jurisprudence by multiples," driven by "the gargantuan size of the tort underlying this action."

But class attorneys are seeking an equally gargantuan fee, even after departing from calculation customs that Vice Chancellor J. Travis Laster stressed last year in declining to apply a size reduction to a nearly 27%, $267 million award to stockholders who challenged a Dell Technolgies stock swap in 2018.  In his fee ruling, the vice chancellor said the calls to reduce the Dell fee conflicted with court efforts to reward attorneys for going deeper into litigation and taking greater risks in pursuit of legitimate claims.

"Of course, everyone involved will try to fit this into an existing framework, but the reality is that a $5.6 billion fee award is staggeringly high, whatever factors are considered," said Lyman P.Q. Johnson, Robert O. Bentley professor of law, emeritus, at Washington and Lee School of Law.  "I think Chancellor McCormick will find a way to go a fair bit lower, while still providing the attorneys with a very high award of some amount."  Johnson added: "The shock of Musk's compensation, undone by the chancellor, is unlikely to be followed by what many would regard as a shockingly high $5.6 billion fee award."

Vice Chancellor Laster's most recent big fee ruling established, pending appeal, a $266.7 million fee last year for attorneys who secured a $1 billion settlement for minority stockholders who sued over a $23.9 million Dell Technologies stock swap in 2018.

In Dell, the vice chancellor rejected investor arguments that large "mega-fund" settlements justified throttling back on fee payouts because customary fee percentages can produce massive, windfall payouts.  Instead, Vice Chancellor Laster defended the use of customary, variable percentages, including 15% to 25% shares of awards for settlements after "meaningful litigation and motion practice" and up to 33% post-trial.  He also acknowledged the tension between successful plaintiffs' counsel seeking appropriate compensation and large investors working to minimize carve-outs from court awards.

In Tesla, class attorneys, wary of blowback over big recoveries borne of typical fee ratios, acknowledged the Dell ruling's guidance, but also pointed to an earlier ruling that produced the current largest court-approved fee, a $304 million award approved in 2011 by then-Chancellor Leo E. Strine and upheld by Delaware's Supreme Court a year later.

That decision required Grupo Mexico to return to Southern Peru Copper Corp. nearly $1.3 billion worth of Southern Peru stock — rather than cash — after finding that Southern Copper had been coerced by a conflicted, controlling stockholder into overpaying for a Grupo Mexico mine in 2005.  With pre- and post-judgment interest, the award reached more than $2 billion, with class attorneys awarded 15%, or $304 million, for fees and expenses.

Tesla class attorneys referenced the 15% fee carve-out approved in Southern Peru, but adjusted even that percentage downward — to just over 11% — to reflect value added by the absence of a holding period for any award of Tesla shares before they could be sold.  Case costs included more than $13.6 million in attorney fees and more than $1.1 million in expenses during the multi-year Chancery action.  Requested fees would equal a $288,888 hourly rate that the fee motion said was justified by the case's complexity, results and attorney skill levels, among other factors.

Jill E. Fisch, Saul A. Fox distinguished professor of business law at the University of Pennsylvania Carey Law School, said use of stock for attorney fees was once "kind of frowned upon," but is not unprecedented.  "They are repeat players" in Delaware's courts, Fisch said of the attorney teams that prevailed in the Tesla case.  "They want credibility before the court.  The numbers, I think, reflect the benefit and risk of this kind of litigation, and traditionally, Chancery Court has acknowledged those risks."

The suit, led by stockholder Richard Tornetta, branded Musk's compensation package as unprecedented and unfair, noting that Musk had already qualified for some $20 billion in awards by the time the suit was filed, "making him one of the richest men on Earth" at the time.  It alleged in part that he relied on two in-house Tesla attorneys for work on the plan before the board's conflicted compensation committee took up the issue.

Ann M. Lipton, the Michael M. Fleishman associate professor in business law and entrepreneurship at Tulane University Law School and associate dean, pointed to another Tesla- and Musk-related case to illustrate the risks stockholder attorneys take.

Last year, after about seven years of litigation, Delaware's Supreme Court upheld a post-trial dismissal of a suit filed by stockholders of rooftop solar venture SolarCity, seeking damages tied to Tesla's $2.6 billion purchase of the company, for which Musk was CEO and also held a big share of company stock.

At one point during the case, the SolarCity stockholders suggested a damage award amounting to a $13 billion giveback of Tesla stock Musk received for his SolarCity shares. Dismissal of the case and rejection of class claims, however, wiped out class attorneys' hopes for a share of a big award.

In the more-recent scuttling of Musk's Tesla stock awards, Lipton said, shareholders benefited from the stock award cancelations by being dramatically less diluted in their holdings.  "That the attorneys are asking for a little bit of dilution" through their fee, "but far less than the shareholders would otherwise have suffered, seems like a real benefit that was provided, from a financial point of view."

Lipton said she was not familiar enough with the current Tesla fee motion to comment on the percentage sought, but cited the enormous risk and stockholder counsel loss in SolarCity and said that "attorneys deserve to be compensated" when they prevail.

University of Michigan Law School professor Gabriel Rauterberg said the fee bid in Tesla appears excessive, despite the importance of fee as a motivator.  "It seems to me extremely implausible that an award this large is necessary to provide the right incentives, given that plaintiffs attorneys' fixed costs for investigating lawsuits, conducting research, and prosecuting cases can be significant but not on this scale," Rauterberg said.  "It seems like a windfall to me. You can give the attorneys a large award, while still falling short of billions."

Counsel for the Tesla stockholders have pointed out that Delaware's Supreme Court has in the past declined to replace the current fee approach with declining percentages.  "Under Delaware law, the unprecedented size of the benefit conferred does not alter plaintiff's counsel's entitlement to 33% of that benefit," attorneys for the Tesla stockholders wrote.  They also pointed to voluntary concessions reducing the total ask to around 11%, with features that reduce the cost to the company.

Some of the sting felt by Tesla, the brief indicated, could be taken away by federal tax law terms that will make 21% of the fee award cash tax-deductible, reducing the post-tax fee award cost from $5.63 billion to $4.45 billion.  State corporate income tax and payroll tax deductions and allowances also could offset the share payout.

UConn's Myers said the Tesla stockholder attorneys won a landmark victory and "deserve to be compensated handsomely" for taking a risky case through trial, while also predicting that the court will "take a hard look at the magnitude of the benefit actually achieved here — that may be a figure in some dispute."  The case nevertheless also stands as an example of "how the Delaware system effectively harnesses the efforts of folks like the plaintiffs attorneys to generate powerful incentives for good governance at public companies," Myers said.

A recent Law.com story by Abigail Adcox “ ‘D.C. Was Our Best-Performing Region’: Billing Rate Increases and Demand Growth Drive Strong Year in the Beltway”, reports that law firms based in Washington, D.C., finished out 2023 with a strong financial performance, propelled by billing rate increases, expense control and robust demand within regulatory and litigation practices, according to results from a bank survey.

Among D.C.-based firms, gross revenue was up 7.6% in 2023 over the previous year, higher than the industry average of 6%, as the average billing rates in the region rose 8.8% compared with the industry average of 8.3%, according to Wells Fargo’s Legal Specialty Group’s year-end survey results.  Those results included eight firms headquartered in the D.C. region.

“D.C. was our best-performing region,” said Owen Burman, senior consultant and managing director with the Wells Fargo Legal Specialty Group.  “When talking to firms to really find out what drove it, the regulatory side was on fire for so many firms. And litigation overall has been supporting many firms this past year.”  In average revenue growth, D.C. firms exceeded peers in New York City (7%), California (6.6%), Texas (6.3%), Florida (5.9%), Chicago (5.2%), Philadelphia (4.7%) and Atlanta (4.4%), according to Wells Fargo data.

“The practice mix was very much in favor of D.C.-headquartered firms” in 2023, Burman said, citing robust demand within restructuring, antitrust and litigation practices, as other firms saw the impact of slowdowns in the transactional market.  It follows a lackluster 2022 for D.C. firms, which “underperformed,” as anticipated enforcement activities under the Biden administration didn’t come to fruition as expected, according to Burman.

However, in 2023, as demand picked up within regulatory and litigation practices, D.C. firms were able to control expenses and were less aggressive in hiring, contributing to their revenue growth.  Profits per equity partner were up 10.7%, compared with the industry average of 4.9%.  The number of full-time equivalent lawyers at D.C. firms also grew by 2%, slightly below the industry average of 2.8%. However, productivity at D.C. firms was down 1%, still better than the industry average (down 2.1%).

Demand among all lawyers was also slightly better at D.C. firms (0.9%) than the industry average (0.7%), but fell short of peers in New York City, which saw a 2% increase in demand.

Controlling Expenses

Meanwhile, total expenses grew 4.1%, the best out of all eight regions tracked, and above the industry average of 6%.  “They were able to control the expense growth much better than peers,” Burman said.  “Last year they were able to control the lawyer compensation pressures a bit more than other markets.”

Billing rate increases were in large part able to compensate for increases in lawyer compensation at D.C. firms last year.  “All together the rate increases are covering it.  The problem is that they were hoping it would cover other investments and now they have to redirect that money into supporting the lawyer compensation,” said Burman, adding that artificial intelligence and innovation investments are other top priorities for firm expenses.

Because of these expenses and other priorities, in 2024, D.C.-based firms may see more expense pressure, and they may be more in line with the industry averages in expense growth, he said.  Still, entering the year, D.C. firms are “optimistic,” Burman added, expecting strong demand within litigation and regulatory practices to continue.  “Their growth estimates are quite optimistic,” Burman said.  “Litigation, restructuring practices are still quite strong.  So those haven’t tailed off as we’re anticipating this rebound in transactions.”

A recent Law 360 story by James Mills, “Ex-DraftKings Exec’s Attys Seek $310K For Court Pingpong”, reports that lawyers for a former DraftKings Inc. executive who recently defected to rival Fanatics are seeking more than $310,000 in attorney fees, arguing the amount is reasonable and would cover their work for two "objectively unreasonable" removals of the case to federal court by DraftKings, behavior they called "disturbing litigation conduct."

Michael Hermalyn, a former vice president of growth with Massachusetts-based online sports betting company DraftKings, has sued in California to void a noncompete clause in his contract to allow him to work for California-based sports betting company Fanatics VIP. California law does not recognize noncompete agreements.  However, DraftKings has twice in the past week removed the case from state court to federal court.

"DraftKings' successive, baseless removals constitute an abuse of process, undertaken for the improper purpose of preventing Mr. Hermalyn from seeking immediate relief in state court," reads the motion filed in federal court by attorneys with Munger Tolles & Olson LLP, representing Hermalyn.

"As of the filing of this brief, Mr. Hermalyn still has not had an opportunity to be heard on an application for emergency relief that he attempted to file over a week ago," the brief continues.  "Meanwhile, DraftKings' removals have achieved exactly what they were designed to do — hamstring Mr. Hermalyn while DraftKings raced to file its own lawsuit, and obtain its own temporary injunction, in another forum."  As a result of DraftKings removing the cases to federal court, Hermalyn's attorneys have had to scramble to respond, according to the motion.

They are asking for $193,326 in attorney fees for work connected to contesting the first removal — almost 150 hours spent by nine attorneys.  They are also seeking $117,278 in attorney fees for work connected to the second removal — over 90 hours spent by eight attorneys.  Hermalyn's attorneys are charging an average rate of $1,279 per hour, an amount the motion calls "squarely within the billing rates approved as reasonable by a number of Los Angeles courts."  The motion notes the average Los Angeles attorney fees have been over $1,000 an hour for a decade.

A recent Law.com story by Michael Mora, “Where Miami Ranks in States Litigators Charge Highest Attorney Fee Rates,” reports on NALFA's 2023 Litigation Hourly Rate Survey & Report.  The story reads:

The National Association of Legal Fee Analysis released new intelligence providing micro and macro data of hourly rate ranges for both defense and plaintiff lawyers, which one attorney-fees expert said is the confluence of the coronavirus pandemic changing the geography in which people are living and working and the emergence of Miami on the national scene.

And that expert, Edward Mullins, a partner at Reed Smith in Miami, is not involved in the study.  The Am Law 100 firm attorney said he was surprised by the portion of all rates in Miami being at 18% in the most expensive tier and suspected that it is due to the influx of major law firms entering into the market in the last few years.

“Many of the new lawyers coming in are working not on local work, but more likely are doing work that is based in other areas like New York or other areas from where they are emigrating,” Mullins said.  “These new lawyers are integrating their N.Y. rates into the market and increasing the rates, but I don’t think that the rates charged for local work are increasing at the same pace.”

The NALFA empirical survey and report provides that micro and macro data, which, in addition to ranging from defense and plaintiff attorneys, does so at various experience levels, from the largest law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  Over 24,800 qualified litigators participated in the survey.

Here, there are four categories: tier one, which ranges from $250 to $450; tier two, which runs from $451 to $700; tier three, which ranges from $701 to $950; and, tier four, which runs from $951 to over $1,300.

Nationally, Washington, DC, has the largest tier four percentage at 25%; then falling to a tie in second at 18% with Miami and New York.  For tier three, Washington has the highest percentage by far, at 51%; with San Francisco in second at 32%, and New York tied for third at 30% with multiple cities, including Boston and Los Angeles.

As for tier two, New Orleans and Las Vegas garnered the highest percentage at 44%; followed by Phoenix, Arizona, and San Francisco, at 43%; and, several cities fell closely behind, including Dallas and Denver with 42%.  And, for tier one, New Orleans has the most, standing at 39%, while Phoenix sits at 35% followed by Las Vegas at 33%.

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