A recent New Jersey Law Journal story by Charles Toutant, “Judge Rejects Plaintiff Firms’ Demand for More Fees in Merck Securities MDL,” reports that a federal judge in Newark has dismissed a lawsuit from two law firms claiming they were shortchanged on fees after referring a plaintiff to the Vioxx securities multidistrict litigation that settled for $1.06 billion in 2015.  The Whitehead Law Firm of Lafayette, Louisiana, and Goforth Lewis & Sanford of Houston claimed they had a fee-sharing deal with New York’s Stull, Stull & Brody when the firms teamed up on securities litigation against Merck & Co.  But the court said such an agreement would violate New Jersey ethics rules, and that the plaintiffs failed to show any contract existed.

The Whitehead firm and Goforth Lewis filed suit in the Eastern District of Louisiana on behalf of a Merck & Co. shareholder named Frank Pringle in 2003.  They later teamed up with Jules Brody of the Stull law firm in New York, who filed a similar suit in the same venue.  Their cases were consolidated, and later made part of multidistrict litigation in New Jersey.  Stull, Stull & Brody later was one of four law firms named co-lead counsel in the Vioxx securities MDL.  After the $1.06 billion settlement was reached in 2015, the court awarded $212 million in attorney fees, including $31 million to the Stull law firm.  The Vioxx securities settlement followed a $4.85 billion settlement in 2007 on behalf of users of the drug who claimed they suffered heart damage.

The suit claimed that Merck officials falsely assured the public that Vioxx, a painkiller, was safe when they knew of evidence that long-term users had an increased risk of heart attack or stroke.  Merck’s stock price dropped 27 percent in one day after the company announced Vioxx was being taken off the market in September 2004.  Whitehead was awarded $550,000 in fees and Goforth Lewis $450,000 after the securities litigation was settled.  But the firms claimed they had an agreement granting each of them a referral fee of 14 percent of Stull, Stull & Brody’s gross fee, or $4.3 million each. Whitehead and Goforth Lewis further maintained that if the Stull law firm did not honor that agreement, they were each entitled to 25 percent of the $31 million, or $7.75 million each.

The Whitehead firm; its principal, C. Mark Whitehead III; and Goforth Lewis sued Stull, Stull & Brody in a Louisiana state court in November 2016.  Stull removed the case to federal court in the Eastern District of Louisiana and then had it transferred to the District of New Jersey.  U.S. District Judge Sara Vance, of the Eastern District, ruled that the legal representation at issue occurred primarily in New Jersey and therefore the contract was performed in New Jersey.  U.S. District Judge Stanley Chesler, in Newark, said the alleged fee-splitting agreement was unenforceable because it violated a provision in RPC 1.5(e) that the client must be notified of any fee division and consent to the participation of all the lawyers involved.

There was no indication Pringle was advised of the terms of the alleged fee-splitting deal, Chesler said in granting summary judgment to the Stull law firm.  “This is not surprising inasmuch as Plaintiffs are still asserting inconsistent versions of what the alleged deal was,” he said.  In addition, Chesler said the law firms failed to adequately demonstrate that an enforceable referral fee contract existed.  Whitehead states that his copy of the referral fee agreement was lost during Hurricane Katrina, while Goforth Lewis says a copy of the agreement cannot be found after the death of a partner in the firm who negotiated and kept possession of it.