A recent Law 360 story by Daniel Connolh, “US Trustee Moves to Reverse ‘Tainted’ Jackson Walker Fees”, reports that, in the ethics fallout involving former U.S. Bankruptcy Judge David R. Jones of the Southern District of Texas and his undisclosed intimate relationship with a Jackson Walker LLP bankruptcy partner, the federal agency that oversees the bankruptcy court system filed multiple motions to strip millions of dollars in fee awards from the firm.  Writing that "all orders awarding fees and expenses are tainted and should be set aside," the U.S. Trustee's Office for the region that covers the Southern District filed motions to undo fee awards in at least 11 cases, including the bankruptcies of J.C. Penney Co. and Neiman Marcus.

The trustee, Kevin Epstein, cited Jones' cohabitation with Elizabeth Freeman, a former Jackson Walker bankruptcy partner who now leads her own small firm.  The relationship was recently revealed through litigation and media reports, and led to a formal ethics complaint filed Oct. 13 against Jones, who has resigned.  "Judge Jones' secret relationship with Ms. Freeman created an unlevel 'playing field' for every party in interest in every case Jackson Walker had before Judge Jones, including this one, and in Jackson Walker cases mediated by Judge Jones," Epstein wrote in Thursday's motion in the J.C. Penney case.

In the J.C. Penney bankruptcy alone, Judge Jones had signed orders compensating Jackson Walker for its work as debtor's local counsel and awarded about $14,000 in expenses and about $1.1 million in fees, including about $286,000 billed by Freeman, according to a summary compiled by the U.S. Trustee's Office.  The precise dollar amounts of all the proposed fee reversals weren't immediately clear, but one section of Epstein's motion describes the general scope.

"Judge Jones presided over at least 26 cases, and perhaps more, where he awarded Jackson Walker approximately $13 million in compensation and expenses while Ms. Freeman was both a Jackson Walker partner and living with him in an intimate relationship.  This includes approximately $1 million in fees billed by Ms. Freeman herself in 17 of those cases."  The U.S. Trustee's Office has filed proposed orders that call for the previous orders approving Jackson Walker's fees and expenses to be vacated.  If approved, parties would have 120 days to object to Jackson Walker's fees and expenses, and a hearing would take place.

The U.S. Trustee's Office has also moved to block a $1.3 million fee award to Jackson Walker in at least one case — the GWG Holdings Inc. bankruptcy — in which Judge Jones acted not as presiding judge, but as a mediator.  A recent document filed by the trustee highlights several other cases in which Judge Jones acted as mediator, rather than as judge.  Property records show that Judge Jones and Freeman had jointly owned a house in Houston since 2017. Earlier, Freeman had served as Judge Jones' law clerk.

In a previous interview, Wilkinson said the law firm first learned about a potential relationship between Freeman and Jones in March 2021, and took steps including consulting outside ethics counsel.  Wilkinson had forwarded an emailed statement: "Our firm acted in a timely fashion once we learned of this issue, including conducting a full inquiry and consulting independent outside ethics counsel for their guidance.  From the time we first learned of this allegation Ms. Freeman was instructed not to work or bill on any cases before Judge Jones.  We are confident that we acted responsibly."

The U.S. Trustee's recent filings say Jackson Walker didn't act responsibly.  "Notwithstanding Jackson Walker's admitted knowledge of the secret relationship between its partner, Ms. Freeman, and Judge Jones no later than March 2021, Jackson Walker never disclosed that relationship in any pending or subsequently filed case during the following 21 months while Ms. Freeman was a partner — or thereafter when she was working as a Jackson Walker contract attorney on bankruptcy cases after leaving Jackson Walker," Epstein wrote in the motion, which was signed by Millie Aponte Sall, assistant U.S. trustee.

And at least one court document suggests that Freeman was still indirectly participating in cases for Jackson Walker that were pending before Judge Jones after March 2021, by consulting with other attorneys.  A Fifth Circuit ethics complaint said that whether or not Freeman directly participated in a case before Judge Jones, she still stood to gain money.  The U.S. Trustee's Office has filed motions seeking to undo Jackson Walker's fees and expenses in the following cases, all in the U.S. Bankruptcy Court for the Southern District of Texas:

J.C. Penney Co. Inc., et al., case number 20-20184
Neiman Marcus Group Ltd. LLC, case number 20-32519
Westmoreland Coal Co. et al., case number 18-35672
Whiting Petroleum Corp., case number 20-32021
Stage Stores Inc., case number 20-32564
Chesapeake Energy Corp., case number 20-33233
Covia Holdings Corp., case number 20-33295
Tug Robert J. Bouchard Corp., case number 20-34758
Mule Sky LLC, case number 20-35561
Seadrill Partners LLC, case number 20-35740
Katerra Inc. et al., case number 21-31861

A recent Law 360 story by Jeff Montgomery, “Pentwater Appeals $267M Atty Fee Award in Dell Case in Del.”, reports that a private equity investor in Dell Technologies Inc. is appealing a Chancery Court's record $266.7 million fee award to class counsel that secured a $1 billion settlement for stockholders who sued over a $23.9 billion stock swap in 2018.  Pentwater Capital Management filed notice of appeal without a transcript late Friday with the Delaware Supreme Court, challenging both the attorney fee award and a $50,000 incentive award granted to Steamfitters Local 449 Pension Plan, the lead plaintiff for the suit filed in November 2018.

Vice Chancellor J. Travis Laster set the fee at $266.7 million on July 31, trimming a request of $285 million.  He said in his July 31 decision and order that eight funds that had invested in Dell but were not part of the class suit, recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

Pentwater — holder of 1.6% of the Dell Class V tracking stock at issue in the Chancery Court suit — branded the fee award as massive and a potentially "dangerous" precedent. In a Chancery Court brief opposing the fee, Pentwater argued that "the requested fee in absolute and percentage terms is disproportionate to the value conferred on class members."

Settlement of the overall case prevented a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMware, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class had argued, were shortchanged by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

When the challenged conversion closed on Dec. 28, 2018, VMware stock closed at $158.38 per share, and Class V stockholders received just $104.27 per share, fueling objections that the Dell Class C stock to be received for Class V shares had been overvalued.

In his fee opinion, the vice chancellor noted that class attorneys provided hundreds of examples of contingent fee agreements to support their original request for $285 million.  However, he noted, none of the objectors provided examples, except for Pentwater, and that example was "not for a Delaware case."  Vice Chancellor Laster also observed in his July 31 decision that investment funds that had recommended a lower amount, including Pentwater and seven others, had "a strong economic motivation for seeking a lower fee award."

The vice chancellor's decision elaborated on the idea that the investment funds that didn't go to the trouble of suing had a financial motivation now to object.  Following a 10% fee trend in federal securities actions, he noted, would have given them an extra $49 million for the equity holders, rather than sharing it with the class.  Five law professors suggested in a friend-of-the-court brief that a 15% fee would be appropriate, which still would have added $35.78 million to the objectors' recovery, the vice chancellor's decision noted.

"Having sat back and done nothing, the objectors now claim that a fee award without a sizable reduction would 'not yield equitable results,'" the vice chancellor wrote in an August filing confirming the $266.7 million fee award.  "That assertion masks self-interest with an appeal to equity.  Wanting more money for yourself is understandable, but it is not grounds for a fee objection."

A recent Bloomberg Law story by Bernie Pazanowski, “’Fitzpatrick Matrix Adopted for Setting DC Attorneys’ Fees Awards”, reports that a government employee in Washington, who settled a discrimination lawsuit against the federal agency for which she worked, is entitled to an award of $526,101 in attorneys’ fees, a federal court in Washington said.

The correct method for establishing prevailing market rates for attorneys’ fees in the Washington area is the Fitzpatrick Matrix, which lays out a “finely tuned rate schedule that lists a different market rate for each additional year of experience a lawyer brings instead of bundling experience levels into bands,” Judge James E. Boasberg of the US District Court for the District of Columbia said.

Cindy Brackett, who worked for the Federal Emergency Management Agency, said that the court should use the Legal Services Index Matrix to compute the fees, which is a general schedule of hourly fees based on years of attorney experience.  But Boasberg rejected that method, saying that there were problems with the age of the data it used, with the sample of federal litigators it used, and the way it groups attorneys into just five experience bands.

• District precedent established that the Fitzpatrick Matrix was more reliable than the LSI Matrix because it’s limited to the Washington market, Boasberg said
• Fitzpatrick also employed lessons from an economics rather than a legal textbook to blend data from the cases he reviewed into a linear model that reflects common economic practice, he said
• Computing the rates here, Boasberg noted that both parties caused delays in the case that started in 2017 and said that using the 2022 version of the Fitzpatrick Matrix was proper
• The final award included fees for the time Brackett’s attorneys spent litigating the fee dispute

A recent ABA Journal story by Debra Cassens Weiss, “Big Law Firm Partners Awarded Fraction of Their $1,500-Plus Hourly Legal Fees”, reports that two Gibson, Dunn & Crutcher partners usually bill more than $1,500 per hour, but they trimmed the amount to only $950 per hour in a request for an award of attorney fees following successful litigation in the Southern District of Florida.  Even that amount was too much for a federal judge, who adopted a magistrate judge’s conclusion that $700 was a reasonable hourly fee for partners in Miami, Reuters reports.

Gibson Dunn had successfully represented defendant Peak One Opportunity Fund in a lawsuit alleging that the lender harmed startup Social Life Network Inc. when it exercised an option to obtain stock at a discount and then resold it.  Gibson Dunn was entitled to fees and expenses under a contractual agreement between the two litigants. Gibson Dunn sought to recover more than $237,000.  Chief U.S. Magistrate Judge Edwin G. Torres recommended an award of nearly $158,000 in fees and expenses, a recommendation adopted by U.S. District Judge Darrin P. Gayles of Miami.

The award included only $700 per hour for the “high-level partner work” of Gibson Dunn partners Helgi Walker and Barry Goldsmith. Walker, co-chair of Gibson Dunn’s litigation practice, is based in Washington, D.C., while Goldsmith is in New York, Reuters reports.

Torres said he had no trouble understanding why Walker and Goldsmith charge more than $1,500 per hour for their services.  But when awarding fees to a prevailing party, “this court has long recognized that it cannot force the loser to pay for the luxury of unusually well-qualified counsel when the standard the court must apply is designed to ensure nothing more than competent legal representation,” Torres said, quoting from another decision.

Walker provided a statement to Reuters.  It is “not surprising that a national firm’s rates might be slightly reduced in a context where local market comparisons are being made,” she said.  “The headline here is that we were successful in getting our client awarded almost $150,000 in fees for the plaintiff’s inappropriate and meritless suit,” she said.

A recent Law 360 story by Jeff Montgomery, “Chancery’s Fee Ruling In Dell Is On The Money, Experts Say”, reports that the $266.7 million fee award Delaware's Chancery Court granted shareholder attorneys in the $1 billion Dell settlement represents a win for those seeking incentives for class counsel doggedness and a setback for corporate and institutional investors hoping to prune attorney fees after mega awards, experts told Law360.

In a 92-page decision, Vice Chancellor J. Travis Laster approved one of the largest fee awards of its type in Chancery Court history even though it was trimmed from the original request of $285 million.  His decision held to the Chancery Court's history of notching up fees for the plaintiffs' side when it's successful after pushing deep into the litigation and piling up risk.  The defense bar has routinely pushed the other way, arguing for adoption of approaches taken in federal securities actions that grant declining fee percentages as total awards grow.

Vice Chancellor Laster's opinion relied heavily on the Delaware Supreme Court's 2012 decision upholding a $304 million legal fee from a $2 billion Chancery award in Americas Mining Corp. v. Theriault, a case that went to trial.  The opinion "doubled down on that Americas Mining decision" and examined it extensively in the order, said Brian T. Fitzpatrick, the Milton R. Underwood chair in Free Enterprise at Vanderbilt Law School.  "And it doubles down on the notion that judges in Delaware are going to do what is best for class members," Fitzpatrick said.

In Americas Mining, stockholders sought damages after a 2004 deal that saw the company and its parent, Southern Copper Corp., agree to an overpriced, $3 billion acquisition of a Mexican mining company owned by Southern Copper's controller.  Then-Chancellor Leo E. Strine Jr. found in 2011 that the plaintiffs "indisputably prosecuted this action through trial and secured an immense economic benefit" for Southern Copper, while working on an entirely contingent basis for six years, facing "major league, first-rate legal talent" and grappling with complex financial and valuation issues.

In his decision this week after the Dell settlement, Vice Chancellor Laster said that the best scheme for compensating class attorneys working on a contingent fee remains the current standard, first paying out-of-pocket costs, then providing a fee based on a percentage of the net award and how far the case had progressed.  "This case involved true contingency risk. Plaintiff's counsel did not enter the case with a ready-made exit or obvious settlement opportunity.  There was a serious possibility that plaintiff's counsel would lose and receive nothing," the vice chancellor wrote.  That risk, the vice chancellor said, "supports a results-based award using the Americas Mining percentages.  No downward reduction is warranted under this factor."

At issue was Dell Technologies decision to issue a "tracking" stock after it went private in order to finance its acquisition of EMC Technologies.  The "Class V" shares were meant to follow the value of VMware Inc., in which Dell acquired a majority as a result of the EMC deal. In practice, the Class V shares traded at a steep discount, with shareholders alleging in Chancery that the 2018 swap short-changed them by about $34 per share.  The Dell settlement recovered 9.34% of the estimated potential $10.7 billion in damages that attorneys for the stockholders identified, the vice chancellor found, making it the 11th largest among cases studied as a percentage of maximum damages.

Minor Myers, a University of Connecticut School of Law professor, said the settlement was "garden variety" in every respect but its size and the opposition from some of Dell's big private investment funds.  "Presumably that's why these objecting funds are paying attention (most don't)," Myers said in an email to Law360.  "The fee request in this case was, if anything, modest in percentage terms, but of course it's gotten a lot of attention because it's a big number in the aggregate.

Myers said the opinion is in "the best tradition of Delaware's extraordinary sensitivity to incentives in confronting settlements in stockholder litigation.  When people do bad things out in the world, we rely, for better or worse, on plaintiffs' attorneys to do something about it.  They're the ones who generate results in class actions, on behalf of people who aren't usually paying attention."

Definitely paying attention were some private fund investors in Dell, who argued that the court would make a wrong turn if the award went forward as proposed.  "The enormity of plaintiff's counsel's $285 million fee application, both in absolute terms and as a proportion of the settlement fund, risks creating a dangerous precedent for Delaware courts," Pentwater Capital Management LP, holder of 1.6% of the Dell Class V tracking stock at issue in the case, said in a brief.  Pentwater was joined in its objection by other fund investors representing 24.6% of the stock. Vice Chancellor Laster acknowledged their arguments in his decision, but also pointed out their potential multimillion-dollar gain should the court prune the fee award and leave more in the settlement pool.

Jacqueline S. Vinaccia, a California attorney and member of the National Association of Legal Fee Analysis, said in a telephone interview that Vice Chancellor Laster supported his decision with an "incredibly detailed" analysis that addressed each of the objectors' points.  "All of the theories and different approaches to attorney fees that I have seen seem to have been referred to and analyzed in this case.  It's a really extensive and well-thought-out and supported opinion, which we don't often see in fee cases.  But then again, this is a billion-dollar settlement with a 26 and ⅔ percent fee award."  A group of law professors also backed a declining scale, saying a $150 million fee would be defensible while keeping $135 million more for stockholders.

Anthony A. Rickey of Margrave Law LLC, counsel to the five law professors who filed a friend of the court brief opposing the settlement and suggesting bringing Chancery Court litigation fees more in line with relatively lower payouts for large cases in U.S. District Court securities actions.  Rickey said a 15% fee would be more appropriate, providing a still-large $150 million fee while earmarking another $135 million for shareholders.  "There is a considerable amount of decreased risk after motions to dismiss," Rickey said in court papers, "even in Chancery practice."

In Dell, Vice Chancellor Laster rejected motions to toss the case in June 2020, but the battle and risks continued for another three-plus years before the settlement.  "Even where a plaintiffs' attorney has been dealt an especially strong hand, sometimes the cards aren't worth a dime if you don't lay them down on the settlement table," said Myers, the Connecticut professor.  "This opinion ensures that the incentives will be well-calibrated in the future to push attorneys to take good settlements but still make it worth it to decline bad settlements and push forward with the case."

Lawrence A. Hamermesh, professor emeritus at Widener University Delaware Law School, said the court was wrestling with the question of "What's a good approximation of what people bargaining at arm's length would do if one of them had a claim, went to a lawyer and said, 'I want you to prosecute this for us. I don't want to put up the money. You're going to take all the risk.'"  The issue becomes one of deciding when the recoveries are large, as in Dell, and whether throttling back on fees as the total rises discourages class attorneys from risking dismissal if they push past a $500 million offer and go for $1 billion.

"The government cannot do everything, and sometimes the government doesn't do anything.  If we didn't have private attorneys looking out for us, there would be more corporate misconduct in the world," Vanderbilt's Fitzpatrick said.  "This is not icing on the cake.  Private enforcement is the cake," Fitzpatrick said.  "And we need to make sure those lawyers have the right incentive.  Cutting their fee because they get more for you is not the right incentive."

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