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Category: Fees & Corp. Bylaws

Cannabis Company Doubles Down on Attorney Fee Clawback

February 22, 2022

A recent Law 360 story by Sarah Javis, “MedMen Doubles Down on Clawback on Bid for Ex-CFO’s Fees” reports that Cannabis company MedMen has doubled down on its efforts to claw back $612,000 in legal fees it was ordered to pay its former chief financial officer in his unsuccessful suit against the company, accusing the former executive of trying to "slant the record and rewrite the jury's verdict."  MedMen argued in a filing in a California state court that it is entitled to recoup the legal fees it paid to former CFO James Parker because a jury found he "breached his May 2018 employment agreement, stole MME USA's highly valuable trade secrets, and violated his duty of loyalty to the company."

Parker had argued in a Feb. 10 opposition filing that the company can't recoup his legal fees because, among other things, a provision of his employment agreement indicates the company will pay up to $500,000 of his legal fees per year "regardless of the outcome of the dispute."  But that argument is irrelevant, the company argued, because Parker's breaches excused MedMen from its duty to pay his legal fees.  "Parker naturally would like to fixate myopically on that phrasing, but those words have no legal effect given his preceding material breaches of the agreement containing that provision," MedMen argued.

Parker sued MedMen in 2019, alleging breach of contract, promissory fraud, retaliation and wrongful discharge in violation of public policy, and a claim for promissory fraud against the company's founders, Adam Bierman and Andrew Modlin. MedMen, in turn, filed counterclaims against Parker for breach of contract, breach of fiduciary duty, breach of duty of loyalty, misappropriation of trade secrets and conversion.  A California state jury in Santa Monica found in November that MedMen did not constructively discharge or breach Parker's contract, awarding no money to him after he sought a payout of more than $24 million.

MedMen previously raised its arguments about Parker's legal fees in a January motion, in which it argued the court's previous order for it to pay the fees "expressly recognized that, if successful, [MedMen's] counterclaims and affirmative defenses might 'eventually unravel the advancement provision' in [Parker's] May 2018 employment agreement, but deemed that 'an issue for another day.'  That day has finally arrived."

The company has filed a memorandum of costs totaling more than $1 million, including the $612,000 in legal fees, as well as just over $143,000 in deposition costs, most of which Parker also contested.  Parker argued among other things last month that MedMen could not ask for costs incurred defending against his unsuccessful claim that he was fired in retaliation, because California state law requires such an award only if the claim was frivolous.

3 Law Firms Seek ‘Mootness Fees’ in Investor Suit

August 14, 2021

A recent Law 360 story by Rose Krebs, “3 Firms Seek Fee For Mooted ViacomCBS Board Suit in Del”, reports that Cooch & Taylor, Glancy Prongay & Murray, and Kranenburg have asked the Delaware Chancery Court award them $120,000 in attorneys' fees for an investor's suit dismissed earlier this year over a challenged bylaw as to how company directors can be removed.  In a stipulated agreement filed with Vice Chancellor Sam Glasscock III, Cooch & Taylor PA, Glancy Prongay & Murray LLP and Kranenburg, along with counsel for ViacomCBS and its directors, resolved the firms' bid for attorneys' fees and expenses now that the case has been dismissed after an action by the company's board mooted the underlying issue.

"The parties negotiated at arms' length and resolved Plaintiff's claim to entitlement to a mootness fee, with the company agreeing, in the exercise of business judgment, to pay $120,000 for any and all attorneys' fees and expenses" for the three firms, the stipulation said.  A notice that would be provided to the U.S. Securities and Exchange Commission, including a clause that the company has agreed to pay the fees and expenses, was attached to the filing.  The notice would be sent to the SEC once the court signs off an order finalizing the agreement.

The firms sought the fee in connection with a suit filed last year by stockholder Gerald Lovoi flagging a provision of the company's bylaws that gave directors the authority to remove other directors, contrary to Delaware law.  "Stockholders of a corporation organized and existing under Delaware law have the exclusive authority to remove directors," the lawsuit asserted.  Lovoi sought a declaration from that court "that the removal provision was invalid and sought attorneys' fees and expenses if the claim was successful," the suit said.

5 Law Firm Seek $44M in Attorney Fees in GCI Liberty Action

August 5, 2021

A recent Law 360 story by Rose Krebs, “5 Firms Seek $44M Atty Fees in GCI Liberty Suit in Chancery”, reports that five firms will seek $44 million in fees for their work in a suit filed over alleged fiduciary duty breaches in GCI Liberty Inc.'s sale to Liberty Broadband Corp., in what they assert is one of the most significant results ever achieved in any Delaware stockholder litigation.  In a brief filed to the Delaware Chancery Court, Bernstein Litowitz Berger & Grossmann LLP, Prickett Jones & Elliott PA, Kessler Topaz Meltzer & Check LLP, Klausner Kaufman Jensen & Levinson PA and Morris Kandinov LLP indicated that they intend to seek two separate fee awards of $22 million each.

In the filing, the firms said they are seeking a $22 million fee award related to an agreement reached in November that headed off a preliminary injunction fight over the sale, after the plaintiffs accused GCI Liberty's directors of violating Delaware corporation law that banned certain mergers involving controlling shareholders.

"This case highlights the worst inequities that a dual-class capital structure invites and the best results that strategically sound and effectively executed shareholder litigation can achieve," the brief said.  "Here, self-interested fiduciaries attempted to transfer substantial and valuable voting rights to themselves.  Plaintiffs and their counsel challenged the scheme, secured expedition over strident opposition, and, under extreme time pressure, assembled an evidentiary record that was so strong that defendants capitulated to avoid a pre-vote injunction hearing."

Under the agreement, GCI Liberty controlling stockholder John C. Malone and CEO Gregory B. Maffei gave up "massive benefits they extracted in connection with the stock-for-stock merger of GCI Liberty Inc. and Liberty Broadband Corporation," the brief said.  And they did so "without receiving any release from liability for additional harm arising from" their alleged misconduct, the firms said.

The agreement "caused the conversion of Malone's and Maffei's GCI super-voting shares (and options) into Broadband non-voting shares (and options)," the brief said.  As a result, Malone's and Maffei's voting power in the combined company was reduced from more than 60% to less than the 49% that they held in Broadband prior to the merger, the firms said.

"Plaintiffs believe that these are among the most significant – and valuable – non-monetary benefits ever achieved in Delaware stockholder litigation and warrant plaintiffs' requested fee," the brief asserted.  The firms said they will also seek another attorney fee award for negotiating a $110 million deal to end the litigation.  They will seek an award equal to 20% of the settlement amount and file a brief with the court in support of that request at a future date, according to the brief.

"The settlement does not reduce the benefits provided by the PI Stipulation [November agreement], which are continuing, permanent benefits for the equity holders of Broadband, including members of the Class," the firms said.  "Any award of attorneys' fees and expenses in connection with the [agreement] will not be paid out of the settlement fund while any award of attorneys' fees and expenses in connection with the $110 million settlement will be paid out of the settlement fund."

Quinn Emanuel Defends Billing Practices, Expenses

May 5, 2021

A recent Law 360 story by Rachel Schart, “MiMedx Slams Quinn Emanuel Fees As 2 Other Firms Settle,” reports that MiMedx has accused Quinn Emanuel of seeking unreasonable fees, including for lawyers' luxury hotel stays and fine dining, as part of the cost of defending two former company executives who were convicted of securities fraud.  The allegation, in court papers, comes after the life sciences company settled claims with two other law firms seeking payment of fees as part of the same dispute.

Quinn Emanuel Urquhart & Sullivan LLP, Freshfields Bruckhaus Deringer LLP and Kobre & Kim LLP initially filed suit in New York state court on April 15 alleging MiMedx Group Inc. shirked its obligations to indemnify the firms' clients, company President William Taylor and ex-CEO Parker "Pete" Petit.  Both men were sentenced to a year in prison in February after being convicted of one of two counts each at trial.

Freshfields and Kobre & Kim said in court filings that they had settled their claims against MiMedx.  Without disclosing the terms, the firms wrote in similar notices that their "claims in this proceeding do not make, and never were intended to make, a charge of deception against MiMedx or its general counsel, Butch Hulse, and that the filed action in this matter was a good faith fee dispute, which now has been swiftly and amicably resolved."

But Quinn Emanuel has yet to drop its claims in the lawsuit, and MiMedx took aim at the law firm in an answer filed in a related Florida state court legal fee dispute with the former executives.  In response to the men's counterclaims seeking additional fees to appeal their convictions, MiMedx accused Quinn Emanuel of overbilling Petit and Taylor and then unfairly attempting to collect from the company.

"Quinn Emanuel will have to explain its billing and expense practices," MiMedx wrote.  "These include staffing its trial team with over ten professionals, mostly from out-of-town despite having a large New York office within a few miles of the courthouse; staying in a luxury boutique hotel; having meals catered by a Michelin-starred chef (and supplementing them with separate orders of crab legs and sushi to boot); and charging MiMedx tens if not hundreds of thousands of dollars on a 'last-minute' motion to adjourn the trial that the court found 'border[ed] on the frivolous.'"

MiMedx said Quinn Emanuel has refused to provide it with invoices for its expenses in the case, and that it and the other criminal defense firms have already been paid more than $18 million for their work defending the former executives.  MiMedx's counsel told Law360 that the company has indemnified its former executives where required, but that the law firms can't force it to pay unwarranted fees.  "The company has been reasonable.  It paid pursuant to the indemnity," said Louis M. Solomon of Reed Smith LLP.  "It always reserved the right to make sure that the fees were reasonable, and even now with the convictions in place, we're not obliged to advance any more costs."

Quinn Emanuel's in-house counsel defended the firm's billing practices to Law360.  "Quinn Emanuel tried this case during the pandemic and achieved an acquittal for its client on the most serious count," Marc Greenwald, who is representing the law firm in the New York case, said.  "Quinn Emanuel expects to get paid at the rates that MiMedx agreed, and our work was outstanding.  All the charges were appropriate and reasonable."

MiMedx lodged its Florida state court claims against Petit and Taylor in January seeking permission to stop indemnifying the former executives upon sentencing, as well as reimbursement for millions of dollars in already paid fees.  Petit and Taylor fired back with counterclaims soon after they were sentenced, arguing in April that the company must continue indemnifying them in the upcoming appeal.  Quinn Emanuel, Freshfields and Kobre & Kim filed their separate New York state court suit in April, alleging that MiMedx has violated its contractual duty to pay Petit and Taylor's criminal defense costs.

Ex-Uber Official Seeks Coverage of Fees Under Corporate By-Laws

October 13, 2020

A recent Law 360 story by Rose Krebs, “Uber’s Ex-Security Chief Seeks Legal Fees For Breach Suit,” reports that Uber's ex-head of security filed suit in Delaware Chancery Court seeking to have the company pay his legal fees in connection with charges he faces for allegedly trying to cover up a cyberattack that exposed the data of 57 million riders and drivers.  Joseph Sullivan, who is also a former cybercrime prosecutor at the U.S. Department of Justice, says Uber Technologies Inc. should cover his legal fees per a "mandatory indemnification and advancement" provision of the ride-hailing company's bylaws.

"Uber granted its 'officers' mandatory advancement rights and yet is resisting those rights for its former chief security officer, Mr. Sullivan, who has been sued by the federal government by reason of the fact of his service to the company as an officer," the suit asserted.  In August, Sullivan was charged in California federal court with obstructing justice and concealing a felony for allegedly misleading the Federal Trade Commission about the 2016 incident, which included a $100,000 payoff he allegedly arranged from Uber to two hackers in exchange for keeping the episode quiet.

Uber initially referred to the payout internally as part of its "bug bounty" program, which incentivizes cybersecurity experts to report security flaws to the company.  But the $100,000 sum was 10 times the program's award cap at the time, and an Uber executive later admitted to Congress that the payoff was akin to extortion.  The payment and cover-up came at the same time as Uber was negotiating a settlement with the FTC over a similar 2014 incident in which hackers pilfered user data from one of Uber's Amazon cloud storage sites, according to another criminal complaint.

Sullivan, who was "visibly shaken" after hearing of the new breach, concealed the episode from both the FTC and Uber's attorneys who were negotiating with federal regulators, the DOJ asserts.  Sullivan told a co-worker at the time "that he could not believe they had let another breach happen and that the team had to make sure word of the breach did not get out," a witness told investigators, according to the California suit.

Sullivan is also accused of misleading Uber's new management team that took over in 2017, editing a summary of the incident prepared by his team to remove key details including that the hackers had stolen user data, court filings said.  The company's CEO, Dara Khosrowshahi, announced the data breach in November 2017, saying that Sullivan had been fired for not disclosing the incident sooner.  Since allegations in the California suit relate to his alleged conduct in connection with the 2016 breach and during his time as an Uber officer, Sullivan contends he is entitled to have the company advance his legal fees.