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Category: Hours Billled

Second $185M Attorney Fee Request Called ‘Indefensible’

March 6, 2024

A recent Law 360 story by Jack Karp, “Quinn Emanuel’s 2nd $185M Fee Bid Blasted as ‘Indefensible’”, reports that Quinn Emanuel Urquhart & Sullivan LLP's second attempt to win $185 million in attorney fees in $3.7 billion litigation over the Affordable Care Act still fails to justify the "indefensible" amount and barely pays "lip service" to a reevaluation ordered by the Federal Circuit, health insurers told the federal claims court.

The Federal Circuit already wiped out the $185 million attorney fee that the U.S. Court of Federal Claims awarded to Quinn Emanuel and directed the claims court to reexamine objecting class members' insistence that the firm hadn't justified its fee request, Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. said.

"Despite this clear direction, class counsel's second petition again fails to justify its lodestar and again seeks to avoid a lodestar cross-check.  It instead asks the court to rubberstamp the same $185 million award," the health insurers said in their opposition to the firm's latest motion for approval of its fee request.

That motion for approval fails to support the 10,000 hours Quinn Emanuel says it spent on the case, suggests that the firm double-counted hours by including time spent on a separate multibillion-dollar class, and tries to skew its rates higher by seeking 2023 rates, even though its first fee petition was filed in 2020, according to the insurers.

"Trying to reverse-engineer defenses for its indefensible fee demand, class counsel uses inflated and unproven hours, multiplies those alleged hours by unprecedented rates, and then proposes a multiplier that is miles outside accepted norms.  That is akin to applying no cross-check at all," the insurers said.

Quinn Emanuel and a group of healthcare plan insurers the firm represents have insisted the firm used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But objectors Kaiser Foundation, UnitedHealthcare and others have argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

A Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, in 2021 finding that a lodestar cross-check was unnecessary.  But that conclusion "was legal error," according to the Federal Circuit, which vacated the award in 2023.

That $185 million amount was inconsistent with promises made in class opt-in notices, and the "extraordinarily high award" wasn't justified, the three-judge panel ruled, ordering the fees to be recalculated.  But Quinn Emanuel's renewed request for $185 million "does little more than pay lip service" to the Federal Circuit's order, according to the insurers.

While the insurers still think their original $8.8 million fee request is reasonable, they are willing to agree to a fee award between $11.77 million and $23.14 million in "the interest of finality," they told the claims court.  "[T]he objectors sincerely want class counsel to be handsomely rewarded.  $11.77 [million] to $23.14 million represents an incredibly large fee award that also fulfills class counsel's promise of a lodestar cross-check," the insurers said.

Attorney Fees as Stock Options in Tesla Case?

March 4, 2024

A recent Law 360 story by Lauren Berg, “Tesla Stock for Fees? Attys Who Got Musk’s Pay Cut Say Yes”, reports that the lawyers who convinced the Delaware Chancery Court to scuttle Elon Musk's proposed $55 billion Tesla compensation package filed a request for legal fees that came with a twist — they want to be paid in Tesla stock that rounds out to about $5.6 billion.

The attorneys from Bernstein Litowitz Berger & Grossmann LLP, Friedman Oster & Tejtel PLLC and Andrews & Springer LLC, who represent the shareholders who in November 2018 challenged Musk's pay package as unfair, asked for more than 29 million Tesla shares and an additional $1 million to cover their litigation expenses, according to the motion.

They are seeking about 11% of the 267 million shares they say are now available for Tesla's use as a result of Chancellor Kathaleen St. J. McCormick's decision in January striking down Musk's 10-year compensation plan, the motion states.  She found that disclosure failures, murky terms, conflicted director architects and Musk's own hand on the tiller warranted an order to roll back the award.

"Rather than debate the value conferred to Tesla by canceling the options or the value of the underlying stock returned to the Tesla treasury free of restriction, plaintiff's counsel instead seeks a fee award in kind — a percentage of the shares returned for unrestricted use by Tesla (rather than cash)," the lawyers said.  "In other words, we are prepared to 'eat our cooking.'"

"This structure has the benefit of linking the award directly to the benefit created and avoids taking even one cent from the Tesla balance sheet to pay fees," they added. "It is also tax-deductible by Tesla."  The plan went to a week-long trial in November 2022 after it was challenged by stockholders led by plaintiff Richard J. Tornetta.  The compensation scheme included 12 tranches or performance milestones that Musk had to meet before qualifying for a portion of the total, once estimated at as much as $56 billion.

In her order squashing the plan, Chancellor McCormick found that "Musk dictated the timing of the process, making last-minute changes to the timeline or altering substantive terms immediately prior to six out of the ten board or compensation committee meetings during which the plan was discussed."  Although the defendants argued that Musk was "uniquely motivated by ambitious goals," with Tesla desperately needing him to succeed, the opinion observed, "these facts do not justify the largest compensation plan in the history of public markets."

The price was no better than the process, the chancellor concluded, observing that "Musk owned 21.9% of Tesla when the board approved his compensation plan.  This ownership stake gave him every incentive to push Tesla to levels of transformative growth — Musk stood to gain over $10 billion for every $50 billion in market capitalization increase."

In their motion for attorney fees, the shareholders' attorneys from the three firms said they collectively logged nearly 19,500 hours throughout the case, which came out to about $13.6 million in lodestar, as well as $1.1 million in out-of-pocket expenses.  And although a typical attorney fee request seeks about one-third of a settlement or verdict won in favor of their client, in this case, the attorneys said they are asking for a conservative 11% of the recovery.

"We recognize that the requested fee is unprecedented in terms of absolute size," the attorneys said.  "Of course, that is because our law rewards counsel's efforts undertaken on a fully contingent basis that, through full adjudication, produce enormous benefits to the company and subject the lawyers to significant risk."

"And here, the size of the requested award is great because the value of the benefit to Tesla that plaintiff's counsel achieved was massive," they added.  And this isn't the first time a court has awarded plaintiffs a fee of recovered shares, according to the motion.  The attorneys point to the 2000 case Sanders v. Wang, in which the Chancery Court granted plaintiffs judgment on the pleadings over the improper issuance of 4.5 million shares, approved a settlement and then awarded the plaintiffs a fee comprising 20%, or 900,000, of the 4.5 million recovered shares.

Overall, the attorneys said their fee request is supported by their history as experienced stockholder advocates, the substantial effort they put forth, the complexity of the case, and the "unprecedented result" they achieved in this case.

Beating RICO Case Merits $1.6M in Attorney Fees

February 29, 2024

A recent Law 360 story by Andrew Karpan, “Sales Rep Score $1.6M in Fees After Beating RICO Case”, reports that a federal judge in Los Angeles has ordered a biotech startup to pay more than $1.6 million in legal fees to two former employees, after the company failed to convince a jury that the pair broke racketeering laws when they worked for a rival that stole proprietary information when setting up shop.

While Bryan Banman and his companies, CTM Biomedical and CTM Medical Inc., were hit with a $62 million judgment last year for breaching his fiduciary duties to a company he used to run sales at called Skye Orthobiologics as well as a company Skye helps run called Human Regenerative Technologies, jurors rejected Skye's claims that Banman's companies and people they worked with somehow broke the Racketeer Influenced and Corrupt Organizations Act.

This gave Mike Stumpe and Nathan Boulais, the two sales representatives who worked for both Skye and later CTM, an avenue to ask U.S. District Judge Maame Ewusi-Mensah Frimpong to award them legal fees for having to litigate the case.

In her ruling, she did just that.  "The court agrees that this is an appropriate finding given that the litigation against Stumpe has concluded in dismissal of plaintiffs' claims against Stumpe by a jury, which has created a 'material alteration of the legal relationship' between the parties here," she wrote.  "As with Stumpe, plaintiffs similarly did not prove any of their claims against Boulais, making him the prevailing party," she added.

The judge also left the fee bids unchanged from what their lawyers had requested.  "The court further finds the hours expended ... reasonable to defend a litigation spanning over three years," she concluded about both cases, which involved 1,630 hours of billing from Stumpe's lawyers and 1,383.2 from Boulais'.  This came to a total of a hair over $1 million to Stumpe's team at Blank Rome LLP and a hair under $640,000 to Boulais' lawyers from Bienert Katzman Littrell Williams LLP.

According to the order, Bienert Katzman charged at a rate of "$405–$760 for attorneys and $100–$290 for other staff," while Blank Rome billed "$400–$725 for attorneys, $275 for a paralegal, and $225–$414 for other staff."

Chancery Court: No More Fee Windfalls for Easy Cases

February 28, 2024

A recent Law 360 story by Jeff Montgomery, “Chancery Says ‘Game Over’ On Fee Windfalls For Easy Cases”, reports that a Delaware vice chancellor has publicly slammed stockholder attorneys who sought an $850,000 fee for "minuscule" hours spent on a corporate benefit case after a recent string of suits filed to police stockholder rights to separate class votes on company transactions.

Vice Chancellor Morgan T. Zurn, in an unusual and blunt "Statement of the Court" transcript made public, declared that the "game is over" on relatively large fee claims based on limited hours devoted to enforcing common shareholder rights to vote as a stand-alone, rather than consolidated, class on some deals and charter amendments.

The comments, given in court Feb. 15, called out Smith Katzenstein & Jenkins LLP and Purcell & Lefkowitz LLP in a ruling that rejected an $850,000 fee request for efforts that prompted car-sharing venture Getaround Inc. to revise voting plans for a share increase developed as part of its reverse, take-public merger, approved by stockholders in December 2022.

After Getaround relented and lined up a separate vote for common stockholders, the battle shifted instead to the size of the fee for the corporate benefits gained in stockholder Robert Garfield's suit.  On that issue, the vice chancellor described David Jenkins of Smith Katzenstein and his plaintiffs attorney colleagues as having "lost all perspective" after "having had a really good run making a literal fortune off a minuscule number of hours of work" on charter cases and class vote challenges.

"Seeking a fee that a company CFO has affirmed in a sworn affidavit would render the company insolvent appears to be a betrayal of the stockholders you purport to represent and a betrayal of the functions that plaintiffs counsel plays in the broader ecosystem," the vice chancellor said.  In a brief filed with the court in October, attorneys for Getaround argued that the $850,000 fee requested equals $35,789.47 per hour "for 23.75 hours worked with no disclosure of how the time was actually spent."

The company also argued that more than 94% of Class A shareholders redeemed their holdings for $10.11 per share before closing, and only 181,199 remaining shares were traded on the single day afterward when the price was higher than $10.11, equating to a combined $10,872, or 6 cents per share, loss.

 "In this case, plaintiff does not contend, nor could he, that the outcome of the stockholder vote was altered in any way" because of objections raised before the vote in July 2022 by the attorneys who would later sue, the company argued.  "The Class A stockholders, in a class vote, approved the charter amendment with 89% approval (as compared to the 92% approval of all stockholders)."

Getaround hit the court months after Vice Chancellor Zurn's relatively earthshaking decision in Garfield v. Boxed in December 2022, which found that common shareholders have a right to vote as a single class, rather than in a multiclass pool, on proposals to increase the number of company shares under Delaware's General Corporation Law.  The finding triggered a surge in charter changes and litigation aimed at revising charters and correcting share counts.

The Boxed decision also upheld an $850,000 attorney fee for counsel representing stockholder Garfield, also represented by Smith Katzenstein and Purcell & Lefkowitz. Vice Chancellor Zurn concluded at the time that the Boxed case "conferred a substantial benefit" to shareholders and prevented a cloud or "ticking time bomb" of invalid shares from hanging over the company's capital structure.

Vice Chancellor Lori W. Will weeks later applied a fix to part of the threatened chaos in a ruling on In re: Lordstown Motors Corp., declaring that companies can retroactively validate wrongly issued shares.  In the Getaround transcript, Jenkins pointed out to the vice chancellor that the $850,000 fee in Boxed disappeared when the company sought bankruptcy protection, "and we got nothing."

Law Firms Seek $10M in Fees in Kwok Chapter 11

February 23, 2024

A recent Law 360 story by Aaron Keller, “Paul Hastings, Others Seek $9.9M in Kwok Ch. 11 Case Fees”, reports that Paul Hastings LLP and six other law firms and professional services organizations have filed applications seeking more than $9.9 million in fees and expenses in the global Chapter 11 saga of Chinese exile Ho Wan Kwok, leaving the cost of the two-year-old case at well more than $30 million.

Leading a recent spate of interim expense requests is one for $6.9 million for services rendered between Sept. 1 and Dec. 31, 2023, by Paul Hastings LLP, where Chapter 11 trustee Luc A. Despins and most of his team of attorneys are partners, of counsel or associates.  Paul Hastings is also seeking $718,000 in expenses in the Kwok case over the same period.

The lead attorneys' fee request, filed in the U.S. Bankruptcy Court for the District of Connecticut, adds to the nearly $21.8 million in combined fees and expenses Paul Hastings has already been paid to litigate the complex case.  "Given the vast network of companies affiliated with the individual debtor, and the fact that these companies or their assets are located around the world, the trustee's investigation was, and continues to be, extensive," the firm noted in its application.

Despins recently told U.S. Bankruptcy Judge Julie A. Manning that Kwok's financial empire and myriad challenges filed by Kwok's associates and relatives have slowed his asset recovery operation and added significantly to the cost of the case.  Local and conflicts counsel at Connecticut law firm Neubert Pepe & Monteith PC filed a recent bid for close to $1 million in fees and nearly $35,000 in expenses, citing more than 2,470 hours of work on the case between Sept. 1 and Dec. 31.

Neubert Pepe attorneys played a key role in Despins' recent blitz of approximately 200 avoidance actions in the Kwok case, and the firm's work on those filings, which hit the docket before a Feb. 15 deadline, is not fully included in its recent application.  Previous asset recovery maneuvers, such as the sale of a luxury yacht connected to Kwok, helped pay for additional investigations that led to the clawback claims, Despins has said.

Its hourly rates in the $500 and $600 range, as indicated in the filings, are a fraction of the rates in the $1,675 to $1,975 per hour for lead attorneys at Paul Hastings, a key reason why Despins said in a recent court hearing that the firm's assistance in the case would result in significant savings for the Kwok estate.