Judge Slashes Lawyer Fees in Shareholder Lawsuit
Taking an unusually aggressive swipe at the controversial matter of attorneys’ fees, a federal judge on Wednesday slashed the amount of money to be collected by lawyers representing shareholders in a class action suit against Quantum Health Resources Inc.
Judge Gary L. Taylor rejected the attorneys’ request for 30% of a $10-million settlement won by shareholders, calling the request “not justified.” Instead, he granted the attorneys 10%, far below the percentages lawyers commonly collect in shareholder suits against technology companies.
The judge also sharply reduced the amount attorneys could collect as reimbursement for expenses, and rejected other reimbursement requests outright. The case was filed in U.S. District Court in Santa Ana.
The ruling was a blow to the controversial law firm Milberg Weiss Bershad Hynes & Lerach, a San Diego-based concern that has made millions of dollars in connection with shareholder suits, and was one of 10 firms involved in the Quantum case.
Alan Schulman, a senior managing partner at Milberg Weiss who worked on the Quantum case, seemed stunned when told of the judge’s ruling late Wednesday evening.
“Wow,” he said. “It’s a very unusual ruling.” He declined to comment further.
Milberg Weiss is widely reviled in the high-tech industry because it has been a part of hundreds of shareholder suits filed against technology companies after their stock prices have tumbled.
The suits generally allege that the company’s officers violated securities laws and misled investors, and request access to company files. Executives at high-tech companies have often complained that the suits amount to legal holdups because they are so burdensome to defend that a settlement is often the easiest way out.
Consumer advocates have complained about the suits as well, saying that attorneys generally profit far more than the supposed victims.
Milberg Weiss defends the practice, saying it provides essential protection to shareholders who are otherwise defenseless against dishonest companies and executives.
Quantum, which moved two years ago from Orange to Indianapolis, was sued in 1995 by shareholders who accused the company’s executives of withholding information about improper billing practices, and falsely inflating its revenue and income.
Taylor explained his ruling by saying that high contingency fees are generally awarded in suits in which there is a realistic risk of nonrecovery. “There is no genuine degree of risk in the large majority of securities class action suits,” Taylor said in the ruling.
The judge even quoted Lerach, a Milberg Weiss partner commonly called the king of shareholder suits. The judge said that Lerach himself has stated that his firm “achieves a significant settlement in 90% of the cases we file.”
Attorneys certainly won’t be left empty-handed by the judge’s ruling. The court awarded $992,000 in attorneys’ fees and $75,472 in costs and expenses, both to be paid from the settlement fund.
But the judge denied attorneys’ request for $304,761 in reimbursement for costs and expenses incurred in the case, and rejected attorneys’ request for $146,000 in fees paid to expert witnesses, saying there was no breakdown of the services performed. He also disallowed $83,000 in paralegal and word processing costs.
