Lawyers the Big Winners in ADM Price-Fixing Case
When Philadelphia lawyers sued directors of Archer-Daniels-Midland Co. last year for their role in a huge price-fixing scandal, they said they were striking a blow for the company’s shareholders.
ADM settled the suit recently for $8 million. But guess who gets the money? Not the shareholders, but the lawyers.
“It’s a classic case of lawyer greed,” said Mark C. Hansen, an attorney for institutional shareholders protesting the settlement. “This is a deal that does nothing but put money in the pockets of lawyers. Not a dollar goes to shareholders. And much of the lawyers’ time in court was spent sparring over which firm did the work.”
In federal court in Urbana, Ill., attorneys in the case were awarded 49% of the settlement--about $4 million. (In class-action lawsuits, where lawyers are considered to be highly compensated, they get about one-third of the settlement amount.) The other $4 million goes to ADM, but is earmarked for lawyers who will advise ADM on corporate governance matters in the next three years. They will be chosen by ADM’s audit committee.
The issue of lawyer fees, particularly in class-action lawsuits, has aroused widespread public indignation in several cases in which lawyers appeared to benefit more than the injured parties.
Among the most notorious suits:
* In 1995, owners of Ford Motor Co.’s Mustang convertibles that leaked were awarded a $400 coupon toward the purchase of a new car. Lawyers got $1 million.
* Plaintiffs suing Bank of Boston actually lost money that same year, while lawyers were paid $8.5 million.
* Lawyers representing patients with defective heart valves requested $33 million in legal fees. A federal judge later cut that amount to $10 million.
The lawyers who sued ADM’s directors said they believe the settlement they worked out has value for shareholders and the company. “The corporate governance measures ADM is going to implement will strengthen the independence of the board,” said Robert Roseman, a Philadelphia attorney whose firm, Spector & Roseman, filed the suit.
“We deserve to be compensated,” said Robert Harwood, a New York attorney who also was involved. He said the $4 million earmarked to defray the cost of legal advisors for ADM’s board might not be used up by lawyers. If it isn’t, ADM gets to keep it, he said. The money will come from a $10-million directors and executives insurance policy for ADM.
The action against ADM was a derivative lawsuit, in which a shareholder sues executives of a company for allegedly failing to protect the company’s interests. Settlement money is supposed to go to the company to use for the benefit of all shareholders.
The lawyers who bring these cases often are referred to among their colleagues as “vulture firms,” said Tom Beenck, assistant general counsel of the Florida State Board of Administration, a large public pension fund for state employees that owns 1.7 million shares of ADM stock.
“Like swallows returning to Capistrano, plaintiffs’ lawyers read the Washington Post over their morning cappuccino and see that ADM was involved in price fixing,” Hansen said. “Then they call Uncle Ralphie, who owns a few shares of ADM, and file suit. . . . But the lawyers really settle the cases for their own benefit.”
The Florida board and the California Public Employees’ Retirement System, with 2.8 million shares, are appealing the settlement.
Many of the settlements in these cases contain what’s called a “clear-sailing provision,” an agreement that the company won’t object if the lawyers get most of the money, Hansen said. The ADM settlement contained a provision that the company would not protest lawyer fees up to 49%. “The system is rife with abuse,” Hansen said.
“I’d be troubled by any award of $4 million to lawyers in a case where the groundwork had already been mapped out by the federal government and the private antitrust bar in terms of price fixing,” said David Vladeck, director of Public Citizen Litigation Group, a nonprofit consumer group that has gone to court to oppose legal fees in other cases.
After a four-year investigation, ADM, which is based in Decatur, Ill., agreed last year to pay a $100-million fine--the largest in history--for price fixing in the food-additives business. In addition, competitors and private plaintiffs have sued the company, extracting about $90 million more in penalties.
“ADM is as good a corporate villain as you can get,” said Sarah B. Teslik, head of the Council of Institutional Investors, a shareholder-rights group. “It’s a regular poster child for the corporate governance movement.”
The council, some of whose members are ADM shareholders, has long attempted to persuade the company to adopt corporate governance standards, especially rules for an independent board of directors. In fact, lawyers who sued ADM consulted with the council regarding its definition of independent directors -- then failed in the settlement to use their standards, Teslik said.
The ADM board has long been thought dominated by insiders, family and cronies of Chairman Dwayne O. Andreas. Last year, ADM accepted recommendations of a special committee of outside directors to install a smaller, more independent board.
But Teslik says the settlement says a director is independent unless he has a “material” financial relationship to ADM. “With a company the size of ADM, no one would be considered to have a legally material relationship,” she said. “That’s a test you can’t fail.”
