Questions Still Swirl Over Judge’s Record-Setting Attorneys Fee Award

on January 24 2014 10:16 AM
Cash Piles
Plaintiffs' lawyers were awarded $316 million for their work on a case in Delaware. Reuters

How much should attorneys be paid for winning cases for their clients?

When it comes to corporate law and class-action cases, attorneys fees can total hundreds of millions of dollars, eye-popping totals that shock even the most jaded court observers. Last week, attorneys for merchants suing Visa and Mastercard over credit card swipe fees were awarded $544 million by U.S. District Judge John Gleeson in the Eastern District of New York after winning the long-simmering case.

Though Gleeson defended the fee by claiming that the lawyers took on “serious risk” in prosecuting the case over nine years, even he had a hard time justifying the total amount, conceding that he ”struggled” to find a basis for his decision. The fee will be distributed among at least three firms because the case involved multiple lawyers who logged more than  500,000 hours, which works out to a rate of at least $1,088 an hour.

Other attorneys fee awards have made headlines in the last decade – from Oracle CEO Larry Ellison’s agreement to pay $22 million to lawyers to settle a shareholder lawsuit in 2005 to nine-figure awards in class-actions against Enron ($688 million), Tyco ($492 million) and WorldCom ($336 million).

Most of those cases involved hundred-strong legal teams working for years. None of them quite compares to a 2011 decision in the state of Delaware. 

The likely head of that state’s highest court, where some of the fiercest disputes in corporate law are judged, still faces questions over his decision several years ago to award a pair of lawyers a fee comparable to $36,700 an hour. Judge Leo M. Strine, who was just nominated by the state’s governor as the next chief justice of the Delaware Supreme Court, made plenty of headlines when he awarded the winning lawyers a fee that ended up totaling $316 million for 8,600 hours of work. It is reportedly the largest amount ever approved in a shareholder derivative action. The case involved minority shareholders in Southern Peru Copper Corporation, who successful claimed that they were forced by Grupo Mexico to buy an interest in a Mexican mining company named Minera.

When the fee was initially awarded in December 2011, its size was slammed by legal critics, including New York Times columnist Steven M. Davidoff, who called it “disturbing” and an “utter windfall” that “serves to reward simple luck, not hard work.” While calling Strine a “brilliant and capable jurist,” Davidoff said he was puzzled by the decision.

The fee also raised the eyebrows of UCLA law professor Stephen Bainbridge, who questioned whether the decision may have been linked to a concern that some big cases were skipping Delaware for other states. Thus, by rewarding plaintiffs' lawyers a giant fee, other attorneys would be more inclined in the future to choose Delaware courts to hear their cases.

Strine defended his decision by emphasizing the need to reward plaintiffs' lawyers who take risks on cases, noted Reuters columnist Alison Frankel. "If lawyers are willing to litigate big cases through discovery and trial, he suggested, Delaware will make sure they’re well compensated for their efforts," she wrote, adding: "A $300 million fee award certainly puts an exclamation point on Strine’s protestations."

In the chummy world of Delaware’s legal establishment, many of the lawyers and judges know each other through professional and social circles. The winning plaintiff lawyers and Strine all share connections to local Widener University Law School, and a few months after the award was upheld by the Delaware Supreme Court, the plaintiffs firm shared its good fortune with a gift of $500,000 to the school.

Just a month before the award fee decision in December 2011, Strine was pummeled by some of his peers at a Columbia Law School roundtable discussion on the future of Delaware’s Chancery Court. Several panelists took direct aim at Strine, blaming him for the state’s loss of cases. John Coffee, a respected scholar, noted that “a cloud” hung over “the happy skies of Delaware” due to the steep drop in cases brought in the state, indicating that raising fees is one way to reverse that trend. “We think… Delaware is losing some good cases,” noted law professor Bernard Black, comparing him to his predecessors who were “relatively generous on fees.” He added, “Plus logically, if you’re going to cut fees in good cases and bad, which Delaware is now doing, you are going to lose good cases and bad.”

And Black offered an obvious remedy to stem the tide of firms fleeing the state: Raise the fees. “So what can Delaware and Delaware companies do if they would rather have the cases in Delaware – and whether they do is an open question. Maybe rethink the posture on fees in cases where there are real-dollar recoveries… But if there is a real-dollar recovery, maybe we have to move back toward the more generous position of the 1990s.”

Over lunch, Strine struck back, telling the crowd that much of what he heard in the morning was “fiction” and taking an impromptu survey of the audience, asking them how many had won fees of at least $1 million in a single case. Dozens of lawyers responded. “When people suggest that somehow we are closed for business, it has to be answered,” Strine says. He added, “Delaware is the only state where both sides complain. That’s because this is a neutral forum where the only consideration is doing corporate law fairly and well.”

Just a few weeks later, Strine answered the skeptics with his record-setting fee award, stunning the legal world and inevitably making the state's courts more alluring to the plaintiffs bar. Amid the debate over the size of the award, one of the winning lawyers, Ronald A. Brown, defended its size, explaining that the two firms had taken huge risks and overcome large obstacles. He also said that they had to overcome Strine’s initial dubiousness about the case, “but the lawyers brought him around… The fee is extremely large and I’m humbled by it.”

Maybe Strine has changed his tune in the wake of the headlines and criticism of the Southern Peru fee award. Last month, he threatened to cut a requested attorney fee by 80 percent, saying that the settlement benefited the attorneys more than shareholders they represented. He ended up approving the $237,500 fee request but said he “easily” could have awarded as little as $50,000 for the work of lawyers, who challenged the takeover of retailer Talbots.

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