September 9, 2008 7:35 PM
Coughlin Stoia Set To Get Big Chunk of Largest Lawyers' Award in Class Action History
Posted by Brian Baxter
Update: This post has been updated with new information.
On Monday, a U.S. district court judge in Houston approved an award of $688 million in attorney fees–the largest award in class action history–to plaintiffs lawyers that obtained $7.2 billion for former Enron shareholders. (The $7.2 billion sum sets its own record: it's the largest recovery in class action litigation history.)
Judge Melinda Harmon ruled that class counsel should receive 9.52 percent of the total recovery, including interest. And as counsel to the suit's lead plaintiff, the Regents of the University of California, 190-lawyer Coughlin Stoia Geller Rudman & Robbins is poised to pocket a substantial amount of those record-setting attorney fees.
In her 209-page opinion, Judge Harmon calls the $688 million award no 'windfall,' but a "reasonable fee earned by an extraordinary group of attorneys who achieved the largest settlement fund ever despite the great odds against them."
According to Harmon's ruling, Coughlin Stoia spent 289,593.35 hours on the case billing at a blended rate of $456 per hour. Coughlin Stoia's work–and fee arrangement–received praise from some who have criticized the class action process in the past.
"You're looking at an agreement from which a very well-informed plaintiff–the University of California, which has a legal team the size of many large corporate legal departments–negotiated a deal that incentivized the plaintiffs lawyers to go out and get the largest possible recovery," says John Coffee, a professor at Columbia Law School hired to support the fee request by plaintiffs counsel. "If you gave them a declining percentage of recovery–like 30 percent of the first $100 million and then 20 percent of $1 billion and two percent thereafter–I don't think you would have had a settlement that came to $7.2 billion."
Patrick Coughlin, a name partner and chief trial counsel for Coughlin Stoia, says the firm kept a minimum of a dozen lawyers on the case at all times–a team that was responsible for more than 85 percent of the overall time billed by plaintiffs counsel.
"It was a lot of hard work against some of the best law firms in the country, so it's nice to be appreciated," Coughlin says. "We took nearly 400 depositions, there were dozens and dozens of experts, motions to dismiss, motions for summary judgment, and of course class certification. We were in [Harmon’s] court almost every other week doing something on this case because it literally involved every big bank in the world."
Coughlin says the firm negotiated the following rate with the University of California: 8 percent for the first $1 billion in recovery, 9 percent for the second billion, and 10 percent for anything above $2 billion. The result was a blended rate of 9.52 percent.
Coffee credits the University of California and Coughlin Stoia with crafting a contract that did not adopt a fee formula whereby the plaintiffs firm would take a declining percentage as the overall recovery increased. In doing so, the incentive to continue with the case was maintained.
"Because remember, this case was lost," Coffee says. "The Supreme Court and the Fifth Circuit tossed this case out and that was the kind of risk that was always involved here."
Coughlin Stoia faced a veritable murderers' row of defense firms in obtaining recoveries for Enron shareholders. The following is a list of defendants that have settled, the settlement amounts, and their respective counsel:
Andersen Worldwide; $33.3 million; Sidley Austin
Bank of America; $69 million; Cadwalader, Wickersham & Taft
Lehman Brothers; $222.5 million; Jones Day
Outside directors / Ken Harrison; $168 million; Gibbs & Bruns / Tonkon Torp
LJM2; $51.9 million; Baker Botts
Arthur Andersen; $72.5 million; Latham & Watkins
Kirkland & Ellis; $10.16 million; Munger, Tolles & Olson
Citigroup; $2 billion; Paul, Weiss, Rifkind, Wharton & Garrison
JPMorgan Chase; $2.2 billion; Simpson Thacher & Bartlett
CIBC; $2.4 billion; Mayer Brown
TOTAL: $7.227 billion
As lead counsel pursuant to the Private Securities Litigation Reform Act of 1995, it will be up to Coughlin Stoia and not the court to determine the final disbursement of attorney fees. (Coughlin declined to comment on how the fees will be disbursed among the 13 official class counsel.)
Coffee says there is a good reason for the procedure.
"Otherwise you would not just have one application [for fees], but one by each member of the [plaintiffs’] team," he says. "And courts know that if they don't give it to lead counsel, they're going to have every lawyer throughout this case trying to get his or her face in front of the judge so they're recognized."
Coughlin does say that he hopes to begin disbursements to Enron investors in accordance with Judge Harmon's approved allocution plan sometime before the end of the year. The firm estimates that as many as 1.5 million individual and institutional investors could be eligible for funds. But should that disbursement schedule become an eventuality–no sure thing, Coughlin adds–the firm still doesn't have plans for any holiday celebration to commemorate Harmon's award.
"We have supplemental summary judgment motions on file and are waiting for a hearing against CSFB, Merrill Lynch, and Barclays," Coughlin says. "So this case is still ongoing in that respect and we're not jumping out of buildings yet."
One particularly thorny issue the firm may face: the amount in fees due its recently departed founding partner, William Lerach.
The Wall Street Journal reported last November that according to a partnership agreement Lerach reached with the firm prior to his resignation in August 2007, the convicted class action king will claim 15 to 20 percent of the Enron fee distributed to the firm's partners. Lerach pled guilty the next month to federal felony charges of obstruction of justice and making false statements to federal judges. As part of his plea agreement, Lerach is allowed to keep his share of fees stemming from Enron-related settlements.
Sources told the Journal that Coughlin Stoia's expected cut from the settlement fund approved by Judge Harmon would be roughly $400 million, which would necessitate a payout of nearly $50 million for Lerach.
Judge Harmon's ruling on attorney fees came on the same day that the Fifth Circuit reversed her decision in a separate Enron action. The three-judge panel revived state law claims in Texas filed against several Enron officials–including the estate of former chairman Kenneth Lay–and financial institutions.
The Fifth Circuit's decision means that Enron investors can pursue civil claims in state courts against Enron's former banks and executives that allegedly participated in the accounting fraud that led to the energy giant's collapse.
While some federal securities claims against Enron were dismissed last year, G. Sean Jez, a partner at Houston plaintiffs firm Fleming & Associates representing investors with state claims, says that Texas law allows for aider and abettor liability. That's not the case with federal causes of action.
Jez says that the case–which he describes as individual actions that were procedurally consolidated for the federal appeal–now goes back to Judge Harmon so she can amend her ruling dismissing the claims. Those claims , he says, can then be filed against potential defendants in state courts in Harris County.
Jez was readily aware of Judge Harmon's most recent Enron-related decision.
"It was a monumental attorney fee award and I was very surprised to see it that high," he says, noting that his firm has negotiated contingency fee arrangements with its clients for the 34 state cases that it has. "I'm sure class counsel will be quite excited about it, although I don't know if you'll see one of those again."