Record $285 ml fee award is Strine’s message to plaintiffs’ bar
In a footnote at the end of his October 14 ruling granting Southern Peru shareholders $1.3 billion from majority stockholder Grupo Mexico, Delaware Chancery Court Chancellor Leo Strine Jr. had cautionary words for the plaintiffs’ firms that won the extraordinary recovery. Prickett, Jones & Elliott and Kessler Topaz Meltzer & Check, the judge said, had been too slow to prosecute the derivative suit when it was filed back in 2005. He instructed the firms to confer with defense counsel from Milbank, Tweed, Hadley & McCloy (for Grupo Mexico) and Ashby & Geddes (for Southern Peru, now Southern Copper) to see if they could agree on a “reasonable” fee request, “with the plaintiff’s counsel taking into account the reality [that] their own delays affected the remedy awarded and are a basis for conservatism in any fee award.”
If the fee award Strine granted Monday in the Southern Copper case reflects “conservatism,” the mind boggles at how much money Prickett Jones and Kessler Topaz might have been awarded if not for that unfortunate delay. As Reuters’s Delaware ace Tom Hals reported, the judge ruled that the plaintiffs’ firms should receive 15 percent of the Southern Copper recovery, including interest. After an adjustment in Strine’s original calculations that will bring the underlying shareholders’ recovery to about $2 billion in damages and interest, attorneys’ fees should amount to about $300 million, or more than $35,000 per hour based on the more than 8,000 hours the plaintiffs’ firms logged on the case. (Hals reported Monday that the fee would total $285 million, or 15 percent of Strine’s original award calculation of $1.9 billion. But Strine said in court Monday that his recalculation of damages and interest will add $100 million to the shareholders’ recovery and thus $15 million to attorneys’ fees.)
Kessler Topaz and Prickett Jones had originally asked for 22.5 percent of the recovery they obtained. In an Oct. 28 brief that liberally quoted Strine’s own words from previous cases, the plaintiffs’ firms argued that they should be rewarded for the “huge risk” of hard-fought derivative litigation. The firms said they’d kept Strine’s admonition in mind, which is why they were asking for 22.5 percent instead of the customary 33 percent. But they asserted that if the chancellor refused to award a big percentage just because it amounted to hundreds of millions of dollars, he would be encouraging plaintiffs’ firms to settle quickly rather than fight for the best possible recovery.
“Limiting fee awards in large cases would create a strong disincentive to take the huge risk of trying large cases,” the brief said. “For example, how would lawyers be incentivized to take a potential billion dollar case to trial if they know that if they win a billion dollars they will get the same fee award as they would have if they settled the case for $200 million? It is clear that such a declining percentage approach would misalign the interests of the lawyers and those they represent.”
The defendants, meanwhile, argued that Kessler Topaz and Prickett Jones should receive no more than four times what their hourly billings would have been, or about $13 million. The recovery was really nothing like $1.3 billion, they asserted; given that Grupo Mexico owns 80 percent of Southern Copper, the award is a mere bookkeeping matter, transferring money from one Grupo Mexico entity to another. (Here’s Grupo Mexico’s opposition to the fee request.) Moreover, Southern Copper contended, it was simply perverse to award the plaintiffs’ lawyers $428 million — a number the plaintiffs couldn’t even bring themselves to spell out in their brief.
“The magnitude of plaintiff’s counsel’s request is unprecedented in this court,” the Southern Copper brief said. “To put it in perspective, the requested fee is equivalent to about 57 percent of the Delaware Division of Corporations’ total annual revenue. Moreover, research did not reveal any case anywhere in which counsel has been awarded anything close to an effective hourly rate that is more than the median American household makes in a year.”
So why did Strine agree to grant such exorbitant fees? Because he was sending a message not just to the lawyers in the Southern Copper case, but to the entire securities class action bar.
As both Hals and Professor Stephen Bainbridge of the UCLA School of Law noted Monday, Strine’s ruling comes with a very particular context. Delaware, according to some recent academic research, has been losing cases to other venues because plaintiffs’ lawyers perceive the Chancery Court as an unfriendly jurisdiction. Strine lashed out at proponents of that theory at a conference in November, accusing lawyers who file cases against Delaware corporations outside of Delaware of engaging in “forum shopping of the rankest kind.” He particularly called out Stuart Grant of Grant & Eisenhofer, who criticized the Chancery Court despite receiving his own handsome fees. “Delaware is open for business,” Strine said at the November conference, repeating one of his favorite catchphrases.
Monday’s hearing on the Southern Peru fee request made it clear that the chancellor wants a certain kind of (legal) business to remain in Delaware. At the 90-minute hearing Strine talked about why this case isn’t like the M&A injunction suits that settle quickly for minimum benefit to shareholders. According to Hals’s report: “A windfall, he said, was a quickly settled case in which the plaintiffs’ attorneys get a fee of a few hundred thousand dollars and the shareholders they represent get meaningless disclosures — a type of litigation that has surged recently.”
The chancellor also spoke about rewarding plaintiffs’ lawyers for taking risks — and chided defense lawyers for being envious when those risks pay off in big recoveries. 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.
A $300 million fee award certainly puts an exclamation point on Strine’s protestations.
Lee Rudy of Kessler Topaz and Ronald Brown Jr. of Prickett Jones declined comment. Grupo Mexico counsel Alan Stone of Milbank and Southern Copper counsel Stephen Jenkins of Ashby & Geddes didn’t return my calls.
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