9th Circuit reverses $29 million fee award over procedural problem

A federal appeals court has snatched away a $29 million fee award that two law firms received for serving as lead plaintiffs counsel in a California backdating securities class action.

The 9th U.S. Circuit Court of Appeals on Wednesday vacated a lower court ruling granting the fee award to New York's Labaton Sucharow and Glancy Binkow & Goldberg of Los Angeles. In a 2-1 decision, an appeals panel held that U.S. District Judge Jeremy Fogel denied the plaintiffs in the backdating case the opportunity to argue for reducing the fee. The panel remanded to Fogel, who sits in the Northern District of California.

Labaton Sucharow partner Joel Bernstein provided a written statement about the ruling. "The 9th Circuit found no fault with Judge Fogel's opinion that the fee awarded to us was reasonable," he said. "Rather, it only determined that the notice procedures required improvement and therefore remanded the case to Judge Fogel for a rehearing."

Glancy Binkow & Goldberg did not respond to a request for comment.

The ruling stemmed from a securities class action filed in August 2005 against Mercury Interactive Corp., its officers and directors and its auditor. The case settled relatively quickly in 2007 for $117.5 million. At the time that the lower court certified the settlement, it required notice to class members that the attorneys were seeking 25 percent of the settlement amount.

The fee motion notice disclosed in general terms what the attorneys wanted. The New York State Teachers' Retirement System filed a timely objection to the fees, arguing that 18 percent was the fair amount.

Plaintiffs counsel then moved for a fee award, but did so two weeks after the deadline for objections, the appeals court said. A week later, the lower court held a hearing on the fairness of the fees, but none of the objectors attended. Fogel approved the fees.

In vacating the award, the appeals court held that federal civil procedure rules required the lower court to give class members a chance to object to a fee motion itself, not just to the preliminary notice that a fee motion was pending.

"At the time that its objections to the fee request were due, [the objectors] could make only generalized arguments about the size of the total fee because they were only provided with generalized information," the panel wrote. The panel expressed no opinion about the merits of the fee motion. Judge A. Wallace Tashima wrote the decision, joined by Judge Susan Graber.

Judge Jay Bybee dissented, writing that the retirement system had waived its right to object to the fees and at least could have objected to the schedule that the court followed in considering them. He added that the retirement system should have provided more than "boilerplate allegations" in its objections. "Teachers were not at all diligent in presenting their arguments to the district judge," he wrote.

Representing the New York State Teachers' Retirement System was Ryan Stippich of Reinhart Boerner Van Deuren in Milwaukee. Robert Long of Covington & Burling in Washington filed an amicus brief on behalf of the Council of Institutional Investors.

Listed in court papers as plaintiffs counsel from Labaton Sucharow were Bernstein, Louis Gottlieb and Michael Rogers. Attorneys from Glancy Binkow & Goldberg were Lionel Glancy, Peter Binkow and Neal Dublinsky.

(Published by Law.com – August 20, 2010)