The business news this week was just lousy with reports on the Tesla trial currently ongoing in Delaware, and in particular, with reports on the testimony of Elon Musk (which, disappointingly, appears to have been less inflammatory than his depositions).  

The basic set up, of course – as I previously blogged – is that Musk championed Tesla’s acquisition of SolarCity, a company he founded with his cousins, chaired, and in which he held a substantial stake.  The unaffiliated Tesla shareholders voted in favor of the deal, which would be enough to cleanse it and restore business judgment review if Musk was not a controlling shareholder, but if he was, entire fairness review would follow.  So one of the burning questions at trial – and the one which most of the news reports focus on – is whether Musk, with something like a 22% stake in Tesla at the time, could be considered a controlling shareholder.  And that question, in turn, focuses not just on his voting power, but on his practical control over the company and the board. 

Y’all know that the question of who is a controller is one that has dominated a lot of my thinking recently (my most recent blog post on the subject is here; earlier posts are here, and here, and here, and here, and here, and here, and here), so I do have to observe that in In re Pattern Energy Group Stockholders Litigation, VC Zurn spent a lot of time explaining how one can be a controller – with fiduciary duties that follow – even without any stock ownership at all.  As she put it:

Fiduciary duties arise from the separation of ownership and control.  The essential quality of a fiduciary is that she controls something she does not own.  A trustee need not (and does not) own the assets held in trust; directors need not own stock. Even a third party lender that influences extraordinary influence over a company may be liable for acting negligently or in bad faith.  If a stockholder, as one co-owner, can owe fiduciary duties to fellow co-owners because the stockholder controls the thing collectively owned, surely an “outsider[]” that controls something it does not own owes duties to the owner.  “[I]t is a maxim of equity that ‘equity regards substance rather than form,’” and “the application of equitable principles depends on the substance of control rather than the form[;] it does not matter whether the control is exercised directly or indirectly.”  “[T]he level of stock ownership is not the predominant factor, and an inability to exert influence through voting power does not foreclose a finding of control.”  Thus, “Delaware corporate decisions consistently have looked to who wields control in substance and have imposed the risk of fiduciary liability on that person,” and “[l]iability for breach of fiduciary duty therefore extends to outsiders who effectively controlled the corporation.”

With this foundation, and considering evolving market realities and corporate structures affording effective control, Delaware law may countenance extending controller status and fiduciary duties to a nonstockholder that holds and exercises soft power that displaces the will of the board with respect to a particular decision or transaction.

That’s a point I made in my essay, After Corwin: Down the Controlling Shareholder Rabbit Hole; as I wrote there:

[O]ne of the first things a business law student learns is that even without a formal equity stake, contractual control can be exerted to the point where fiduciary obligations follow.  But all of this just raises the question whether the shareholder aspect of the controlling shareholder inquiry is necessarily doing any work.

Point being, the fact that Musk’s power does not come from his stock holdings alone is not dispositive of this question.  Musk is the kind of figure that boards, and shareholders, might be afraid to buck because he can’t be dislodged – Musk himself testified that Tesla would “die” without him – and he can send Tesla’s stock price tanking with a single tweet.  Imperial CEOs present a difficult case, but those factors are pretty much the basis for treating controlling shareholders differently from just ordinary conflicted boards. 

Or, with apologies to Guth v. Loft, 5 A.2d 503 (Del. 1939), “Musk was Tesla, and Musk was SolarCity.”  

That said, it must be observed that: (1) Plaintiffs can win this case even if Musk is deemed not to be a controlling shareholder, and (2) it’s possible VC Slights won’t have to decide whether Musk is or isn’t.

More under the cut…

Continue Reading Will He or Won’t He?

I’ve posted on Cuba and business in the past. See here, here, and here, for example.

I have 3,000 pictures of Cuba from my four visits to research and speak on business and human rights. I’ve written three law review articles and met with farmers, judges, lawyers, families of people who have “disappeared,” restaurant owners and others. For the law review articles see, Ten Ethics-Based Questions for U.S. Companies Seeking to do Business in Cuba, The Cuba Conundrum: Corporate Governance and Compliance Challenges for U.S. Publicly-Traded Companies, and You Say Embargo, I Say Bloqueo—A Policy Recommendation for Promoting Foreign Direct Investment and Safeguarding Human Rights in Cuba.

This is a different kind of post. It’s more personal. 

My first visit in 2016 was during the Bienal art festival, where some of the most talented artists in the region had their work featured by the New York Times. I visited some of them in their homes. Later in the trip, I spent time with members of the Florida bar to learn from local lawyers and economists. One lawyer who spoke with us had to move to the US after someone misreported what he had said to us in a closed door meeting. Our tour guide reminded me that while we had dozens of cheeses and fruits to choose from in our hotel, the average Cuban had to use a ration card. Afrocuban women who walked into nice hotels were stopped because they were assumed to be prostitutes.

I met with Black lawyers in bufetes in Santiago de Cuba during a visit with the National Bar Association and Ben Crump. I sat on a panel with Cuban judges and received a copy of their Constitution as a gift. I was careful to use “bloqueo” instead of “embargo” in my remarks and gently corrected the interpreter when she put a slant on my words about human rights. The Cuban government searched all of our luggage when we landed and unlike other colleagues, my materials weren’t confiscated because I made sure not to have hard copies. I destroyed my online version of my presentation as soon as I concluded. This was not any different from my past visits to do business in China and prepared me for my trip to teach in Pakistan in 2019.

The 2018 trip to Cuba was different from my other three visits. I smoked my first and last cigar in Cuba on a tobacco farm in Vinales. I walked the malecón every morning at sunrise to talk to fishermen. I didn’t have to use government tour guides who were always watching. One upside of the Trump rules related to Cuba limiting US hotels was that Cubans opened their own AirbnBs. I met with a former accountant who wasn’t making any money in his chosen profession but could now afford to travel overseas to get more materials for his Airbnb. He also restored old family cars and made more in a month hiring drivers to take care of his guests than he had in a year.  I went to a baseball game with locals, met with Afrocuban millennial entrepreneurs to learn about ceremonies, ritual, and culture, and watched a 21-year old driver marvel at being able to use the internet on his phone to find a date. The government had just opened up widespread internet access to Cubans the week before. He worried about using up his minutes like we used to ten years ago. Things weren’t great, but they were looking up. 

I fell in love with the people and the culture. With each visit, I saw changes and more cautious, skeptical optimism from people. I had planned to visit again after Covid to see the effects of reforms. That will have to wait. I’m so proud of the Cuban people for standing up for themselves with the protests. The rise of the internet gave rise to the government’s worst fear. Artists and their music helped to motivate the people to ignore their fear of repercussions. Cuba is about so much more than rum, salsa, and restored cars. #soscuba

Cuba collage

Tenure-track Law Faculty Position
Chicago-Kent College of Law

Job Description:

Chicago-Kent College of Law expects to hire one or more faculty to join our vibrant and nationally recognized intellectual community. We have hiring needs in a variety of areas, including but not limited to:

• First-Year Subjects, particularly Civil Procedure, Criminal Law, Property, and Torts;
• Upper-Level Subjects, particularly Race and the Law, Commercial Law, Corporate Law, International Law, and Tax Law.

To apply:

While we will be consulting the Faculty Appointments Register (FAR) through the American Association of Law Schools (AALS), we welcome expressions of interest from both entry-level and lateral candidates, which should be directed to lawappts@kentlaw.iit.edu and include a cover letter and CV.

I’m excited to share with BLPB readers that my article, Entrepreneurial Regulatory Legal Strategy: The Case of Cannabis, published in the American Business Law Journal, is now available.  It is one of a series of articles related to a 2020 Symposium on Legal, Ethical, and Compliance Issues in Emerging Markets: Cannabis in the States, sponsored by the Spears School of Business Center for Legal Studies & Business Ethics at Oklahoma State University and the American Business Law Journal.   

Here’s its abstract:

This article develops the concepts of regulatory legal strategy, a resource-based view of government agencies, and regulatory entrepreneurship. These ideas are explored through a case study of the limited (if any) access that legal cannabis-related businesses have to the banking system due to the clash between federal law and laws in those states that have legalized some uses of cannabis. This article argues that regulators’ entrepreneurial regulatory legal strategies can have a material impact on regulated entities and give them a competitive advantage. To demonstrate, this article claims that regulators’ adoption of permissive regulatory legal strategies has facilitated access of some cannabis-related businesses to the banking system. Conversely, if regulators adopted obstructive regulatory strategies, this would act as a constraint on such access in the future, even if Congress resolves the federalism issue largely responsible for the current limitations these businesses face.

I encourage readers to also check out the additional articles in this special volume, which include:

Kimberly A Houser & Janine Hiller’s Medical Marijuana Registries: A Painful Choice?

Stephanie Geiger-Oneto & Robert Sprague’s Cannabis Regulatory Confusion and Its Impact on Consumer Adoption

Aubree L. Walton, Kaimee Kellis, William E. Tankersley & Rikinkumar S. Patel’s Cultivating Evidence-Based Pathways for Cannabis Product Development: Implications for Consumer Protection

Mark J. Cowan, Taxing Cannabis on the Reservation

 

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2022 STETSON BUSINESS LAW REVIEW SYMPOSIUM

WHITE COLLAR CRIME

CALL FOR PROPOSALS

DEADLINE: AUGUST 01, 2021

The Stetson Business Law Review (SBLR) at the Stetson University College of Law invites proposals for its inaugural symposium, which will be held at the college in Gulfport, Florida on Friday, February 25, 2022. The SBLR was founded in the 2019–20 academic year by ambitious students with strong interests in business law following the establishment of the Stetson Business Law Concentration.

SBLR WHITE COLLAR CRIME SYMPOSIUM

The Stetson Business Law Review wants to bring diverse voices and perspectives to sunny Tampa Bay and establish itself as a premier journal for legal issues relating to business law, such as white collar crime. As such, it is seeking submissions from individuals with various experiences and backgrounds, inside and outside the legal field. Quality submissions will be published in this Symposium edition, with authors being invited to participate in this in-person Symposium on white collar crime.

PROPOSAL SUBMISSION PROCEDURE

Proposals should be approximately 250–500 words, double-spaced, and in .docx format. Submissions must be submitted via e-mail to the Stetson Business Law Review at SBLRSubmissions@law.stetson.edu no later than 5:00 p.m. PST on August 01, 2021.

Accepted proposals will require submission of a draft of an article of approximately 20-40 pages by December 01, 2021. The deadline for the final paper is March 10, 2022.

Feel free to contact the Editorial Board at BusLawReview@law.stetson.edu with any questions or concerns. Thank you in advance for your interest in the Stetson Business Law Review, and we look forward to receiving your submissions

Charleston School of Law in Charleston, South Carolina welcomes applications to fill two fulltime, tenure-track faculty positions. Ideal candidates will show commitment to becoming stellar teachers and passionate, enthusiastic colleagues, who are willing to invest considerable energy and effort in service and institution building by collaborating with the rest of the faculty to achieve excellence at the School of Law. We value candidates with practice experience who will bring the real world of lawyering to the classroom. We also value previous teaching experience, including as adjunct faculty, at a law school or college. However, completion of visiting assistant professor programs, fellowships, Ph.D. degrees, and LL.M. degrees are not pre-requisites. We are looking, instead, for a demonstrated ability to grow into the role of teacher and scholar.

Charleston School of Law is an ABA fully-accredited institution reinvigorating the study of law by offering a rich, comprehensive three-year program rooted in excellence. Our campus is located in the Upper King Street district of historic, downtown Charleston. The Law School was founded in 2003 with a mission to instill the values of public service and professionalism in its graduates. Key goals for the Law School are student success and providing opportunities to historically underrepresented groups in the profession.

The Law School prides itself on having a talented and accessible faculty and staff. Princeton Review regularly ranks Charleston School of Law as a top institution for faculty accessibility, teaching quality, and resources for women. The School’s Faculty bring significant practice experience to the classroom and include former law firm partners, state and federal prosecutors, defense attorneys, corporate counsel, and military veterans. The Law School is dedicated to maintaining a diverse and inclusive community of students, faculty, and staff that fosters an appreciation for and understanding of people from a variety of cultural and ethnic backgrounds.

The Law School is presently looking for candidates interested in teaching first-year courses as well as Wills, Trusts & Estates; Tax; Business Organizations; Professional Responsibility; and Constitutional Law. However, our curricular needs are flexible, and we welcome applications from all candidates whose teaching, service, or research interests will promote the School’s mission of excellent teaching, community service, diversity, and inclusion. Applicants should submit a cover letter explaining the commitment to this mission, the subjects the applicant would be interested in teaching, a curriculum vitae, research agenda, and any teaching evaluations received to the Committee on Faculty Recruitment, Retention & Inclusion at facultyrecruitment@charlestonlaw.edu. For full consideration, applicants should apply by September 1, 2021, although we recommend submission of materials as soon as possible. The

Charleston School of Law is an equal opportunity employer and does not discriminate against any individual or group on the basis of gender, sexual orientation, gender identity or expression, age, race, color, religion, national origin, veteran status, genetic information, disability, or any other legally protected class.

Drake University Law School invites applications from entry level and lateral candidates for tenure-track or tenured Assistant/Associate/Professor of Law positions beginning in the 2022-23 academic year. We are especially interested in candidates with demonstrated interest or experience in Civil Procedure, Tax/Commercial Law/Bankruptcy, Professional Responsibility, Intellectual Property, and Family Law. Applicants must hold a J.D. degree (or the equivalent) and should have a record of academic excellence, substantial academic or practice experience, a passion for teaching, and a record of, or potential for, accomplishment in scholarship. Appointment rank will be determined commensurate with the candidate’s qualifications and experience.

Drake University Law School sustains a vibrant intellectual culture, and Des Moines has been recognized as one of the top ten Best Places to Live (US News) and Best Places for Business and Careers (Forbes), with a robust and growing economy (Wall Street Journal). The Law School features innovative and nationally recognized programs in agricultural law, constitutional law, legal writing, and practical training.

Drake University is an equal opportunity employer and actively seeks applicants who reflect the nation’s diversity. No applicant shall be discriminated against on the basis of race, color, national origin, creed, religion, age, disability, sex, gender identity or expression, sexual orientation, genetic information or veteran status. Diversity is one of Drake’s core values and applicants need to demonstrate an ability to work with individuals and groups of diverse socioeconomic, cultural, sexual orientation, disability, and/or ethnic backgrounds.

Confidential review of applications will begin immediately. Applications (including a letter of interest, a complete CV, teaching evaluations (if available), a diversity statement, and the names and addresses of at least three references) should be sent to Professor Ellen Yee, Chair, Faculty Appointments Committee, Drake University Law School, 2507 University Ave., Des Moines, IA 50311 or e-mail: ellen.yee@drake.edu<mailto:ellen.yee@drake.edu>

Hey all.  For your reading enjoyment, I’ve posted my new paper, Capital Discrimination, forthcoming in the Houston Law Review, to SSRN.  Here is the abstract:

The law of business associations does not recognize gender.  The rights and responsibilities imposed by states on business owners, directors, and officers do not vary based on whether the actors are male or female, and there is no explicit recognition of the influence of gender in the doctrine. 

Sex and gender nonetheless may pervade business disputes.  One co-owner may harass another co-owner; women equity holders may be forced out of the company; men may refuse to pay dividends to women shareholders.

In some contexts, courts do account for these dynamics, such as when married co-owners file for divorce.  But business law itself has no vocabulary to engage the influence of sex and gender, or to correct for unfairness traceable to discrimination.  Instead, these types of disputes are resolved using the generic language of fiduciary duty and business judgment, with the issue of discrimination left, at best, as subtext.  The failure of business law doctrine to confront how gender influences decisionmaking has broad implications for everything from the allocation of capital throughout the financing ecosystem to the lessons that young lawyers are taught regarding how to counsel their clients.

This Article will explore how courts address – or fail to address – the problem of discrimination against women as owners and investors.  Ultimately, the Article proposes new mechanisms, both via statute and through a reconceptualization of fiduciary duty, that would allow courts to recognize, and account for, gender-based oppression in business.

The paper explores the topic through several case studies including, but not limited to, Shari Redstone’s battle with the boards of Viacom and CBS.

Update:  This paper is no longer on SSRN but can be found at this link.  You can read the explanation here.

Update to the update:  The paper has been restored to SSRN and is now available again at the original link. 

I noted in a January post that Professor Mihailis E. Diamantis and I are joining Professors J. Kelly Strader, and Sandra D. Jordan as co-authors of the 4th edition of White Collar Crime: Cases, Materials, and Problems. I am pleased to announce that the text is now available for fall 2021 adoption, and instructors can request an electronic copy for immediate review here. Here is a description of the new edition:

White Collar Crime: Cases, Materials, and Problems is a unique, problems-focused approach to teaching and learning about federal white collar crime. The authors draw from their practice experience in prosecuting and defending white collar crime cases to present both foundational and current issues of law, policy, and theory as they arise in statutes and cases. The text includes:

  • Comprehensive coverage of the substantive law of various white collar crimes (topics include conspiracy, mail fraud, wire fraud, securities fraud, computer crimes, bribery, extortion, perjury, false statements, obstruction of justice, tax fraud, currency transaction reporting crimes, money laundering, and RICO);
  • Chapters dedicated to the practical and procedural issues that typically arise in, and often are unique to, white collar cases (topics include internal investigations, compliance programs, civil actions and fines, parallel proceedings, grand juries, Fifth Amendment, sentencing, and forfeitures); and
  • Practice problems throughout to enhance both effective teaching and student comprehension through engagement.

For the fourth edition, the authors have continued their emphasis on the most recent, cutting-edge issues in white collar crime and litigation. They have added a number of recent United States Supreme Court and Circuit court decisions. The text expands its focus on policy and practical aspects of white collar practice, including the addition of many new practice problems and exercises.

A little while ago, Anthony Rickey and I published an article looking at the settlement approval process in class actions with a particular focus on the State Street Case.  Our article noticed that Judge Wolf found that class counsel made deceptive, less than fully candid statements when it submitted hourly rates to a court which no client had ever actually paid:

In theory, a vigorous lead plaintiff actively supervises its lead counsel, examining fee requests to maximize the portion of the settlement retained by the class. The efforts that ATRS undertook to supervise its class counsel remain unclear, but they do not seem to have been effective. In the State Street litigation, Judge Wolf harshly criticized Thornton for declaring, under oath, that one attorney’s regular rate was $500 per hour, when the firm could only identify one case in which that attorney had been charged at even $300 per hour. He similarly noted that Labaton submitted as “regular rates” for services hourly rates that had “never been charged to paying clients.” ATRS did not volunteer these facts. They were only discovered because the State Street court took the apparently unprecedented step of appointing a special master to investigate.(footnotes omitted) 

In the State Street litigation, Judge Wolf went on to find significant problems with class counsel representing to the court that their firms “regularly charged” certainly hourly rates when no paying client ever actually paid that rate.  Rather, all their work was on a contingency basis and they had simply convinced other courts to approve fee awards referencing those “hourly” rates.  Wolf sharply criticized both Thornton and Labaton for their statements about “hourly” rates.  This led Judge Wolf to cut the total fee award and the allocation to class counsel.  Arkansas Tchr. Ret. Sys. v. State St. Bank & Tr. Co., No. CV 11-10230-MLW, 2020 WL 949885 (D. Mass. Feb. 27, 2020), appeal dismissed sub nom. Arkansas Tchr. Ret. Sys. v. State St. Corp., No. 20-1365, 2020 WL 5793216 (1st Cir. Sept. 3, 2020).  

Ultimately, the issues caused Judge Wolf to cut the fee award from the $75 million he initially approved to $60 million.  Within the final fee allocation, he left the fees untouched for the firms which had not participated in any misconduct and taxed the investigation costs to the firms found to have been less than fully candid. 

Judge Wolf also made very specific findings about the need for class counsel to avoid stating that they “regularly charge” certain rates when they are pure contingency firms.  Consider the findings with respect to Thornton and Labaton. 

As to Thornton:

Garrett Bradley did not, as required by Federal Rule of Civil Procedure 11 and the Massachusetts Rules of Professional Conduct, read the fee declaration in support of the fee request that he signed under oath before it was submitted to the court on behalf of Thornton. It included many false statements. For example, Bradley represented that certain attorneys were employed by Thornton and that the hourly rates attributed to them for the purpose of calculating Thornton’s lodestar were “the same as my firm’s regular rates charged for their services, which have been accepted in other complex class actions.” G. Bradley Decl. ¶4 (Dkt. No. 104-16) (emphasis added). However, Thornton worked solely on a contingent-fee basis. It had no clients who paid the firm on an hourly basis and no “regular rates charged” for its attorneys. In addition, Michael Bradley was not, as represented, employed by Thornton. Nor had the firm, as Garrett Bradley claimed, ever charged $500 an hour for his services, which in this case were worth far less.

As to Labaton:

Labaton also repeatedly violated Rule 11 and the related Massachusetts Rules of Professional Conduct. Sucharow filed a sworn declaration stating that the lodestar calculations of all of plaintiffs’ firms that he submitted were “based on their current billing rates.” Dkt. No. 104, ¶176. This was not true with regard to Thornton, at least. A reasonable inquiry — such as a question to Garrett Bradley who was also Of Counsel to Labaton — would have revealed Sucharow’s sworn statement to be untrue. However, evidently neither Sucharow nor anyone at Labaton made any inquiry at all
 
. . .
Sucharow also falsely claimed that the rates attributed to Labaton attorneys were “the same as my firm’s regular rates charged for their services, which have been accepted in other complex class actions.” Dkt. No. 104-15, ¶7 (emphasis added). When Sucharow made this statement under oath he believed that Labaton did not have any clients who were charged or paid hourly rates.
Reading this, I think the obvious take away for class counsel has to be that you want to be careful and clear when you seek fees, particularly before Judge Wolf.  In the State Street case, class counsel ended up taking home $15 million fewer dollars and walked out with a referral to go talk to the Massachusetts Bar as well.   
 
Ultimately, the lesson is easy to learn.  If you’ve never actually charged a client a particular rate on an hourly basis, you shouldn’t say that your firm “charges” those rates or imply that you get paid that much on an hourly basis to value your time.  I expect you could probably get just as much money approved in a fee award without making those statements.  Be factually accurate in representations to the court and you’ll take millions more home.
 
This brings me to a very recent new decision.  It features two of our old friends, ATRS and Judge Wolf.  Arkansas Tchr. Ret. Sys. v. Insulet Corp., No. CV 15-12345-MLW, 2021 WL 2635204 (D. Mass. June 25, 2021). This time, a different cast of class counsel sought fees for representing ATRS in another suit against Insulet Corporation.  The firms submitted sworn declarations in support of their fee requests.  You can probably guess where this is going.  A subset of class counsel, here Bernstein Litowitz Berger & Grossmann LLP (“Bernstein”) and Glancy Prongay & Murray LLP (“Glancy”), made the same mistake as Labaton and Thornton.  
 
Judge Wolf clearly has an eye on this issue.  He asked class counsel if they knew about what happened the last time ATRS showed up in his court.  Class counsel “represented that he was ‘familiar with the issues that prompted [this court] to appoint a special master to review the award of attorneys’ fees in the Arkansas Teachers v. State Street case.’” 
 
Despite that, when the fee requests came in, the sworn declarations for two firms made the same mistake.  Two other firms did not.
 
As to Bernstein:
Bernstein’s lodestar that “[t]he hourly rates for the attorneys … in my firm included in Exhibit 1 are the same as the regular rates charged for their services, which have been accepted in other securities or shareholder litigation.” Docket No. 129-3 at ¶4. At the August 2, 2018 hearing at which the proposed settlement was approved, Mr. Harrod stated that Bernstein works on a contingent fee basis and did not have any clients who had actually paid the hourly rates represented in his affidavit to be the regular rates charged for the services of the attorneys who worked on this case. See Aug. 2, 2018 Tr. (Docket No. 136) at 38. Mr. Harrod also stated that the preparation of the fee petition had been supervised by ATRS’ Executive Director George Hopkins, who was also centrally involved in the State Street case. Id. at 31-32, 57.
 
As to Glancy:
A partner in another firm seeking part of the requested award of attorneys’ fees, Joshua L. Crowell of Glancy Prongay & Murray LLP (“Glancy”), also stated in his sworn declaration that with regard to Glancy’s lodestar “[t]he hourly rates for the attorneys … in my firm included in Exhibit 1 are the same as the regular rates charged for their services, which have been accepted in other securities or shareholder litigation.” Docket No. 129-5, ¶3. However, at the August 2, 2018 hearing Mr. Crowell too stated that his firm worked almost exclusively on a contingent fee basis and had very few paying clients. See Aug. 2, 2018 Tr. at 37. He could not say that any client had ever paid what were represented to be the regular rates charged for the Glancy attorneys who worked on this case. Id. at 38.
 
Every firm in this business line should just update the language in their templates at this point.  It’s an easy problem to avoid.  The other firms simply described their fees as “[t]he hourly rates for the attorneys included in Exhibit 1 are their customary rates; my firm’s hourly rates have been accepted in other securities litigation” and ““[t]he hourly rates for the attorneys and professional support staff in my firm included in Exhibit 1 are the same as the regular rates which have been accepted in other securities or shareholder litigation.”  Judge Wolf didn’t raise any issue with those representations.
 
Judge Wolf explained that this is an expensive mistake to make:
In this case, absent important public policy considerations, the other traditional factors would cause the court to award 25% of the common fund, $4,875,000, as attorneys’ fees, and allow the four firms sharing them to divide the fee award in proportion to their respective lodestars as they agreed. See Aug. 2, 2018 Tr. at 34:20-28. However, as described earlier, in 2018, in calculating and presenting to the court their lodestars, Bernstein and Glancy each represented that they had used the “regular rates charged for their [attorneys’] services” and this was not true.
 
As also described earlier, essentially the same false and misleading statement was made by several firms in State Street. Those statements contributed to this court’s decision to appoint the Master and, ultimately, to award attorneys’ fees in the amount of 20% of the common fund, $60,000,000, rather than the 25%, $75,000,000, requested.
Judge Wolf did essentially the same thing here.  He cut the fees.  This time he awarded 23% in fees and shifted the allocation. Class counsel walked out with $4,608,240.  It’s a solid fee award, but they could have had about $270,000 more had they not made the same mistake. The firms that did not make the misrepresentation got what they would have received had there been a 25% award.  The firms that did picked up their share of the 23%, less the amount needed to keep the fee award as if it were at 25% for the innocent firms.  
 
Judge Wolf also made findings about ATRS’ failure to supervise class counsel.  Judge Wolf noted that ATRS’ Executive Director George Hopkins had supervised the litigation in the State Street case as well.  This gave him a great opportunity to learn to watch for this problem.  In asking for a service award, as the lead plaintiff, ATRS specifically declared that it “undertook to review the reasonableness of the proposed award of attorneys’ fees and evaluated lead counsel’s fee request.”  Judge Wolf  noted that this ” review and evaluation was done, at least in part, by George Hopkins.”  Despite that, two firms still made the same mistake.  Judge Wolf denied the request for the fee award.
 
Judge Wolf also went on to make some findings which may cause class action firms to put ATRS out to pasture as a client.  He noted that he found that ATRS was “deficient in directing and supervising” its counsel in State Street.  Judge Wolf denied the service award “in the hope that this frequent lead plaintiff, at least, will be encouraged to supervise its counsel properly in future cases.”
 
In the next large securities class action, lawyers might want to be careful about going into a lead plaintiff dispute for control of some other action with ATRS as their client.  Even if ATRS lost more money than some other fund, it wouldn’t surprise me if a court put a different plaintiff in charge of the class action because of this mess.