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Enron Fee Fight? Not Necessarily
The American Lawyer
September 11, 2008
Coughlin Stoia Geller Rudman & Robbins has come too far for a fee fight.
That's what sources familiar with the record-setting $688 million payout approved by a U.S. District Court in Houston say when asked if the disbursement to the 16 firms serving as counsel in the Enron securities litigation will turn into yet another messy class action fee fight.
As court-appointed lead plaintiffs counsel to the Enron class action's lead plaintiff, the Regents of the University of California, Coughlin Stoia controls the purse strings on the mammoth fee awarded by Judge Melinda Harmon.
The reasoning behind that is simple.
"Courts have enough trouble deciding the actual fee, they don't usually want to get into how the fee gets allocated among all the contending firms," says Columbia Law School professor John Coffee, a frequent class action critic hired by Enron plaintiffs counsel to support their fee request. "So almost always the court leaves that to the discretion of the lead class counsel, and sometimes there are disputes and lawsuits."
But the process by which those lawyers get paid is often more cordial than many suspect, says John "Sean" Coffey. Coffey is a partner at plaintiffs firm Bernstein Litowitz Berger & Grossmann, which served as co-lead plaintiffs counsel in the $6.15 billion WorldCom class action settlement. That payout held the title as the largest in class action history until the $7.2 billion Enron bomb dropped.
"While there are sometimes differences of opinion, they're usually resolved before litigation," Coffey says. "I was a defense lawyer [at Latham & Watkins] for a long time and I saw uglier fee fights on the defense side than on the plaintiffs side."
In most class actions, says Coffey, lead counsel have the discretion to distribute the fees consistent with its conclusions about the contributions made by various lawyers. A number of factors are taken into account when determining a firm's potential fee, he says. A plaintiffs firm that conducts primarily low-level document review, for instance, will see that has a negative effect on their eventual allotment. Upward drivers for fees would be lawyers with more seniority taking depositions and appearing in court for the class.
The considerable expenses associated with running large class action cases are also considered when coming to any final fee allotment, especially since plaintiffs firms sometimes decline to take on other work when locked in a contentious piece of litigation.
"If a firm contributed 25 percent of expenses, then they were putting their money at risk as opposed to someone else who contributed nothing to the litigation fund," Coffey says. "It's almost like, 'Your word is your bond,' and people are very interested in being perceived as being fair in these kind of disputes." Another regulator of good behavior: Down the road, some of the 16 firms taking part in the Enron settlement -- see attached list below -- could find themselves in a position similar to the one Coughlin Stoia is in now. That can reduce their inclination to fuss over fees. (Coughlin Stoia will likely reap the lion's share of the fees -- nearly $400 million, The Wall Street Journal estimates -- in the Enron case.)
"Many of the firms [involved] have worked with one another before and will probably do so in the future, so they don't want to burn bridges," says Steven Williams, a partner at Burlingame, Calif.-based plaintiffs firm Cotchett, Pitre & McCarthy. The firm, which represented the University of California in the WorldCom class action, now represents several investors who have opted out of the current Enron class action settlement. Another factor motivating plaintiffs lawyers to work out their differences away from the courts, says Coffey, is that the client might be called in to mediate a potential fee fight.
"If a firm did work on behalf of the [Enron] class and is claiming an interest in the fees, we have a role in making a determination on what they contributed, how much, and whether they are entitled to be paid," says Christopher Patti, university counsel for the Regents. "We would mediate or consult with regard to distribution among the firms, but once payments are made to the firms, we don't have any role in the distribution of money among people within those firms."
Patti says firms representing Enron plaintiffs worked in varying capacities with Coughlin Stoia and the firm that preceded it as lead counsel, Milberg Weiss (now Milberg). The Regents will review Coughlin Stoia's proposed distribution of the attorney fees, he says, and if there are any disputes, further discussions among the lawyers will be held. The current plan is to begin fee disbursements sometime within the next few months. "They've been working like crazy on this case for more than six years now without being paid," Patti says. "So we recognize their desire to get this done quickly and finally get compensated."
Coughlin Stoia would not comment on how attorney fees would be disseminated, other than to reference a notice by Judge Harmon on the settlement fund's planned allocation. Calls to several other firms that did Enron-related work were unreturned at press time.
But Milberg, which preceded Coughlin Stoia via the two firms' mutual class action rainmaker -- the now incarcerated and recently disbarred William Lerach -- is careful to note that it also has claims to the fees approved by Judge Harmon.
"Milberg is entitled to a portion of the Enron fee pursuant to a formula agreed upon when Lerach Coughlin was formed," said firm executive committee member Sanford Dumain in a statement to The Am Law Daily. "The precise amount is not known at this time."
Patti, in-house lawyer for the Regents, notes that any disbursements made to Milberg or Lerach will be made in line with separate agreements Coughlin Stoia has with the two and without input from the lead plaintiff. Bernstein Litowitz's Coffey, who spent years toiling for a portion of the $330 million in fees awarded in WorldCom (about 5.5 percent of the total settlement), is more impressed with how the final Enron settlement topped WorldCom and took him out of the boresight of tort reformers.
"[Coughlin Stoia] are rivals and competitors, but they clearly earned that fee," he says. "They worked for seven years without being paid and my hat is off to them."
Download list of Enron plaintiffs law firms
