A federal judge has awarded more than $31.5 million -- and several pointed observations -- to lawyers who spent eight years battling The Coca-Cola Co. over whether it artificially inflated revenue figures to boost stock prices.
The legal fees, as well as other administrative costs and the lead plaintiffs' expenses, will be deducted from a $137.5 million settlement fund, according to an order handed down Nov. 7 by U.S. District Court Judge Willis B. Hunt, who declared in his order that "class counsel were clearly not motivated entirely by notions of charity and a pursuit of justice for its own sake."
Last summer, Coke settled the securities fraud suit with shareholders for $137.5 million, agreeing to pay shareholders who bought Coke common stock between Oct. 21, 1999, and March 6, 2000, or who sold Coke stock between Dec. 6, 2000, and April 6, 2000, an estimated 53 cents a share, according to the settlement notice published in July.
Class counsel Coughlin Stoia Geller Rudman & Robbins -- once the firm of former name partner and disgraced class action king William Lerach -- will share a percentage of the fees with co-counsel from Atlanta class action boutique Chitwood Harley Harnes. Two other plaintiffs firms also will share in the fees -- Birmingham, Ala.-based Whatley Drake & Kallas and California firm Gergosian & Gralewski.
Neither attorney Martin D. Chitwood at Chitwood Harley nor Daniel S. Drosman at Couglin Stoia could be reached for comment.
Last year, Lerach, whose name has been stripped from Coughlin Stoia's letterhead, pleaded guilty to a single federal conspiracy charge to obstruct justice. At the time, federal prosecutors said the attorney's plea stemmed from a decades-long practice in which Lerach and former partners at the New York firm Milberg Weiss Bershad Hynes & Lerach secretly recruited and illegally paid people to be lead plaintiffs in class action cases initiated by the firm.
A statement attached to Lerach's plea agreement said that federal prosecutors agreed not to prosecute Coughlin Stoia or Lerach's former partners, Patrick J. Coughlin and Keith F. Park, for violations of federal law associated with the Milberg Weiss conspiracy.
In the case, Coke attempted last year to use Lerach's guilty plea to derail the securities fraud suit. Coke lawyers accused Lerach of having engaged in tactics in Atlanta similar to those he and a former partner have admitted employing in other class action cases.
Coke's settlement stemmed from allegations that the international beverage conglomerate engaged in a practice known as "channel stuffing," in which Coke pressured soft drink bottlers who bought concentrated Coke syrup into buying at least $600 million in excess concentrate.
The practice was intended to persuade Wall Street that Coke stock continued to be a good investment and that the company could sustain annual 8 percent to 10 percent increases in sales despite fundamental changes in the bottled drink market, according to the shareholder suit.
In 2005, the Securities and Exchange Commission hit Coke with a cease-and-desist order finding that between 1997 and 1999, Coke executives had engaged in "channel stuffing" in Japan. The income generated by the practice, according to the SEC, "was the difference between Coca-Cola meeting or missing analysts' consensus or modified consensus earnings estimates for eight out of 12 quarters from 1997 through 1999."
An expert witness retained by the shareholders had determined in a report included in the court file last year that shareholders' damages exceeded $1.3 billion.
When the case settled in July, class counsel sought fees valued at 26.04 percent of the settlement -- about $35,805,000 -- as well as more than $7 million in expenses and interest. In his order, Hunt expressed concern that the legal fees award could become "a windfall rather than just compensation for class counsel's hard work and risk." (Both firms litigated the case on contingency.)
The judge ultimately reduced percentage fees requested by counsel for the shareholders from 26.04 percent to 21 percent. He also trimmed more than $4 million from the lawyers' submitted expenses.
In doing so, Hunt made several pointed observations. Noting that class counsel claimed to have billed more than 47,000 hours in the eight-year case and that an expert said its per lawyer fees were "generally commensurate with that of Atlanta lawyers," Hunt found those rates "to be at the very high end of typical Atlanta rates."
Moreover, the judge wrote, "It further appears that a substantial majority of the work in this matter was performed by attorneys that tended to bill at higher rates while very little of the work was performed by associates with lower rates." As an example, the judge noted that of 24,914.15 hours billed by Coughlin lawyers, only 1,411.74 were billed by the 11 associates assigned to the case whose hourly rates were $350 or less. "This Court would find it surprising if only six percent of the work performed in this matter was of the type that could be performed by lower-level associates and that assumes that a $350.00 rate could be considered a lower-level rate," he wrote.
Of the four firms, Coughlin sought the largest expense reimbursements -- $6,863,986.54 -- which Hunt subsequently slashed by nearly two-thirds. In disallowing more than $4 million in expenses, Hunt said that "Coughlin has not established that the amount claimed represent out-of-pocket expenses rather than what they would bill a client as an additional source of profit."
Among the expenses Hunt disallowed was $93,960.67 for LexisNexis, Westlaw and Online Library Research, writing, "This Court is of the opinion that charging separately for use of a research sevice is akin to charging for the use of a case law reporter. That is, the research service is a tool, much like a computer or a pen, and this Court considers the use of such a service part of a firm's overhead. ... Moreover, this Court is aware that many firms pay a flat rate to Lexis and Westlaw regardless of their usage, and class counsel cannot claim such flat rate payments as an out-of-pocket expense."
Hunt also disallowed nearly $4 million in expenses paid to in-house forensic accountants, in-house damage analysts and in-house investigators. "While this Court understands that the use of in-house professionals might save money ... this Court will reimburse counsel for out-of-pocket expenses only, and class counsel has not demonstrated, for example, that it paid its accountant employees in excess of $3 million solely for the work performed in this action," Hunt wrote.
Hunt also reduced Coughlin's travel expense claims for 122 trips, 14 of them abroad. According to the judge's own calculations, if Coughlin spent an estimated $6,000 each for overseas travel, it would also have spent an average of nearly $3,000 for each of its 108 domestic trips, including an estimated $1,365.95 per person per night. That, Hunt noted, "is either excessive or it indicates that something is wrong with Coughlin's figures.
"This Court is not troubled by the apparent fact that Coughlin attorneys seek high comfort on their journeys," Hunt continued, "but neither should the class finance such a lifestyle. This Court finds that a client could reasonably expect to pay $300 per night for his attorney's food and lodging on domestic trips, and that is the level at which this Court will reimburse Coughlin for its travel."
The case is Carpenters Health & Welfare Fund v. The Coca-Cola Co., No. 1:00-cv-2838 (N.D. Ga.).