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Attorneys Drop Fees in Shareholder Case Alleging Backdating
Revised deal in suit against Cirrus Logic is latest example of judge disputing fee terms
The National Law Journal
March 31, 2009
The plaintiffs lawyers in a shareholder derivative lawsuit involving allegations of stock-options backdating against Cirrus Logic Inc. have agreed, in a revised deal filed this month, to drop all attorney fees, which the judge in the case had described as "almost entirely unmerited."
The revised deal, which was approved on March 25, comes as judges in derivative actions involving the backdating of stock options have questioned the amount of attorney fees in cases involving noncash settlements. Last year, a federal judge in California initially rejected a settlement for similar reasons in a backdating case involving Zoran Corp.
"Judges are understandably concerned in these types of cases when the suit is brought on behalf of the company but, at the end of the day, there doesn't seem to be any tangible benefits flowing to the company, who is the client of the plaintiff's attorneys, and all the money seems to be flowing to the attorneys themselves," said Lawrence Gaydos, a partner at Haynes and Boone in Dallas, who represents one of the individual defendants in the Cirrus Logic case.
TOP-DOLLAR FEES
Settlements of shareholder derivative lawsuits often lack a cash component, said Patrick Conroy, vice president at NERA Economic Consulting. But backdating cases, in particular, have involved allegations of significant damages. "What happened in some of these cases is there are big arguments over whether or not there are damages," he said.
In the Cirrus Logic case, the plaintiffs alleged that backdated stock options had cost the company, an Austin, Texas.-based semiconductor business, an additional compensation expense of about $32 million, according to court documents. In re Cirrus Logic Inc., No. 07-CA-212 (W.D. Texas). The plaintiffs also alleged that several individual defendants had backdated their own options, benefitting from more than $52 million in insider trading proceeds. Cirrus Logic, they contended, had suffered "tens of millions of dollars" in damages.
In December, both sides submitted a proposed settlement that excluded cash, other than $100,000 that the former chief executive officer, David French, agreed to pay, according to court documents. The settlement encompassed a host of corporate governance reforms and $2.85 million in fees to the plaintiffs lawyers.
In a Jan. 8 order, U.S. District Judge Sam Sparks of the Western District of Texas rejected the agreement, noting that he could not "fathom ... how counsel feels they could have earned those fees. Viewed objectively, the attorneys are requesting top-dollar fees for their inability to be successful in this case."
The lead plaintiffs' attorney in the case, Joy Ann Bull, a partner at San Diego's Coughlin Stoia Geller Rudman & Robbins., did not return a call for comment, nor did other plaintiffs lawyers in the case, Joe Kendall of Kendall Law Group in Dallas and Eric Zagar, a partner at Barroway Topaz Kessler Meltzer & Check in Radnor, Pa.
Gary Ewell, a partner in the Austin, Texas, office of Houston's Vinson & Elkins, who represents Cirrus Logic as the nominal defendant, and Pat Lochridge, a partner at Austin-based McGinnis, Lochridge & Kilgore, who represents French, declined to comment.
In the revised settlement, the plaintiffs lawyers agreed to waive their fees and give $2.85 million to Cirrus Logic, according to court documents in the case.
