Shareholder Firms Clash Over Client Referrals

Shareholder Firms Clash Over Client Referrals Illustration by James Steidl

Thirteen years ago the shareholder litigation firms Brower Piven and Harwood Feffer worked together to tee up plaintiffs for an investor class action that ultimately settled for $586 million. But the relationship has since soured, judging by a new lawsuit in which Brower Piven claims Harwood Feffer stiffed the firm out of about $170,000 in referral fees.

In a complaint filed on Aug. 19 in U.S. district court in Manhattan, Brower Piven alleges that it referred more than two dozen investors to Harwood Feffer for a case known as In Re Initial Public Offering Securities Litigation, only to have Harwood Feffer name partner Richard Harwood back out of a verbal agreement to hand over a cut of his court-awarded attorney fees. Brower Piven and the law firm’s name partner, Charles Piven, brought the case against Harwood as well as his firm.

The contract dispute was a long time in the making. When the dot-com bubble burst in the early 2000s, plaintiffs firms brought 309 lawsuits alleging that underwriting banks rigged IPOs for hundreds of companies by creating artificial demand and driving up stock prices. Those lawsuits, brought on behalf of investors in the companies whose IPOs were at issue, were consolidated before U.S. District Judge Shira Scheindlin in Manhattan. She approved a $586 million settlement in 2009, following a decade of litigation.

Neither Brower Piven nor Harwood Feffer served on the plaintiffs executive committee in the litigation. But Harwood Feffer represented investors in 30 of the 309 original lawsuits.

According to last week’s complaint, the only reason Harwood Feffer had such a large role in the case is that beginning in January 2001, Brower Powen referred to the firm 27 clients with valuable claims. There was no written referral fee agreement between the firms, but Brower Piven claims that both parties understood,on the basis of prior dealings, that Harwood Feffer would pay “a referral fee amounting to 20 percent of the gross attorney fees received by Harwood net of Harwood Feffer’s expenses.” The firms adopted the same arrangement in subsequent cases against Household International Inc. and Charter Communications Inc., according to Brower Piven.

Harwood allegedly emailed Piven in March 2012 to say that his firm should only have to pay about $25,000. Harwood arrived at that figure using a different formula than the one the firms long stipulated to, Brower Piven alleges. A year later, Harwood “wrote to plaintiffs taking the erroneous new position that plaintiffs were entitled to no referral fees,” the complaint asserts.

Harwood didn’t return a call seeking comment. We also didn’t hear back from Brower Piven’s Brian Kerr, who filed the complaint on behalf of the firm and Piven.

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