U.S. District Judge Charles Breyer, Northern District of California (Jason Doiy / The Recorder)
SAN FRANCISCO — It took less than 10 minutes Monday for a federal judge to kill the most controversial aspect of a proposed deal to end derivative claims over Hewlett-Packard Co.’s 2011 buyout of Autonomy.
U.S. District Judge Charles Breyer of the Northern District of California said under no circumstances would he approve an unconventional arrangement whereby plaintiffs lawyers would net $18 million plus sizable contingency fees by teaming up with HP in litigation against Autonomy executives.
“I’m not going to approve the fee arrangement, period,” Breyer said. “That’s out.”
Plaintiffs lawyers with Cotchett, Pitre & McCarthy and Robbins Geller Rudman & Dowd struck the deal with HP in July. It has drawn fire from one of Autonomy’s former executives, as well as from plaintiffs lawyers fighting HP in other securities suits.
Breyer said he would consider approving portions of the settlement, which include governance reforms by HP. He will address those reforms Sept. 26, as well as whether critics of the settlement have the right to intervene. Those protesting the deal include Sushovan Hussain, Autonomy’s former chief financial officer, who HP has called out as a target of its future litigation.
But Breyer’s stance didn’t placate several attorneys in the courtroom who were determined to speak out against the settlement, even without the fee arrangement.
“This is a joke,” said John Keker of Keker & Van Nest, who represents Hussain. “If it was a carcass, animals would walk around in it, it stinks so much.”
Instead of shining a light on what went wrong in the Autonomy acquisition, Keker said, the Cotchett Pitre lawyers backed down after HP “paid them off.”
HP attorney Marc Wolinsky of Wachtell, Lipton, Rosen & Katz argued Hussain has no legal standing.
“That’s false,” Keker interrupted.
Wolinsky continued, insisting the settlement wouldn’t infringe on Hussain’s right to defend himself against future claims brought by HP.
“That’s almost utterly false,” Keker broke in.
Breyer suggested Monday that enshrining a partnership between Cotchett Pitre and HP’s attorneys within a formal settlement would carry no clear benefit to shareholders. But, he told the law firm, there’s “nothing to prevent [HP] from hiring you on the market if they want to.”
The judge appeared to be on board with HP’s proposed governance reforms, which he called “simple common sense.”
However, Breyer said he needed more time to consider whether to grant preliminary approval of the settlement. He hadn’t realized the attorneys were willing to cut the guaranteed retainer for Cotchett Pitre and Robbins Geller from the deal, Breyer said, and had been ready to deny the motion based on that “potentially fatal issue.”
“It did occur to me,” he said, “that we would have a new derivative action questioning the propriety of the retention of a law firm for $18 million.”
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