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It took Boies, Schiller & Flexner six months to make almost $27 million as lead counsel for plaintiffs in the price-fixing class action against Sotheby’s Holdings Inc. and Christie’s International. But both observers and participants of the unique auction system used by Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York to select lead counsel say the fee award for the $512 million settlement leaves plenty of room for debate. The formula for the blind auction established by Kaplan called for firms to present a minimum amount that would go to the class. The winner of the auction would then be entitled to 25 percent of any monies recovered over that amount. The minimum amount presented by Boies Schiller, $405 million, swept the field. “The way this auction worked, you had to calculate a number you thought you could achieve for the class,” said Daniel Osborn of Beatie and Osborn, who submitted a bid he said was somewhere above $300 million. “According to the bid requirements, you got no fee if did not recover that [minimum] amount for the class.” While Osborn was not surprised at the size of the winning bid, the same cannot be said for Lawrence A. Sucharow of Goodkind, Labaton, Rudoff & Sucharow, who was stunned by the Boies Schiller bid. “That was magnitudes higher than I thought bids would go for,” said Sucharow. Although his firm submitted a bid along with over 20 others firms back in May, Sucharow was vocal in his opposition to the auction process. “I think this is one situation where the auction process may have resulted in a lower payment to the class members,” he said. “The same fees could have been awarded under the traditional Rule 23 standards, based on the nature of case, the strength of the claims, the existence of parallel proceedings and the nature and quality of work performed.” Kaplan designed the auction procedure to ensure that class members received the best representation possible at the fairest price. From the beginning, he solicited the opinions of both competing counsel and academics who have studied the use of auctions in class action litigation, and at one point, changed the formula. One academic who submitted his opinion was John C. Coffee Jr. of Columbia Law School, who argued that the system established by Kaplan was flawed in that it presented a conflict of interest between the interests of lead counsel and those of the plaintiff class. Yesterday, Coffee said that the system worked in this setting, but that the same problems remain. “It did economize on the attorneys’ fees, but it wound up revealing just how sharp a conflict can arise between counsel and class under this specific auction formula,” he said. “Hypothetically, what if the highest offer the defendants were willing to make was $350 million? Then class counsel would have had a very strong self-interest in rejecting a settlement.” Coffee said a better system is one based on an increasing percentage formula, with lawyers recovering a higher percentage of increasingly higher recoveries. He said the U.S. Supreme Court has made it clear that the “determination of who is an adequate representative of a class cannot be determined by the nature of the settlement.” He also noted that the facts of the auction house litigation, which is still awaiting a hearing as a prelude to Kaplan’s final approval, are different because the suit was filed as Christie’s acknowledged it was cooperating with a federal criminal investigation into commission price-fixing between the two rivals. “I don’t want to say it was riskless,” Coffee said. “But it is a case that started out with a concession by Christie’s.” Osborn said the Christie’s concession should lead Kaplan to use his discretion and reconsider the award to the Boies Schiller. “What offends me is that this is really a classic example of the tail wagging the dog because Boies Schiller had the benefit of the criminal investigation and prosecutions,” Osborn said, adding that he nonetheless “loves the auction concept,” because it levels the playing field for small firms such as his own and Boies Schiller. “In a hundred-yard dash, they had a 50-yard head start, and to be able to coattail a criminal investigation should affect the fee award.” But Sucharow was not so sure. “I would certainly rather have Sotheby’s than some other cases,” he said. “But it’s certainly not a slam dunk. You have to have large cojones to bid $400 million in this case.” The hearing for the final approval of the plan is scheduled for Feb. 2. However, Kaplan has said in an order that he has a “substantial question” about whether the use payment of nearly 20 percent of the settlement amount in the form of discount certificates to reduce future sellers’ commissions, is “in the public interest.” The proposed payment of discount certificates amounts to $100 million of the $512 million settlement. Boies Schiller is also representing Vice President Gore in the Florida election litigation.

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