X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
New York Southern District Judge Lewis A. Kaplan smiled as he looked out at a sea of attorneys anxious to know where they stood in the bidding to become lead counsel in the antitrust case against New York City’s two major auction houses. “Are the Knicks playing here this afternoon?” he asked the crowd of 66 lawyers assembled in his courtroom last Friday. The attorneys wanted to know if there had been any change in the unique bidding system set up by Kaplan to assign the lucrative lead role in the case against Sotheby’s Inc. and Christie’s International. In April, Kaplan certified a class of thousands of people who bought and sold items through the two auction houses after 1993. The suit, filed earlier this year, alleges that Christie’s and Sotheby’s conspired to fix a common rate schedule for premiums charged to buyers — and that the price fixing was extended to sellers’ commissions in 1995. In addition, a federal grand jury has been probing the auction houses for over three years. Making lawyers bid for the position of lead counsel is not a new development in class actions, but the three-tiered system devised by Judge Kaplan is — and some attorneys attending the pretrial session urged the judge to abandon the approach. Bidding firms were told to offer proposals in the following formula: 100 percent of gross recovery up to and including X goes to the class; the amount between X and Y goes to the law firms; and anything over Y is divided, with 75 percent going to the class and 25 percent going to the law firms. Firms also were required to submit their qualifications, evidence that they have fully evaluated the risks and rewards of the litigation, and a memorandum explaining the basis for their bid. Finally, the bidders must certify that they have not communicated with other bidders about the process, any defendant concerning settlement or any other firm with an eye toward providing legal services should the bidder be selected as lead counsel. In February, Kaplan appointed six attorneys as interim lead counsel until the winning bidder is chosen. And the hearing on Friday revealed some anxiety among lawyers as to whether interim counsel, who had met with Sotheby’s and Christie’s and seen some of the auction houses’ internal documents, had an edge in devising their bids. After an hour of wrangling on that issue, Lawrence A. Sucharow of Goodkind Labaton Rudoff & Sucharow got to the heart of the matter. “We are all assuming that your honor is committed to the auction process?” Sucharow, who represents plaintiffs, asked. “I personally don’t think that an auction is the right way to go.” Sucharow and others argued that submitting bids with fixed price ranges made little sense because it was too speculative. One lawyer complained the process was inherently unfair and beseeched the judge to “level the playing field.” EXPERTS DISAGREE But the judge was well aware that the approach was controversial. In order to encourage a vigorous debate he had already solicited briefs on the issue from academics. “You are all in the process of being served with amicus from several scholars,” he said. “I can tell you already that they don’t agree with each other. What a surprise.” Two of those who weighed in on the issue — Professor Jonathan R. Macey of Cornell Law School and Professor John Coffee Jr, of Columbia Law School — had different views of the formula. “I think it’s very sound,” said Macey. “It’s extremely practical, it’s simple — and it deals with some of the classic incentive incompatibility issues that arise in determining how to serve the best interests of the class.” Coffee, while supporting innovation in the field, took an opposing view. “Other judges have assumed you would use a percentage and they ask you to use a percentage by declining percentage formula,” Coffee said. “He [Kaplan] understands that the declining percentage formula may result in underinvestment or underfunding in class actions and hence a weaker settlement.” The problem, Coffee said, is “the structure he is using may cause a conflict.” Suppose, he said, that the winning bid calls for the class to receive the first $20 million, the lawyers to receive anything between $20 and $30 million and anything above $30 million to be split on a percentage basis. “Think about what happens when a defendant says ‘we don’t think it’s a strong case’ and they make a settlement offer of $22 million,” he said. “The plaintiffs’ attorney has no interest in accepting that offer because all of the recovery goes to the plaintiff class — but that might be all that the case is worth.” “Where is the conflict there ?” countered Macey. “You still have the same incentives to do a good job, I would work pretty hard to get that 25 percent.” VOLUNTEERS A show of hands in the courtroom Friday revealed that a minimum of 15 firms will be submitting bids. One lawyer said that, under the current system, his firm would not be participating. Others remained undecided. When one attorney asked the judge to reconsider, or at least that they be given more time, Kaplan said “you have to get in at the starting gate.” He reminded those assembling bids on the spot that “the night depository is open for anything you want to submit.” Stephen D. Oestreich of New York’s Wolf Popper was in the camp of those who said the formula ignores the uncertainty that comes with cases of this size, where thousands of plaintiffs claim that Sotheby’s and Christie’s conspired to fix prices on the commissions received for auctioned items. “How anyone can know whether it takes two months or five years is beyond me,” Oestreich told the judge. After the hearing, Oestreich laughed as he stated his objection in plainer terms, calling the bid system “totally nuts.” But some lawyers said they favored Kaplan’s approach. David Boies of Boies & Schiller in Westchester County, N.Y., said he felt the competition would be good for the class members and fair for the law firms. Boies told the judge “it would be undesirable to put off bidding.” Daniel A. Osborn of Beatie and Osborn in New York said the dispute over whether interim counsel had seen some documents should not affect the bidding process. “All of us are going to have a difficult time coming up with X bid and I think there has been far too much emphasis on settling this case,” Osborn said. “We ask the court to pay attention to the quality of representation and not the bid.” WALKER’S WAY Soliciting bids to determine lead counsel in class actions has become more common since Judge Vaughn Walker of the Northern District of California first tried the method over 10 years ago in a shareholders suit involving Oracle Systems Corp. In addition to ensuring that members of the class receive the best possible representation, Walker said an auction process is better for lawyers who find themselves on the outside looking in when it comes to class actions. “Before, it was kind of a mystery, kind of a club,” he said. “The existence of the club was pretty clear, but how the client was lined up and found was kind of an art form. When I was in private practice, on both sides, it was very much inside baseball — and when you are dealing with a class action in which you have parties who aren’t there to protect their own interests, there is a need for an open process.” Walker has now used bids to determine lead counsel in at least four cases. He said “those firms who have been in the driver’s seat” do not like bidding, while those on the outside love the open competition. Somewhat surprisingly, his impression is that the major defense firms are not that enthusiastic. “They knew the players that were likely to emerge from the process — they were used to working with them and felt that anything that disrupted that selection process made it harder to settle the case,” he said. Friday’s hearing began with Assistant U.S. Attorney General John J. Greene asking to intervene and have the judge keep under seal, until Labor Day, 12 documents that could play a major role in a pending grand jury investigation of the auction houses. None of the lawyers present Friday favored sealing the documents and Kaplan seemed skeptical, although he agreed to review the documents in camera before making a final decision. INTERIM TEAM But the greatest concern for the attorneys was other information shared with the interim committee by Sotheby’s and Christie’s. Preliminary talks were held, but only on the most general basis. Actual settlement numbers were not exchanged. Michael L. Weiner of Skadden, Arps, Slate, Meagher & Flom, representing Christie’s International and Christie’s Inc. said the information included minutes of board of directors’ meetings and internal financial reports and analysis. Weiner said that, while his clients reluctantly allowed inspection of the documents by the interim committee, he was strongly opposed to showing that information to the multitude of firms who were in the courtroom — “so that someone can come up with an X number or a Y number” in their bid submission. Weiner’s statement was the equivalent of waving a red flag at lawyers who were not on the interim committee and sensed that their competitors were receiving a crucial edge in the bidding process. And interim committee member Stanley M. Grossman of Pomerantz Haudek Block Grossman & Gross in New York said the discussions were meant to explore “potential liability,” but conceded that “the information we received was more than what we might receive from public files.” Grossman said that his firm’s experts have come up with an analysis of what the case was worth and “it would be misleading to think that a degree of intelligence won’t be helpful in determining X and Y.” But interim committee member Frederick P. Furth of Furth, Fahrner & Mason in San Francisco downplayed the idea that committee members would have the inside track and said, in any event, it was too early to talk about a meaningful settlement. For his part, Kaplan said fashioning a reasonable bid is not rocket science. He said he sat down with his law clerk and made an estimate and “sure enough, the first bid that was opened up was right on target.” Still, Kaplan said he is leaving his options open and might take the “best bid on my desk, modify the structure or authorize resubmissions.’ “I could forget about the auction and do it the old-fashioned way,” Kaplan said. “And I can’t tell you how joyous a prospect it is to have to read 10,000 diaries.” In addition to Weiner, Christie’s is also represented by Skadden attorneys Christopher H. Aronson and John A. Donovan. Sotheby’s is represented by Steven Alan Reiss, Howard B. Comet and Edward J. Burke of Weil Gotshal & Manges in New York.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.