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A Roseland, N.J., firm expects to get $1.5 million to $2 million in fees for winning a class action case against Smith Barney on behalf of brokers who forfeited proceeds in a stock compensation plan when they quit the company. Essex County Superior Court Judge Stephen Bernstein, who on July 7 ordered Smith Barney to return the value of stock in the plan, last week presented the parties with his order for a counsel fee award. But, as the underlying ruling is one of first impression that breaks with courts in other states, a long appeal is likely. Under the order, still unsigned, Nagel Rice & Mazie will receive 25 percent of the recovery amount, without prejudice to an application for an increased percentage for future work. The firm had applied for the 33 percent it negotiated with the class on taking the case in 2000. The judge also ordered Nagel Rice to provide a list of all class members by Feb. 27. Partner Bruce Nagel says the class has grown from 160 in July to 175 with an estimated $6 million in forfeited funds now. It could reach 250 members and $8 million in total forfeitures, he says. “The class has $8 million riding on it, so I hope it stands up [on appeal],” Nagel adds. Smith Barney’s attorney, Robert Del Tufo of Skadden in Newark, says he will appeal after Bernstein issues his final order. In a Feb. 4 letter to Bernstein, Del Tufo said appellate review of liability is “a fundamental condition precedent to ending this litigation.” Bernstein ruled in Rosen v. Smith Barney Inc. that the Smith Barney plan’s forfeiture clause violates the state wage withholding law, N.J.S.A. 34:11-4.4, “the spirit of [which] is to protect employees’ wages and to guarantee the receipt of their fruits of their labor.” Smith Barney, part of Citigroup in New York, continues to offer the plan in New Jersey and to its approximately 12,000 brokers around the country. Under the plan, brokers may buy restricted stock by payroll deduction at a 25 percent discount, but plan members who resign or are fired for cause forfeit stock acquired during the previous two years of enrollment. The plaintiffs argued that the plan puts illegal pressure on them to stay with the company in order to lock in their stock purchase values. The defense said the plan is voluntary and that brokers are capable of weighing the risks of enrollment. The suit is one of nine that former brokers have filed against Smith Barney and the first in which a judge had found the plan violates state law. “This case affects deferred compensation plans throughout the state and it’s a case of first impression, so the appeal could likely go as far as the state Supreme Court,” says Andrew Bronsnick, Nagel’s former co-counsel in Rosen, who has since joined West Orange’s Serruto & Associates. He does not expect to assist in the appeal. Similar state court suits were filed in Illinois and California. Federal court suits filed in six states were transferred to U.S. District Court Judge Robert Keeton in Boston as multidistrict litigation to be decided on a case-by-case basis. So far, in other states, the forfeiture provision has passed muster. On Oct. 23, Keeton found the clause legal under Florida law, and prior to the New Jersey ruling, Keeton ruled the company’s plan does not violate the law in cases from New York and Georgia. In David Schachter v. Travelers Group (the former parent of Smith Barney), a Superior Court judge in Los Angeles sustained the plan under California law, though an appellate court on Jan. 8 reversed the ruling because of a procedural error. It did not rule on the merits of the law, says the plaintiffs’ attorney, Ashley Posner of Los Angeles. Trial court decisions are pending in Illinois and with Keeton on cases arising from Louisiana, Colorado, Massachusetts and Connecticut. Del Tufo expressed confidence on winning on appeal shortly after Bernstein’s order in July, but last week he declined comment except to say the plan complies with New Jersey law and to reiterate his trial comments that the plaintiffs voluntarily participated. Bronsnick says it will be difficult for the appellants to rely on case law, since the only rulings on Smith Barney’s and similar deferred compensation plans are interpretations of other states’ law.

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