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Class action lawyers fighting Cox Enterprises in Fulton County, Ga., have avoided the fate of their counterparts in Delaware, where a judge ridiculed and cut a $4.95 million fee request by about 75 percent. Late last month, Fulton Superior Court Judge Constance C. Russell awarded all of the requested $1.25 million in fees to Atlanta lawyers Corey D. Holzer and Michael I. Fistel Jr. of Holzer & Holzer; Steven J. Estep of Cohen, Cooper, Estep & Mudder; and other lawyers. They represented a class of Cox Communications shareholders upset by what they perceived to be a low-ball offer by Cox Enterprises to purchase the portion of the cable TV giant it didn’t already own and take the company private. In suits filed in August, the plaintiffs sought to enjoin the transaction. But after negotiations between Cox Enterprises and a special committee of independent Cox Communications board members — and to a lesser extent the plaintiffs lawyers in the Georgia and Delaware cases — a deal was struck last year for Cox Enterprises to acquire other shareholders’ stock for $8.5 billion, $675 million more than the company originally offered. On June 6, a judge in Delaware’s Chancery Court credited the higher price to the work of the committee, which included former Atlanta Mayor Andrew Young, and not to the lawyers, some of whose filings the judge blasted as “hastily drafted throwaways.” The judge, Vice Chancellor Leo E. Strine Jr., slashed the Delaware lawyers’ $4.95 million fee request to $1.28 million, or roughly $500 an hour plus expenses. Strine called the award “more than generous,” noting that “aside from the dashed off complaints and confirmatory discovery, there was little actual litigation work done, aside from the settlement negotiations themselves.” Russell’s June 29 order granting the fee requests of the Fulton plaintiffs lawyers did not elaborate on the request presented to her by the class action lawyers. The judge could not be reached to discuss this case. DELAWARE VS. FULTON A key difference between the two cases was that a group of shareholders in the Delaware case filed official objections to the fee requests, while in Atlanta, the lawyer for those shareholders informally submitted information from the Delaware case to argue that the lawyers in the Fulton case provided little, if any, benefit to the shareholders they represented. “It’s hard to imagine they put in any appreciable work on this case,” said the lawyer, Elliott J. Weiss, a professor at the University of Arizona’s James E. Rogers College of Law. . “I’m disappointed that given the information the judge had before her she still thought these people were entitled to one-and-a-quarter million dollars,” added Weiss, who co-authored a 2004 Vanderbilt Law Review article titled “File Early, Then Free Ride: How Delaware Law (Mis)Shapes Shareholder Class Actions.” Holzer said “splitting hairs” between the work accomplished by the special committee and the litigation was a “dangerous exercise.” “These minority shareholder suits under these circumstances put additional pressure on management to pay a full and fair price,” he added. A review of the docket indicates that much of the Fulton litigation surrounded the defendants’ unsuccessful bid to stay the action. Russell ruled against the stay, but no deposition discovery took place until after the two sides signed a memorandum of understanding in October agreeing to settle the case. The Fulton lawyers were permitted to participate in the depositions set up by the Delaware attorneys, but according to an affidavit from the lead counsel in that case, “the participation of the Georgia plaintiffs amounted to asking a handful of questions at the end of three of the depositions and no questions at two of the depositions.” Holzer said the Fulton lawyers asked only a few questions because they did not want to repeat the inquiries posed by the Delaware attorneys. Holzer did not know how many hours he and his co-counsel put into the case, and he did not provide information on his expenses. The other lawyers on the plaintiffs’ team were Nadeem Faruqi and Anthony Vozzolo of Faruqi & Faruqi in New York and Brian J. Robbins and Marc M. Umeda of Robbins Umeda & Fink in San Diego. Peter C. Canfield of Dow, Lohnes & Albertson, who worked for the defendants in the Fulton case, noted that the memorandum signed by the two sides stipulated that the defendants would not oppose the fee request. He would not comment further on the litigation. In addition to Canfield, other defense lawyers included Peter D. Coffman of Dow, Lohnes & Albertson and M. Robert Thornton and Cheri A. Grosvenor of King & Spalding. BUYOUT PLAN The suits in Fulton and Delaware stemmed from efforts by the Cox family, who already owned about 62 percent of Cox Communications, to buy the remaining shares held by the public and take the company private. The family owns Atlanta-based Cox Enterprises, a broadcast, newspaper, radio and auto-trading conglomerate that does about $10 billion of business a year. When the deal took place, Cox Communications became a subsidiary of Cox Enterprises. With approximately 6.6 million customers, Atlanta-based Cox Communications is one of the largest cable companies in the country. Strine’s 86-page decision details how the deal developed through negotiations between Cox Enterprises and the Cox Communications committee — with little credit given to the plaintiffs lawyers. He noted that he had never seen a case where class action counsel disagreed with the price obtained by a special committee. Strine described the current legal environment of class action shareholder suits, the competition among firms for the coveted lead counsel spot and the need for what he sees as an unfair advantage for class action lawyers created by the decision in a 1994 Delaware case, Kahn v. Lynch Communication Systems, 638 A. 2d. 1110 (Del. 1994). The Cox family offered $32 per share as an initial bid and announced that a special committee of independent Cox Communications directors would be responsible for negotiating a deal on behalf of minority shareholders who were being bought out. As Strine noted in his order, the proposed buyout required the approval of the special committee. Strine said the Aug. 2 announcement of the proposal set in motion two strands of activity: the formation of the special committee and the “race to the courthouse by various plaintiffs.” The flurry of complaints began at 8:36 a.m. on the day of the announcement. Strine described the suits as premature, hastily drafted and serving no purpose other than for a particular firm to position itself to be chosen as lead counsel. Eventually, Strine said, plaintiffs lawyers filed 13 complaints in Delaware and three in Georgia. In Delaware, the vice chancellor said, a “food fight” ensued among the plaintiffs firms for lead counsel status. No such jockeying occurred here, according to Holzer. Despite criticizing the “entirely boilerplate” allegations contained in their initial complaint, Strine selected New York-based firm Abbey Gardy as lead counsel based on the size of its clients’ holdings, the support it had from other firms and the “improved (if still premature)” second complaint it filed. Meanwhile, the members of the special committee — Janet M. Clarke, president of Clarke Littlefield; Rodney W. Schrock, president and CEO of Panasas Inc.; and Young, a former U.N. ambassador — selected Fried, Frank, Harris, Shriver & Jacobson to serve as their legal counsel and Goldman Sachs as their financial adviser. The special committee worked with Goldman Sachs to develop a presentation for the Cox family’s financial advisers, Strine wrote. Strine said the presentation “was designed to impress upon the family the special committee’s view that Cox had a bright future and should be valued much higher than the proposal’s $32 per share price.” On the legal side, attorneys from Fried Frank met with the Cox family’s lawyers to express the special committee’s desire that any merger or tender offer transaction be subject to non-waivable approval by the majority of the minority shareholders. ‘JOUSTING OVER VALUE’ Strine’s order states that the family and the special committee then began “jousting over value.” On Oct. 11, the family raised its bid to $33.50 per share, an offer the special committee said it would reject. The following day, the plaintiffs in the Delaware case, through lead counsel Arthur N. Abbey of Abbey Gardy, were invited to brief the family’s financial and legal advisers on what they thought about the company’s value. However, Strine noted that the negotiations with the plaintiffs counsel remained separate from the family’s talks with the special committee. At that meeting, the plaintiffs’ financial adviser said the family should raise its bid to at least $38 a share. Abbey could not be reached to discuss the case. On Oct. 15, the special committee met with James C. Kennedy, president and CEO of Cox Enterprises who had also served as chairman of the Cox Communications board since 1994. Kennedy told the special committee that he might be willing to raise the tender offer to $34.50, but he also said the family would “cease consideration of taking Cox private” if the offer were rejected, Strine wrote. Clarke, who served as chairwoman of the committee, rebutted the offer, saying the committee was not prepared to accept less than $35.25 per share. The negotiations broke off at that point, but Clarke and Kennedy resumed their talks later in the day. This time, Clarke told Kennedy the special committee was prepared to approve $35 per share. Kennedy offered to split the difference and proposed a $34.75 share price. Clarke accepted. Afterward, Kevin G. Abrams of Richards Layton & Finger, who served as the family’s litigation counsel, called Abbey to tell him about the $34.75 offer. Abrams indicated that the offer was the “best and final” price the family would agree to. “In other words,” Strine wrote, dismissing the value the plaintiffs lawyers added to the negotiations, “Abbey was told the proverbial train was leaving the station.” The Delaware lawyers and the family’s legal advisers agreed on a memorandum of understanding stating that the Cox family wanted to settle the action and would acknowledge the part played by the plaintiffs’ counsel in causing them to increase their bid to $34.75. The lawyers in the Fulton case executed a similar memorandum on Oct. 18. Strine wrote that only after the settlement did the parties begin discussion of the plaintiffs’ attorney fees. In those negotiations, Strine noted that the Cox family agreed not to oppose a fee request of up to $4.95 million by the Delaware lawyers. Separately, the family agreed not to oppose a fee request by the Georgia plaintiffs lawyers of $1.25 million. On Dec. 8, the Cox family completed the acquisition of the minority interest in Cox Communications. OBJECTING TO FEES The family may have agreed not to oppose the fee request, but objectors — led by the University of Arizona’s Weiss — surfaced to argue against the $4.95 million payday pending in the Delaware court. The objectors included a private investor named Jeffrey Zoub and 11 funds managed by Franklin Mutual Advisers. To buttress their argument that $4.95 million was a reasonable request, Strine said the plaintiffs counsel “naturally tout” the size of the “supposed benefit they helped create” — some $675 million as measured by the difference between the family’s initial $32 offer and the final price of $34.75. The vice chancellor also noted the Delaware counsel put in a collective total of 2,300 hours on the case and paid $200,000 for their financial adviser. Computed as an hourly rate, the plaintiffs would have earned $2,009 per hour. Strine thought that was too high. He first noted that the size of the benefit was “largely a product of the size of the transaction itself.” He also stated that he did not believe the plaintiffs were responsible for more than “a very small amount of the difference” between the initial bid and the final negotiated share price. In addition, the plaintiffs “replicated arguments” already made by the special committee. He also dismissed the plaintiffs counsel’s contention that they deserved to be compensated because they assumed some risk in pursuing the litigation. “As far as risk is concerned,” Strine wrote, “I can discern no appreciable risk taken by the plaintiffs’ lawyers.” Strine noted that Cox Communications was a “valuable company” with a large number of outstanding shares, so even a small price move would be worth “tens of millions of dollars.” Also, given the standard of review outlined in Kahn v. Lynch Communication Systems, Strine said the plaintiffs knew the defendants would have “incentive to settle” because the defendants would not be able to get “an amended complaint alleging financial unfairness” dismissed. Strine settled on an award of $1.28 million, with $1 million representing the Delaware attorney fees and the rest covering their expenses. The class action lawyers have already filed a notice of appeal, according to Weiss.

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