Daniel Kramer of Paul Weiss
Daniel Kramer of Paul Weiss (AP/Louis Lanzano)

A bitter battle is brewing over an unusually large compensation request from a class member in the SAC Capital civil case. The latest filing, on behalf of David Kaplan by Wohl & Fruchter, paints the scenario in David-versus-Goliath proportions, with Kaplan playing the protagonist to Steven A. Cohen‘s late firm.

The $135 million settlement never would have occurred without Kaplan’s efforts to organize class members after the conviction of a former SAC portfolio manager of insider trading, the attorneys for the class argue.

But defendants in the case don’t want Kaplan to get the approximately $800,000 in compensation beyond his share of the settlement as a member, according to Paul, Weiss, Rifkind, Wharton & Garrison partner Daniel Kramer. In a filing earlier this week, Kramer said the defendants are correct and “Kaplan’s excessive request is different.”

“Kaplan’s request sets a dangerous precedent,” Kramer wrote, because it would “improperly incentivize class members to view class actions as a vehicle for huge personal paydays” while making “a mockery” of Private Securities Litigation Reform Act awards (PSLRA).

Wohl & Fruchter partner Ethan Wohl, who represents Kaplan, contradicts these claims, saying the law supports the kind of actions that Kaplan took as the “‘most capable representative’ that a class can have.”

“Defendants do not dispute Mr. Kaplan’s instrumental role in initiating and prosecuting this class action, do not question that he devoted extraordinary efforts to it, and do not contest that those efforts yielded great benefits to the classes,” Wohl wrote in the filing Thursday.

Kramer, though, contends that Kaplan’s status in the case makes him ineligible. He opted not to become class representative in the case, nor counsel, as Kaplan was “not a litigator and was not even licensed to practice law during the pendency of this lawsuit.” This, Kramer said, makes him ineligible for a narrow carve-out in PSLRA for additional compensation should the court deem it appropriate.

“The fact is that no court approved Kaplan’s self-appointed role in this case, which, according to his declaration, principally consisted of spending hundreds of hours sending and receiving more than 30,000 emails and messages in an internet chat room, including 17,000 emails to, and spending hundreds of hours kibitzing with counsel, charging the class $540 an hour for his efforts,” Kramer wrote.

Kramer went on to argue that SAC’s acceptance of the settlement was based, in part, on a desire to see any additional monies in the settlement fund revert to two charities. And Kaplan’s payout would “likely be obtained at the expense of these well-deserving charities,” Kramer wrote.

SAC’s arguments amounted to the firm “personally attacking the individual who organized this case against them,” according to Wohl. Wohl contrasted SAC’s take on his importance in the case—and thus his compensation deservedness—with 110 members of the class writing in support of Kaplan, making SAC the “sole objectors” to the $800,000. And Wohl discounted SAC’s charitable concerns as being baseless, as “there is no genuine prospect that the funds available will exceed the claims made.”

Kaplan’s attorneys went on to call the claim that only defined class representatives were eligible for additional compensation “pure invention,” and that the key phrase “representative party” from the PSLRA can include lead plaintiffs, which was Kaplan’s status in the case. Additionally, the carve-out for reasonable costs and expenses provided by PSLRA in facts includes lost wages, which is the basis for Kaplan’s compensation figure, as established through circuit leading precedence in Hicks v. Morgan Stanley, 01-Civ-10071. The fact that Kaplan kept clear records of his time allows the court to know precisely what he should be compensated, Wohl asserted.

Wohl noted that, at the court’s request, he identified $100,000 as the largest sum an individual class plaintiff had received. Providing Kaplan with his substantially higher compensation request would fall far short of the dangerous precedent argued by SAC’s attorneys, Wohl said.

Quoting from the congressional record, Wohl pointed to the intent of the PSLRA to “encourage the most capable representatives of the plaintiff class to participate in class action litigation and to exercise supervision and control of the lawyers for the class.”

A settlement conference hearing before Southern District Judge John Koeltl is scheduled for 4:30 p.m. April 27.