Photo: Diego M. Radzinschi/ALM

Two plaintiffs firms are urging New York judges to deny Reed Smith’s claim to $6.75 million in attorney fees for its work as co-counsel in a securities class action, claiming the traditionally defense-side firm misled them in stating it was free from conflicts.

Wohl & Fruchter, a four-attorney firm that was class counsel with Pomerantz, contends Reed Smith should not be allowed any portion of a $27 million attorney fee award obtained in May in the class action against SAC Capital Advisors and other defendants.

“No reasonable attorney would have supported Reed Smith’s continued representation of the plaintiffs,” said the class counsel firms, represented by Paduano & Weintraub in the fee dispute, in explaining why the firm was terminated.

The fee dispute became heated in June when Reed Smith filed a lawsuit in Manhattan Supreme Court against Wohl & Fruchter and name partner Ethan Wohl, alleging tortious inference with a contract and unjust enrichment.

Reed Smith claims that Wohl & Fruchter, when looking for co-counsel, realized that it was a small firm “overmatched by the resources available to the SAC defendants,” represented by Paul, Weiss, Rifkind, Wharton & Garrison, Willkie Farr & Gallagher, Goodwin Procter and Bracewell.

Under its engagement letter, Reed Smith said it immediately committed significant resources to the SAC action. And soon after Reed Smith filed notices of appearance in the case, the SAC defendants reached out to Wohl for settlement discussions, Reed Smith said.

“Reed Smith’s appearance was the obvious catalyst for the settlement discussions, which proved to be successful,” the firm claims.

But Reed Smith asserts that when counsel for the SAC defendants at Paul Weiss mused about a possible conflict involving Reed Smith before Southern District Judge John Koeltl, the Wohl firm saw an opportunity to eliminate Reed Smith. “[Wohl] intentionally exploited Paul Weiss’ statements in order to malign Reed Smith and to induce the lead plaintiffs to terminate the engagement agreement,” Reed Smith said.

Wohl and his firm deliberately blocked and excluded Reed Smith from any interactions with the lead plaintiffs or opposing counsel in the SAC case, Reed Smith claims.

Reed Smith’s engagement agreement states if the firm is terminated for any reason other than good cause,” Reed Smith will continue to be entitled to the contingent fees,” the firm notes.

Reed Smith was originally represented in the fee dispute by Marc Kasowitz at Kasowitz Benson Torres. Earlier this month, Dechert partners Gary Mennitt and Andrew Levander replaced Kasowitz as Reed Smith’s counsel.

‘Lack of Candor’

Hitting back, the Wohl firm has moved to dismiss Reed Smith’s case in state court. It also brought a motion in the federal securities case last week, urging Koeltl to deny the fee claims and enjoin the state lawsuit.

Wohl and Pomerantz said Reed Smith should be barred from asking for fees because it chose not to apply for fees before the federal court and because its claim is too late.

The firms argue Reed Smith represented the plaintiffs “for less than a week,” and the firm was dismissed after admitting it was not free from conflict. “Its conflicts of interest and lack of candor fully justified class counsel’s determination that it should be terminated,” they said.

Wohl and Pomerantz said Reed Smith was only engaged after Reed Smith partner James McCarroll contacted Wohl in September 2016 and informed him that Reed Smith was available and “remains free from conflicts” related to defendants in the class action. Just before Reed Smith entered the case, Quinn Emanuel Urquhart & Sullivan had withdrawn as co-counsel because of a conflict issue.

But class counsel said McCarroll did not disclose that Reed Smith “had in fact been aware for several months that a litigation associate,” Andrew Pfau, has previously represented the SAC defendants in a related government investigation.

Soon after Reed Smith’s engagement letter was signed, then-Reed Smith partner Evan Farber disclosed Pfau’s representation to Wohl for the first time and acknowledged that Reed Smith had been aware of that conflict for several months, the Wohl and Pomerantz firms said.

Meanwhile, defense counsel at Paul Weiss had also raised a separate potential conflict, the class counsel firms said.

Wohl reviewed the ethics rules and case law and concluded Reed Smith’s continuation in the case was untenable, Wohl said, adding that Pfau was conflicted under New York ethics rules and it would have required factual investigations about the prior representation.

“It thus presented exactly the type of distraction that had led plaintiffs to dismiss Quinn Emanuel a week earlier,” the plaintiff firms said.