Joe Cotchett, Cotchett, Pitre & McCarthy principal (Jason Doiy / The Recorder)
SAN FRANCISCO — The enemy of my enemy is my friend. It’s a well-known proverb, but not a common tactic for resolving litigation.
Yet it’s the linchpin of a settlement reached Monday to end securities derivative suits against Hewlett-Packard Co. over its disastrous acquisition of British software firm Autonomy Inc.
In exchange for freeing HP officers from claims they ignored red flags in Autonomy’s accounting and hid warning signs from shareholders, plaintiffs attorneys at Cotchett, Pitre & McCarthy and Robbins Geller Rudman & Dowd have agreed to team up with HP to go after former Autonomy executives.
“This is an unusual resolution of derivative claims pending in the Northern District of California, but one that perfectly aligns the interests of the settling plaintiffs and of HP,” the attorneys wrote to U.S. District Judge Charles Breyer. “As a result, HP’s interests will be vigorously prosecuted and zealously protected by leading law firms and lawyers from both sides of the complex litigation bar.”
HP, which purchased Autonomy in 2011 for $11 billion, a year later wrote down the deal by more than $8 billion and accused Autonomy executives of accounting fraud. HP stock plummeted by 12 percent, spurring a host of derivative claims in state and federal courts.
Under the proposed settlement, plaintiffs attorneys would work under the authority of HP’s legal team, led by Wachtell, Lipton, Rosen & Katz partner Marc Wolinsky in New York. HP will control the litigation, according to filings submitted with the proposed settlement Monday in San Francisco federal court, and Cotchett Pitre and Robbins Geller will be paid a fixed monthly retainer of $562,500 for 32 months.
If the claims against Autonomy executives are successful, the plaintiffs firms stand to make significantly more than they might in an average derivative suit, where victories usually amount to changes in company bylaws but little cash. Plaintiffs attorneys will be eligible to receive a contingent fee of 10 percent on recoveries up to $100 million and 25 percent of any amount topping $100 million, up to a maximum of $30 million, according to the proposed settlement.
The team of former rivals has its sights on former Autonomy CEO Michael Lynch and former CFO Sushovan Hussain. The proposed settlement also leaves the door open to take on “other non-released persons and entities responsible for HP’s losses.”
The decision to jointly pursue action against Autonomy executives came from an independent committee assigned to investigate the contentious merger and was negotiated with help from former Northern District Chief Judge Vaughn Walker.
It’s no small task to turn legal adversaries into partners, which may be why securities experts say it’s a rarely used strategy. The two sides in this case began negotiations in February, and attended seven daylong mediation sessions with Walker.
“The negotiations, while cordial, were contentious and hard-fought,” Walker wrote to the court. “Indeed, they seemed to have completely collapsed more than once.”
HP executives also have agreed to set up new methods of evaluating potential mergers and acquisitions, in an effort to safeguard its shareholders against another Autonomy. They are in the process of creating a new risk management committee and giving more oversight to existing committees, according to the settlement motion.
The proposed settlement doesn’t affect a securities fraud action against HP pending in the Northern District of California. In that case, lead plaintiffs counsel at Kessler Topaz Meltzer & Check are scheduled to submit their motion for class certification in November. The U.S. Department of Justice also has opened an investigation into allegations of accounting fraud at Autonomy.
A preliminary approval hearing for the proposed settlement in the derivative suits is scheduled for Aug. 29 in San Francisco.
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