Legal News

Plaintiffs? Lawyers Agree to Work for Free

By Nathan Koppel

Last week, we blogged about the fact that shareholder derivative suits often are brought by repeat plaintiffs and result in settlements that yield no monetary plaintiffs for the plaintiffs but do generate big bucks for the lawyers. Judges, however, increasingly are taking a close look at non-cash settlements in derivative cases.

Now here's a National Law Journal article on the topic, which discusses an interesting development in a Texas derivative suit. The plaintiff in the suit alleged that backdated stock options at Cirrus Logic cost shareholders of the Austin semiconductor company tens of millions of dollars in damages.

In December, the parties reached a settlement that included a $100,000 payment to the plaintiff. The settlement also included corporate governance reforms and $2.85 million in fees for the plaintiffs' counsel, which included the Kendall Law Group of Dallas, Coughlin Stoia of San Diego, and Barroway Topaz in Pennsylvania. (The plaintiffs' lawyers did not return calls for comment from the NLJ.)

In a January order, Texas federal judge Sam Sparks called the fee request "almost entirely unmerited" and wondered "how counsel feels they could have earned those fees."

Here's the unusual twist. In a revised settlement, the plaintiffs' lawyers agreed to waive their fees and to give the entire $2.85 million to Cirrus. Not surprisingly, the revised settlement was approved on March 25 — what's not to love about the new deal, after all, unless you are one the plaintiffs' firms?

"Judges are understandably concerned in these types of [derivative] cases when . . . there doesn't seem to be any tangible benefits flowing to the company, who is the client of the plaintiffs' attorneys, and all the money seems to be flowing to the attorneys," Lawrence Gaydos, a defense lawyer in the Cirrus case, told NLJ.

Full post as published by Law Blog - WSJ.com on March 30, 2009 (boomark / email).