Wednesday, March 9, 2005
Huge Fee Award in Bank of America Shareholder Suit Overturned
By KENNETH OFGANG, Staff Writer/Appellate Courts
A $5 million award of attorney fees and expenses as part of the settlement of a derivative suit brought by shareholders in Bank of America’s former parent corporation has been rejected by the First District Court of Appeal.
Div. One agreed with San Francisco Superior Court Judge Tomar Mason that the San Diego firm of Lerach Coughlin Stoia and Robbins is entitled to a fee for its efforts on behalf of the shareholders.
But the court also agreed with a handful of dissident shareholders that the judge erred in applying a substantial multiplier to the firm’s usual billing rates in finding the fee award to be reasonable.
Justice William Stein’s opinion was filed Feb. 4 and certified Monday for publication.
“The trial court was not required to accept at face value the parties’ assurances that the settlement was in fact fair and reasonable, or that they negotiated fees only after the substantive terms of the settlement agreement were set,” Stein wrote.
Justices James Marchiano and Douglas Swager concurred.
The case stems from a 1995 suit, known as the Stull case, in which the plaintiffs asserted a qui tam claim on behalf of the state of California and the city of San Francisco. They alleged that BankAmerica Corp. failed to return more than $1 billion in unclaimed property associated with bonds.
The bank ultimately paid $187.5 million to settle the suit.
While that case was pending, the Lerach firm filed the derivative action against former members of the bank’s board of directors. In 2001, a settlement was reached that required certain changes in the way BofA ran its operations.
No money was awarded, but the settlement gave the plaintiffs’ lawyers $5 million in fees and expenses.
Thirty out of 780,000 shareholders filed objections, particularly to the fees.
Mill Valley lawyer Charles Chalmers, representing objectors Angelo and Mary Perone, argued that the settlement did not confer a substantial benefit on the shareholders and that no attorney fees should be awarded, or that the fees should at least be reduced.
Mason disagreed. She reasoned that if fees had been awarded under the “substantial benefit” test, the amount would have exceeded $5 million.
She based that calculation on the firms’ declared hours and multipliers of between 2.5 and 3.0 for various phases of the litigation.
Stein said the judge was within her discretion in awarding fees and setting the lodestar amount, although he questioned whether one of the lawyers really deserved $565 per hour for 884.74 hours of “factual investigation.” The “investigation” apparently consisted in large part of reviewing records, “a task that at least arguably could have been done by a paralegal or an associate at a fraction of the cost,” Stein said.
The use of multipliers, however, was an abuse of discretion, the justice said. He acknowledged the attorneys’ expertise in the field but said there appeared “to have been very little real benefit conferred on the corporation and shareholders” as a result of the litigation and that the judge exaggerated the complexity and novelty of the litigation and the burden on the lawyers’ practice.
“The parties’ position was that because the Stull case settled without actually determining damages (BofA was required only to return some or all of the funds it had failed to escheat), there never has been a determination of what damages would be, let alone a determination of the individual defendants’ liability for damages,” Stein explained. “While this may be true, if, as all parties agree, BofA paid no damages, but was required only to return money that did not belong to it, the corporation suffered no pecuniary damage as a result of the Stull litigation. The extent of the potential liability of the defendants in this case, therefore, is not a question requiring complicated or difficult calculations.”
‘Difficulties of Proof’
Mason also erred, the justice said, in considering the difficulty of proving the liability of the individual directors as a factor justifying a multiplier. The problem, Stein explained, was a result of “difficulties of proof,” not the novelty or complexity of the legal issue.
Nor should the trial judge have found that the litigation precluded the attorneys from taking on other work, based solely on the finding that they had spent more than 4,300 hours on the case.
That reasoning would require a multiplier in every case, “since it is axiomatic that time spent by individual attorneys on one case prevents them from spending time on another.” There must be a showing that the firm actually was forced to turn away other work for this to be factored into the use of a multiplier, Stein concluded.
The Lerach firm was joined in its representation of the plaintiffs on appeal by San Francisco’s Bushnell, Caplan & Fielding and Los Angeles’ The Rossbacher Firm.
The case is Robbins v. Alibrandi, 05 S.O.S. 1166
Copyright 2005, Metropolitan News Company