A federal appeals judge last week upheld a decision from a California court denying McGuireWoods millions in fees it had previously been awarded for work on an antitrust class action case.
The issue goes back to 2006, when California law firm Van Etten Suzumoto & Becket merged into McGuireWoods, creating its Los Angeles office.
After the merger, McGuireWoods inherited a then-pending class action case against West Publishing Corp. and Kaplan Inc. The companies were accused of alleged antitrust practices for unlawfully conspiring to prevent competition in the market for bar review and test preparation courses.
The case was settled in 2007, before it went to trial, and McGuireWoods helped win the class a $49 million settlement, of which it was awarded a little more than $7 million by the California District Court.
But McGuireWoods didn’t get to enjoy its winnings.
Other law firms, known in the industry as professional objectors, filed suits on behalf of members of the class action case, claiming that McGuireWoods had violated California conflict of interest rules and should therefore not be allowed to collect fees from the settlement.
The conflict of interest argument was based on incentive agreements Van Etten had entered into with the five named plaintiffs in the class action case. Those agreements promised certain payouts to those plaintiffs based on certain outcomes. Such payouts are typically left to a judge to decide.
The argument was that the incentive agreements created a conflict between McGuireWoods’s representation of the five named plaintiffs and the class of plaintiffs as a whole that “tainted” the firm’s representation.
The court eventually agreed with the objectors and denied McGuireWoods the fees. The decision went back and forth between appeals court and district court over several years, with McGuireWoods arguing that the conflict didn’t actually harm the class.
In the end, the appeals court ultimately agreed that the firm didn’t deserve any fees.
McGuireWoods did get to keep $500,000 it was awarded for expenses, and the court recognized in its opinion that the firm successfully represented the class.
Will Allcott, an attorney in McGuireWoods’s Richmond office, spoke to BizSense on Wednesday on the firm’s behalf.
“Our position, first, is that the court recognized that McGuireWoods achieved a notable success on the behalf of the class,” Allcott said.
“We strongly disagree with the conclusion, but we respect the decision,” he said. “The court applied a standard to us that didn’t exist when the incentive agreements were entered into or when the lawyer [who originally created them] joined our firm.”
The battle over the fees had also kept a portion of the settlement money in escrow. Alcott said the firm is pleased that that portion of the case can move forward.
“At this point, [the firm’s loss of fees] is mitigated by the fact that it brings a final distribution of the balance of the $49 million to the class closer to reality,” he said.
The lawyer who initially entered into the incentive agreements that caused the conflict of interest eventually left McGuireWoods.
Allcott said no decision has been made on whether the firm will file a motion to reconsider the case.
News of the decision was first reported this week by Courthouse News Service.