Even as a lawyer, I have to ask: $35,000 an hour?
Last week, the Delaware Supreme Court affirmed a $300-million-plus award of attorney fees to plaintiffs’ lawyers, which amounts to $35,000 an hour for their work on the case.
Put another way, every 90 minutes, each and every lawyer on the case — from the most experienced partner to the greenest associate — earned more than the median annual U.S. household income. A single eight-hour day put those lawyers in the top 3% of household income.
And for what noble cause did these members of the bar fight to deserve such a Powerball-sized payday? Did they protect the public from a deadly product? Free an innocent man? No, the bulk of their bonanza stems from obtaining a verdict where a Mexican mining company had to write a massive check — to itself.
Confused? It gets even crazier, but first some background.
The case stems from the 2004 merger of two mining giants, publicly traded Southern Copper Corporation (NYSE:SCCO) and privately owned Minera Mexico.
Because Grupo Mexico, an even bigger mining giant, owned 99% of Minera and a majority of Southern Copper, an independent committee was created to value the deal at arm’s length. That independent committee valued Minera at $3.1 billion, and 90% of Southern Copper’s minority shareholders approved the deal.
After the deal closed, some minority shareholders sued in Delaware Chancery Court, saying the independent committee wasn’t independent enough. The Court agreed and ordered Grupo to return $2.1 billion in stock equity to Southern Copper, awarding the plaintiffs’ attorneys 15% of the total, more than $300 million in cash.
I have no problem with plaintiffs’ attorneys being rewarded under the time-honored principle that those who profited from the litigation should share its costs. But this award stands the principle on its head because Grupo actually owns 81% of the equity in Southern Copper.
In effect, Grupo is paying itself 81% of the $2.1 billion. Minority shareholders will get only 19% of the payback benefit. But the court ruled the attorneys can have 15% of both slices of the pie.
So while the plaintiffs who filed the lawsuit will see $386 million in benefit for having won the case, their lawyers will take home nearly 80% of that amount.
The award, to my knowledge, is the largest ever for a shareholder derivative lawsuit, which is a suit brought by someone who owns stock in a company on behalf of the company itself.
In the bigger picture, this sets a disturbing precedent that will have plaintiffs’ attorneys flocking to the Delaware courts in hopes of coming home rich. As one legal pundit put it, “I guess the welcome mat for plaintiff lawyers in Delaware is now a red carpet.”
Delaware Supreme Court Justice Carolyn Berger seemed to agree in her dissenting opinion on the award.
“The trial court opined that a declining percentage for ‘mega’ cases would not create a healthy incentive system,” Justice Berger wrote. “In sum, the trial court said that the fundamental test for reasonableness is whether the fee is setting a good incentive.”
The trial court’s rationale for the unprecedented payout was basically that lawyers should be entitled to the same big paydays bankers often get — and we all know how the public feels about those
“[T]here’s an idea that when a lawyer or law firms are going to get a big payment, that there’s something somehow wrong about that, just because it’s a lawyer,” the trial judge wrote. “I’m sorry, but investment banks have hit it big … They’ve hit it big many times. And to me, envy is not an appropriate motivation to take into account when you set an attorney fee.”
Grupo Mexico’s General Counsel Mauricio Ibanez saw the fee award in a much different light. “This is an unwarranted transfer of wealth from the shareholders of a publicly traded company to plaintiffs’ attorneys,” he said.
I agree. Roughly a quarter of a billion dollars in cash (Grupo’s 81% of the fee award) is being taken from Southern Copper, whose stock is publicly traded on the New York Stock Exchange, and given to plaintiff’s attorneys.
How does that benefit Southern Copper stockholders? Other than making the attorneys extremely wealthy, the only other benefit seems to be the promise to plaintiffs’ lawyers that they can become as rich as bankers by filing and winning cases in the Delaware Chancery Court.
As Justice Berger put it: “The trial court… applied its own world views on incentives, bankers’ compensation, and envy.”
There is a reason the justice system does not operate like Wall Street. The minute we apply the outsized expectations of speculation to the principles of law and jurisprudence, we lose the leveling power of our courts and the scales of Lady Justice are replaced with those of the banker.
Robert Shapiro, litigation partner and head of the White Collar Criminal Defense Group in the firm Glaser Weil Fink Jacobs, Avchen & Shapiro, was named one of the nation’s most prominent attorneys by the NY Times. His list of high profile cases includes the defense of O.J. Simpson.
