I reported recently on Vice-Chancellor Strine’s very interesting opinion in the Cox Communications case, slamming the work of class action attorneys in that case and slashing their fee request by 75% after an official objection by Arizona law professor Elliott Weiss. The vice chancellor paints a picture of truly parasitic lawyers inserting themselves into a corporate transactions and demanding to be paid big bucks to go away.
Well, this story, linked by Delaware litigation and Overlawyered, discusses an Atlanta court’s granting, without explanation, of 100% of the $1.25 million fee request of Fulton county lawyers in the same case over a less formal objection by Professor Weiss.
The news story does a pretty good job of laying out the background. If the lawyers involved in the Delaware case were parasites, the ones in the Atlanta case were parasites on parasites – sort of like the bugs on rats that cause the plague. The lawyers in the Delaware case at least did substantial work on the case, though it's still questionable whether they deserved a fee. Here’s how the news article describes the work of the Atlanta lawyers:
A review of the docket indicates that much of the Fulton litigation surrounded the defendants' unsuccessful bid to stay the action. [Judge] Russell ruled against the stay, but no deposition discovery took place until after the two sides signed a memorandum of understanding in October agreeing to settle the case. The Fulton lawyers were permitted to participate in the depositions set up by the Delaware attorneys, but according to an affidavit from the lead counsel in that case, "the participation of the Georgia plaintiffs amounted to asking a handful of questions at the end of three of the depositions and no questions at two of the depositions." [Fulton lawyer] Holzer said the Fulton lawyers asked only a few questions because they did not want to repeat the inquiries posed by the Delaware attorneys. Holzer did not know how many hours he and his co-counsel put into the case, and he did not provide information on his expenses. . . .
The difference between the two cases was apparently that there was no formal objection in the Atlanta case. But obviously the court had some obligation to protect the shareholders by taking into account what Weiss had to say.
The Atlanta fee case is an egregious example of the corporate litigation system gone awry. It's also a good reason why parties ought to be able to enter into enforceable contracts identifying the forum that decides, and the law that applies to, litigation arising out of the contract. I’ve discussed this in several articles, e.g., From Efficiency to Politics in Contractual Choice of Law, 37 Ga. L. Rev. 363 (2003).
This principle should apply to litigation concerning the governance of a business association like that involved in Cox Communications. This sort of contract is clearly and strongly enforced in unincorporated businesses such as LLCs – see Elf Atochem North America, Inc. v. Jaffari, 727 A.2d 286 (Del. 1999). Cox shows why the same should be true of corporations.
Of course this wouldn't take care of federal litigation. But at least the Private Securities Litigation Reform Act takes care of at least some of the problems with parasitic lawyers in federal securities litigation. I have long argued against a large federal role in corporate litigation. But the states' failure to clean up their litigation act stands as maybe the best argument for federalization.
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