Washington, D.C., January 16, 2013 – Oral arguments are scheduled in Houston today in a lawsuit over a class action settlement that netted attorneys several hundred thousand dollars in fees in return for trivial proxy statement changes. CEI general counsel Sam Kazman is the appellant in the case; his challenge to a lower court ruling is being brought by Ted Frank, head of the Center For Class Action Fairness and D. Wade Carvell of the Dallas firm Hoge & Gameros LLP.
The case arose from the 2011 Frontier Oil-Holly merger. The shareholders were overwhelmingly satisfied with the proposed merger. However, as is the case with over 95% of mergers, several trial lawyers saw this as a money-making opportunity and filed class action challenges to the merger, alleging deficiencies in the proxy statements. In a pattern that has become depressingly widespread in this field, the companies found it cheaper to pay a litigation tax to the attorneys than fight. Plaintiffs and the companies quickly settled, with the companies agreeing to issue a 1,300 word proxy supplement consisting of immaterial tweaks to the original disclosure. In return, the plaintiff class lawyers would receive over $600,000 in fees—nearly $500 per useless word.
The Texas trial court upheld the settlement despite its unjustified nature, the short notice that shareholders were given to examine and object to it, and the fact that it ran counter to a new Texas law that severely restricts class action attorney fees when the class itself receives no cash benefit. Today’s argument is over the validity of the trial court’s action, and whether it is permissible for class action attorneys to bring litigation that hurts the shareholders they purportedly represent.
In the recent case of Robert F. Booth Trust v. Crowley (7th Cir., June, 2012), Mr. Frank succeeded in objecting to and winning the dismissal of a shareholder derivative suit that would have paid the attorneys nearly a million dollars in settlement without any benefit to shareholders of Sears Holding Corporation.
CEI General Counsel Sam Kazman, who is participating in this case in his personal capacity, stated: “I receive lots of notices of proposed class action settlements, and I usually toss them. But I read this one because I owned a few shares in Frontier Oil and because Ted Frank’s Center for Class Action Fairness had spurred my interest in the issue. Despite the short notice we all had, Ted and Wade have been able to bring this case the expert attention that it and the broader issue of sky-high class action attorney fees deserve. Their litigating this is a public service that we all should appreciate.”
Related Files: Kazman v Frontier Oil.pdf