Washington, D.C., March 28, 2013 – In a victory for shareholders over baseless class actions, a Texas appeals court has ruled that trial lawyers were wrongly awarded several hundred thousand dollars in attorney fees in return for making trivial changes to a proxy statement.
CEI general counsel Sam Kazman was the appellant in the case, which challenged a lower court ruling, and the case was litigated by Ted Frank, head of the Center for Class Action Fairness and Douglas Wade Carvell of the Dallas firm Hoge & Gameros LLP.
Ted Frank praised the decision. “It is satisfying to see the Texas appeals court vindicate the principle that the primary beneficiaries of a settlement should be shareholders, rather than attorneys,” said Frank. “I am encouraged that more and more courts are standing up against meritless strike suits that harm shareholders. I am grateful to Sam Kazman for stepping forward and to Douglas Wade Carvell for his generous pro bono legal work that made the difference in this case.”
Sam Kazman, the objecting shareholder in the lawsuit, stated, “I may only have a handful of shares in HollyFrontier, but I find the Court’s ruling to be incredibly rewarding in terms of fairness and justice. Every stockholder in this country owes a debt of gratitude to the Center for Class Action Fairness.”
The case arose from a 2011 merger between Frontier Oil and the Holly Corporation. The shareholders were overwhelmingly satisfied with the proposed merger. But, as is the case with more than 95 percent 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 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 word.
The Texas trial court had upheld the settlement despite its nature, the short notice shareholders were given to examine and object to it, and the fact it ran counter to a new Texas law that severely restricts class action attorney fees when the class itself receives no cash benefit.
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 $1 million dollars in settlement without any benefit to shareholders of Sears Holding Corporation.
And on April 8, in a case with national attention, Frank will argue at a federal court fairness hearing in New York City in the Citigroup Securities Litigation against a fee request that was inflated by tens of millions of dollars.