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Judge Slams Plaintiffs’ Attorneys with $1.5 Million Judgement for ‘Reckless’ Suit

Litigation

A federal judge has affirmed a $1.5 million judgement against Schlichter Bogard & Denton LLP and Schneider Wallace Cottrell Konecky LLP for their role in bringing a “reckless” excessive fee suit.

Back in September 2020, determining that the decision to pursue litigation was “objectively reckless,” Senior U.S. District Judge Christine M. Arguello has sanctioned the law firm of Schlichter Bogard & Denton (and its co-counsel in the case) with a fine of (up to) $1.5 million.

“When dealing with a lawyer, the courts ‘are entitled to demand that an attorney exhibit some judgment. To excuse objectively unreasonable conduct by an attorney would be to state that one who acts with an empty head and a pure heart is not responsible for the consequences,’” the judge wrote—going on to cite another decision that declared that “any conduct that, viewed objectively, manifests either intentional or reckless disregard of the attorney’s duties to the court, is sanctionable”—and this court added emphasis to the phrase “intentional or reckless.” She also capped any damage award at $1,500,000 and limited any fee award to “excess costs, expenses, and attorney fees reasonably incurred from the period beginning on the first day of trial and ending on the date Defendants filed.”

The Case

The suit—which was dismissed in August 2020—was actually two suits, brought by participants (Obeslo, Hall and Gorrell-Deyerle) in plans that had chosen Empower as recordkeeper, and investment options from Great-West and other fund complexes from which participants could choose. Plaintiffs claimed that the fees charged by Defendants Great-West Capital Management, LLC (GWCM) and Great-West Life & Annuity Insurance Co. (GWL&A) violate Section 36(b) of the Investment Company Act of 1940 (ICA), which prohibits fees that are “so disproportionately large that [they] bear[] no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.”

The Court determined that Plaintiffs’ evidence was plainly insufficient, and that Plaintiffs’ counsel “recklessly proceeded to trial in violation of their duty to objectively analyze their case.” Consequently, the Court granted Defendants’ motion for sanctions—but did not issue a final award of fees at that time.  Instead, the Court ordered Defendants to submit documentation to support their fee request, and to clarify “against whom judgment is sought with respect to an award of fees.” 

The (Final) Decision

In considering this motion, the same Judge Arguello outlined three steps in determining a fee award; first, to determine the number of hours reasonably spent by counsel for the prevailing party, second a reasonable hourly rate of compensation, and finally—well, you multiply the one by the other to determine what, in legal parlance is called the “lodestar amount.”

Pushing back, the plaintiffs’ attorneys here argued that (a) the amount sought was excessive, (b) that expert fees did qualify for consideration, and, in the alternative that (c) the expert fees sought were excessive.

With regard to the first point, Judge Arguello noted that “this was a high-stakes case: If Plaintiffs had prevailed at trial, they would have been entitled to an eight-figure damage award, plus costs and interest. Defendants’ victory at trial was, in part, the product of a well-prepared defense team and a well-tried defense case, and the hours billed appear reasonable in light of the work involved in preparing such a case. Having made the decision to proceed to trial, Plaintiffs’ counsel cannot now challenge the Defense’s choices about how to staff its trial team and litigate that trial,” and concluded that the time spent was “reasonable under the circumstances.”

She further found that the rates provided by the defendants for those hours were not only reasonable, but unchallenged by the plaintiffs’ counsel. And then, doing the math, she concluded that “an award of $1,403,452.87 is reasonable and appropriate.”

‘Sufficiently Clear’

She pushed back on the argument that the details of the time spent were “vague,” concluding that the entries were “sufficiently clear” to show that the work was related to trial preparation. Moreover, having already limited the potential recovery to $1.5 million, and to the work done after the start of the trial, she noted that “the Court finds no basis to further reduce the fee award.” She made a similar analysis regarding the reasonableness of the award attributed to expert fees, which by terms of the $1.5 million cap were already reduced to $200,000. 

As for who is to pay the fee, Judge Arguello commented that the law firm of Schneider Wallace Cottrell Konecky LLP—which represented Plaintiff Duplass, Zwain, Bourgeois, Pfister & Weinstock APLC 401(k) Plan—argued that only lead counsel (Schlicter Bogard & Denton LLP), should be sanctioned, but disagreed. “Having reviewed the relevant briefing, the Court finds no basis for assigning more fault to one firm over the other. Both firms were responsible for choosing to take the case to trial, unreasonably prolonging the litigation. Further, neither firm provides a clear principle upon which the Court could assign damages proportionally between them. Thus, while it is theoretically possible that one firm may bear more fault than the other, the Court is without a basis to make that determination on the briefs alone, and it therefore declines to do so.”

She then held both Schneider Wallace Cottrell Konecky LLP and Schlichter Bogard & Denton LLP, jointly and severally liable for the judgement ($1,403,452.87 in attorney fees and $96,547.13 in expert witness fees and related expenses, for a total award of $1,500,000).

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