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In re Vitamins Antitrust Litigation

October 24, 2005

IN RE: VITAMINS ANTITRUST LITIGATION


The opinion of the court was delivered by: John M. Facciola United States Magistrate Judge

MEMORANDUM OPINION

This case was referred to me for the resolution of Chitwood & Harley's Motion for Court Assistance in Allocating the Court's Attorneys' Fee Award Among Plaintiffs' Counsel. Upon consideration of the motion, opposition, and the evidence introduced during two phases of an evidentiary hearing, the motion is granted in part and denied in part. Also ripe and ready for consideration are two additional motions. For the reasons stated herein, Cohen, Milstein, Hausfeld & Toll's Motion to Dismiss for Failure to State a Claim is denied and Cohen, Milstein, Hausfeld & Toll's Motion to Strike Chitwood & Harley's Statement Regarding Reference to Magistrate Judge in Connection with May 4, 2004 Status Conference and for Sanctions is denied.

I. MOTION FOR ASSISTANCE ALLOCATING FEE AWARD

A. Brief Overview

In early 1997, Boies Schiller and a group of law firms began investigating the bulk vitamins industry by interviewing witnesses and conducting research regarding the major bulk vitamins manufacturers. Other firms also began investigations in late 1997 and early 1998. As a result of these investigations, many firms began filing lawsuits in various districts across the country. In March 1999, the United States Department of Justice announced that some of the defendants identified in these lawsuits had agreed to plead guilty to antitrust violations. Two months later, two major defendants pled guilty or agreed to plead guilty for fixing the price of vitamins; as part of their plea agreements, one defendant agreed to pay $500 million in criminal fines, and the other agreed to pay $225 million--the largest criminal fines ever obtained by the Justice Department.

Both before and after the announcement of the guilty pleas and fines, plaintiffs' counsel engaged in a series of negotiations with the defendants. Despite the fact that liability was not an issue, the negotiations proved arduous. Ultimately, the parties reached a settlement wherein defendants agreed, among other things, to pay plaintiffs' counsel over $123 million in attorneys' fees. On July 16, 2001, Chief Judge Hogan approved plaintiffs' petition for attorneys' fees and awarded class counsel $123,188,032.00 for work performed in relation to the settlement agreement resolving the antitrust claims.

In order to distribute the fee awarded by Judge Hogan, Co-Lead Counsel agreed to divide the total fee into three pools. All 57 firms, including C&H, ratified this decision.

Each pool was headed by one of the three Co-Lead Counsel. Susman Godfrey alone constituted one pool and received 10 percent of the fee. Boies Schiller's group received 54 percent of the fee, and all of the firms within that group agreed upon the allocation that Boies Schiller made. Cohen, Milstein, Hausfeld & Toll ("CMHT") and its group received 36 percent of the fee awarded by Judge Hogan. Within that pool, all of the firms accepted the allocation that was made for them with the exception of Chitwood & Harley ("C&H"). However, instead of requesting that its fee award be reconsidered by the full 13-member Executive Committee, C&H filed its Motion for Court Assistance in Allocating the Court's Attorneys' Fee Award Among Plaintiffs' Counsel. This fee dispute was referred to me for final resolution.

I have thoroughly considered the arguments of each firm, the hearing transcripts from both Phase I and Phase II of the Evidentiary Hearing, the exhibits introduced therein, and the pleadings filed in relation to this matter. In this Opinion, I summarize my findings of fact, articulate the standard of review applicable to this dispute, and analyze the facts in light of that standard. I conclude that, because of the errors made by CMHT in distributing the fee award within its pool, C&H is entitled to some additional money, but not the amount that it has suggested to the court.

B. Findings of Fact

1. Beginning in the spring of 1997, attorneys that would later prosecute this action discovered and investigated a conspiracy involving antitrust violations, price fixing, and allocation of customers among manufacturers of bulk vitamins. These firms, led by Boies Schiller, filed the first lawsuits against the manufacturers, and Boies Schiller met with the Department of Justice to disclose information it had uncovered.

2. In late 1997, CMHT began its own investigation of the conspiracy among vitamins manufacturers. CMHT also hired an expert to perform an economic analysis of the vitamins industry. In early 1998, C&H also began investigating the conspiracy claims.

3. On March 2, 1999, the United States Department of Justice issued a press release stating that a Swiss vitamins manufacturer and five United States executives had agreed to plead guilty and cooperate with the government's ongoing investigation of illegal collusive practices in the international vitamins industry.

4. Two months later, two defendants agreed to plead guilty and pay a total of $725 million in criminal fines. At that point, it became clear that liability would not be a difficult issue in the civil case.

5. On May 27, 1999, this court approved the Stipulated Pretrial Case Management Order No. 2 ("Case Management Order") naming Boies Schiller, CMHT, and Susman Godfrey as Co-Lead Counsel. These three firms, in addition to C&H and Bainbridge & Straus, were appointed to the Steering Committee. Other firms were appointed to other committees, but Co-Lead Counsel and the Steering Committee occupied the top two tiers in the organizational structure of plaintiffs' class counsel. Thus, the order described the organization of class counsel as follows:

Co-Lead CounselCMHT  Susman Godfrey  Boies & Schiller Steering CommitteeAll 3 Co-Lead Counsel firms  Bainbridge & Straus  C&H Executive Committee8 other firms Discovery Committee3 other firms Experts Committee3 other firms Briefing Committee2 other firms Investigations Committee3 other firms

6. Before submitting the proposed order to the court, the Case Management Order--and the organizational structure established therein--had been agreed upon by all of plaintiffs' counsel. As the firm that had initiated the investigation and led the original group of firms in prosecuting various lawsuits, Boies Schiller naturally assumed the role of Co-Lead Counsel. Susman Godfrey received a Co-Lead Counsel position because of the reputation and skill of Steven Susman ("Susman") as a trial attorney and because the firm had filed a lawsuit in Texas, which was one of the locations that was considered a highly likely place for the case to proceed given the pending grand jury investigation in Texas. CMHT became Co-Lead Counsel because of the firm's experience in class action litigation and its work in coordinating many other plaintiffs' firms.

7. In June 1999, all counsel, including CMHT, attended a meeting at the Mayflower Hotel in which Boies Schiller shared with class counsel what it knew about the case and what it had already accomplished in the litigation. This meeting has been described as "Vitamins 101" and "Antitrust 102." It was an attempt by Co-Lead Counsel, particularly Boies Schiller, to ensure that all of plaintiffs' counsel had the background knowledge necessary to proceed with the litigation.

8. At approximately the same time, plaintiffs' counsel began to engage in a series of intense settlement negotiations with the major defendants. In November 1999, they finalized an agreement with the Big 3 defendants in the amount of $900 million and with three Japanese defendants in the amount of $150 million.

9. Consistent with its authority under the Case Management Order, all three Co-Lead Counsel firms took the lead in the settlement negotiations.

10. Although C&H argues that CMHT was an outlier during the settlement process, the weight of the evidence clearly shows otherwise. At the Evidentiary Hearing, counsel for the defendants in the Vitamins litigation uniformly testified that they viewed CMHT, and particularly Michael Hausfeld ("Hausfeld"), as a tough plaintiffs' advocate and able adversary. Defense counsel also testified that they dealt with Co-Lead Counsel, and no other firms, during the settlement negotiations. They specifically identified David Boies ("Boies"), Jonathan Schiller ("Schiller"), Hausfeld, and Ann Yahner ("Yahner") as having active and significant roles. They commented that Boies and Hausfeld worked as an effective team. They also stated that, many times, Boies would start the meetings and Hausfeld and Yahner would drill down on various points. This process was repeated many times until agreement was reached.

11. Although C&H argues that the settlement process was an easy one because liability was not an issue, the evidence proves otherwise. Indeed, over the course of several months, counsel had to prepare for and resolve many difficult issues, including monetary and non-monetary elements of the settlement.

12. In conjunction with prosecuting the case and furthering the settlement process, Co-Lead Counsel, including CMHT, performed the following functions: they organized and ran the case, oversaw discovery, worked with economic experts, coordinated with opt-outs, proposed ideas to break impasses, and led settlement discussions and the drafting of settlement papers.*fn1 While executing these responsibilities, CMHT had the opportunity to observe first-hand the contributions of each firm, including C&H.

a. Organize and run the case: This was the responsibility of Co-Lead Counsel. Co-Lead Counsel called meetings, assigned tasks, managed the litigation on a daily basis, and oversaw the successful settlement process. In addition, CMHT had the specific task of organizing the group of law firms that had not filed lawsuits with Boies Schiller.

b. Oversee discovery: The discovery co-chairs reported to Yahner every other day. According to Yahner, C&H made no substantive contributions to discovery.

c. Work with economic experts: By analyzing factors such as the size of the market and projected amount of overcharge, Nathan & Associates, a firm hired by CMHT, and LSAG*fn2 helped form a basis for establishing the appropriate amount of settlement. Specifically, Nathan & Associates provided a damages estimate of approximately $1 billion, which provided the foundation for rejecting early settlement offers and insisting on a larger settlement sum.

d. Coordinate with opt-outs and break impasses: Co-Lead Counsel proposed and negotiated many non-monetary elements of the settlement agreement, including the Reverse Most Favored Nations Clause ("Reverse MFN"). The Reverse MFN provided that the Big 6 defendants could not settle with opt-outs at a certain level without paying the class an additional sum certain. In this way, the parties could reach an earlier settlement without plaintiffs worrying that later settlements would cause embarrassment because of higher settlement amounts reached with individual, as opposed to class, plaintiffs. The Reverse MFN was important because the success of settlement depended on class members believing it was a good settlement, staying in the class, and getting recovery sooner rather than later. C&H did not contribute to the creation of the concept of the Reverse MFN or play any role in securing the defendants' ultimate agreement to it.

e. Lead settlement discussions and the drafting of settlement papers: Boies, Schiller, Hausfeld, and sometimes Susman were the principal spokesmen at the settlement meetings. CMHT, along with Boies Schiller, drafted large portions of the settlement documents and oversaw preparation of all settlement documents. C&H did not contribute anything of significance to the settlement meetings or the drafting and editing process.

13. As stated above, C&H did not offer anything of significance to the settlement process. Indeed, the testimony of Martin Chitwood ("Chitwood") and Craig Harley ("Harley") establishes little more than C&H's attendance at many meetings and their review of documents being circulated among class counsel. Despite C&H's insistence that it conducted extensive investigations, nothing of value that resulted from those investigations was contributed to the litigation. In addition, although C&H participated in strategy meetings and conference calls, there is nothing in the record as to any valuable contribution by C&H to the settlement of the case.

14. Thus, even though only one tier separated the two firms in the organizational structure, there was a meaningful, substantial difference between CMHT's role and C&H's role in the litigation.

15. After settlement was reached, plaintiffs' counsel submitted a fee petition to the court, and Chief Judge Hogan awarded class counsel more than $123 million in attorneys' fees.

16. While the fee petition was pending, Co-Lead Counsel discussed various ways to apportion the fee award among class counsel.

17. Early in the discussions, Schiller suggested a mechanical, arithmetic approach in which multipliers were calculated for each tier. These multipliers were based on each firm's position within the organizational structure and the relative amount of money each tier had contributed to the litigation at the outset of the case. The multipliers were then applied to each firm's lodestar. Co-Lead Counsel rejected Schiller's proposed method because it failed to consider each firm's actual contribution to the case in terms of how that firm contributed to the outcome.

18. Co-Lead Counsel ultimately agreed to divide the fee awarded by Judge Hogan into three pools, each of which would be headed by one of the Co- Lead Counsel firms.

19. Firms that fell within the Boies Schiller group were firms that had filed complaints early in the litigation whereas firms within the CMHT group were all other firms. As agreed by Co-Lead Counsel, Susman Godfrey had no other firms within its pool.

20. All 57 firms within each of the pools, including C&H, ratified this decision. C&H agreed to the three-pool approach because it believed that the amount designated for its pool was generous.

21. Initially, Co-Lead Counsel agreed to the following allocation for the three pools: 10 percent for Susman Godfrey, 35 percent for CMHT's pool, and 55 percent for Boies Schiller's pool.

22. Thereafter, CMHT took the position that 35 percent would be insufficient for it to make adequate distributions within its pool. As a result, Hausfeld persuaded Co-Lead Counsel to readjust the allocations to 10 percent, 36 percent, and 54 percent for Susman Godfrey, CMHT's pool, and Boies Schiller's pool, respectively.

23. When this approach was adopted, it was the hope and intention of Boies and Susman that the allocations within each of the pools would be consensual, that no fee disputes would arise as a result of the allocations among plaintiffs' counsel, and that the court would not have to become involved in resolving any disagreements among counsel. While Boies and Susman wanted to avoid disruption to their own fee awards, they also believed that a fee dispute over such large sums of money would be a poor reflection on the plaintiffs' bar.

24. As stated above, there were no allocations within Susman's pool. Boies Schiller and CMHT, however, were responsible for making allocations within each of their pools.

25. Every firm had the right to voice its objection to its allocation to the full 13-member Executive Committee.

26. Before the final checks were distributed, Boies Schiller discussed with each firm within its pool the allocation it would receive, and each firm accepted the amount allocated to it. Although the record is scant as to how these discussions were conducted, it appears that they were not open negotiations but conversations in which Boies Schiller explained the fee it intended to allocate to each firm and the reasons for the allocation.

27. CMHT's group was not informed of the allocations CMHT planned before the allocations were made. However, when the final checks were cut, all of the firms accepted their allocations with the exception of C&H. In fact, various law firms wrote to CMHT expressing their appreciation for the distributions, some saying that the distributions were generous.

28. C&H, however, objected to not being part of the process of determining the fee allocations and to the ultimate fee it received. Specifically, C&H finds it egregious that, even though the two firms were separated by only one tier in the organizational structure and, according to C&H, made similar contributions to the litigation, CMHT received over $20 million for its work while C&H received $3.47 million.

29. CMHT justifies its fee, in part, by insisting that the 10 percent, 36 percent, 54 percent division was based on an agreement by Co-Lead Counsel that the fees allocated to Susman Godfrey, CMHT, and Boies Schiller would fall along a 1/2/4 ratio. While there is evidence that Hausfeld discussed the possibility that his firm's fee would be twice that of Susman Godfrey's and half that of Boies Schiller's, there is no evidence that there was an iron-clad agreement about this ratio among Hausfeld, Boies Schiller, and Susman Godfrey.

30. In addition, there is only limited circumstantial evidence that a 1/2/4 relationship formed the basis of the percentages each pool would receive. This evidence consists of the fact that: (1) there were simultaneous discussions about the 1/2/4 relationship and the division of the fee into three pools; and (2) matrices developed by CMHT, which reflected a fee of approximately $24 million for CMHT and $54 million for Boies Schiller, were exchanged between these two firms when possible allocations were discussed. But, it is unclear whether these matrices were exchanged to show Boies what the allocations would be if CMHT received a fee between $20 and $24 million or whether they were exchanged to support Hausfeld's plea to Boies for his pool to receive 36 percent, rather than 35 percent, of the total fee award.

31. In arguing that Co-Lead Counsel agreed to a 1/2/4 relationship among their own fees, CMHT relies, in part, on a handwritten note by Boies in which Boies states, "On these figures we will be close to the 1/2/4 relationship." However, Boies clearly testified that he did not agree to such an allocation among Co-Lead Counsel. Rather, Boies had opined that, if CMHT's allocation within its pool resulted in roughly $24 million for CMHT, that was acceptable to him, but that was not the only appropriate fee allocation for CMHT. Schiller and Susman similarly testified that they never agreed to any fee for CMHT, nor were they aware of any such agreement between Hausfeld and Boies.

32. Given this record, the court can reach only one conclusion: Co-Lead Counsel, specifically Hausfeld and Boies, contemplated a 1/2/4 relationship, and a fee to CMHT that was double Susman Godfrey's and half of Boies Schiller's was acceptable to Boies and the other Co-Lead Counsel attorneys as long as CMHT was able to satisfactorily distribute the remaining pool money among the members of its group, but there was no agreement that CMHT was entitled to receive or would definitely receive a fee of $24 million.

33. Despite this lack of evidence, it is clear that, when Hausfeld and Boies were discussing potential fee awards for Co-Lead Counsel and the firms within both of their groups, it was understood that Boies Schiller would receive a fee substantially greater than CMHT, and both Boies Schiller and CMHT would receive fees substantially greater than those received by any of the other firms within their respective pools.

34. Initially, Boies and Hausfeld also wanted some semblance of parity within the tiers (other than Co-Lead Counsel), such that firms that assumed the same positions in the litigation would receive roughly the same fees, regardless of the pools within which they were placed. Later, Boies seemingly abandoned this concept, but CMHT retained the view that this was an appropriate consideration in allocating the fees within its group.

35. The goal of parity, however, did not supercede each Co-Lead Counsel's responsibility for making the allocations it deemed appropriate within its own group.

36. Yahner, a former partner at CMHT who managed the Vitamins litigation on a daily basis, was responsible for calculating and recommending specific allocations of money for each firm within CMHT's pool.

37. When calculating fee awards for other firms within CMHT's pool, Yahner allocated a fee for CMHT based on Hausfeld's representations that Co-Lead Counsel had agreed to a 1/2/4 relationship among the Co-Leads. Based on a $123 million fee award, that relationship translated into a $24.6 million fee for CMHT.

38. Of the approximately $44.3 million that was designated for CMHT's pool, Yahner therefore set aside approximately $24.6 million for CMHT. She then "crunched numbers," played with various multipliers, and developed matrices for allocating the remaining $19.7 million to the other 44 law firms in CMHT's group.*fn3 These numbers were later adjusted, presumably because of the interest that had accrued on the fee by the time it was awarded by the court and allocated among the firms.

39. Yahner's goal was to compensate firms in accordance with their position, lodestar, and overall contribution to the case.

40. Yahner considered each firm's contribution relative to the litigation as a whole and relative to other firms that occupied the same position in the litigation, even if those firms belonged to the Boies Schiller pool. Yahner also looked at each firm's lodestar as it compared to other firms within the same tier, regardless of the pool to which it had been assigned.

41. In Yahner's (and CMHT's) opinion, C&H's lodestar overstated its contribution to the settlement and to the litigation.

42. Yahner made this determination based on several factors: (1) she had personally overseen C&H's work, and C&H's $1.1 million lodestar seemed excessive given the fact that C&H had not contributed anything of value to the case; (2) C&H's lodestar seemed excessive when compared to the other non-Co-Lead Steering Committee member, Bainbridge & Straus, because that firm submitted a lower lodestar but had become involved in the case much earlier than C&H; and (3) C&H's lodestar exceeded that of CMHT and Susman Godfrey, two of the three Co-Lead Counsel in the case.

43. Yahner was particularly concerned that C&H billed a large number of hours in the case prior to its organization as a formal MDL matter but did not provide any work product to Co-Lead Counsel that reflected that time. Similarly, C&H logged many hours after the case was organized, but Yahner did not give assignments or see work product that would reflect or justify the hours. Yahner never addressed these issues with C&H.

44. At the hearing, CMHT pointed out multiple problems with C&H's time sheets, although these problems were not considered by Yahner. For example, according to CMHT, C&H attorneys consistently billed 12 minutes or longer for retrieving voicemails. In addition, CMHT calculated that C&H spent 2217.5 hours, or 65.8 percent, of its time attending internal office conferences or reading and reviewing documents authored by other firms. C&H spent 493.5 hours, or 14.6 percent, of its time in teleconferences and discussions with Anthony Bolognese ("Bolognese"), an attorney from another firm that also served as plaintiffs' counsel.

According to CMHT, C&H also spent 247.8 hours on discovery conference calls and meetings, reading and reviewing discovery plans sent to them, and office conferences ...


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