McGuireWoods Must Forfeit $7 Million in Fees

(CN)- The law firm McGuireWoods must forfeit more than $7 million in fees for its role in settling a class action against West Publishing and Kaplan, the 9th Circuit ruled.

The three-judge panel found that the firm's incentive agreements with class representatives had created an intolerable conflict of interest.

West and Kaplan agreed in 2007 to pay $49 million to settle claims that they had conspired to block competition in the market for bar review courses.

U.S. District Judge Manuel Real initially approved the agreement in Los Angeles, despite the objections of some members of the class. He also awarded McGuireWoods over $7 million in fees, though he denied the firm's request for an additional $325,000 in incentive awards meant for five class representatives who had signed agreements with the attorney who first brought the case.

In doing so, Real found that the agreements had "violated the ethics rule against fee-sharing with non-lawyers, and created conflicts of interest between the class representatives and unnamed class members."

On hearing the case the first of two times, the 9th Circuit affirmed the settlement agreement, but it too had a problem with the incentive agreements. The appeals court reversed and remanded the fee issue, directing the lower court "to consider in the first instance the effect, if any, of the conflict arising out of the incentive agreements on the request by class counsel for an attorney's fee award."

After such consideration, the district court found that McGuireWoods deserved no fees at all for its representation of the class. The incentive agreements, and the unethical conflict of interest that they created, had "tainted McGuireWoods's representation" beyond repair, the court found.

The issue went before the Pasadena-based federal appeals court for a second time, but fared no better.

McGuireWoods argued that the District Court should have taken into account the fact that the incentive agreements had not harmed the class, for which the firm had secured millions of dollars more than had been projected at the outset.

But the 9th Circuit disagreed in a ruling published Friday.

"The District Court could have considered this factor, among others, in exercising its equitable discretion, and could have reasonably concluded that McGuireWoods was entitled to some attorneys' fees for its efforts and notable success in this case," wrote Judge Sandra Ikuta for the panel. "But our conclusion that the District Court could have reasonably taken this approach does not make its failure to do so an abuse of discretion. A District Court has the primary responsibility for determining a reasonable fee award and must weigh any benefits McGuireWoods conferred on the class against the pervasive conflict of interest caused by the incentive agreements with class representatives."

A spokesman for McGuireWoods said the firm "strongly disagrees" with the ruling.

"We appreciate the recognition by the Ninth Circuit that we achieved a 'notable success' for the class and its acknowledgement that the existence of the incentive agreements caused the class no harm," attorney William Allcott told Courthouse News.

"However, we strongly disagree with the court's conclusion with respect to the incentive agreements and believe the court applied a legal standard that was not generally recognized when the attorney who had entered into those incentive agrements joined our firm. Our disappointment in the outcome is mitigated by the knowledge that the effect of the decision is to augment the recovery by the class and that a final distribution of the balance of the $49 million settlement to the class members now is much nearer to a reality."

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