A Chicago federal judge has reduced how much of the nut plaintiff lawyers get from a class action settlement they arranged between suburban-based Akorn Pharmaceuticals and disgruntled investors, which alleged Akorn officials hoodwinked investors, ruling the lawyers receive $1.6 million less than they wanted, because they were not as far out on a limb as they claimed.
Judge Gary Feinerman issued the decision June 5 in U.S. District Court for the Northern District of Illinois, applying a sliding fee scale, rather than the flat percentage of the settlement wanted by plaintiff attorneys. Feinerman’s judgment means the lawyers collect $6.3 million instead of the $7.9 million they sought.
The suit was spearheaded by the Los Angeles firm of Glancy, Prongay & Murray, with involvement from a number of other firms, including Pomerantz LLP and Lawrence, Kamin, Saunders & Uhlenhop, both of Chicago.
The lawyers were awarded the millions from pursuing a 2015 class action on behalf of three people, who invested in Lake Forest-headquartered Akorn. The investors alleged the company misled them, by exaggerating revenue by $38 million in financial statements, filings with the U.S. Securities and Exchange Commission, press releases and investor conferences.
Akorn said the overstatements were the result of innocent accounting errors, for which the company took corrective measures. Akorn has produced generic prescription and over‑the‑counter drugs, as well as veterinary drugs.
Despite its denial of wrongdoing, Akorn and its insurers agreed to fork over $24 million. Of the $24 million, each of the three named plaintiffs will receive $10,000 and their attorneys will be reimbursed $375,280 for expenses incurred handling the case.
Another $250,000 will be sliced from the pie to pay to administer the settlement fund. An amount of $15.7 million was set aside for class members who come forward.
All these payouts were approved by Feinerman.
The only part of the settlement at which the judge balked, was the lawyers’ cut.
“Class Counsel’s request for a flat percentage of the entire settlement fund ignores the Seventh Circuit’s (Court of Appeals) repeated observation that negotiated fee agreements regularly apply a sliding scale in which the percentage of the settlement devoted to attorney fees decreases as the dollar value of the settlement increases,” Feinerman noted.
Feinerman quoted a Seventh Circuit opinion that pointed out “many costs of litigation do not depend on the outcome; it is almost as expensive to conduct discovery in a $100 million case as in a $200 million case,” accordingly, it is “hard to justify awarding counsel as much of the second hundred million as of the first.”
The judge continued quoting the Seventh Circuit, saying, “Awarding counsel a decreasing percentage of the higher tiers of recovery enables them to recover the principal costs of litigation from the first bands of the award, while allowing the clients to reap more of the benefit at the margin (yet still preserving some incentive for lawyers to strive for these higher awards).”
Using the sliding scale, the lawyers collect $1.6 million less than they desired. The $1.6 million will be added to the fund available to class members, bringing that fund to $17.3 million.
Potential class members were not numbered in the settlement, but at any rate, arrangements include a formula for allocating payouts to each member based on their Akorn stock transactions.
Akorn has been defended by Kirkland & Ellis, of Chicago and Cravath, Swaine & Moore, of New York City.