The attorneys who led a class action on behalf of investors who claimed financial losses from the Kraft Heinz merger are in line to receive $90 million in fees carved out of a $450 million settlement.
U.S. District Judge Jorge Alonso issued an order Sept. 19 formally awarding fees and litigation expenses to lawyers from the firm of Kessler Topaz Meltzer & Check, of Radnor, Pennsylvania, and San Francisco, who represented named plaintiffs Sjunde AP-Fonden and Booker Enterprises, as well as others from the firm of Bernstein Litowitz Berger & Grossman, of New York, who represented Union Asset Management Holding.
Plaintiff reimbursements include Sjunde AP-Fonden getting $12,780, Union Asset Management Holding collecting $73,950 and Booker Enterprises receiving $27,610.
Alonso said the fee award represents 20% of the settlement fund, along with $2.6 million in litigation expenses, which is down from the maximum possible request of $3.2 million. He said the the lawyers who worked on the case will be paid based on determinations made by the “lead counsel ... which they, in good faith, believe reflects the contributions of such counsel to the institution, prosecution, and settlement of the” class action.
The underlying litigation dates to February 2019, when lawyers from Mololamken, of Chicago, and Rosen Law Firm, of New York, brought a putative class action on behalf of named plaintiff George Hedick Jr., seeking to represent anyone who bought Kraft stock from May 14, 2017, through Feb. 21, 2019. Named defendants included Kraft Heinz and three officers: CEO Bernando Hees and Paulo Basilio, who served as chief financial officer and executive vice president from June 2015 until Oct. 1, 2017, and his successor, David Knopf.
The complaint, filed in federal court in Chicago, accused the company and executives of violating U.S. Securities and Exchange Commission rules via more than 100 “materially false and misleading statements” through several filings attesting to disclosure controls and procedures as well as internal financial reporting processes. “The truth” emerged, according to the complaint, in a Feb. 21, 2019, earnings announcement when Kraft detailed a $15.4 billion “impairment charge” and disclosed the SEC had subpoenaed the company in October 2018.
Specifically, the complaint alleged the company slashed costs across a sprawling product line to temporarily boost earnings before interest, taxes, depreciation and amortization. Plaintiffs alleged the long-term result was permanent damage to the value of many individual brands under the giant corporate umbrella. The complaint said the Feb. 21 disclosures caused Kraft shares to fall more than 27% the next day, closing at $34.95.
After initial settlement motions in May, the Aug. 8 motions for settlement and attorney compensation indicated the new named plaintiffs and legal representation. Alonso said notice of the fee request was not only sent to all members of the settlement class — including 1.6 million postcards and 5,600 packets — but also published in The Wall Street Journal and sent through public relations channels in accordance with court guidelines.
Alonso also said the lawyers’ fee request was “reviewed and approved as reasonable by plaintiffs, sophisticated investors that actively supervised the action.” He noted receipt of only two objections to the fee, “which the court has considered and rejected.” At the time of the Aug. 8 motion for fees, the law firms asserted the first objector’s complaint was “virtually identical to series of other objections that he has submitted in unrelated, factually distinct cases.”
Lawyers representing the plaintiffs reported spending more than 112,000 hours on the case with a lodestar value of almost $53 million. Although a steep drop from the maximum potential damages of $4.3 billion, the $450 million cash payout “will be the largest pretrial securities class action settlement ever in the Seventh Circuit,” according to the motion for legal fees. The U.S. Seventh Circuit covers federal courts in the states of Illinois, Indiana and Wisconsin.