Editor's note: This article has been revised to correct an error in which the plaintiffs' attorneys seeking the fees at the heart of the objections to the settlement were misidentified. A prior version of the story incorrectly identified attorneys who represented plaintiffs in the action, and opposed Ted Frank's motion to intervene, but did not themselves seek the fees. The Cook County Record regrets the error.
A federal appeals panel says noted class action settlement objector Ted Frank will get a chance to continue his efforts to directly combat questionable six-figure "mootness fees" claimed by plaintiffs' lawyers in a quickly settled lawsuit years ago challenging the acquisition of drugmaker Akorn, while delivering no monetary benefits for shareholders.
On April 15, a three-judge panel of the U.S. Seventh Circuit Court of Appeals granted Frank's petition to intervene in the proceedings, which the appeals courts said a Chicago federal judge had wrongly denied without legal justification.
The underlying actions date to 2017 when six investor lawsuits, including five class actions, claimed Lake Forest-based Akorn failed to “disclose certain material information that is necessary for shareholders to properly assess the fairness” of a proposed $4 billion acquisition by German pharmaceutical company Fresenius.
After Akorn amended a proxy statement to add disclosures — insisting none were legally required — all six plaintiffs moved for dismissal, reporting the disclosures mooted their complaints. Different federal judges granted those dismissals in July 2017. The merger went through with minimal opposition, and in September 2017 all six plaintiffs said any outstanding claim to legal fees came to a resolution through Akorn’s payment of $322,500 to be divided among the plaintiffs’ attorneys, including attorneys David A.P. Brower, of the firm of Brower Piven, of New York; Michael J. Palestina, of the firm of Kahn Swick & Foti, of Madisonville, Louisiana; and Juan E. Monteverde and Miles Schreiner, of the firm of Monteverde & Associates, of New York.
Frank, who owned 1,000 Akorn shares and also serves as director at the Hamilton Lincoln Law Institute and the Center for Class Action Fairness, moved to intervene. He asked a court to disgorge the legal fees as unjust enrichment, claiming investors reaped no benefit, and seeking an injunction preventing the firms from similar litigation he alleged existed only to extract legal fees.
In June 2019, U.S. District Judge Thomas Durkin agreed plaintiffs had attempted to sidestep judicial review, allowing lawyers to get paid for securing “disclosures” he found “worthless to the shareholders.” Lawyers for three of the six plaintiffs disclaimed their portion of the fees before Durkin’s ruling. Although Durkin ordered the remaining fees returned, he rejected Frank’s effort to formally intervene, allowing only a support brief.
Three U.S. Seventh Circuit Court of Appeals judges heard arguments on Frank’s appeal of Durkin’s denial at proceedings in November 2018: Frank Easterbrook, Diane Wood and Michael Kanne. The panel tabled the issue pending disposition of the three remaining cases. Two firms appealed Durkin’s disgorgement order, and Frank still seeks to be made a party to the lawsuit. The panel heard those appeals in April 2020. Kanne died in 2022; Easterbrook wrote the opinion, filed April 15, 2024, with concurrence from Wood.
Easterbrook detailed the history of similar instances in which parties file lawsuits seeking additional disclosures during corporate acquisitions, without challenging the existing disclosures, leading to added disclosures, dismissal and payment of mootness fees.
“And if a class member finds out and objects, as Frank did, he is met with the response that the suit is moot and there is nothing to object to,” Easterbrook wrote. “The upshot: money moves from corporate treasuries to plaintiffs’ lawyers; the investors get nothing, yet the payment diminishes (though only a little) the market price of each share.”
Two plaintiffs appealed Durkin’s decision to reopen a dismissed case without any parties filing a motion to do so, but Easterbrook wrote those plaintiffs clearly have no interest in the outcome and dismissed their appeals. But Frank retains a financial interest — “something like 0.008% of the value” of his shares, Easterbrook wrote — which is sufficient to establish standing.
“Frank does not contend that Akorn’s directors violated their fiduciary duties,” Easterbrook wrote. “The mootness fees may well have cost Akorn less than what its own lawyers would have billed to defend the suits. This means that the directors did not violate either the duty of care or the duty of loyalty when paying to buy peace. Frank contends that class counsel violated their duties to him when they used the class allegations as leverage to obtain private benefits.”
Ultimately, the panel found Durkin wrongly denied Frank’s attempt to intervene because it was possible to grant him the requested relief in his quest to protect the putative class’s interests. However, it said Frank’s initial proposed remedies aren’t satisfactory, both because Durkin has already ordered the fees returned and because he cannot seek an injunction against the law firms when they aren’t party to the litigation.
But, when Frank focused on the Private Securities Litigation Reform Act, he landed on provisions that bolster his arguments. Specifically, Easterbrook wrote, there are passages calling for mandatory judicial review of the propriety of this type of lawsuit, steps the appeals panel should be undertaken on remand to Durkin.
“From Frank’s perspective, the very purpose of these suits was ‘needlessly (to) increase the cost of litigation’ in order to induce Akorn to pay the lawyers to go away,” Easterbrook wrote. “And that is essentially what (Durkin) found when he finally looked at the complaints.”
The panel ordered the remand, instructing Durkin to treat Frank as an intervenor and allow a motion for relief.
In an email replying to questions from The Cook County Record, Frank said: “We're evaluating our options on remand in light of the opinion; the district court has ordered a status report to be filed shortly. But we expect to proceed.”
Frank has built a reputation for decades, objecting to class action settlements, most of which greatly benefit trial lawyers, while providing little relative relief for class members. According to his bio, his work has generated "tens of millions of dollars for consumers and other plaintiffs." The American Lawyer Litigation Daily has called Frank “the indefatigable scourge of underwhelming class action settlements.”