In Re: Fuqua Industries, Inc. Shareholder Litigation (Sachnoff & Weaver, Ltd. v. Abrams ), read opinion here , the Chancery Court on September 7, 2006 addressed a fee dispute arising from the extensive litigation in the Fuqua Industries matter that lasted from 1991 through 2006. In his opinion, Chancellor Chandler refers to the many reported decisions in that case. The specific issue in this decision had to do with the class representative of this class action also being a lawyer and also seeking legal fees for at least some of the services that he performed in the case.
In sum, the court refused to honor the agreement to pay fees (if one ever existed, although the court did not rule on that issue) based on established Delaware case law, as well as Rules of Professional Conduct 1.5 and 1.7 which prevent an attorney who serves as a class representative from also serving as the attorney for the class. See Goodrich, 1993 WL 94456, at *2 (citing Emerald Partners v. Berlin, 564 A.2d 670, 676-80 (Del. Ch. 1989)). See also Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1045 (Del. 1996).
The court was displeased that the details of such an arrangement were not brought to its attention when the class settlement and attorneys’ fees claimed for the class counsel was approved in the past in this case. The policy reasons, in addition to Rules 1.5 and 1.7, are that an attorney for the class has a conflict when the issue involves the amount of attorneys’ fees to be paid because the amount of attorneys’ fees paid is directly at odds with attaining the highest possible amount for the class. Rule 1.5 deals with reasonable fees and includes provisions for sharing fees with lawyers in another firm in which case the consent of the client is required but in this case the class did not consent to attorneys’ fees being paid to the class representative. Rule 1.7 addresses conflicts of interest between concurrent clients and the court determined that the rule is violated when a class representative is also the attorney for the class.
Although it may dicta, it is memorable that the court noted that even though the Chancellor was doubtful that an agreement ever existed regarding fee splitting, the court made it clear that:
“it would, for example, seem unlikely that a court of equity would entertain a law firm’s argument that an illegal and unethical contract it had entered into should be held unenforceable, thereby enriching the firm that had conspired to commit a fraud on the Court and the stockholder class in the first place. In such circumstances, it seems more likely that a court would order disgorgement of all of the attorneys’ fees awarded to the offending law firm.” (emphasis in original)(Slip op. at 18).