The US class action law firm that has helped Enron investors recover more than $7bn has just got the go-ahead to put in a bill for $688m – the highest in US legal history. The presiding judge ruled that (the ridiculously-monikered) San Diego-based Coughlin Stoia Geller Rudman & Robbins ‘performed with an extraordinary level of skill and negotiating prowess,’ so this exorbitant fee is actually perfectly reasonable – particularly given the six years of work that went into the settlement.
Naturally some investors beg to differ, arguing that the $7.2bn pot agreed this week is supposed to be for them, not a bunch of rich lawyers. But to be fair, without the efforts of Coughlin Shia there might not be such a big pot. The class action specialist managed to recoup the sum from the big banks and financial institutions that used to work with Enron, after successfully arguing that they were implicated in the huge accounting fraud that led to the company’s sudden demise. Around 1.5m shareholders will now be entitled to some level of payout, depending on when they bought their shares and how long they owned them for.
As lead counsel for the lead claimant (the Regents of the University of California investment fund), Coughlin Shia arguably contributed the bulk of the work to the case. And since it works on a no-win, no-fee basis, this will be the first time it has seen any return on the huge amount of time it’s invested in the case – which it has described as ‘the most complex and successful securities case in history’. In fact, they could even argue that a fee of 9.5% of the total settlement is actually quite modest by the standards of class action lawsuits (although we doubt they’ll have the brass neck to claim that $700m is modest).
But while one firm prepares itself for a big pay-day, it appears that City law firms are bracing themselves for the prospect of not seeing any more for a while yet. According to the latest fee survey by Legal Business magazine, most of the big firms have had another pretty good year – but editor James Baxter reckons there are some dark clouds on the horizon. He reckons firms are worried that the effects of the credit crunch – and in particular, the knock-on effect on their financial services and commercial real estate clients – will take a big bite out of next year’s fees.
On the other hand, it’s hard to imagine that law firms will stop making money, even if margins are squeezed slightly across the board – if nothing else, their insolvency and divorce practices ought to be pretty busy for the next few months… And we wouldn’t feel too sorry for lawyers: apparently the average fee-earner at Slaughter and May racked up £582,000 last year. So they'll probably still be able to make ends meet.