Plaintiffs Firms Must Pay $1.5 Million for ‘Reckless’ Litigation

A judge has determined that two law firms, Schneider Wallace Cottrell Konecky LLP and Schlichter Bogard & Denton LLP, are jointly and severally liable for ‘multiplying proceedings unreasonably and vexatiously.’

The U.S. District Court for the District of Colorado has issued a new order in a long-running Employee Retirement Income Security Act lawsuit targeting Great-West Life & Annuity Insurance Co. and Great-West Capital Management LLC.

The suit had previously been dismissed by the District Court, which determined that the plaintiffs did not meet their burden of proof and that they did not establish that any actual damages resulted from defendants’ alleged breach of fiduciary duty. The ruling was subsequently affirmed by the 10th U.S. Circuit Court of Appeals, and the courts issued a sanction declaring that the plaintiffs’ law firms Schlichter Bogard & Denton LLP and Schneider Wallace Cottrell Konecky LLP behaved “recklessly” in the matter.

The sanction order declared that “any experienced plaintiffs’ counsel who objectively assessed the merits of this case should have anticipated the result.” The District Court pointed out that the plaintiffs recognized, in their response to the defendants’ motion for sanctions, that no plaintiff who has pursued a similar claim under Section 36(b) of the Investment Company Act has ever won in the 50 years of the section’s existence.

Now, a new order has been filed by the District Court, addressing two post-judgment issues. First is the amount of attorney fees and expenses due to defendants, and second is the question of who owes the fees and expenses. Ultimately, the order awards $1.5 million in attorney fees and expenses against the two law firms, which have been declared jointly and severally liable for the payment.

The new order notes that the plaintiffs’ firms have argued that the number of hours the defendants billed for the trial was excessive—but the order rejects that reasoning.

“[The plaintiffs’ firms] point out that eight defense attorneys billed a total of 2,194.55 hours, the equivalent of more than 91 24-hour days, for an 11-day trial,” the new order states. “Defendants counter that the fees were appropriate to the case. They point out that plaintiffs sought tens of millions of dollars in damages, challenged important facets of defendants’ businesses, and asserted claims that had the potential to cause significant reputational harm to defendants if plaintiffs were successful. Under these circumstances, defendants argue, there is no basis for plaintiffs’ counsel to second-guess defendants’ staffing decisions. The results speak for themselves. The court agrees with defendants.”

The order goes on to state that this was a “high-stakes” case, justifying the sizable liability payment.

“If plaintiffs had prevailed at trial, they would have been entitled to an eight-figure damage award, plus costs and interest,” the order states. “Defendants’ victory at trial was, in part, the product of a well-prepared defense team and a well-tried defense case, and the hours billed appear reasonable in light of the work involved in preparing such a case. Having made the decision to proceed to trial, plaintiffs’ counsel cannot now challenge the defense’s choices about how to staff its trial team and litigate that trial. The court finds that the time spent on the trial and post-trial proceedings was reasonable under the circumstances.”

The order goes on to declare that the rates charged by defense counsel were reasonable.

“Defendants have provided evidence that such rates are reasonable and consistent with the rates charged for similar work by similarly qualified attorneys, and plaintiffs’ counsel do not challenge those rates,” the order states. “Plaintiffs contend, however, that many of the billing entries for the defense attorneys are so vague that they do not indicate what the attorneys did. Therefore, they argue, the court cannot award fees for those entries. The court disagrees. The entries in question are sufficiently clear to show that the work in question was related to defendants’ trial preparation. Having already limited defendants’ total recovery to fees and expenses after the start of trial, and having further restricted that recovery to no more than $ 1.5 million, the court finds no basis to further reduce the fee award.”

The full text of the new order is available here