A 16(b) plaintiff filed a complaint in the SDNY last week seeking to compel an issuer to pay her attorney’s fees for bringing a 16(b) claim to the issuer’s attention even though another plaintiff’s attorney had submitted a demand letter first. The outcome could help determine whether issuers that receive multiple demand letters should negotiate with all of the claimants or only the first one to submit a letter. A more interesting aspect of the case may be what it reveals about how some members of the 16(b) plaintiffs’ bar view one another. I’ll summarize the highlights below, but you might find the full complaint an interesting read.
The case arose after two plaintiffs’ firms submitted demand letters to an issuer pointing out that a Form 4 filed by a director on March 13 reported the second leg of a short-swing transaction that resulted in a profit of $12,219.45. According to the complaint, filed by James Hunter of Hunter & Kmiec, H&K submitted a demand letter on March 17 but received a response later that day saying that another attorney (alleged to be Richard Canedo of Harrison Legal) had already brought the claim to the issuer’s attention and that the issuer had recovered the full amount of the profit. The issuer did not offer to pay H&K a fee and did not disclose the amount of the fee paid to the first attorney. The complaint alleges that the director’s delivery of the disgorgement check did not occur until hours after H&K submitted its demand letter.
The gist of the complaint is that the issuer would not have recovered the full amount of the profit if H&K had not submitted its letter, and therefore H&K was entitled to a fee (25% of the recovery). Here are some of the allegations on which the claim is based:
Mr. Canedo graduated from law school in 2015 and “has never tried, argued, or filed a civil action.”
“Mr. Canedo has been known in other matters to offer reductions in disgorgement on the condition that the issuer kick a larger share of the disgorgement back to his firm as an attorney’s fee.”
“Without the diligent and dogged intervention of Plaintiff’s counsel, it is implausible that [the issuer] would have recovered the full amount [the director] owed.”
H&K’s demand letter “dashed any prospect of a collusive bargain.”
“[I]t is unlikely that Harrison Legal was paid for wresting the profit from [the director’s] hands. The real reason Harrison Legal was remunerated to the exclusion of Plaintiff’s counsel is that Mr. Canedo named the lowest price to go away.”
It is rare to see disagreements between plaintiffs’ attorneys aired in litigation. This case doesn’t involve much money, so there may be principles at stake.
-Alan Dye, Section16.net April 27, 2020
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