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Ninth Circuit:
Law Firm Entitled to Attorney Fees Out of ‘Common Fund’ for 2,000 Hours of Work
By a MetNews Staff Writer
Pritzker Levine, a national law firm headquartered in Oakland, was wrongfully denied an award of attorney fees for the roughly 2,000 hours of work it did in state court proceedings instituted in 2015, the Ninth U.S. Circuit Court of Appeals held yesterday, rejecting the District Court’s assumption that the wrongfully diverted money of investors would ultimately have been recovered in the Securities and Exchange Commission’s 2017 federal suit.
The decision came in a memorandum opinion signed by Ninth Circuit Judges Andrew D. Hurwitz and Paul J. Watford. M. Miller Baker, a judge of the United States Court of International Trade, sitting by designation, dissented.
Pritzker Levine represented Allan Young in his action against his former business partner, Thomas Henderson, and Henderson’s company, San Francisco Regional Center, LLC. The action for damages, declaratory relief, and injunctive relief was brought in Alameda Superior Court alleging an unlawful rerouting of funds and concealment of business records. A receiver was appointed and the law firm assisted in the recovery of nearly $29 million in assets that were placed in the receivership estate.
Assets Shifted
When the SEC’s action was launched in the U.S. District Court for the Northern District of California, the state proceeding was stayed, the state receiver was appointed as federal receiver, and roughly $25 million in assets (including buildings) was shifted to the federal receivership estate.
After a distribution plan was approved, Pritzker Levine sought an award of fees for its role in creating a “common fund.” Chief Judge Henderson’s Richard Seeborg denied the application.
In reversing the order, Hurwitz and Watford said:
“Pritzker’s efforts in the state court litigation—which included filing the case, obtaining the appointment of a receiver, working closely with the receiver in amassing the receivership fund, and defending the fund against various claims—undeniably caused the creation, discovery, increase, or preservation of a common fund that benefited investors at the conclusion of the federal action….The district court’s speculation that the funds transferred from the state receiver might still have been recovered by the federal receiver in the absence of the state receivership therefore finds no support in the record and in any event does not demonstrate that Pritzker’s efforts were not a ‘cause-in-fact’ of the creation, increase, or preservation of a common fund.”
The matter was remanded for the setting of “a reasonable award.”
Baker’s Dissent
Baker protested in his dissent that “federal law bars Pritzker Levine LLP’s claim to attorneys’ fees from funds disgorged by defendants in the Securities and Exchange Commission’s successful civil enforcement action.” He explained that “But every penny in the federal receivership estate available for distribution to defrauded investors was disgorged as a result of the district court’s determination that defendants violated the federal securities laws.”
As an independent basis, the visiting jurist wrote:
“Pritzker’s argument—that, but for its involvement, the assets would have been dissipated—is just as speculative as the district court’s factual finding to the contrary. The relevant question, therefore, is whether the district court’s necessarily speculative counterfactual finding was still ‘plausible in light of the record viewed in its entirety.’ ”
He said that Seeborg’s determination “is not clearly erroneous” and that the order should therefore be affirmed.
The case is U.S. Securities and Exchange Commission v. Pritzker Levine, LLP, 20-17419.
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