US judge approves $50M settlement but questions fees

OAKLAND -- A federal judge indicated Tuesday she plans to approve a $50 million securities class action settlement between a luxury home furnishings company and investors, but expressed concerns about the deal's attorney fees.

U.S. District Judge Yvonne Gonzalez Rogers said the plaintiffs' counsel need to justify hourly rates for staff lawyers.

"The amount that we authorize as judges for contract and staff lawyers is heavily in debate between myself and my colleagues in this district," the Northern District of California judge said.

Staff attorneys worked roughly 7,000 hours at an hourly rate of $350 over two years of litigation, amounting to approximately $2.5 million in fees, according to the plaintiffs' court filings.

Rogers said she's "not exactly sure why one is deemed a staff attorney opposed to an associate, especially if they went to Harvard and have been there for 10 years."

"Transparency is important," she continued, adding she needs additional briefing on the issue and the retainer agreement between the plaintiffs' attorneys and the class indicating they would cap fees at $7.5 million, or 15% of the settlement.

There were no objectors and two requests for exclusions to the settlement, according to court filings.

Jonathan Uslaner, representing the investors, responded the fees are below the typical 25% benchmark and no contract attorneys were utilized. He also said staff attorneys played a "key role in advancing this case," and the firm, Bernstein Litowitz Berger Grossmann LLP, has different levels of attorneys to "incentivize people to work harder."

The lawsuit concerned allegations Restoration Hardware misled investors by asserting RH Modern, an offshoot of the company, was "the most important and significant new furnishing business to be launched in the last 15 or 20 years" and would double the company's revenue. Executives touted its ability to have products in stock so customers would quickly receive furniture they ordered.

The company doubled down on its optimism by repeatedly issuing growing revenue forecasts, according to the complaint.

Restoration Hardware then announced disappointing revenue projections, which the company attributed to production delays.

Plaintiffs' attorneys claimed the supposedly misleading statements, made from March 2015 to June 2016, led shareholders to lose more than $3 billion. The lead plaintiffs were the Public School Teachers' Pension & Retirement Fund of Chicago and the Arkansas Teacher Retirement System. In re: RH, Inc. Securities Litigation, 17-CV00554 (N.D. Cal., filed Feb. 2, 2017).

A team from Bernstein Litowitz Berger Grossmann LLP, led by Avi Josefson and Gerald H. Silk, represented investors while Erik J. Olson of Morrison & Foerster LLP represented the defense.

A similar dispute over $68 million in attorney fees has stalled a landmark $240 settlement Wells Fargo & Co. shareholders reached with the bank in March over the fraudulent creation of millions of fake accounts. In re: Wells Fargo & Co. Shareholder Derivative Litigation, 16-CV05541 (N.D. Cal., filed Sept. 29, 2016).

The delay also concerns accusations of exaggerated billing rates.

At an Aug. 1 hearing, U.S. District Judge Jon S. Tigar in the Northern District said the plaintiffs' attorneys faced an "uphill battle" in getting him to approve the fees.