Bass, Berry & Sims attorney Chris Lazarini examined a case in which the defendant was ordered to pay plaintiff’s past and future legal costs related to an SEC action against the plaintiff. Despite numerous court interventions, the defendant failed to pay in full. The court has threatened the defendant with potential sanctions for his repeated delays.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

Alderson vs. deVere USA, Inc., No. 18 Civ. 5081 (S.D. N.Y., 5/26/20)

Defendant faces potential sanctions for its repeated delays in paying attorneys’ fees awarded Plaintiff in arbitration.

Following a JAMS arbitration, Defendant (a registered investment adviser) was ordered to pay Plaintiff’s (Defendant’s former manager) past and future legal costs in an SEC action against Plaintiff. The arbitration Award (#1425027170) was confirmed by the Court without objection. In February 2019, the Court also entered an Order setting out a process for the monthly submission of invoices, objections, and reports to the Court if objections were not resolved. Approximately a year later, Plaintiff moved for an order compelling Defendant to pay approximately $282,000 in legal costs.

Granting the motion, the Court recounts five separate occasions following its Order where it was pulled into the dispute “due to Defendant’s intransigence.” On the first three occasions – May 2019, October 2019, and December 2019 – the Court scheduled conferences, only to cancel them after being told the disputes were resolved. Problems apparently persisted, however, and in a January 2020 conference, Defendant’s counsel announced Defendant would make two $55,000 payments by the end of February, and an additional $100,000 payment by the end of March. The Court noted for the record its expectation the payments would be made and the case resolved.  On April 2, 2020, Plaintiff’s counsel informed the Court the $100,000 payment was outstanding. Asking the Court to let the parties resolve matters without the Court’s intervention, Defendant’s counsel responded that the COVID-19 emergency prevented Defendant from making the payment and negotiations with Plaintiff were ongoing. On April 22, the Court entered an order directing Defendant to make the $100,000 payment by May 1, and requiring the parties to provide the Court with a status report on the SEC action and an agreed payment plan for future costs – signed by both law firm and their clients – by May 8. Defendant timely made these payments.

The present motion came to a head when, on May 8, Plaintiff’s counsel reported the SEC action was settled in principle and it had invoiced Defendant approximately $282,000, which Defendant refused to pay. Responding, Defendant’s counsel argued Plaintiff had released Defendant in a March 2020 settlement agreement from “any and all claims” related to the SEC action, including claims for “past, pending, previously incurred, or future attorney’s fees, expenses or costs.” Defendant’s counsel also argued Plaintiff’s counsel lacked standing to demand payment because Plaintiff had changed counsel after the SEC settlement. The Court states Defendant’s arguments “border[] on the absurd and appear[] to be entirely without color and motivated by an improper purpose such as harassment or delay.” The Court notes the parties had been operating under the “clear terms” of the Arbitration Award, which the Court confirmed without objection, and questions why Defendant did not raise the settlement agreement argument in April, when it attempted to avoid the $100,000 payment. The Court finds Defendant’s standing argument equally meritless, stating substitution of counsel in the SEC action is irrelevant to this action.

The Court stops short of sanctioning Defendant and/or its counsel but, sending a clear message, states it is “troubled” by counsel’s prior assertions about the parties’ “negotiations.” The Court says those statements “appear to be disingenuous,” because (the Court is now being told) the parties were not negotiating an agreement, but had executed one the prior month. The Court orders the parties’ counsel to agree on payment of all outstanding fees by June 22 and, if no agreement is reached, directs them to file submissions on fees in dispute and sanctions “against Defendant and/or Defense Counsel in light of . . . Defendant’s repeated and apparently willful refusal to timely comply with its obligations under the Arbitration Award and the Court’s [February 2019] Order.” The Court also instructs Plaintiff’s counsel to include an addendum setting out “the excess costs, expenses, and attorneys’ fees reasonably incurred because of Defendant’s and/or Defense Counsel’s misconduct.”