The Association of U S West Retirees



Qwest case legal fees defended
Judge to determine whether $96 million fair in class-action suit
By David Milstead, Rocky Mountain News
Saturday, May 20, 2006

Qwest shareholders who saw their stock plummet by more than 90 percent will get about 19 cents per share in a class-action settlement.  The lawyers who secured it for them will get nearly $100 million.  Friday, attorneys for Lerach Coughlin, the firm that will collect those fees, explained to a judge why they think the fees are fair.

"It was a massive effort," said Michael Dowd, an attorney for Lerach Coughlin Stoia Geller Rudman & Robbins, citing hours of depositions and legal work with no guarantee of payment.  "There was risk, and there has to be reward."

But Curtis Kennedy, an attorney representing objectors, including the U S West Association of Retirees, said, "We don't want these shareholder cases to turn into lottery winning for lead counsel."

The wrangling is the latest step in the long-running legal battle over the fall of Qwest.  The upstart communications company bought U S West at the tech bubble's peak, then watched the value of the merged company plummet amidst an economic crash and an accounting scandal.  The Securities and Exchange Commission, and now federal prosecutors, have investigated Qwest and charged its former executives with civil and, in some cases, criminal violations.

Objectors to the fees made two main arguments:

  The losses to Qwest shareholders far exceeded the $400 million settlement, even when an extra $250 million obtained in a civil case by the Securities and Exchange Commission is considered.  One expert claimed the losses were as high as $80 billion, while another estimated $16.1 billion.

  The fees to the attorneys - at 24 percent of the settlement, or $96 million -- are much higher than in other large class-action lawsuits.

Taken together, the objectors said, Lerach Coughlin is charging Qwest shareholders more for obtaining less than in other cases.

"It's a gross overstatement of (their) value bordering on the egomaniacal," said Alan Henry, an investor from Northport, Maine, who says he lost roughly $1.5 million on what were once 30,000 shares of U S West stock.  "That was our company, stolen from us by (former CEO Joe) Nacchio and his crooked minions."

Dowd dismissed the $80 billion estimate, which was calculated based on the difference between one of Qwest's peak market values and one of its troughs.  "You just can't take the biggest number you can find, subtract the smallest number you can find, and calculate your damages."

While other estimates may be more appropriate, in class-action litigation, "it all comes down to a battle of the experts," Dowd said.

Testimony from Qwest CEO Dick Notebaert about the company's financial condition, coupled with the absence of an "enormous deep-pocketed defendant" like an investment bank, makes the recovery fair, Dowd said.

He also argued that authorities "rode our coattails," since the lawsuit was filed in mid-2001.

Dowd said Lerach Coughlin spent $18 million on the Qwest case with no guarantee of return.  "I've lost cases on summary judgment where we spent $18 (million) to $20 million."

While shareholders and Lerach Coughlin skirmished over the finances, attorneys for Nacchio and former Chief Financial Officer Robert Woodruff raised a different objection.  A central part of the class-action agreement is the exclusion of Nacchio and Woodruff and Qwest's agreement not to cover any financial settlement the two might arrive at later.

Herbert Stern, Nacchio's attorney, said his client and Woodruff "are stricken of the rights as a condition of the settlement," and Qwest is trying to walk away from the two executives' employment contracts by dumping them.

David Boyd, arguing for Qwest, defended the legality of the move and said the provision "is central to the settlement.  It will perhaps make no sense to proceed without it."

Judge Robert E. Blackburn considered nearly two hours of arguments before telling the parties he will issue a written decision soon.

David Milstead is finance editor of the Rocky Mountain News. He can be reached at or 303-892-2648.,2777,DRMN_23910_4713864,00.html