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Attorneys’ Fees Reallocated in Class Suit Over Pyramid Scheme

July 19, 2021, 8:37 PM

Five law firms for a class of salespeople who settled with Stream Energy over an alleged pyramid scheme should get the same shares of a roughly $10 million pot of attorneys’ fees that a judge originally ordered, a federal court in Texas said.

An attorney who was brought on at the beginning to pursue the civil racketeering suit with an expected 75% take of the fees, but who wasn’t fully engaged throughout the suit due to substance abuse issues, will get about $1.5 million, Judge Charles R. Eskridge III said July 16 for the U.S. District Court for the Southern District of Texas.

The attorney, Scott Clearman, sought about half the total fee award after the U.S. Court of Appeals for the Fifth Circuit remanded the case. The appeals court said that Judge Kenneth Hoyt should have conducted a full analysis of the relevant legal factors for determining fee allocations. On remand, Hoyt recused himself and Eskridge conducted the analysis.

An appropriate allocation owes “more to experience, rather than any precise metric of logic or statistics,” Eskridge said. “And in that view, the fee award by Judge Hoyt—who dealt with counsel and this litigation from inception to its conclusion after settlement—was correct.”

Clearman’s bid for half the award “borders on frivolous,” he said.

The fee award is part of a settlement valued at over $46 million that resolved claims that Stream Energy’s Ignite marketing program was an illegal pyramid scheme under the Racketeer Influenced and Corrupt Organizations Act.

The en banc Fifth Circuit upheld certification of the suit in 2016 in a groundbreaking decision that lessened the burden on plaintiffs in fraud-based claims under RICO.

After Clearman appealed Hoyt’s allocation and other attorneys cross-appealed, saying Clearman should get less, a Fifth Circuit panel disagreed with the judge’s conclusion that he didn’t have to closely scrutinize the fee award and allocation because no one challenged the size of the award.

Bayko, Prebeg, Faucett & Abbott PLLC; Sommers Schwartz PC; Jeffrey W. Burnett PLLC; Goldstein & Russell PC; and The Clearman Law Firm PLLC represented the plaintiffs and the class.

Gibson, Dunn & Crutcher LLP and Reese Marketos LLP represented the defendants.

The case is Torres v. SGE Mgmt., LLC, 2021 BL 268481, S.D. Tex., No. 4:09-cv-02056, 7/16/21.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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