Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_01-cv-02659/USCOURTS-cand-4_01-cv-02659-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE TUT SYSTEMS, INC. SECURITIES

LITIGATION

 /

No. C 01-2659 CW

ORDER DENYING MOTION

FOR PAYMENT OF

DAMAGES AND MOTION

TO AWARD ATTORNEYS'

FEES

In 2004, this class action settled. Horacio Yusty, Andres

Jaramillo and Rodrigo Jaramillo contend that, although they were

named Plaintiffs in the original complaint, they did not receive

notice of the settlement, nor did they receive their share of the

settlement proceeds. They seek undisclosed damages and sanctions

against the law firm of Lerach Coughlin Stoia Geller Rudman &

Robbins LLP, whom the Court appointed as co-lead counsel. Bruce G.

Murphy, who purports to represent Messrs. Yusty and Jaramillo,

seeks to recover attorneys' fees that he contends Lerach Coughlin

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Mr. Murphy states that he is licensed to practice before the

courts of the Commonwealth of Virginia. He is not admitted to

appear in this Court, nor has he filed a motion to appear pro hac

vice. According to the pleadings, he appears pro se. 

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On May 1, 2004, certain lawyers at Milberg Weiss withdrew

from the partnership and formed Lerach Coughlin. The lawyers who

worked on the Tut Systems Security Litigation all joined Lerach

Coughlin and continued to represent the Lead Plaintiffs and

settlement class.

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owes him.1 Lerach Coughlin opposes the motions. The hearing

scheduled for June 21, 2007 is vacated and the matter is submitted

on the papers. Having considered the papers filed by the parties,

the Court denies both motions. 

BACKGROUND

 In late 2000 or early 2001, Mr. Murphy contacted Dave Walton,

a Lerach Coughlin partner, who at the time was a partner at Milberg

Weiss Bershad Hynes & Lerach LLP,2 about a potential securities

fraud case against Tut Systems, Inc. After Mr. Murphy's clients,

Messrs. Yusty and Jaramillo, had purchased Tut Systems stock, the

price of the stock had dropped. Mr. Murphy believed that, based on

his investigation, the price drop may have resulted from violations

of federal securities law. The price of Tut Systems' stock dropped

even more after Mr. Murphy met with Mr. Walton, who conducted his

own investigation into whether a cause of action existed. 

Mr. Murphy contacted Mr. Walton again, informing him that his

clients were interested in filing a lawsuit against Tut Systems. 

For referring his clients to Milberg Weiss, Mr. Murphy expected a

referral fee. According to Mr. Murphy, Milberg Weiss had

previously agreed to pay him ten percent of any court-approved fees

it received in cases in which he referred a client to Milberg

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Weiss. Mr. Murphy claims that Milberg Weiss has paid him a ten

percent referral fee in at least sixteen previous cases. Mr.

Walton states that he did not agree to pay Mr. Murphy any type of

fee and was not aware of a pre-existing fee arrangement with Mr.

Murphy. William Lerach also states that he did not agree, nor was

there a pre-existing arrangement, that Mr. Murphy would receive a

ten percent referral fee. 

Milberg Weiss decided to bring a lawsuit against Tut Systems.

Mr. Walton drafted a complaint and then sent it to Mr. Murphy for

his clients to review. Mr. Walton did not have direct contact with

Mr. Murphy's clients, nor did he have their contact information. 

Mr. Murphy's clients approved the complaint, and Milberg Weiss

filed the complaint on their behalf; the complaint listed Mr.

Murphy and attorneys at Milberg Weiss as co-counsel.

Six other cases were filed against Tut Systems. Milberg Weiss

was co-counsel on five of those six cases. The Court consolidated

all seven cases. On December 12, 2001, the Court appointed Mark

Krist and Robin Avery as Lead Plaintiffs. Because Mr. Murphy's

clients each had purchased only one hundred shares of Tut Systems'

common stock, they were not considered for Lead Plaintiff

positions. The Court also appointed the law firms of Milberg Weiss

and Weiss & Yourman as co-lead counsel. Mr. Murphy claims that,

after Milberg Weiss was appointed as co-lead counsel, it cut him

off the service list. His name, however, still appears on the ECF

docket sheet as an "Attorney to be noticed."

In late 2003, this case settled. On February 24, 2004, the

Court granted preliminary approval of the settlement agreement and

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3Lerach Coughlin's letter noted that Mr. Murphy had previously

accepted a $15,000 referral fee in connection with the Smart

Modular securities litigation. There, Mr. Murphy also claimed that

he was owed ten percent of the fee award under a referral fee

arrangement. He filed a motion for an order directing Milberg

Weiss to pay him a referral fee. The motion was denied without

prejudice to Mr. Murphy bringing a separate action on his contract

claim. 

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approved a notice program. Three months later, the Court approved

a ten million dollar settlement, awarded attorneys' fees to co-lead

counsel in the amount of twenty-five percent of the settlement and

entered final judgment. Messrs. Yusty and Jaramillo claim that

they never received notice of the settlement. Nor did Mr. Murphy

receive any compensation.

In October, 2006, after his clients contacted him to inquire

as to the status of the case, Mr. Murphy contacted Mr. Walton, who

told him about the settlement. 

Mr. Murphy claimed that he was entitled to ten percent of the

legal fees awarded to Lerach Coughlin by the Court. Lerach

Coughlin responded that it found his belated request for attorneys'

fees "surprising," especially because Mr. Murphy's clients had no

involvement in the case other than filing the initial complaint and

Mr. Murphy had performed no work to further the prosecution or

settlement of the case. In January, 2007, after Mr. Murphy stated

that he intended to file a motion with this Court to recover his

referral fee, Lerach Coughlin offered to pay him $15,000. Mr.

Murphy refused the offer.3

On April 10, 2007, Mr. Murphy called the claims administrator

about making claims for his three clients. The administrator

informed him that there was money remaining in the settlement

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account and that, if his clients submitted claim forms, the

administrator would promptly review the forms. To date, no claim

forms have been filed on behalf of Messrs. Yusty and Jaramillo. 

On May 7, 2007, almost three years after the Court entered

final judgment in this case, Mr. Murphy filed these two motions,

requesting that the Court order Lerach Coughlin to pay damages and

sanctions to Messrs. Yusty and Jaramillo and to pay Mr. Murphy,

with interest, ten percent of the Court-approved attorneys' fee

that it received in this litigation.

DISCUSSION

I. Motion for payment of damages and imposition of sanctions 

Mr. Murphy purports to bring this motion on behalf of his

clients. As noted above, however, Mr. Murphy is not admitted to

practice before this Court and has not filed a motion to appear pro

hac vice; according to the pleadings, he appears pro se. The Ninth

Circuit instructs that "a litigant appearing in propria persona has

no authority to represent anyone other than himself." Russell v.

United States, 308 F.2d 78, 79 (9th Cir. 1962). Therefore, the

Court need not, indeed cannot, address the motion's merit. The

motion is denied without prejudice. 

II. Motion to compel Lerach Coughlin to allocate attorneys' fees

The Court's order awarding attorneys' fees and expenses in

this action provides, "Such fees and expenses shall be allocated

among Plaintiffs’ Settlement Counsel in a manner which, in their

good-faith judgment, reflects each such counsel’s contribution to

the institution, prosecution and resolution of the Litigation." 

According to Lerach Coughlin, the fees were distributed in

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accordance with the Court's order. No fees were awarded to Mr.

Murphy because he did nothing more than contact Mr. Walton, review

the complaint drafted by Milberg Weiss and forward the draft

complaint to his clients for review and approval. His involvement

in the case stopped in December, 2001. Then he seemingly forgot

about this case until October, 2006, when his clients contacted him

to inquire about the status of the case. 

As explained in In re Cendant Corp. Securities Litigation, 404

F.3d 173, 197 (3d Cir. 2005), under the Private Securities

Litigation Reform Act, "only attorneys whose efforts create,

discover, increase, or preserve the class's ultimate recovery will

merit compensation from that recovery." Simply filing a securities

fraud complaint rarely warrants compensation. See id. Here, Mr.

Murphy provides no evidence that any of his actions created,

discovered, increased or preserved the class's ultimate recovery.

He did not even draft the original complaint; he just reviewed it

and passed it along to his clients. He claims no expenses, other

than those he has incurred since he discovered in October, 2006

that this case settled. See In re Versata, Inc. Sec. Litig., 2003

U.S. Dist. LEXIS 26578 (N.D. Cal.) (denying attorneys' fees to

firms which were not lead counsel but granting their expenses for

the filing fee and publishing a notice of it on Business Wire).

Even if there was a ten percent referral fee agreement in

place, which Lerach Coughlin denies, under the Court's order, Mr.

Murphy would not be entitled to the $200,000 he seeks merely for

referring three clients, who did not suffer sufficient losses to

become lead plaintiffs, and then reviewing and passing on a draft

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complaint. As Mr. Murphy acknowledges in his motion, courts may

give deference to lead counsel's allocation of fees. Cendant Corp.

Sec. Litig., 404 F.3d at 197. The Court defers to Lerach

Coughlin's decision not to allocate any attorneys' fees to Mr.

Murphy. 

Mr. Murphy's motion is denied.

CONCLUSION

For the foregoing reasons, the Court DENIES WITHOUT PREJUDICE

Horacio Yusty, Andres Jaramillo and Rodrigo Jaramillo's motion for

payment of damages and imposition of sanctions and DENIES Mr.

Murphy's motion to compel Lerach Coughlin to allocate attorneys'

fees to him (Docket No. 116). 

IT IS SO ORDERED.

6/13/07

Dated: ________________________ 

CLAUDIA WILKEN

United States District Judge

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