OptionsXpress Short-Swing Profit Recovery

In June, I wrote about two important 16(b)short-swing profit recovery cases. Last week, Alan Dye’s Section16.net blog pointed me to another noteworthy case, Segen v. OptionsXpress Holdings, Inc., 2009 WL 1868611 (D. Del. 2009). This case offers a view into the process of determining the attorney fees provided for bringing short-swing transactions to the attention of the company. The original short-swing recovery was settled without litigation, which means that the attorney fees, if negotiated privately, would remain undisclosed.

The Decision on Attorney Fees

In this particular situation, however, OptionsXpress and the attorneys could not come to an agreement. Apparently, OptionsXpress offered an amount that the attorneys considered to be less than the value of the billable hours the firm had already dedicated to the case. What is particularly intriguing about this argument is that attorney fees in 16(b) short-swing profit recovery cases are based on a percentage of the funds recovered, not on billable hours. The percentage of the fee can vary greatly. As Alan Dye pointed out in an earlier blog entry, fees from the cases that must be approved by the court have ranged from 2% to 51%.

In deciding on this case, the court confirmed that the number of hours dedicated to the case should not be a direct factor in the fee that may be recovered. What the court did say, however, is that the billable hours may be used to check the reasonableness of the amount of the fee. In the end, the attorneys received significantly less than they’d asked for (they received 8% vs. the 25% they requested), but more than OptionsXpress had originally offered, and more than they felt had been accrued in billable hours.

Romeo & Dye Handbook – Seventh Edition

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-Rachel