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Judge to
Dismiss McAfee Niraj Chokshi A judge said he will dismiss McAfee Inc.'s lawsuit against Wilmer, Cutler, Pickering, Hale and Dorr over alleged overbilling, but the anti-virus software maker's fee fights are far from finished. McAfee had filed suit claiming that WilmerHale had overbilled in its $12 million criminal defense tab for representing former Chief Financial Officer Prabhat Goyal. Judge Michael Schneider of the Eastern District of Texas announced at the end of a 90-minute hearing on Thursday afternoon that he would dismiss the suit, filed on April 8, though an order had not been posted by Friday evening. The decision, which sided with WilmerHale's four arguments to dismiss the case, came during what was supposed to be a scheduling conference. "Nothing in yesterday's decision affects in any way our resolve to pursue this, and we in fact are even considering an appeal of yesterday's ruling," McAfee spokesman Michael Busselen said. While the Texas fee fight has been temporarily put to rest, McAfee is still battling suits filed in Delaware by Goyal and another former executive investigated by the government for securities fraud. Goyal alleges that the Santa Clara company stopped paying fees in his appeal of a May 2007 conviction for securities fraud. Former general counsel Kent Roberts, whose criminal trial begins in September, also says the company is not meeting its contractual indemnity obligations to pay the Cooley Godward Kronish lawyers mounting his defense. Goyal's May 2 complaint alleged that, among other things, McAfee hadn't paid WilmerHale for his defense since September. After the filing, the company paid the firm and filed a motion to dismiss that suit. Goyal's lawyers at Delaware firm Abrams & Laster have filed a response contending that there was more to the suit than unpaid bills. The attorney for WilmerHale in Texas, Paul Yetter of Houston's Yetter, Warden & Coleman, said Thursday's dismissal of McAfee's lawsuit is important for Goyal's appeal of his conviction. "The most important point is that the court's ruling allows Mr. Goyal's defense in California to proceed without the huge risk to him of disruption from the Texas case," he said. In Roberts' June 11 complaint, he alleges McAfee stopped paying his legal fees in October. It says that on Jan. 4, McAfee partially paid several months' worth of past-due invoices, including half of Roberts' fees in a criminal case and 90 percent of his fees in a civil case. After that, the complaint alleges, no more payments were made, and McAfee owed more than $3 million in attorney fees. Calls to Roberts' attorneys at Cooley were not returned on Friday. Delaware attorney Kenneth Nachbar, who is representing McAfee in both suits, would not comment on the Goyal case, but seemed optimistic on reaching an agreement in the Roberts case. "We always try to resolve things if we can, and my client is reasonable and, if the other side's reasonable, then a settlement can happen," he said. Bryan Daly, a white-collar criminal defense lawyer with Mayer Brown in Los Angeles who is not involved in any of the McAfee litigation, said that if Roberts and McAfee had entered an indemnity agreement, which the complaint says they had, the company's failure to pay Roberts' legal fees would be "just a straight breach of agreement." "We understand we have an obligation to advance reasonable fees," McAfee spokesman Busselen said. "Our argument is we believe we have a legitimate dispute about what is reasonable." The issue of reasonableness is relevant to each of the suits, Busselen said. Though he wasn't able to address why the company sued WilmerHale and not Cooley, he did say several factors were likely at play. "Our choice of legal tactics is based on a combination of the degree of unreasonableness of situations as well as the openness of the parties to discuss a fair and reasonable settlement," he said. The fee fights all began after Roberts was replaced by Mark Cochran as McAfee's general counsel last September, a point made in Goyal's complaint. Prior to joining McAfee, Cochran had been the general counsel of Santa Clara's Hyperion Solutions Corp. and had lost against WilmerHale attorneys representing OutlookSoft Corp. in a 2006 patent fight in the Eastern District of Texas. Cochran was on vacation and unavailable for comment, according to a McAfee receptionist. Goyal will still be represented by WilmerHale, according to the firm's Texas attorney, and calls to the Cooley lawyers representing Roberts and the attorney representing McAfee in the Texas case were not returned in time for publication. Legal Fee Bylaws May Need Change Sheri Qualters A trio of decisions from
the
Delaware Court of Chancery
concerning when officers, directors and law firms working for a
company are entitled to advancement of legal fees has put companies
on notice to revisit their bylaws. VC Slams Attorneys on Salaries, Overlawyering Zusha Elinson A venture capitalist fed up with overpriced and overly fastidious lawyers broke the code of silence among money men to vent his frustrations on a blog Sunday. The 1,120-word harangue from Jason Mendelson, a lawyer and venture capitalist with the Foundry Group and Mobius Venture Capital, takes aim at the rapidly rising salaries of outside lawyers that lead to higher legal bills. Comparing his starting salary as an associate with today's big-firm pay, he found salary growth of 132 percent in a decade. "I've been working on a thesis for quite some time that the entire business model of law firms is going to have to change," he wrote, "or it's going to get uglier." The post also criticizes overlawyering on what Mendelson calls simple deals in which a venture capitalist is putting money into a startup. "Financings (especially early-staged deals) are largely cookie cutter," he wrote in a post on his blog, Mendelson's Musings, which was later picked up by the Web site Private Equity Hub. "Then why on Earth did I have to spend last week negotiating registration rights with a partner at a major law firm? In fact, I got to do that twice last week along with other stupid boilerplate language that no one really cares about." The bottom line, Mendelson writes, is that the unnecessary work leads to higher legal bills. "Sigh. I got to watch our money that we financed the company with being transferred to the law firm," he wrote. "Perhaps the most annoying comment that I heard last week was from an experienced venture lawyer who told me that he got a set of documents that were perfect and that he and his teamed 'struggled' to find things to mark up because they couldn't just say the documents were fine after round one -- even though they were." By Tuesday afternoon, Mendelson's grievances had made the rounds among Silicon Valley's venture lawyers, with some saying the former attorney had a point, though his examples were not the norm. "I think it's fair to say that many of us who are in the practice have shared some of the frustrations that he echoed," said James Fulton Jr., a startup and venture partner at Cooley Godward Kronish. "I don't think it's fair, like any stereotype, to paint the whole group with the same negative brush." Fulton knows Mendelson well -- he hired him as a lawyer at Cooley many years ago. After leaving Cooley, Mendelson became a venture capitalist. He's a co-founder and the current managing director of the Foundry Group, as well as managing director and general counsel at Mobius, both in Boulder, Colo. Reached Tuesday, Mendelson said he decided to make the rare move of posting a public complaint about Valley lawyering because he has been growing more frustrated with outside lawyers. "[I've] been doing venture deals for eight years," Mendelson said. "There were a few things that happened in the last few months that were sort of the last straw." Mendelson emphasized that not all outside lawyers overlawyer -- he writes that about half are guilty of that -- and that not all law firms overcharge. "There are some law firms that, while they have the same cost structures, they work really hard to work with us on the issue of cost, and we appreciate that," he said. "But it is the exception, not the rule." Mendelson declined to name any of the law firms that he referred to in his post. He said he's been getting lots of feedback, mostly negative, from law firms and mostly positive comments from entrepreneurs. Cooley's Fulton said he always tries to keep costs down for clients but noted that the VCs themselves have a lot to do with how much is spent on a deal. "Some of it is aptly laid at the feet of the lawyers, but if they drag the deal on for months and they change the terms four times, it's a different story," Fulton said. Mendelson also writes about a legal bill one of his venture fund's companies recently received: $72,000 for a first round of financing. Several venture lawyers said that's pretty high, but that it depends on the situation. And one VC said money spent up front can often be worth it in the end. "I agree that larger law firms can be too expensive from time to time," said Steve Spurlock, operating partner at Benchmark Capital. "But our companies have spent a lot more fixing the problem from these mid-tier firms than they ever would doing it right the first time." Mendelson said he's going to be working on a series of posts over the next few weeks, making suggestions about how law firms and VCs can work together to address the issue of rising costs more proactively. In Menlo Park, Calif., O'Melveny & Myers' office managing partner Warren Lazarow said he had e-mailed Mendelson's article around to his colleagues, noting that he agreed with some of the VC's points. "There's probably a little too much overlawyering on certain types of things," Lazarow said. "Given the increased expense of attorneys, you've got to use your experience and judgment on what you're going to use your time on." Lazarow said he would never spend time negotiating registration rights -- like the unnamed lawyer in Mendelson's gripe. In fact, Lazarow said, he wouldn't let any other lawyer in his office do it either. "I'd shoot him if I heard an attorney here negotiating reg rights over the phone," Lazarow said with a laugh.
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A Feast
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