Should law firms even be publicly listed, where they might serve the interests of their shareholders before their clients? Justice Michael Lee has called Shine Justice to account for its efforts to gouge costs from the 11,000 Johnson & Johnson pelvic mesh victims. Michael West reports.
Shares in Shine slumped almost 10% on the ASX on Thursday, putting the listed law firm into survival mode as it sheds staff to stay afloat, as Justice Lee handed down a judgement critical of the law firm. Shine was trying to lump $32m in costs onto a settlement fund for the victims of the J&J pelvic mesh class action.
Justice Lee dismissed Shine’s application for disbursement costs and was critical of the firm for failing to disclose the costs properly to its class action clients. The question for investors in Shine is, has the firm already booked these costs in its accounts? As revealed here in an analysis of the financial statements of the company, Shine books as revenue its expected earnings from lawsuits (unbilled WIP) before its cases are won or lost, leading to a mismatch between its reported earnings and the actual cash which comes in the door.
Shine Justice to offload heavy finance costs onto pelvic mesh victims?
In order to finance the class action against Johnson & Johnson and Ethicon, a record $300m winning case, Shine had entered into a ‘disbursement facility’, a loan to finance its barristers and expert witnesses. It exposed its mesh client victims to interest charges at rates between 22.4% and 31.8%, allowing the interest to rack up while it still paid dividends to its shareholders. The major shareholders are the founders of the firm.
Shine sources told MWM the firm had been laying off staff. There has been no disclosure to the ASX about the financial impact of the decision which suggests either that the court loss has been deemed to be ‘not material’ to earnings, or that it is material but Shine has failed to notify the ASX under its ‘continuous disclosure’ obligations.
In financial terms, the uncertainty has rocked the share price. In legal professional terms, the judgement has shone a light on the conflict of interest in lawyers using the courts for commercial advantage – the Shine business model – yet paying dividends to shareholders while letting costs to victims run up and diminish the payments to its clients.
In human terms, the case has dragged on, causing distress for the thousands of mesh victims, many of whose lives have been severely damaged – physically and psychologically – yet who are anticipating small and diminishing payments despite the record overall size of the settlement at $300m (Shine takes roughly a third of the pot). In his decision, Justice Lee dwelt on the human cost, the “anguish” of the victims.
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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.