A federal appeals court denied a Wall Street law firm's request to stop the flow of bankruptcy settlement money from a Pompano Beach-based body armor company subsidiary by creating a $15 million reserve for attorney fees.

The U.S. Court of Appeals for the Third Circuit's precedential ruling Tuesday is the latest development in the legal debacle surrounding the downfall of free-spending David H. Brooks, the late CEO of Delaware-incorporated DHB Industries, whose conviction on insider trading charges spawned a flurry of lawsuits.

In its ruling Tuesday, the Third Circuit upheld a Delaware bankruptcy judge's denial of an emergency stay sought by Carter Ledyard & Milburn, a New York-based law firm representing DHB, now known as S.S. Body Armor I Inc., in consolidated class action and derivative lawsuits brought under the Sarbanes-Oxley Act of 2002. S.S. Body Armor is part of Point Blank Solutions Inc.

In 2016, Brooks, whose company supplied the U.S. military and police departments with bullet-resistant vests, died in a Connecticut federal prison where he was serving a sentence for defrauding investors. Afterward, a New York federal judge abated some of Brooks' convictions and restitution obligations, for which his estate was on the hook, according to Third Circuit Judge Joseph A. Greenaway's opinion.

However, after several rounds of settlement talks, DHB was still responsible for paying $142 million as part of a second bankruptcy settlement. During this time, Carter Ledyard pursued $1.86 million in fees for a decade's worth of litigation in the Sarbanes-Oxley 304 matter, Greenaway said. The bankruptcy court ruled Carter Ledyard would receive attorney fees only if and when DHB actually received funds in the Sarbanes-Oxley matter.

Carter Ledyard, fearing the possibility that it could get nothing if DHB didn't recover, next sought to set aside $25 million in settlement funds for attorney fees. The U.S. Bankruptcy Court in Delaware granted Carter Ledyard's motion in part but earmarked only $5 million without specifying the amount owed to the firm, Greenaway said. The firm argued the amount was insufficient.

Carter Ledyard lost a request to stay the distribution of settlement funds during appeal. That led to the firm's appeal to the Third Circuit, which was asked about jurisdiction as well as whether the district court was right to deny the stay.

After concluding the court had jurisdiction, Greenaway said while the exact amount owed to Carter Ledyard is yet to be determined, the Third Circuit's job was to determine only whether the $5 million set aside was enough.

“A $5 million attorneys' fees award for 1,502.2 hours of legal work totaling $549,472.61 of documented fees would yield an hourly rate of $3,328.45 and a lodestar multiplier of over nine. But we have previously noted that, in common fund cases where attorneys' fees are calculated using the lodestar method, 'multiples ranging from one to four' are the norm,” Greenaway said, adding there was no reason to stray from that formula.

“To be sure, CLM showed tremendous skill and expended substantial time in preserving a highly valuable claim,” he continued. “But its attempts to argue that it is somehow due attorneys' fees more than $5 million are belied by its initial fee application in the bankruptcy court. There, CLM sought attorneys' fees totaling $1.86 million using a lodestar multiplier of 3.38, which it stated was 'entirely reasonable in light of … the value of the asset preserved and benefits conferred, the risks undertaken by counsel and the public policies that were vindicated' by preserving” the Sarbanes-Oxley claim.

Greenaway concluded, ”We see no reason why CLM's prior analysis should not hold now, especially given the current record.”

Gary D. Sesser of Carter Ledyard, who argued the case for his firm, did not respond to a request for comment by deadine. Nor did Alan J. Kornfeld of Pachulski Stang Ziehl & Jones in Los Angeles, who argued the case for DHB.