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(Bloomberg) Hewlett-Packard Co.’s plan to pay shareholders’ lawyers as much as $48 million to help sue former Autonomy Corp. executives was rejected by a judge who said such a provision shouldn’t be part of an accord shielding the company’s management from claims over the fumbled acquisition. The lawyer fee provision with Cotchett Pitre & McCarthy LLP is “potentially fatal” to winning approval of a settlement that would protect Hewlett-Packard and target former Autonomy managers for investor claims over an $8.8 billion loss tied to the Autonomy purchase, U.S. District Judge Charles Breyer said Monday at a hearing in San Francisco. Former Autonomy chief financial officer Sushovan Hussain, one of the officials HP has said it will sue, is working to challenge the settlement, saying Hewlett-Packard executives shouldn’t be allowed to escape blame. John Keker, Hussain’s attorney, told Breyer yesterday that the agreement between HP and the Cotchett firm was a “whitewash” and an attempt to cover up wrongdoing.

“This is a joke,” Keker said. “If this was a carcass, animals would walk around it, it stinks so much.”

Executives at Hewlett-Packard and Autonomy have been wrangling over who’s to blame for the 2012 write down over the acquisition. Hewlett-Packard alleged the U.K.-based software company had accounting irregularities and that Hewlett-Packard was the victim of fraud by Autonomy management. Former Autonomy executives affirm that Hewlett-Packard was at fault.

Role of Delloitte:

Marc Wolinsky, a lawyer for HP, said in court that the company will sue Deloitte LLP’s U.K. business unit over its role in auditing financial results at the British software maker. He said Hewlett-Packard also will file lawsuits in California against others whom he didn’t name and who can’t be sued in the U.K.

The fee arrangement wasn’t final and can be removed from the proposed settlement, Wolinsky and shareholder attorney Joseph Cotchett said.

The settlement calls for HP to adopt governing procedures to review potential mergers and acquisitions and no payment for shareholders. It also included a provision for the Cotchett firm to receive from $18 million to $48 million in fees to assist in litigation against Autonomy founder Lynch and Hussain.


Breyer scheduled hearing on September 26th to review the revised settlement and consider requests by Hussain and some shareholders seeking to intervene in the case to object to the accord.

“We will continue to work to have the derivative actions settled or dismissed and to hold the former executives of Autonomy as well as Autonomy’s auditor, Deloitte UK, responsible for the wrongdoing that occurred,” Sarah Pompei, a Hewlett- Packard spokeswoman, said in an e-mail.

James Igoe, a spokesman for Deloitte, said in an e-mail that “any possible claim would be utterly without merit.”

“Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy,” Igoe said. “Deloitte UK was auditor to Autonomy at the time of its acquisition by HP. Deloitte UK conducted its audit work in full compliance with regulation and professional standards.”

Shareholders sued Hewlett-Packard and its top executives claiming the computer-maker ignored warnings about Autonomy’s accounting and mismanaged the buyout.

Lawyers for investors in three of the lawsuits said in court filings in June that they were dropping claims against Hewlett-Packard after an internal review committee concluded HP executives weren’t to blame. The plaintiffs said they would assist the company in suing ex-Autonomy chief executive officer Mike Lynch and Hussain.

The case is Re HP Derivative Litigation, 12-06003, in U.S. District Court, Northern District of California (San Francisco).