A recent Law 360 story by Aaron Leibowitz, “$75M Fee Award in State Street Row Faces Judge’s Scrutiny,” reports that a Boston federal judge heard arguments on whether to reduce a $75 million attorney fee award for three firms that brokered a $300 million class action settlement with State Street Corp., saying the firms may have misled him about how fees are typically calculated in massive deals like this one.
In the first of up to three days of hearings, lawyers representing Labaton Sucharow LLP, Thornton Law Firm and Lieff Cabraser Heimann & Bernstein LLP said the 25% cut of the settlement that they received was reasonable under the circumstances, even in a so-called "megafund" settlement worth hundreds of millions of dollars Some experts have suggested attorneys should receive a relatively smaller percentage of the total award when a settlement is that large. Richard Heimann, an in-house attorney representing Lieff Cabraser, said the firms made note of those expert opinions when they first filed their fee request in 2016, and never had any intention of leading the judge astray.
"We discussed all this in the briefs," Heimann told U.S. District Judge Mark L. Wolf. "We were hardly hiding from your honor." But Judge Wolf wondered why the firms had failed to mention in those briefs that a study they cited found that, in settlements ranging from $250 million to $500 million, the average fee award was 17.8%, well below the 25% they requested after their $300 million settlement. The judge said he "basically trusted" the firms' own calculations at the time, suggesting it would have been difficult to reject their proposal given that multiple regulatory agencies had already reviewed it.
But a lot has changed since then, the judge noted. He has since vacated his original attorney fee award in the wake of a Boston Globe report that raised questions about the double-billing of attorneys' hours and a special master's investigation that found additional billing issues.
"I know much more than I knew in 2016," the judge said. The special master, retired U.S. District Judge Gerald Rosen, held in his report that the 25% figure the firms used for attorney fees was proper, a point that his attorney emphasized again in court. But Judge Rosen has maintained that Judge Wolf should lower the fee award by as much as to $10.6 million, including more than $4 million for hours that were allegedly double-billed and $2.3 million for so-called contract attorneys at Thornton who were paid a higher rate than he said they should have earned.
As the hearing wore into the late afternoon, attorneys for the three firms described their billing practices in detail and grappled with the varying definitions of contract attorneys versus staff attorneys. Judge Rosen has suggested only that the billing for contract attorneys was improper, but the arguments also addressed rates charged for some staff attorneys who pored over documents in the case.
Joan Lukey of Choate Hall & Stewart LLP, representing Labaton, said the firm defines staff attorneys as those who are not on track to become partners but receive full benefits and do in-depth document work. In the State Street case, some received more than $400 an hour, she said. "It troubles me when I hear suggestions that they should be treated as something other than what they are, which is very skilled and talented attorneys," Lukey said.
Frank Bednarz, a representative of the Hamilton Lincoln Law Institute — a nonprofit firm that has provided amicus guidance to Judge Wolf in the case — countered that those rates were far higher than what staff attorneys should be charged. A more appropriate figure, he said, would be around $200 an hour.
A representative for Labaton told Law360 after the hearing that the firm hopes Judge Wolf ultimately accepts the special master's recommendations. "Counsel for Special Master Rosen highlighted some of the factors supporting the reasonableness of the court’s original award of a 25% fee to class counsel," the firm said. "That included the special master’s view that the underlying State Street action hinged on a complex and challenging case, with novel legal issues, at substantial risk of success, and the excellent work done by counsel in obtaining a record recovery for the class — against a highly formidable adversary."
Representatives for other parties in the case did not immediately return requests for comment after the hearing. The underlying suit, filed in 2011, alleged that State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade.
The hearing will continue with witness testimony on some of the key issues that Judge Rosen flagged in his report, including allegedly false representations made to the court by Thornton's Garrett Bradley, a former Massachusetts state representative. Judge Rosen's attorney, William Sinnott of Barrett & Singal PC, said that there was "no legitimate basis" for Bradley to sign the fee declaration he submitted in the case, in part because the firm did not have any hourly clients. "It was just so outrageously inaccurate," Sinnott said.
The case is Arkansas Teacher Retirement System v. State Street Corp. et al., case number 1:11-cv-10230, in the U.S. District Court for the District of Massachusetts.