Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Fee Expert / Member

Overbilling Case Raises Questions about Public Corruption

June 19, 2018

A recent NLJ story by Amanda Bronstad, “How a Fee Inquiry Led to Hints of Public Corruption That Have Labaton Fight,” reports that, what began as a judge’s inquiry into a $75 million attorney fee has morphed into hints of public corruption, with one of the top securities plaintiffs firms in the nation on the defensive.  A year ago, U.S. District Judge Mark Wolf in Boston began looking into potential overbilling in a securities class action settlement with State Street Corp.  To spearhead the probe, Wolf brought in a special master who filed his 377-page report on May 14 under seal.

But the report’s findings prompted Wolf last month to order that George Hopkins, the executive director of the lead plaintiff, the Arkansas Teachers Retirement Fund, show up in person for a May 30 hearing.  Wolf said he could end up returning a “significant amount of money” to class members, according to a transcript of that hearing.  But it’s not overbilling that’s caught his attention.  The judge appears focused on the report’s finding of an undisclosed payment that went to a lawyer for a referral.

According to the hearing transcript, Wolf wanted to know more about New York-based Labaton Sucharow’s relationship with the Arkansas pension fund.  Then, mentioning “referral fees,” he asked about a number of individuals, including a former state legislator in Arkansas and two Texas plaintiffs lawyers.  In the sealed report, one of those lawyers, referred to in the transcript as “Mr. Chargois,” said Labaton asked him to introduce the firm to institutional investors in Arkansas, the judge said. He now gets 20 percent of Labaton’s fees in the class action even though he “didn’t do any work for it, and there was an assiduous effort to keep that from counsel in the case and others,” the judge said in the transcript.  “I think it is foreseeable that when the report becomes public, there are going to be questions about the origin of this relationship and whether all those millions of dollars stopped with Mr. Chargois,” the judge said in a transcript.

Labaton has fought back against the allegations, insisting the payments were legal.  On June 15, Wolf unsealed several documents including a June 8 motion in which the firm asked the judge to recuse himself, citing a “serious conflict” and a “legitimate concern as to whether Labaton will receive a truly impartial review.”  A footnote in the motion indicated that the special master has proposed a $4.1 million cut to its fees, the “same amount as the fee paid to the referring firm.”

Also unsealed was a sidebar discussion during the May 30 hearing at which Labaton’s counsel raised concerns about the judge’s remarks.  “You’re suggesting public corruption,” the firm’s attorney, Joan Lukey, of Boston’s Choate Hall & Stewart, told the judge.  “Honestly, your honor, I am appalled that that was even said.”

Special Master’s Focus

Wolf’s initial concerns focused on potential overbilling on the part of the three lead plaintiffs firms, which also include San Francisco’s Lieff Cabraser Heimann & Bernstein.  Those firms agreed to pay the costs of the special master, Gerald Rosen, a retired federal chief judge from the Eastern District of Michigan.  In ordering Hopkins to testify, Wolf raised concerns about whether, given the findings of the report, he should replace class counsel, and the lead plaintiff, in light of a potential conflict of interest.  Hopkins, in a June 6 affidavit, said he had retained outside counsel to handle questions relating to the special master’s report but insisted that the Arkansas pension fund could continue to adequately represent the class.

Hopkins, in sworn testimony, told the judge: “I have never asked a law firm to hire some attorney.  I have never asked a law firm to make a political contribution.”  The questioning appeared to catch Labaton off guard.  “Have you formed an opinion that there is something in this record that suggests that some form of public corruption occurred?”  Lukey asked the judge during the sidebar discussion.

“No,” the judge said.  “But I’ve formed the opinion that those are questions that are raised.”  He added: “I can foresee the reasonable likelihood that the conduct of Arkansas Teacher is going to become part of the controversy, and it causes me to have questions about whether it’s an appropriate lead plaintiff.  Who is representing—remember what this is about.  Who is representing the class?”  Labaton has its own questions.  The recusal motion indicated that class counsel would be seeking an accounting of the $3.8 million they had agreed to pay to fund the special master’s report.

“That millions of dollars paid by customer class counsel have been expended on the master’s investigation without a suggestion of, or a shred of evidence to support, public corruption is telling,” the motion continues.  Labaton and its lawyers have frequently made campaign contributions to both federal and state politicians, but their donations to Arkansas state election campaigns have been minimal, according to a search of records since 2002 at FollowTheMoney.org, the website of the National Institute on Money in Politics.

The questions raised by the judge in this case, though, may shed light on the politics behind how plaintiffs firms often get public pension funds for clients in large securities class actions.  “This is the murky underworld of how securities fraud class action firms acquire their clients,” said Adam Pritchard of the University of Michigan Law School, who has written about how plaintiffs attorneys have made political contributions in hopes of getting institutional investor clients.  “This may be an alternative way of getting yourself a lead plaintiff. People have connections—good ol’ boy networks—that help grease the wheels. And, if they do that, then they expect to get paid.”

Making the Introduction

Hopkins became the executive director of the Arkansas pension fund in 2009.  At the May 30 hearing, Hopkins told Wolf that even though Labaton had started working with them a year earlier, he hadn’t considered moving forward on potential lawsuits.  “Then our political leaders in Arkansas convinced me that I should,” he said.  “I’m sorry, what did you say?” Wolf responded. “The political leaders convinced you that you should be interested in these class actions?”  The judge pressed Hopkins to give names. Hopkins mentioned “several legislators,” “people at the governor’s staff” and “the Department of Finance Administration of Arkansas.”

But Wolf’s focus was on a retired state legislator named Steve Faris.  In particular, he wanted to know how much Hopkins had talked to Faris about the law firms handling the pension fund’s class actions.  Faris, Hopkins explained, was a member of the Arkansas General Assembly, which has indirect supervision of the pension fund because it adopts the laws that govern the organization.  He said Faris was co-chair of the public retirement committee in the state’s House of Representatives at the same time Hopkins co-chaired the public retirement committee in the state Senate.  They grew up in the same county and went to the same college.  Hopkins acknowledged he’d talked to Faris and others about the case.

“You know, sometimes we’d get an interesting case, and I would tell him, here’s this case and Labaton represents us,” Hopkins told the judge, noting that the fund works with other firms such as Bernstein Litowitz Berger & Grossmann and Kaplan Fox & Kilsheimer.  But he denied that Faris ever encouraged him to use Labaton.  “Did he ever tell you that he had a role in introducing Labaton to Arkansas Teacher?” Wolf asked.  “No, he never told me that.”

After the report came out, Faris acknowledged to Hopkins that “he had met a couple of Labaton attorneys” and introduced them to Paul Doane, who was the pension fund’s executive director at the time.  Hopkins told the judge “he introduced some attorneys that he knew, and sort of rolled out of the room.”

In an interview, Faris, now a board member of the Arkansas Public Employees Retirement System, acknowledged that he called Doane to introduce him to Labaton—but that was the extent of it.  “All I did was call Paul Doane and say, ‘Here are these people,’” he said.  “Every member of the retirement committee gets requests like that.”  Doane resigned in 2008 following a state audit that found he spent $34,515 on out-of-state travel expenses during the year he was executive director of the Arkansas pension fund.

In court, Hopkins denied any wrongdoing occurred.  He told the judge “you seem to assume that, you know, how Labaton became associated with ATRS was in some way improper, illegal, or untoward, and I don’t think the record shows that.”  Labaton’s attorney, Lukey, said she was shocked at the judge’s remarks at the hearing, according to the transcript of the sidebar discussion.  She asked the judge to clarify if he was “suggesting there was an impropriety involving Senator Faris with the monies being paid?  Because there is nothing.  I mean nothing.”  Wolf replied that “yes, those questions occur to me when I read it.”

Neither Labaton nor any of its current or former lawyers gave political donations to Faris, who ran in elections from 2000 to 2006, according to FollowTheMoney.org.

Finding Mr. Chargois

But Wolf didn’t ask about political donations.  He asked Hopkins if he knew of an Arkansas lawyer named “Herron.”  Hopkins said he knew the name but had not met him.  During the sidebar discussion, the judge elaborated, describing “Mr. Chargois”—the lawyer who was getting a 20 percent fee from Labaton—as having a partner named Herron who knew Faris.

The only attorneys in Arkansas by those names are Timothy Powell Herron and Damon Chargois, both with the same address in The Woodlands, Texas, according to Arkansas bar records.  But Herron, who said he’s retired from practicing law, said in an interview that he and Chargois were law partners with an office in Arkansas.  His uncle also was an aide to Faris.  “We had a referral practice,” he said. “We worked with other firms on some cases, like asbestos cases, toxic torts, things like that.”

He also insisted that that his firm worked on all the cases it referred, often handling depositions.  Any referral fees would have been justified and disclosed, he said.  “We did refer a number of firms but the expectation was we wouldn’t want the case if we weren’t involved,” he said.  “I never remember any kind of arrangement with anybody where we got a percentage and didn’t do a damn thing.”

He said his memory is “fuzzy” when it comes to Labaton.  He remembered the firm asked for an introduction to Faris for a case that the governor’s office was handling, but he did not recall the State Street lawsuit.  “I knew some people, did some campaign contributions, so it opened a few doors,” Herron said.  “George Hopkins was a longer-term friend of Steve Faris, and I imagine what happened is we may have cracked the door a bit, but Mr. Hopkins stepped in. We never had anything to do with that case. He steered that case to Labaton.”

Labaton, in a statement, called the judge’s suggestion that a payment may have led to the firm’s hiring is “baseless.”  Further, the firm wrote, “there is no mention of any such influence payment in the special master’s exhaustive report, which remains under seal” and “not a single finding suggesting that attorneys’ fees awarded by the court were used to pay elected or other officials.”

“The evidence and testimony of all relevant parties in this matter is clear: the referral payment went only to the lawyer who made the original introduction of our firm to ATRS,” Labaton said in its statement.  “State Senator Steve Faris has received no political contributions or any other payments from any member of either the Labaton firm or the referring lawyer, and Labaton made no payment of any kind to obtain work by ATRS.”

At the May 30 hearing, Labaton’s attorney, Lukey, insisted that the referral payment at issue was legal under Massachusetts law, but a lawyer for the special master, William Sinnott, of Barrett & Singal in Boston, disputed that characterization, calling it an undisclosed “finder’s fee.”  Failing to disclose the payment might be enough for the judge to be concerned, Pritchard said.

“It may be that this referral fee is nothing sordid, but that doesn’t mean that it doesn’t have to be disclosed to the client,” he said.  “If part of the money paid by Labaton is being spent on referral fees, the court likely thinks it’s entitled to know that because it has to approve the fees.”  But it’s imperative that the judge ask, Labaton said in its statement.

“The special master’s conclusions—which have no basis in fact or law—put the burden of disclosure of a referral payment on counsel, while the law itself places the burden on the court to ask,” the firm said.  “Here the court did not ask.  Thus, the court is placed in a tenuous position having to decide whether it bears responsibility for not asking—or shifting the blame to class counsel.”

Judge Wants Detailed Billing Records in Anthem Data Breach Class Action

June 15, 2018

A recent The Recorder story by Ross Todd, “Judge Again Says She’s ‘Disappointed’ in Plaintffs Lawyers in Anthem Data Breach Case ,” reports that the federal judge overseeing litigation targeting Anthem Inc. with data breach claims on continued her grilling of plaintiffs lawyers who represent the health insurer’s customers about the number of firms who worked on the case.

U.S. District Judge Lucy Koh asked lead plaintiffs counsel, Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll, a string of detailed questions about which lawyers submitted bills on work settling the litigation, who defended depositions of name plaintiffs and who handled basic discovery tasks.  Koh previously grilled the lead plaintiffs for having 49 other firms beyond those on the four-firm plaintiff steering committee she appointed.

After Cervantez said that 27 firms had worked on the “crisis” of getting through millions of pages of discovery, Koh stopped the plaintiffs lawyer.  “Is that how you run most of your cases?  You have 27 firms doing document review?” the judge said.

Cervantez said it didn’t matter who did the work or the firm where they practiced, but “were the hours expended reasonable.”  “How is that consistent with the conversation that I had with you and Mr. Friedman at the selection of counsel hearing?” asked Koh, who initially trimmed the lead plaintiffs proposed six-member steering committee to two firms.

Plaintiffs struck a $115 million settlement deal with Anthem last June, which included a proposed $38 million in attorney fees, or 33 percent of the total settlement.  The deal provided two years of credit monitoring and identity protection services to Anthem customers whose personal data was compromised in the 2015 breach, and creates a $15 million fund to reimburse customers for things such as falsified tax returns.

The Competitive Enterprise Institute’s Center for Class Action Fairness filed an objection last year on behalf of Adam Schulman, an attorney at the Washington, D.C., organization, partially because of the fee request.  Schulman claimed fees should be closer to $13.8 million and questioned why 49 other firms not appointed by the court stood to earn a total of $13.6 million in fees as part of the settlement.

Koh told plaintiffs counsel that she was “deeply disappointed” about the number of firms brought on to handle the case at a hearing in February.  At Schulman’s request, she appointed a special master, retired Santa Clara County Superior Court Judge James Kleinberg, to comb over the fee request.

Kleinberg, who is now a mediator and arbitrator at JAMS, pointed to duplicate efforts and excessive billing rates for contract lawyers in suggesting in April that the fee award be trimmed to $28.59 million. 

Koh didn’t tip her hand on where she will ultimately come out on the fee request, but she did indicate that she’ll rule on final approval of the deal by late July.  She asked the plaintiffs to hand over detailed records about document review, depositions and post-settlement work.

“I would like to be able to see who did what work when at what hourly rate and for how many hours,” she said.  “I think I’ve already indicated that I’m disappointed, but it is what it is.”

Attorney Fees Report Draws Critics in Anthem Data Breach Case

May 16, 2018

A recent NLJ story by Amanda Bronstad, “Anthem Data Breach Attorney Fees Report Faulted by Plaintiffs Lawyers and Objector,reports that plaintiffs lawyers in the Anthem data breach settlement have objected to the report of a court-appointed special master, which found what it said was inappropriate billing and recommended their $38 million fee request be slashed by nearly 24 percent.

In a court filing, lead counsel Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll — along with plaintiffs steering committee lawyers Michael Sobol of Lieff Cabraser Heimann & Bernstein and Eric Gibbs of Girard Gibbs — wrote that special master James Kleinberg should abandon his findings.  They stuck to their original fee request, which compensated 49 additional law firms.

“The court should defer to counsel’s judgment here as to the number of hours required to reach the $115 million settlement and achieve the significant changes in business practices,” they wrote.  “Because plaintiffs have shown that the hours spent in the case were reasonable and non-duplicative, the court should not reduce the requested fee award based on the number of law firms that billed for those reasonable hours.”

Frank, representing an objector to the settlement who had asked for a special master, called the report “a disappointingly superficial review” of lead plaintiffs attorneys’ billing, according to an objection he filed.  “As an initial matter, the special master’s report did not accomplish what the court assigned the special master to do,” wrote Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness.  “The special master’s rough review failed to determine the propriety of the hours billed and is insufficient to uncover the extent of the duplication and inefficiencies that this court sought.”

Koh appointed a special master earlier this year to look into potential overbilling, stating that she was “deeply disappointed” in the fee request.  She was particularly troubled that the request was made for 53 law firms, particularly since she had explicitly wanted a lean leadership team in the case.  On April 24, Kleinberg, a retired Santa Clara County Superior Court judge who is now a mediator and arbitrator at JAMS, recommended a fee award of about $28 million in his report.  Most of the reduction came from cutting the rates of 33 contract attorneys and shaving 10 percent due to potentially duplicative billing.

As to the contract attorneys, Kleinberg found their billing rates to be “inappropriate.” Plaintiffs lawyers paid them $25 to $65 per hour but, in their fee request, asked for an average of nearly $360 per hour for those lawyers.  His report lowered the rate to $156 per hour — that of a paralegal.  He also chastised a “virtual army of billers.”

“The special master is not accusing plaintiffs’ counsel of deliberate overbilling,” he wrote. “However, every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues and facts being litigated.  Thus, the inevitable result of 53 firm billing participants presents at least a strong probability of duplication and unreasonable hours.”

His report also looked at the percentage of the fund and the 25 percent benchmark in the U.S. Court of Appeals for the Ninth Circuit.  Plaintiffs attorneys noted in their objection that the report found that an average hourly rate of $455 per biller was not excessive.  And they continued to emphasize that the case was novel and complex.  As to the 53 law firms, they wrote “the question is not how many firms a paying client would retain, but how much the client would pay to have the work done.”

The additional 49 firms “were forbidden to bill for any start-up time learning the facts and law of the case,” they wrote, and had $1.5 million already cut from their lodestar.  The special master’s reduction of contract attorney rates was also unreasonable, they wrote.

“This recommendation was in error, and plaintiffs are not aware of any court to have adopted this approach,” they wrote.  “Plaintiffs are aware of no authority supporting the proposition that it would be permissible, let alone reasonable, to delegate such crucial legal work to paralegals.”  They also criticized the special master’s deduction of their expenses and service awards from the fee amount.

The Nation’s Top Attorney Fee Experts of 2018

May 10, 2018

Every year, NALFA, a non-profit group, announces the nation’s top attorney fee experts.  Attorney fee experts are judicially qualified experts who provide expert testimony and reports on the reasonableness of attorney fees and expenses in underlying cases.  Attorney fee experts are increasingly retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses.

Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.  All our attorney fee experts have at least 5 years complex litigation and trial experience and adhere to the ethics of reviewing outside legal fees. 

NALFA helps organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  The following profile quotes are based on bio, CV, case summaries, and case materials provided to NALFA.  Here are the nation’s top attorney fee experts of 2018:

John D. O’Connor: “Nation’s Top Attorney Fee Expert”
O’Connor & Associates
San Francisco, CA

Andre E. Jardini: “30 Years of Fee Audit and Expert Experience”
KPC Legal Audit Services
Glendale, CA

Stephen J. Herman: "Outstanding Skills Assessing Fees in Class Actions"
Herman Herman & Katz
New Orleans, LA

Gary E. Mason: “Highly Skilled on a Range of Fee and Billing Issues”
Whitfield Bryson & Mason
Washington, DC

Robert M. Fishman: "Nation's Top Bankruptcy Fee Examiner"
Shaw Fishman
Chicago, IL

Elise S. Frejka: "Widely Respected as a Bankruptcy Fee Examiner"
Frejka PLLC
New York , NY

Robert L. Kaufman: “Experienced on Cumis Counsel Fees and Billings”
Woodruff Spradlin & Smart
Costa Mesa, CA

Glenn Newberry: “Understands Fee and Billing Issues Across Borders”
Eversheds Sutherland
London, UK

George F. Indest: “Excellent on Attorney Fee Issues in Florida”
Health Law Firm
Altamore Springs, FL

Please note: NALFA did reach out to other self-identified attorney fee experts for this survey.  They did not respond to our requests.  For more on the Nation's Top Attorney Fees Experts, visit https://www.law.com/legalnewswire/news.php?news=eXBJV01pb2plTkQzR3NBOVY3SHJJZz09

Special Fee Master Finds Fee Request Excessive in Anthem Data Breach Case

April 26, 2018

A recent The Recorder story by Scott Flaherty, “Special Master Finds Legal Fee Bid Excessive in Anthem Data Breach Case,” reports that a court-appointed special master has recommended cutting more than $9 million off a legal fee request by plaintiffs lawyers involved in a $115 million class-action settlement of data breach litigation against health insurer Anthem Inc.

Pointing to duplicated efforts and excessive hourly billing rates for contract lawyers, special master James Kleinberg, a retired Santa Clara County superior court judge who is now a mediator and arbitrator at JAMS, recommended a legal fee award of $28.59 million to lawyers for the settlement class, plus just more than $2 million in expenses, according to his report.  The special master was appointed in February by U.S. District Judge Lucy Koh in San Jose, California. Koh is overseeing multidistrict litigation spurred by a massive, 2015 cyberbreach at Anthem that compromised the personal information of more than 78 million people.

The recommendation marks a significant reduction from the $38 million that plaintiffs lawyers sought after settling the Anthem litigation in June.  The plaintiffs lawyers’ initial request constituted 33 percent of the $115 million settlement, but Kleinberg recommended awarding them just less than 25 percent of the total settlement.

Explaining the downward revision, Kleinberg pointed to several issues that he saw with the fee request.  One specific critique involved the billing rates for 33 contract lawyers on the case; plaintiffs firms paid those lawyers between $25 and $65 per hour, according to Kleinberg.  By contrast, the initial fee request asked for the equivalent of, on average, nearly $360 per hour for those lawyers.  “It is simply inappropriate for these rates to be charged,” Kleinberg wrote.

The special master also found that, because some 53 law firms were involved as plaintiffs counsel, there were instances of duplicated efforts that, in turn, led to overbilling.  “The special master is not accusing plaintiffs’ counsel of deliberate overbilling.  However, every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues and facts being litigated.  Thus, the inevitable result of 53 firm billing participants presents at least a strong probability of duplication and unreasonable hours,” Kleinberg wrote.

Kleinberg’s report and recommendation come after Koh said during a hearing in February that she was “deeply disappointed” in the plaintiffs lawyers’ initial fee request, in part because it included bills submitted from some 53 firms.  Earlier in the case, Koh had explicitly urged the plaintiffs firms to keep their leadership team lean.

The judge ultimately appointed as lead counsel Eve Cervantez of Altschuler Berzon, and Andrew Friedman of Cohen Milstein Sellers & Toll, and allowed for a plaintiffs steering committee led by Michael Sobol of Lieff Cabraser Heimann & Bernstein and Eric Gibbs of Girard Gibbs.  In February, the judge informed the plaintiffs firms that she intended to appoint Kleinberg as a special master to scrutinize their billing records.