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Category: Fee Allocation / Splitting

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.”

Lead Plaintiff in State Street Overbilling Case Hires Outside Counsel

June 7, 2018

A recent NLJ story by Amanda Bronstad, “Lead Plaintiff in State Street Overbilling Probe Hires Own Counsel but Stays in Case” reports that the executive director over an Arkansas pension fund has retained outside counsel but insisted he could continue to serve as lead plaintiff in settlements with State Street Corp. despite an overbilling probe that could end up returning a “significant amount of money” to class members, according to a federal judge’s remarks.  In an affidavit, George Hopkins, executive director of the Arkansas Teacher Retirement System, said he had retained Thomas Hoopes of Boston’s LibbyHoopes, who represents professionals in criminal matters and corporate investigations.

Senior Judge Mark Wolf of the U.S. District Court for the District of Massachusetts had ordered the affidavit following a May 30 hearing at which Hopkins testified about his role as lead plaintiff and the relationship between his Arkansas pension fund to Labaton Sucharow, one of three plaintiffs firms whose potential overbilling in a $75 million attorney fee request prompted Wolf to bring in a special master, who filed his report under seal last month.  At last week’s hearing, Wolf raised concerns that Hopkins and Labaton Sucharow, which has defended the fee request, now has a conflict with class members.

“The conduct of Labaton and the other lawyers you selected has been called into question,” he told Hopkins, who testified at the hearing.  “The special master, as you know, recommends that what, by my standards, is a significant amount of money be returned by those lawyers and distributed to the class.”  He said his “paramount responsibility” is to the class and whether the lead plaintiff is “typical and adequate,” in light of the report’s recommendations.

“Do you understand, therefore, that I have a concern that there may be a conflict at this point between the interests of Labaton and the other lawyers, who want to vindicate the propriety of everything they did and keep the money,” he said, “and the class that would benefit if I ordered some of that money paid back?”  In his May 31 order, Wolf asked whether the Arkansas pension fund wanted to continue to be lead plaintiff and, if so, whether it would seek legal advice other than Labaton concerning the case.

In his affidavit, Hopkins acknowledged the judge’s concerns but insisted he could still represent the class.  “I do firmly believe that we all can learn from this case, including a little more ‘trust but verify,’” wrote Hopkins, who has been the system’s executive director since 2008.  “However, trusting those who have not previously given us cause to distrust does not create a failure of duty.  Imperfection may or may not signal more.  Still, hindsight is 20/20 and hindsight will certainly lead to refinements in best practices, at least for class representatives both sophisticated and less sophisticated as there is no instruction manual on how to be a class representative.  But that does not prevent ATRS from continuing to do our best to be both fair and vigorous on behalf of those we serve.”

He wrote that Hoopes’ legal advice consisted of the Arkansas pension fund’s duties to the class and other issues raised in the special master’s report.  But Hopkins said he would continue to consult with Labaton on the settlement’s distribution.  Labaton issued a statement defending the affidavit and saying the Arkansas pension fund had a “critical role in helping formulate and evaluate litigation strategy, overseeing and supporting class counsel and establishing a basis for a strong financial recovery for the class.  George Hopkins personally did an outstanding job as class representative throughout the six-year entirety of the case.”

A year ago, Wolf appointed the special master, Gerald Rosen, a retired federal chief judge from the Eastern District of Michigan, to look into potential overbilling in a $300 million settlement of cases alleging State Street overcharged pension fund clients in connection with foreign currency trades.  Lawyers at New York-based Labaton and two other lead counsel firms, San Francisco’s Lieff Cabraser Heimann & Bernstein and the Thornton Law Firm in Boston, admitted to double-counting hours relating to staff attorneys but continued to defend their fee request.

Rosen filed his report on May 14.  The three plaintiffs firms have challenged Rosen’s findings and insisted on redactions to the 375-page report.  Wolf has set deadlines for those redactions and a possible June 22 hearing.  He also scheduled last week’s hearing and ordered Hopkins to show up in court to address whether, given the findings of the report, the judge should replace class counsel and the lead plaintiff.

At the hearing, arguments by the special master’s lawyer, William Sinnott, and Joan Lukey, who represents Labaton, shed some light on the polarized opinions about the report.  Sinnott, of Barrett & Singal in Boston, pointed to a declaration filed by Hopkins as “very troubling.”

“And not for nefarious reasons, but with respect to what he saw as his role with respect to the class and the members,” he said.  But Lukey, of Boston’s Choate Hall & Stewart, called the report’s conclusions “very vigorously disputed.”  Some items in the report, she said, “are extremely injurious to the reputations of the three firms” and could have an “effect on these firms and perhaps others in the plaintiffs’ class action bar.”

She also said some of the report is based on “errors of law as to what the Massachusetts law is on the subject at issue.”  That issue became clearer when, following a closed sidebar discussion, Lukey stated in court: “We wish to make it clear that the nature of the misconduct which is asserted relates to the existence of a so-called bare referral or origination or forwarding fee, as permitted under Massachusetts Rules of Professional Conduct, which was not disclosed to the court under the premises of Rule 54(d)(2), and which the master feels was inappropriate withheld from the court.”

Given that the hearing was public, she said, “I did not wish anyone publicly present to be left with the impression that there was anything more nefarious than that.”  Sinnott responded: “This was not a referral fee.  This was a finder’s fee.  And, more importantly, this was a finder’s fee that was not disclosed to the client, to the class, to co-counsel, nor to the court.”

Massachusetts Rules of Professional Conduct permits a referral fee—a fee paid from one law firm to another for referring a client —“only if the client is notified before or at the time the client enters into a fee agreement.”  But the Massachusetts rules on referral fees are less stringent than that of the American Bar Association’s, said Tigran Eldred, a professor at New England Law in Boston.

“The ABA rules require that, if there’s going to be a division of fees between two or more lawyers that either the fees are distributed proportionate to the amount of work each lawyer does, or that those lawyers take on ethical responsibility for all the work done,” he said.  Massachusetts rules do not define a finder’s fee, he said, but that presumably could mean any kind of payment for “law-related services,” like title insurance, financial planning, real estate lobbying or legislative lobbying.

$112.5M Fee Award in $1B NFL Concussion Settlement

April 6, 2018

A recent Legal Intelligencer story by Max Mitchell, “Judge Awards $112.5M in Total Attorney Fee in NFL Concussion Case,” reports that attorneys who helped hammer out the $1 billion settlement between the National Football League and former professional football players suffering cognitive injuries have been awarded $112.5 million for their work.  But, the judge has reserved for a later time her determination of the exact amount each firm will receive for its respective efforts.

U.S. District Judge Anita Brody for the Eastern District of Pennsylvania awarded class counsel $106.8 million in attorney fees and $5.7 million in expenses in the NFL concussion case.  The amount conforms to class counsel’s fee request, and is also the number the NFL had agreed to pay without objection as part of the settlement.

In making the ruling, Brody lauded class counsel efforts, noted that class attorneys billed more than 50,000 hours for their work on the settlement, and said the fee award is only 11 percent of the total settlement.  “The performance of class counsel regarding the complex settlement has been extraordinary,” Brody said, noting that more than 20,000 class members are registered to participate in the settlement and more than 360 claims valuing over $400 million have been approved.  “The fees requested here are well-earned.”

Individual class counsel attorneys have requested as much as $70 million for their firm, but Brody said that issue, along with determining how much the court should withhold from players’ individual awards to cover costs and fees of implementing the settlement, “will be determined at a later date.”

In footnotes, Brody said she plans to make a determination regarding fee allocation to the individual firms after reviewing the numerous responses and replies that have been filed.  She added it will likely take a year to determine how much money should be held back from players’ individual awards.  “The court hopes to address this issue once more data regarding the scope of implementation work is available—ideally in one year,” Brody said in a footnote.

Class counsel have asked the court to hold back 5 percent of the award to cover implementation costs.  Brody also determined that fees for individual retained attorneys should be capped at 22 percent.  The ruling adopts the recommendations from William Rubnestein, a Harvard professor who had been appointed by the court to consider the issue.

Individually retained attorney are lawyers who represent the injured players, but are not part of class counsel.  Brody said their fees should be capped because “it is undeniable that all [individually-represented plaintiffs’ attorneys] have benefitted from class counsel’s work.” Brody added that she will grant deviations above the 22 percent cap only “in exceptional of unique circumstances.”

In October, Seeger Weiss attorney Chris Seeger, who is co-lead class counsel in the case, requested that the court allocate more than $70 million to his firm,  The money, according to the fee request, would compensate Seeger Weiss for a total of 21,044 hours his firm spent on the litigation since he was appointed to represent the class in 2012.

Attorneys from more than 15 firms including Anapol Weiss, which is home to Seeger’s co-lead class counsel, Sol Weiss, subsequently challenged Seeger’s proposal.  “We appreciate the court’s consideration of this matter.  The settlement is on track to lost the NFL hundreds of million, if not billions of dollars more than anticipated,” Seeger said in an email statement.  “We will make sure that former NFL players and their families receive every benefit they are entitled to under this agreement.”

Ninth Circuit Asked to Rule on Fee Awards in MDLs

February 23, 2018

A recent Reuters story by Alison Frankel, “VW, Class Counsel Ask 9th Circuit to Refuse Fees for ‘Ghost Lawyers’,” reports that the Ninth U.S. Circuit Court of Appeals has never had to decide whether and under what circumstances trial judges overseeing multidistrict litigation (MDL) can award fees to lawyers who weren’t part of court-appointed steering committees.  It’s now facing those questions in one of the most epic MDLs in recent memory, the $15 billion litigation over VW clean diesel cars outfitted with devices to deceive emissions tests.

Scores of plaintiffs’ firms stampeded to lead the consolidated case after state and federal regulators issued word in late 2015 of VW’s so-called defeat devices.  In January 2016, U.S. District Judge Charles Breyer of San Francisco appointed Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein as lead counsel and named 21 additional firms as members of a steering committee.

As members of the plaintiffs’ team drafted a consolidated complaint and prepared for litigation against VW, Cabraser participated in whirlwind, tripartite negotiations with VW and regulators.  Within months, VW agreed to a $15 billion deal to resolve private and federal government claims.

Judge Breyer granted final approval of the settlement, which was structured as a class action, in October 2016.  He awarded fees of $175 million to Lieff Cabraser, members of the steering committee and other plaintiffs’ firms that executed legal work authorized by Lieff Cabraser for the benefit of class members.  In all, about 100 firms shared in the fees, which VW paid.

Not everyone was satisfied with the outcome, however.  Judge Breyer denied fee requests by nearly 250 plaintiffs’ lawyers who represented individual VW owners but weren’t authorized to work on behalf of the class.  Those lawyers wanted VW to pay their fees, arguing, in particular, that their pre-consolidation efforts helped push the company into a settlement and that they’d expended time apprising class members – their clients - about the terms of the deal.  Judge Breyer ruled last April that none of that work actually benefited the class and that it was not covered by VW’s agreement to pay the fees of Cabraser and her team.

Led by Nagel Rice and Hyde & Swigart, 18 firms appealed Judge Breyer’s decision to deny them fees to the 9th Circuit.  (I’m going to focus on their joint brief and not on separate appeals by a class member alleging its lawyers weren’t compensated for suggesting an important edit to the settlement agreement and a Virginia plaintiffs’ lawyer protesting a since-dissolved injunction on filing a lien against clients’ recoveries.)  The Nagel Rice brief contended that the federal rules for class actions allow fee awards to lawyers not named as class counsel, as both the 3rd and 10th Circuits have acknowledged in, respectively, In re Cendant and Gottlieb v. Barry.  In this case, the brief said, the real work took place before Lieff Cabraser was named to lead the case: developing initial legal theories, “creating a massive offensive across the country resulting in upwards of 451 possible related filings in some sixty districts,” screening clients, filing motions to force VW to preserve evidence and coordinating with other plaintiffs firms doing the same thing.

Judge Breyer’s alternative view of their contributions to the settlement, they said, is just wrong.  “The court’s attempt to attribute the success of the class as a whole as springing only from the heads of Class Counsel beginning on the first day of their appointment, some four months into the filing of the case, is wholly arbitrary and without any basis in fact,” the appellate brief said.  “By the time class counsel was appointed on Jan. 21, 2016, there had already been 451 potentially related cases filed across the nation in some 60 federal districts; at least four motions to preserve evidence; at least three motions for interim lead counsel positions; various preliminary discovery attempts; and at least eight conferences for attorneys across the country to analyze, discuss and refine approaches to bringing the cases.”  Basically, the brief argued, Lieff Cabraser and its team received all of the credit – and fees – when all they did was meld and duplicate the work other plaintiffs’ lawyers had already done.

VW and the Lieff team filed their response briefs this week.  VW’s lawyers at Sullivan & Cromwell submitted a sober explanation of why it believes it owes nothing to lawyers who didn’t bother to follow Judge Breyer’s pre-trial orders for requesting fees.  Among the reasons: There’s no common fund in the class settlement, and VW never agreed to pay lawyers other than those Lieff Cabraser identified.

Lieff Cabraser’s brief, which was also signed by the other firms on the VW plaintiffs steering committee and New York University professor Samuel Issacharoff, is a more entertaining read than VW’s, leading off with a memorable account of the long ago “ghost riders” of New Jersey buses and trains, who would appear out of nowhere to claim injuries whenever one of the vehicles was involved in an accident.  A similar phenomenon occurs in mass tort litigation, the brief said: “Successful lawsuits spawned claims of parental rights by lawyers whose participation in the case came as a surprise to all.  These ‘ghost lawyers’ would appear at the end of the litigation claiming that the work they performed on behalf of an individual client was indispensable to the success of the common enterprise.”

The plaintiffs’ firms asking the 9th Circuit to award them fees in the VW case are ghost lawyers, according to the Lieff brief, “emerging from the shadows only after the case has been resolved (to) claim credit for the result.”  In fact, Lieff and its team argued, the lawyers offered “no work product evidence of having engaged in the actual prosecution or resolution of the consolidated case.”

MDL courts, like New Jersey transit systems, have adopted systems and protocols to dissuade claims by freeloaders, the brief said.  Judge Breyer followed best practices when he picked a leadership team, ordered documentation of its work and awarded fees based on that documentation.  To hold otherwise, the Lieff team said, the 9th Circuit would have to be convinced the judge abused his discretion.

“There is simply no basis for any such argument.  Not only was the district court not clearly erroneous in its fact finding and case management, but the handling of this extraordinary litigation serves as a model for complex case oversight,” the brief said.  “Appellants run headlong into well-documented findings by the district court below on how this litigation was handled and by whom.”

Fee Allocation Dispute in Toyota’s Defective Accelerator Settlement

February 5, 2018

A recent Star Tribune story by Randy Furst, “Lawyers in Minnesota Toyota Case Battle Over Legal Fees,” reports that three years after a Minneapolis jury awarded $11 million in a suit against Toyota over a high-speed crash that led to three deaths, the lawyers for some of the victims are in a bitter dispute over the spoils.  More than $1 million in legal fees is at stake, and law firms continue to battle over who gets what, with some accusing others of exaggerating their roles in winning the hefty verdict and appeals.  A jury found that a 1996 Toyota Camry’s accelerator was defective.

“These money disputes between and among lawyers often bring out the worst in lawyers,” says Joseph Daly, emeritus professor of law at Mitchell Hamline College of Law.  “It fits the stereotype of lawyers not pursuing justice but pursuing money.”  One firm, Napoli Shkolnik, based in New York, is accused by other lawyers of having so botched its role it should get no payout at all.

“What cannot be disputed is that the Napoli firm’s conduct was grossly negligent, in reckless disregard of their duties as lead counsel and harmful to plaintiffs,” wrote attorney W.B. Markovits of Cincinnati in a court document filed.  The Napoli firm’s response is sealed.  But in an earlier brief, Napoli’s Nicholas Farnolo argued that Napoli’s lawyers did not conduct themselves “in bad faith” and that “no actual fraud was conducted and the firm deserves to be paid for its work.”

It’s all in the hands of U.S. District Judge Ann Montgomery, who presided at the February 2015 trial where lawyers for Koua Fong Lee of St. Paul convinced a jury that the fatal 2006 crash was caused by an accelerator that became stuck, increasing speed even as he applied the brakes.  Three people died and several others were seriously injured.

Neither Lee nor his attorneys, headed by Texas lawyer Bob Hilliard, are involved in the post-trial dust-up over fees, though Hilliard was the lead attorney and most responsible for the victory at trial.

The dispute instead largely involves the lawyers who represented the people who were riding in the Oldsmobile Ciera that Lee’s Camry struck, along with their surviving families.  Killed in the crash were Javis Trice-Adams, Sr., 33, and Javis Trice-Adams Jr., 10, both of whom died instantly, and Devyn Bolton, 6 at the time of the accident, who died a year later after being rendered quadriplegic.

In the civil verdict against Toyota, the main payouts went to Bolton’s mother, Beatrice Trice ($5.5 million); Lee ($785,000); his wife, Panghoua Moua ($884,000); Bolton’s grandfather Quincy Adams ($1.7 million); and Trice-Adams Sr.’s daughter Jassmine Adams ($3 million).  The Trice family went through several attorneys.

The victims in the Ciara first retained attorney Michael Padden of Lake Elmo. Padden sought the assistance of lawyer Kenneth R. White of Mankato.  White and Padden brought in the firm of Waite Schneider Bayless & Chesley of Cincinnati.  But a key lawyer in that firm was accused of wrongdoing in an unrelated case and recommended he withdraw, to be replaced by the Napoli firm.

In 2014, Trice learned the Napoli firm made a pretrial offer to Toyota — to settle for $5 million — without consulting her or her attorneys, White and Padden.  Toyota then broke off settlement talks because the “demands were too high to lead to productive negotiations,” according to documents.

Trice fired Napoli and retained the law firm of Markovits, Stock & DeMarco.  “This conduct breached your fiduciary duty with me and is totally unacceptable,” she wrote Napoli.  Padden also wrote Napoli that “the whole scenario is unconscionable and incomprehensible to me and Mr. White.”

The other lawyers also accused the Napoli firm of failing to disclose all the medical bills in time for trial, costing Trice $500,000 that the jury might have awarded, and $250,000 in prejudgment interest.  “Under the facts and law presented herein, the Napoli firm has forfeited any right to attorney’s fees arising out of this case,” Markovits wrote.

Farnolo of the Napoli firm wrote that not communicating with his clients “was a harmless error” and that the demand was similar to the award ultimately gained through the trial. He said attorney White shares the blame because he did not disclose the additional medical bills, either.  Markovits also said that while Padden was supposed to get 30 percent of the fees and White 15 percent, it should be reversed.  “The evidence does not support that the service performed by Mr. Padden warrants 30 percent of the fee,” firm representatives wrote.  “He has no time records supporting work performed, and the record shows that his substantive involvement was minimal.”

Padden’s response is redacted but he includes among his exhibits an affidavit from former St. Paul Pioneer Press reporter Emily Gurnon in which she said Padden was her “main source” for articles on the case and his work was “very important.”  “While publicity may have helped Mr. Padden,” Markovits wrote in response, “Mr. Padden cannot be suggesting that the jury verdict or the post-trial or appellate decisions in this case were due to his public relations efforts.  This was not significant, nor time-consuming, substantive work.”

Daly, the professor, said if Montgomery does not decide the matter herself, she will order the law firms to hire a mediator.  If she decides the case, Daly said, “In all likelihood she’ll consider three things: the quality of work, the amount of time and effort put in by each law firm, and the degree of negligence, if any, by the lawyers handling the case.”