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Category: Fee Allocation / Splitting

$58.4M Attorney Fee Award in LIBOR MDL

August 16, 2018

A recent Law 360 story by Bryan Koenig, “Hausfeld, Susman Awarded in $58.4M in Libor MDL Fees, Costs,” reports that Hausfeld LLP and Susman Godfrey LLP will decide how to dole out a nearly $60 million award for attorneys' fees and expenses approved by a New York federal judge from $250 million in multidistrict litigation settlements between Citigroup, Barclays and investors suing over rigging of the London Interbank Offered Rate.

U.S. District Judge Naomi Reice Buchwald left it up to the two lead firms to decide how to apportion the $14.9 million in litigation expenses and $43.5 million in attorneys’ fees awarded from the two class action settlements granted final approval at the beginning of August.  “Numerous firms” were involved in representing the so-called over-the-counter investors over the seven-year MDL, the judge said in an order that only slightly pared back Hausfeld and Susman Godfrey’s bid for compensation.

“Class counsel have unquestionably devoted a significant number of hours to this action — 46,744.30 through July 27, 2017 to be precise, and this action has undisputedly been complex and fraught with risk,” Judge Buchwald said.  “While these factors may militate in favor of a larger award, the amount of recovery in this case is substantial, and a higher percentage would incur the risk of providing an unwarranted windfall to class counsel at the expense of the class.”

Citigroup Inc. has agreed to pay $130 million and Barclays Bank PLC to pay $120 million to compensate OTC investors who say they purchased Libor-tied financial instruments during a time when multiple major banks allegedly worked together to manipulate the rate.  Bank of America NA and JP Morgan Chase Bank NA are still fighting the OTC plaintiffs in a bid to duck out of the case, even as multiple other banks have penned their own deals.  The underlying allegations stem from investigations by government regulators around the world into the alleged rigging of Libor that sparked a series of lawsuits that eventually were gathered into the MDL in the Southern District of New York.

Judge Buchwald said that the expenses, which come primarily from $14.2 million from the Citi settlement fund, aren’t “so high as to be unreasonable,” considering “the complexities of this case and the necessity for extensive expert involvement.”  The Barclays settlement is contributing far less because that bank settled first, in November 2015, while Citi didn’t settle until July 2017.  

The judge also signed off on $25,000 in fee awards for each of the five named OTC plaintiffs:  Baltimore’s mayor and city council; the city of New Britain, Connecticut; Jennie Stuart Medical Center Inc.; Vistra Energy Corp.; and Yale University.  The plaintiffs had wanted the money to come solely from the Barclays settlement, but Judge Buchwald instead split it between the deals, with $12,000 per plaintiff coming from the deal with Barclays and $13,000 per plaintiff coming from the Citi settlement fund.

The biggest change the judge made was to the attorneys' fee bid, with the plaintiffs having sought $50 million, although that was based on 20 percent of the overall settlement after expenses had been subtracted.  Judge Buchwald instead went with 18.5 percent of the awards after expenses, using a base of just over $235 million to arrive at the attorneys' fees of $43.5 million.

“Given these amounts of expense reimbursements, incentive awards, and attorneys’ fees, the class writ large will receive 76.62% of the aggregate settlement amounts (prior to other expenses, such as those incurred in providing notice to the classes),” the judge said.  That percentage, the judge continued, “comports with public policy notions” putting most of a settlement recovery with the class rather than their lawyers.  “It is simply inconceivable that attorneys’ fees of more than $43 million — $930 per hour for each of the 46,744.3 hours class counsel reports to have spent — would somehow be insufficiently incentivizing for class counsel to vigorously pursue actions of this nature,” Judge Buchwald said.

The case is Mayor and City Council of Baltimore et al. v. Credit Suisse AG et al., case number 1:11-cv-05450, and the MDL is In re: Libor-Based Financial Instruments Antitrust Litigation, case number 1:11-md-02262, both in the U.S. District Court for the Southern District of New York.

Watts Guerra Seeks $150M in Fees in $1.5B Corn Settlement

August 7, 2018

A recent Texas Lawyer story by Amanda Bronstad, “Mikal Watts Wants One-Third of Expected $500M Fee Corn Settlement,” reports that Texas plaintiffs attorney Mikal Watts is asking for at least $150 million in legal fees from the $1.5 billion settlement with Syngenta AG, citing his firm’s “unique position in this litigation.”  The Watts Guerra attorney’s fee request, filed last month but updated on Aug. 3, sets up a potential clash over what could be an estimated $500 million in fees in the class action settlement, which resolves claims by more than 600,000 farmers who alleged Syngenta sold genetically modified corn seed that China refused to import, causing farmers to lose billions of dollars.  In a separate request for fees, lead counsel in the federal multidistrict litigation in Kansas are seeking that amount—about 33 percent of the total settlement fund.

“This fee request is based on Watts Guerra’s enormous investment in this litigation,” Watts wrote in his motion.  “It is on the high end of the range, perhaps, but not unprecedented.”  Watts claims to represent 57,000 farmers who could be entitled to between $345 million and $750 million under the settlement.  The requests come as at least four other lawyers have challenged the fees in the deal, particularly those going to Watts.  Oppositions to the fee requests are due Aug. 17.

The Syngenta litigation was coordinated in both federal multidistrict litigation in Kansas and in two proceedings in Minnesota and Illinois state courts.  In their fee request, the lead lawyers in Syngenta want 50 percent of the $500 million, plus about $6.7 million in costs and expenses, which would go to a total 44 law firms.  They want another 12.5 percent to go to the lead lawyers in the Minnesota state court, and 17.5 percent to attorneys in Illinois state court.  The remaining $100 million would be reserved for other lawyers.

The dispute mirrors fee fights that have erupted in mass torts between plaintiffs attorneys appointed to represent members of a class action and those who have brought individual suits on behalf of their clients.  The vast majority of the farmers Watts represents have retainer agreements with him and filed individual suits in Minnesota state court.  Last year, as part of the federal multidistrict litigation, a jury awarded $217.7 million to a class of Kansas farmers in the first bellwether trial.  It was one of eight subclasses of farmers planned for trials.  A second, on behalf of Minnesota farmers, was ongoing when both sides struck a deal.

Watts Guerra partner Francisco Guerra was co-lead plaintiffs counsel in Minnesota state court, but no one from the firm had a lead role in the federal multidistrict litigation.  The firm did work on the Minnesota trial, however, and Watts was one of four lawyers appointed to the plaintiffs’ negotiating committee.  “That trial forced Syngenta finally to accept that it faced not just hundreds of millions of dollars in compensatory damages but a likely multibillion-dollar judgment based on intentional misconduct—for the farmers in a single state,” Watts wrote.  “Then, in an instant, it was over.”

The initial settlement called for two agreements—one on behalf of the class, and one on behalf of the individual plaintiffs, according to court filings.  But the negotiated deal encompassed four subclasses—two on behalf of farmers, one for grain handling facilities and another for ethanol producers.  Final approval of the settlement is set for Nov. 15.

Earlier this year, two attorneys in Beaumont, Texas, claiming to represent 9,000 farmers filed a motion to delay approval of the settlement, insisting the lead lawyers who negotiated the deal kept their clients in the dark on “how the settlement would be divided and distributed between the class actions and the individual producer plaintiffs.”  In particular, they claimed Watts and another lawyer on the plaintiffs settlement negotiation committee, Clayton Clark of Clark, Love & Hutson in Houston, dropped a more favorable settlement for farmers with individual lawsuits in exchange for higher fees.

Another lawyer, D. Allen Hossley of Hossley & Embry in Tyler, Texas, who claimed to represent 650 farmers, joined the motion, filed by Mitchell Toups, of Weller, Green, Toups & Terrell and Richard Coffman of The Coffman Law Firm (Toups and Coffman are now seeking $34 million in fees, while Hossley wants nearly $2.7 million).

On April 24, Minneapolis attorney Doug Nill sued Watts.  He claimed Watts, firm partner Guerra and Jon Givens, of counsel, who lives in Alaska, and 13 other small law firms or solo practitioners conspired to convince 60,000 farmers not to participate in the class action, and now could end up with $200 million in fees.  The suit asked to void the retainer agreements, which included a contingency fee rate of 40 percent.  In his fee request, Watts said he would drop his contingency fee to 33.3 percent.  When accounting for what he had agreed to pay lead lawyers in the federal multidistrict litigation—referred to as a common benefit assessment—his contingency fee would drop to less than 24.2 percent, he wrote.

But, anticipating that “some of the other common benefit counsel” may demand one-third of the settlement for themselves, he insisted that his fees come out of the $500 million and that he get reimbursed for the $12.8 million in common benefit expenses he paid in the Minnesota state court litigation.  He cited a 2015 joint prosecution agreement that was designed to resolve future fee disputes among lawyers in both the Minnesota state court cases and federal multidistrict litigation.

Watts backed up his fee request, which also includes 332 law firms that worked on his cases, with expert reports from six prominent legal scholars, including Brian Fitzpatrick of Vanderbilt Law School and Geoffrey Miller of New York University School of Law.

Labaton Attorney Fee Deal Prompts Arkansas Legislative Inquiry

August 3, 2018

A recent American Lawyer story by Scott Flaherty, “Labaton Fee Deal in State Street Case Prompts Arkansas Legislative Inquiry,” reports that Arkansas’ state Legislature is looking into a $4.1 million fee that Labaton Sucharow paid to a Texas-based lawyer who helped the plaintiffs firm attract an Arkansas public pension fund as a client in securities class actions, according to court documents made public.  The existence of a legislative investigation in Arkansas was referenced in a letter to U.S. District Judge Mark Wolf in Boston from a lawyer representing Gerald Rosen—a retired federal judge who, as a special master, has been reviewing a $75 million attorney fee awarded to Labaton Sucharow and other firms after they secured a $300 million securities class action settlement with State Street Corp.

Rosen’s counsel, William Sinnott of Barrett & Singal, wrote that Rosen had received inquiries from Arkansas lawmakers and was looking for guidance from Wolf on how to respond.  “He will not, of course, conduct discussions or provide sealed documents to legislative, law enforcement or other requestors without the express direction of the court,” Sinnott wrote of Rosen.  “However, he does wish to alert the court to these inquiries as they implicate access to matters of public concern.”

Sinnott’s letter was initially filed confidentially, but Wolf unsealed it, making it public.  The judge also issued an order directing that people interested in information or documents about the case should make those requests directly to Wolf.  If Rosen receives further questions, Wolf wrote, the special master should respond with a copy of the judge’s order.

Word of the Arkansas legislative probe follows a mammoth special master report released publicly in June in which Rosen found “questionable” a number of billing practices carried out by Labaton Sucharow and other plaintiffs firms involved in the State Street litigation.  The special master recommended that Labaton Sucharow, The Thornton Law Firm and San Francisco’s Lieff Cabraser Heimann & Bernstein return more than $10 million.

Labaton Sucharow, represented by Choate Hall & Stewart, has strongly contested Rosen’s findings in the special master report.  It also has sought to have Wolf removed from the State Street case but on July 25, the U.S. Court of Appeals for the First Circuit denied Labaton Sucharow’s request for an order forcing Wolf’s recusal.

Among the concerns Rosen detailed in his report was evidence that Labaton Sucharow paid a Texas-based lawyer named Damon Chargois to help the firm secure an Arkansas state teachers’ pension fund as an institutional investor client.  Chargois, who had connections to the pension fund and made an introduction, didn’t actually work on the State Street case, though he earned about $4.1 million from Labaton Sucharow under a referral agreement, according to Rosen.  The Arkansas pension fund, represented by Labaton Sucharow, ultimately served as lead plaintiff in the State Street securities case.

Labaton Sucharow did not disclose the Chargois payment to the court or to other members of the settlement class and its co-counsel in the case during the period when Wolf was considering whether to approve the $75 million fee award, according to the special master report.  Rosen wrote that the lack of disclosure about the Chargois payment “kept the court in the dark and denied it the very information it needed” to determine the proper amount to award plaintiffs lawyers leading the State Street litigation.

In objections to Rosen’s findings, Labaton Sucharow has maintained that the payment to Chargois qualifies as a “bare referral” fee and that lawyers are allowed to enter such arrangements under the Massachusetts rules of professional conduct.  “Judge Rosen may be offended by a ‘bare referral’ fee—one where the referring attorney does not have to do any work in order to receive the referral fee, but it is the law in Massachusetts,”  Labaton Sucharow said in a June statement after Rosen’s report became public.

The Chargois payment now appears to be at the center of the Arkansas legislative probe.  In the letter made public Wednesday, Rosen’s counsel quotes from an email sent by Arkansas state Rep. Mark Lowery, who co-chairs the state Legislature’s Joint Performance Review Committee.  “We are extremely concerned about references to ‘political favors’ that brought about the relationship between ATRS, Labaton Sucharow and the Chargois … law firm,” Lowery wrote in the email to Rosen’s representatives.

In a statement, Labaton Sucharow acknowledged that it is among a small group of law firms that regularly represent the Arkansas Teacher Retirement System (ATRS) in securities cases, saying it was selected only after “a public request for qualifications and based on our long track record as one of the country’s pre-eminent class action law firms on behalf of institutional investors.”  The statement went on to say there was nothing to indicate that any money paid to Chargois was used improperly.

“We are confident that our work with ATRS yielded positive results for the state of Arkansas and strenuously object to any inference of political influence associated with our work.  Moreover, there is no evidence that any of the referral payment made to Mr. Chargois was used inappropriately,” the statement said.

Expert Report on Attorney Fees Called “Wholly Unmoored”

July 2, 2018

A recent American Law story by Scott Flaherty, “Report Railing Against Lawyers’ Conduct in State Street Case ‘Unmoored,’ Says Labaton,” reports that a newly unsealed special master’s report accuses the law firm Labaton Sucharow and its co-counsel of deliberately misleading the court about how it distributed the legal fees from a $300 million settlement with State Street Corp., prompting Labaton Sucharow to call the master’s analysis “wholly unmoored” from legal precedent and professional conduct rules.

The report recommends Labaton Sucharow return as much as $8.1 million of its share of a $75 million fee award to the class, and says Garrett Bradley, lead partner at the Thornton Law Firm in Boston, should pay up to $1 million in fines.  Labaton Sucharow is one of three plaintiffs firms, along with Thornton and Lieff Cabraser Heimann & Bernstein, that served as lead counsel in a securities case against State Street that settled in 2016 for $300 million.  U.S. District Judge Mark Wolf in Boston initially approved a plaintiffs legal fee award of $75 million in that case, but later appointed a special master—retired federal Judge Gerald Rosen—to review the fees after an article in The Boston Globe raised questions about potential double counting of hours.

The Globe had previously published an exposé detailing the political donation habits of lawyers at Thornton, and followed that with an examination of the fee request in the State Street case.  In light of the Globe’s reporting, the plaintiffs firms admitted in 2017 to double-counting some hours put in by “staff attorneys” who were paid on an hourly basis and worked temporarily for the three firms, primarily doing document review.  Although they described those mistakes as inadvertent and argued that they shouldn’t affect the $75 million fee award, the plaintiffs firms initially agreed to pay $2 million to fund the special master’s investigation.

However, the probe ended up stretching out for about a year and costing nearly $4 million, according to court records.  At the end of it, the special master issued a 377-page report that was kept confidential while the parties to the case proposed that sections be redacted.  The long-awaited public version of the report, penned by Rosen and released on Thursday, walks through a litany of conduct that the special master viewed as “questionable.”

Rosen detailed the double-counting issues that the firms had already acknowledged.  But he also trained his eye on money that Labaton Sucharow paid to a Texas-based lawyer named Damon Chargois, who helped the firm secure an Arkansas state teachers’ pension fund as an institutional investor client.  The Arkansas pension fund ultimately served as lead plaintiff in the State Street securities case.

According to Rosen’s report, Labaton Sucharow paid Chargois—who had connections to the Arkansas pension fund, but didn’t actually work on the State Street case—roughly $4.1 million under a referral agreement, but failed to disclose the payment to the court, other members of the settlement class and even its co-counsel in the case.  “By not disclosing the intended payment of $4.1 million to Chargois, Sucharow and Labaton kept the court in the dark and denied it the very information it needed in order to determine how much of the settlement funds should go to counsel, and which counsel, and how much,” Rosen wrote.

Rosen also criticized Labaton for its responses to the special master investigation, itself.  Instead of expressing remorse for any potential misconduct, Rosen wrote, the firm responded with a “phalanx of experts, who together with Labaton, have erected a wall of legalistic and formalistic excuses and blame-shifting.  “Although Labaton certainly has a right to present its best case,” the special master continued, “some acknowledgment of the potential harm this conduct has caused to class members, co-counsel and the court would have been not only appropriate, but expected.”

Ultimately, after describing the mistakes made by the firms in how they counted hours ahead of their fee request and citing the undisclosed Chargois referral fee, Rosen recommended that the three firms pay back a little more than $4 million to the class to correct for the double-counting issues.  He also suggested imposing a sanction of $400,000 to $1 million against the Thornton firm, a reduction of the billing rates for contract lawyers that worked on the case—an amount totaling about $2.42 million that would also be returned to the class—and he recommended that Labaton Sucharow be required to pay $4.1 million in connection with the Chargois referral deal.  Some $3.4 million of that would go to lawyers involved in a parallel Employee Retirement Income Security Act case, who were dragged into the special master investigation but weren’t faulted for any conduct, while the remaining $700,000 would go back to the State Street investor class members.  But Rosen also concluded that, despite his concerns, no Labaton Sucharow lawyers should be recommended for professional discipline.

Labaton Sucharow quickly issued a stern response to the special master’s findings.  The firm, represented by Joan Lukey of Choate Hall & Stewart, filed a formal set of objections in court and released a lengthy statement Friday describing the master’s report as “wholly unmoored from the relevant law and the actual facts.  “The master could have concluded his endless and costly investigation long ago once he verified that the double-counting was, indeed, inadvertent,” the firm said.  “Instead, he opted to go down the rabbit hole chasing the scent of an ‘improper’ referral payment because he believed it should have been disclosed to the court.  In doing so, he elected not to act as a neutral fact-finder (as was his stated charge) but rather as an adversary seeking to impugn Labaton and customer class counsel for making a referral payment that was entirely legal, ethical and appropriate under Massachusetts law.  Judge Rosen may be offended by a ‘bare referral’ fee—one where the referring attorney does not have to do any work in order to receive the referral fee, but it is the law in Massachusetts.”

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.”