A recent The Recorder story by Alaina Lancaster, “Judge Scrutinizes Plaintiffs’ $68M Fee Request in Wells Fargo Settlement,” reports that disputes over $68 million in attorney fees in a $240 million class action settlement against Wells Fargo & Co. have spurred a federal judge to consider setting new precedents for contract lawyer fees.  In a fairness hearing, U.S. District Judge Jon Tigar of the Northern District of California took issue with a motion for attorney fees filed by San Francisco’s Lieff Cabraser.  The case involves a settlement with Wells Fargo shareholders over the financial institution’s widespread opening of unauthorized accounts to reach sales quotas and artificially inflate the company’s stock.

As co-lead counsel in the litigation dating back two years, Lieff Cabraser had calculated a fee for its contract attorneys that was about nine times higher than the attorney’s rate.  Tigar suggested to Richard M. Heimann of Lieff Cabraser that contract attorney fees should be no different than a plane ticket and calculated as a cost.  With no law or ruling that reflects such a shift in procedure, Heimann asked how it was fair that his team’s fees should suffer because the judge wanted to change the rules.  “If I think that should be the rule, how could I ever do that without an order?” Tigar responded.

Co-lead plaintiffs Fire & Police Pension Association of Colorado and the City of Birmingham Retirement & Relief System represented a class of shareholders who brought the suit to hold Wells Fargo’s directors accountable for putting “unrelenting pressure” on sales members to cross-sell eight products per account holder, resulting in the creation of falsified accounts, according to the consolidated complaint.  Saxena White in Boca Raton, Florida, is co-lead plaintiffs counsel alongside Lieff Cabraser.

The judge thanked Ted Frank of the Hamilton Lincoln Law Institute’s Center for Class Action Fairness for raising the issue in his motion opposing the attorney fees.  Frank pointed out that the co-lead counsel paid contract attorneys between $40 and $50 an hour but requested about $415 an hour to cover their investment.  “The unreasonableness of co-lead counsel’s fee request is confirmed by the lodestar crosscheck,” Frank wrote in his opposition to the motion.  “Using these rates, the lodestar figure is exaggerated by at least $5.5 million, but the precise amount is unclear due to counsel’s failure to submit daily billing records.  This means the lodestar multiplier is actually about 4.04.”

Heimann argued that the work and the overhead costs for staff and contract employees are the same in regard to training, supervision and providing workspaces.  Tigar said the law firm wouldn’t contract out staff if it weren’t more profitable.  “Are you telling me with a straight face that you don’t make more money on contract lawyers?” the judge asked.

Heimann said that taking advantage of contract employees is only marginally more profitable—about 10% to 20% more than staff attorneys—but the primary reason the firm hires contract workers is to handle fluctuating caseloads.  Tigar also set out to address another objection mentioned in Frank’s opposition over a 5% fee allocated to 12 law firms who brought similar cases in Delaware courts.  “The gravy train is so heavy that co-lead counsel has agreed to pay law firms that brought other cases even where they provided no common benefit, who represent plaintiffs who lack any colorable claims,” Frank wrote.

Heimann confirmed the Delaware counsel did not work on the case, and Tigar said it sounded to him like the attorneys were paid to withdraw their litigation, so as not to obtain a ruling that could impact the outcome of this case.  “I can imagine a circumstance in which a class action lawsuit is filed and the claims are clearly unsupported by the law,” the judge said.  “Most sensible judges could see the claims aren’t good, but say you have one case where the lawyers clearly have some momentum, and you just go pay them off.  That’s not good for the development of the law and doesn’t lead to a just result.  Why shouldn’t I be worried about that?”