A recent ABA Journal story, “Slashing $26M in Legal Fees from Citigroup Case, Judge Cites $550/hr Charge for $15/hr Contract Work” reports that a federal judge has slashed by 27 percent the attorney fees awarded to the winning lawyers in a $590 million settlement of a Citigroup Inc. securities class action because of “waste and inefficiency” and billable hourly rates that were “significantly inflated.” “Although the $590 million recovery is a fraction of the damages that might have been won at trial, it is substantial and reasonable in light of the risks faced if the action proceeded to trial,” wrote U.S. District Judge Sidney Stein in a 48-page opinion (pdf).
The settlement resolves claims by shareholders who purchased Citigroup shares from February 2007 to April 2008 that the New York based bank misrepresented its exposure to securities known as collateralized debt obligations that were tied to mortgage investments. Citigroup lost $27.68 billion in 2008. The lawsuit cited the plunge in the company’s stock price from $47.89 at the start of the fourth quarter of 2007 to $2.80 by January 2009.
The lead plaintiffs’ lawyers will receive $73.6 million instead of the $100.2 million they had requested. Stein also approved $2.8 million in expenses. While Stein said the lawyers “undoubted secured an impressive recovery” for Citigroup investors, their fee request was based on “significantly overstated” metrics.
In particular, the rates of contract attorneys drew a lot of hand-wringing from fee objectors. Serial fee objector Ted Frank bemoaned the hourly rates of contact attorneys. Frank, who was hired by no one, sought to have the contract lawyers billed as an expense. The Court rejected that idea, saying case law supports paying a markup for the work of licensed attorneys as opposed to say legal secretaries or outside experts. "Frank is cherry-picking," Stein wrote in his ruling. "To the extend that Frank purports to offer his own views as an expert on billing practices, the Court finds that he is not qualified to do so," the court wrote. In the end, Stein approved a maximum rate of $200 per hour for contact attorneys.
“At NALFA, our take away from this case is that almost all class action fee objectors are not qualified attorney fee experts because they hold a bias; they have an agenda. Almost all class action fee objectors are not fee experts because they are not independent; they are not objective,” said Terry Jesse, Executive Director. “What is more, fee objectors are not hired by anyone; they are self-appointed gadflies who seek to feast off the hard work of others,” Jesse concluded.
NALFA also reported on this case in “Hourly Contract Lawyers Must Disclose Wage Rate” and “Citigroup Plaintiff Lawyers Fire Back at Perennial Fee Objectors.” The case is In re: Citigroup Inc Securities Litigation, US District Court, Southern District of New York, No. 07-09901. For more on this case, visit http://citigroupsecuritiessettlement.com/