A recent ABA story by Debra Cassens Weiss, “Labaton Sucharow Agrees to Return $4.8M in Attorney Fees After Attorney Finder Fee is Revealed,” reports that Labaton Sucharow has agreed to return $4.8 million in attorney fees to plaintiffs and other law firms in a securities class action against State Street Corp. The payment resolves allegations of double billing and a failure to disclose a $4.1 million finder fee to a lawyer who helped introduce Labaton to the lead plaintiff, the Arkansas Teacher Retirement System, report Law.com and the New York Times. The lawyer who received the fee is Damon Chargois of Texas.
According to a supplemental report filed with a Boston federal court, Labaton should have disclosed the payment to Chargois, who “did not commit to work on, nor accept responsibility for, the representation of ATRS in the prosecution of the State Street case.” But the report said the payment itself “did not violate the rules of professional misconduct or constitute intentional misconduct.”
Columbia Law School professor John Coffee Jr. told the New York Times that the agreement shines a light on the “rather sordid market of buying and selling plaintiffs” in securities class actions. “I think the whole arrangement was under the table and dubious,” he said.
The lawsuit against State Street Corp. had alleged the bank overcharged its customers in connection with certain foreign exchange transactions. State Street agreed to a $300 million settlement, and U.S. District Judge Mark L. Wolf of Boston awarded $75 million in attorney fees to several law firms.
After a Boston Globe report alleged double billing by Labaton and two other law firms, Wolf appointed retired U.S. District Judge Gerald Rosen as a special master to investigate. Rosen learned of the finder fee payment.
Labaton’s agreement to return the $4.8 million is part of an agreement with Rosen. Labaton and two other law firms also agreed to pay $3.8 million to cover the cost of the special master probe. Labaton also agreed to internal reforms, including the appointment of a new general counsel and a chief compliance officer. The law firm also agreed to hire former U.S. District Chief Judge James Holderman of Chicago for a year to ensure that fee agreements comply with “emerging best practices.”
Labaton also said it had adopted a policy banning “bare referral” arrangements with other lawyers. Bare referral refers to a fee paid for no work, according to this law review article. Labaton said in a statement that the payment to Chargois “was outside the norms of a traditional case-specific referral fee” and its disclosure “fell short of emerging best practices.” But the firm said the special master concurs “that the payment made to referring counsel did not violate any rules of professional misconduct.”
“The master’s recommendation that we maintain our role as lead counsel and that our client Arkansas Teacher Retirement System continue to serve as class representative are important elements of the agreement and hopefully reflect our collective achievement in the substantial recovery secured for the class,” the statement said.