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Lieff Cabraser to Appeal Attorney Fee Reduction Before Paying It

January 27, 2021 | Posted in : Billing Judgment, Billing Practices, Billing Record / Entries, Ethics & Professional Responsibility, Fee Award, Fee Dispute, Fee Expert / Member, Fee Issues on Appeal, Fee Recommendation, Fee Reduction, Fee Request, Fees in Escrow

A recent Law 360 story by Chris Villani, “Lieff Wants To Appeal $1M State St. Fee Cut Before Paying It,” reports that Lieff Cabraser Heimann & Bernstein LLP asked a federal judge to hold off on ordering the firm to pay out a $1.1 million chunk of its fee for work on a years-old $300 million settlement with State Street Corp. so it can ask the First Circuit whether the repayment is justified.  In the latest salvo stemming from revelations of overbilling and other improprieties largely laid on its co-class counsel, Labaton Sucharow LLP and Thornton Law Firm LLP, Lieff Cabraser told U.S. District Judge Mark L. Wolf that once the money goes out, the firm is not likely to get it back.

Lieff Cabraser is appealing its part of the overall fee reduction order by Judge Wolf that slashed the tab owed to it, Labaton Sucharow and Thornton Law from $75 million to $60 million.  "Under the fee order, absent a stay, Lieff Cabraser's escrowed funds will be distributed to the class before the First Circuit can rule on the firm's appeal from the court's decision to penalize Lieff Cabraser," the firm said.  "Recovering those funds from the class, once distributed, will be impossible — effectively mooting the appeal."

But the vast majority of the money ordered repaid can go out right away, Lieff Cabraser argued, so the class of consumers who alleged they were swindled by State Street and Employee Retirement Income Security Act lawyers who worked on the case can get the rest of the money without any delay.  Putting a pause on the $1,139,4572 of Lieff Cabraser's money would not inconvenience anyone in line for a payout since it would take some time to distribute the funds even if the firm was not appealing, it said.

"Complete settlement distributions — especially those involving settlement funds in the hundreds of millions of dollars — commonly take years, not months," the firm said.  The case has wound through the court system since the suit, led by the Arkansas Teacher Retirement System, was first filed against State Street in 2011.  The parties reached a $300 million settlement and Judge Wolf approved a $75 million fee in 2016.  The order was vacated after allegations of double-billing surfaced in a Boston Globe report.

Judge Wolf appointed retired U.S. District Judge Gerald Rosen as a special master to investigate, and the probe ran up a seven-figure tab paid by the firms under investigation.  In a February order, Judge Wolf took Labaton Sucharow and Thornton Law to task, saying they repeatedly violated the rules of professional conduct by overbilling and failing to disclose a $4.1 million finder's fee paid to a lawyer who did not work on the case.  Lieff Cabraser's appeal is the only one to come from Judge Wolf's order and challenges a narrow set of issues pertaining only to findings related to the firm and alleged violations of Rule 11, which concerns representations made to the court in civil cases.

Judge Wolf indicated he would retain counsel to represent himself and his order before the First Circuit, but no attorney appearance has been entered on the First Circuit docket and no one filed an opposition to Lieff Cabraser's appeal.  It was also unclear, both to Lieff Cabraser and to the First Circuit, whether Judge Wolf's order last February was "final."  The firm told the appellate court it felt it had to treat the February order as "final" lest it lose the chance to appeal altogether, but Judge Wolf entered a "final judgment" on Jan. 19 of this year and Lieff Cabraser acknowledged to the First Circuit that the question of whether an actual appealable order existed last summer was murky.

In September, the First Circuit said it would dismiss the appeal without prejudice, writing that "the district court appears to have simultaneously treated its order as both final and non-final; that is, the court sought to retain counsel to file a brief in this court in support of its order and at the same time has issued several post-fee orders, the cumulative effect of which may well be to alter the fee ruling."  With the final judgment entered, Lieff Cabraser plans to revive its appeal, which has centered on due process issues and is a matter of first impression in the circuit.

A strict adherence to notice requirements in Rule 11 matters is necessary, Lieff Cabraser argued, because "sanctions imposed on the court's own motion circumvent the adversarial process, putting the district court in the position of being the 'accuser, fact-finder and sentencing judge all in one.'"  Five circuits, the firm has argued, have found that sanctions like the ones imposed by Judge Wolf are problematic "when a court fails to set out the precise issues to be considered."

"This issue has not directly been addressed by the First Circuit," the firm said, "although the circuit has noted that 'judges must be especially careful where they are both prosecutor and judge.'"  The underlying suit alleged Boston-based State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade.  The law firms admitted to overstating their billing but contended the $75 million fee award initially approved by Judge Wolf was still proper.  The special master, Rosen, recommended in 2018 that the firms disgorge just over $10 million, but Judge Wolf's 160-page order in late February ruled that the cuts should be even deeper.