A recent American Lawyer story, “US Agency Paid Two Firms Over $1 Billion in Battle With Banks,” reports that Kellogg Huber Hansen Todd Evans & Figel and Korein Tillery together earned more than $1 billion for helping the National Credit Union Administration (NCUA) pursue many of the world's largest banks over their roles in the subprime mortgage meltdown, the NCUA said.
The NCUA finally released the figures, breaking down the fees and expenses billed by both firms in a litigation campaign that ultimately won the agency more than $4 billion in recoveries. In all, the NCUA paid $506.3 million to Kellogg Huber and nearly $504.8 million to Korein Tillery for acting as the agency's outside lawyers in cases stemming from the financial crisis.
The NCUA, a U.S. regulatory agency, serves as liquidating agent for a group of failed corporate credit unions that lost billions of dollars related to residential mortgage-backed securities they bought before the recession. In a series of lawsuits spearheaded by Kellogg Huber's David Frederick and Korein Tillery's George Zelcs and Stephen Tillery, the NCUA accused The Goldman Sachs Group Inc., The Royal Bank of Scotland plc, Morgan Stanley, Barclays plc and several other banks of contributing to the credit unions' collapse.
"We were the first federal financial institutions regulator to sue these firms, and we were going up against some of the world's most powerful institutions," NCUA board chairman Rick Metsger said in a statement. "The outcome was far from certain, but we engaged expert outside counsel, and our team has been very successful."
Kellogg Huber and Korein Tillery worked the cases under a contingency fee arrangement that entitled them to 25 percent of the agency's net recoveries, the NCUA confirmed. In all, the agency has recovered some $4.32 billion through settlements and judgments in its financial crisis suits, it said.
Metsger said that the NCUA has paid the law firms a little more than $1 billion in contingency fees alone, which amounts to about 23.2 percent of the agency's total recoveries. Frederick, Tillery and Zelcs didn't immediately respond to requests for comment. (A partly-redacted copy of the firms’ legal services agreement with the NCUA, obtained in July by The American Lawyer through a Freedom of Information Act request, can be viewed here.)
The NCUA's financial crisis litigation has tracked parallel efforts by the Federal Housing Finance Agency, which filed a group of lawsuits alleging that major banks saddled Fannie Mae and Freddie Mac with billions of dollars in toxic mortgage-backed securities.
The FHFA also relied on outside counsel, tapping Quinn Emanuel Urquhart & Sullivan and Kasowitz Benson Torres & Friedman. But the FHFA paid those lawyers on an hourly basis, and the New York Law Journal reported last year that the two firms had received some $406 million in fees for their work on the cases. The majority of that total, about $329.5 million, went to Quinn Emanuel.
The contrast between the two agencies' fee arrangements elicited some scrutiny for the NCUA. In 2012, U.S. Rep. Darrell Issa, R-California, criticized the contingency setup in a letter (pdf) to former NCUA inspector general William DeSarno. The former inspector general issued a detailed response in February 2013 that generally supported the NCUA's process for hiring outside lawyers.
The NCUA's Metsger defended his agency's decision to tie legal fees to the success of the financial crisis lawsuits. He also acknowledged the NCUA's choice to keep those fee arrangements private until now—a step that, he said, was taken to protect the agency's position amid active litigation.
"While earlier cases in which billions of dollars were at stake were pending, NCUA did not disclose attorney fee arrangements to protect our litigation position and ensure maximum returns," said Metsger. "Without this fee arrangement, which shifted most of the risk of these legal actions to outside counsel, there would have been no legal investigation of potential claims, no litigation and no legal recoveries."