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Law Firms See Attorney Fee Reductions from State Street Case

February 28, 2020 | Posted in : Billing Practices, Billing Record / Entries, Contingency Fees / POF, Ethics & Professional Responsibility, Fee Agreement, Fee Allocation / Fee Apportionment, Fee Award, Fee Award Factors, Fee Expert / Member, Fee Reduction, Fee Request, Lodestar

A recent Law 360 story by Chris Villani, “3 Law Firms See $15M Chopped From State Street Fees,” reports that a federal judge slashed attorney fees for Labaton Sucharow, Thornton Law and Lieff Cabraser from $75 million to $60 million, ending a years-long battle over alleged overbilling in the State Street Corp. case with an order stating "not all lawyers can be trusted."  U.S. District Judge Mark L. Wolf said the firms involved, particularly Labaton Sucharow LLP and Thornton Law Firm LLP, 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, which resulted in a $300 million class settlement between State Street and investors.

Judge Wolf approved a $75 million fee in 2016 but vacated that order after the double-billing allegations surfaced in a media report, and he appointed retired U.S. District Judge Gerald Rosen as a special master to investigate the fee.  Rosen in 2018 recommended the firms disgorge just over $10 million, but Judge Wolf's 160-page order ruled that the cuts should be even deeper and took the firms to task in the process.  "The United States has a proud history of honorable, trustworthy lawyers," Judge Wolf said.  "However, this case demonstrates that not all lawyers can be trusted when they are seeking millions of dollars in attorneys' fees and face no real risk that the usual adversary process will expose misrepresentations that they make."

In issuing his order and adding more than $14 million to the class's cut, Judge Wolf urged judges to be "skeptical" and "do the hard work necessary to protect the interests of the class and the integrity of the administration of justice."  The final cuts for the three firms in the case, which was filed in 2011, came in at just over $22.2 million for Labaton Sucharow, about $13.26 million to Thornton Law and about $15.23 million to Lieff Cabraser Heimann & Bernstein LLP.

Another $10,716,526.15 was awarded to Employee Retirement Income Security Act lawyers who worked on the case, according to the order.  Those lawyers had argued for additional fees, saying they did not know about the Labaton Sucharow referral payment.  The special master's report and recommendation had suggested reducing the fees from $32 million to about $26 million for Labaton Sucharow; from about $20 million to about $17 million for Thornton Law; and from about $16 million to about $13 million for Lieff Cabraser.  Lieff Cabraser took the smallest hit in Judge Wolf's order, and he laid the misconduct in the case on the other two firms.

Judge Wolf's order follows years of fighting and numerous hours-long, and sometimes days-long, hearings in his Boston courtroom since the billing issues arose.  The judge chastised Labaton Sucharow for "secret" payments to a Texas lawyer named Damon Chargois, who introduced the firm to the lead plaintiff in the State Street case, the Arkansas Teacher Retirement System.  Thornton Law managing partner Garrett Bradley also signed a false fee declaration, Judge Wolf said, something Bradley lamented as a "stupid mistake" when testifying in one of the case's hearings.

"The staff or contract attorneys Thornton claimed in its lodestar did not work for Thornton," Judge Wolf said. "Rather they were employed by Labaton or Lieff and paid for by Thornton, primarily to increase Thornton's lodestar and thus its claim for a higher percentage of the fees that would foreseeably be awarded."

Judge Wolf wrote that the past few years have led him to believe that he awarded too much money the first time around.  "Many of the representations made to the court in support of the request for attorneys' fees by Labaton and Thornton, and to a lesser extent by Lieff, were untrue," the judge said.  "In addition, the court now realizes that the relationship between ATRS and Labaton in this case was very different than the previously described paradigm for complex class actions."

Labaton Sucharow reached a proposed settlement with Rosen and the ERISA counsel in 2018, agreeing to accept scrutiny over its referral practices and pay $2.1 million to the class and $2.75 million to ERISA lawyers.  The firm said in a statement that it is "extremely disappointed" that Judge Wolf did not accept the proposed accord and "ignored" the special master's finding that the Chargois payment did not violate professional conduct rules or constitute intentional misconduct.

It said the judge also ignored the findings of another retired federal judge, Garrett Brown, who reviewed the firm's referral fees and found that the Chargois payment was an anomaly.  "We believe the court has delivered a judgment that is neither consistent with the factual record in this case, nor our historical record," Labaton Sucharow said.  "We are reviewing our options in light of the court's rejection of the proposed settlement."

The underlying suit, filed in 2011, alleged that State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade.  The billing issues first came to light in a 2016 Boston Globe report.  The firms admitted to overstating their billing but said the $75 million fee was still proper.

With the benefit of a second look, Judge Wolf wrote that he would have likely reduced the award anyway because class actions generally settle once they get past the motion to dismiss stage.  Any risk taken by the lawyers was greatly reduced once the State Street case was not dismissed, the judge wrote, adding that he has not tried a class case since he took the bench in 1985.

"On closer scrutiny, the court has decided that even absent the serious, repeated misconduct of Labaton and Thornton, an award of less than 25% of the common fund would be most appropriate," Judge Wolf wrote. "However ... in this equitable proceeding it is permissible and appropriate to take that misconduct into account in awarding and allocating attorneys' fees."