A recent New York Law Journal story, “A.G. Blasts Fee Request From Counsel Madoff Investors,” reports that Attorney General Eric Schneiderman has blasted as unreasonable and “wildly excessive” a $42 million fee request (pdf) from plaintiffs lawyers representing investors in a settlement related to Bernard Madoff’s Ponzi scheme run as Bernard L. Madoff Investment Securities LLC.

Schneiderman’s office, the U.S. Labor Department and 13 plaintiffs firms brought separate actions on behalf of investors against Ivy Asset Management, a subsidiary of Bank of New York Mellon, accusing it of advising clients to invest with Madoff in spite of red flags about Madoff’s operations.  In November 2012 the parties reached a proposed $219 million settlement, which awaits approval by U.S. District Judge Colleen McMahon of New York.  The bulk of the settlement funds would come from Ivy Asset.

Plaintiffs lawyers then requested $40.8 million in attorney fees, about 20 percent, and $1.2 million in expenses as part of the settlement.  The attorney general shot back with a fee objection (pdf) that sharply criticized the total proposed award and number of hour, 118,000, the attorneys say they devoted to the case.  “118,000 is an astounding number to develop the same body of evidence that the Attorney General developed in 6,000 hours,” the state’s motion said, claiming the number of hours reflects “substantial non-efficiencies, waste and duplication.”

One of the firms is Lowey Dannenberg Cohen & Hart in White Plains, lead counsel and co-liaison counsel with the U.S. Labor Department.  The firm would receive $14.3 million if a 20 percent fee is awarded, Lowey partner Barbara Hart said in court papers.  In their motion for a fee award, plaintiffs counsel defended the fee request by explaining that in a beauty contest Lowey was retained as lead counsel after agreeing to a cap on fees lower than all the other qualified bidders. 

The attorneys also claimed that lead plaintiffs and other class representatives have agreed the request is fair, and supported under the factors set forth under the Second Circuit’s 2000 ruling in Goldberger v. Integrated Res., such as time and labor expended and the risks of the litigation.  “It took tremendous skill and perseverance to achieve a settlement at this level in these coordinated actions,” the attorneys said.  With few exceptions, they added, they have not been compensated for any time or expenses since the suits began.

But Schneiderman’s office said that before the mediation that resulted in the $219 million settlement, Ivy Asset offered the office $140 million to settle substantially identical claims.  Accordingly, the efforts of private counsel provided a benefit to clients of no more than $79 million, the state said in a brief signed by Roger Waldman, senior counsel in the investor protection bureau.  The fee request would consume 53 percent of the additional $79 million benefit they achieved. 

Waldman also claimed that after the attorney general’s office filed its suit, class counsel filed an amended complaint that “wholly adopted the facts and theory” of the government’s complaint.  Waldman said any fee award to private counsel must be based on a contribution of securing $79 million, not $219 million.  At 20 percent, that would calculate to less than $16 million, he wrote.

But in their fee reply (pdf), plaintiffs attorney argued that over the last year, the attorney general “came to rely heavily on private counsel” and noted that the NYAG “sat idly through the post-settlement fee mediation, offering commentary but were unprepared.”  “The NYAG’s assertion about the comparative worth of the withdrawn 2010 offer and the current Settlement, and how little value Private Counsel conferred, are grossly inaccurate.  Billions in Bankruptcy Trustee recoveries sharply reduced recoverable damages and there were major flaws in the 2010 offer,” plaintiffs lawyers said.