(Reuters) - Last November, U.S. District Judge Mark Wolf of Boston signed an order approving a fee award of nearly $75 million to the plaintiffs' firms that wrested a $300 million settlement from State Street Bank in a class action alleging the bank overcharged customers with custodial accounts for foreign exchange trades. Then a reporter at the Boston Globe started asking questions about the particulars of the billing records those firms submitted to support their fee request.
Judge Wolf read the Globe coverage – and now he wants answers. On Monday, he issued an order proposing the appointment of recently retired Detroit federal judge Gerald Rosen as a special master to investigate the firms’ fee request. The judge called for briefing on his proposal from the firms that shared in the fees he awarded.
He also ordered the plaintiffs' firms to appear in person, along with their clients in the State Street case, at a hearing in March on the special master appointment. Among the firms directed to attend the hearing are lead counsel Labaton Sucharow, Thornton, Lieff Cabraser Heimann & Bernstein and Keller Rohrback.
The firms’ fee request said plaintiffs' lawyers in the State Street case had total lodestar billings of about $41.3 million, based on more than 86,000 hours of work. Judge Wolf’s $75 million fee award amounted to 25 percent of the class settlement, cross-checked by a lodestar multiplier of 1.8, which, the firms said, was well within the average range in big cases.
In December, Globe reporter Andrea Estes cast doubt on the billing records some of the firms had submitted. (Estes’ deep-diving story is attached to Judge Wolf’s order.) The Thornton firm claimed that the brother of its managing partner, who typically works as a court-appointed defense lawyer for $53 an hour, put $203,000 of time into the State Street case, billing at $500 an hour. A staff lawyer told the Globe he was paid $30 per hour – but plaintiffs' firms billed staff attorneys’ time at hundreds of dollars an hour. They also seemed to have double-billed the time of some staff attorneys.
Before the Globe story ran, but after the newspaper began asking questions about the billing records, Labaton lawyer David Goldsmith sent a letter to Judge Wolf to disclose “inadvertent errors” discovered in submissions to the court by Labaton, Thornton and Lieff Cabraser. More than 20 staff attorneys were accidentally listed by two firms, resulting in more than 9,000 double-billed hours – and a lodestar inflated by more than $4 million. (Goldsmith said the double-billing mistakes stemmed from an effort to share costs by having Thornton pay the bills for staff lawyers working out of Labaton and Lieff offices.)
Goldsmith’s letter, which is also attached to Judge Wolf’s order, said the reduced lodestar should not lead to a cut in the firms’ $75 million fee award, since the award represented just double the corrected lodestar, a multiplier that, according to the firms, “remains reasonable.”
The letter obviously did not assuage Judge Wolf. The case docket does not reveal why the judge waited for nearly two months after the Globe story ran to propose the appointment of a special master. But he was clearly concerned about the newspaper’s allegations about inflated charges for staff attorneys.
“The court now questions whether the hourly rates plaintiffs' counsel attributed to the staff attorneys in calculating the lodestar are, as represented, what these firms actually charged for their services or what other lawyers in their community charge paying clients for similar services,” the judge said. “The court wonders whether paying clients customarily agreed to pay, and actually paid, an hourly rate for staff attorneys that is about ten times more than the hourly cost, before overhead, to the law firms representing plaintiffs.”
Judge Wolf wants Judge Rosen to have wide latitude to investigate the firms’ billing submissions, including the ability to take deposition testimony. Ultimately, he said, he wants a report on the accuracy and reliability of the submissions, the reasonableness of the award and possible sanctions.
The State Street case is not the first time a federal judge has questioned billing rates for contract lawyers. In 2013, three Manhattan district judges slashed fee requests in securities class actions, balking at lodestar submissions in which firms claimed billing rates of hundreds of dollars an hour for contract lawyers. In 2015, U.S. District Judge Lewis Kaplan refused to allow a plaintiffs' firm to bill staff attorneys at six times their cost to the firm.
Through a spokeswoman, Labaton said it would comply with Judge Wolf’s order. The firm did not respond to my email question about how it would respond to the judge’s proposal to appoint a special master. Lawyers at Thornton, Lieff Cabraser and Keller Rohrback did not respond to my emails.