Thursday, July 8, 2021
A little while ago, Anthony Rickey and I published an article looking at the settlement approval process in class actions with a particular focus on the State Street Case. Our article noticed that Judge Wolf found that class counsel made deceptive, less than fully candid statements when it submitted hourly rates to a court which no client had ever actually paid:
In theory, a vigorous lead plaintiff actively supervises its lead counsel, examining fee requests to maximize the portion of the settlement retained by the class. The efforts that ATRS undertook to supervise its class counsel remain unclear, but they do not seem to have been effective. In the State Street litigation, Judge Wolf harshly criticized Thornton for declaring, under oath, that one attorney's regular rate was $500 per hour, when the firm could only identify one case in which that attorney had been charged at even $300 per hour. He similarly noted that Labaton submitted as “regular rates” for services hourly rates that had “never been charged to paying clients.” ATRS did not volunteer these facts. They were only discovered because the State Street court took the apparently unprecedented step of appointing a special master to investigate.(footnotes omitted)
In the State Street litigation, Judge Wolf went on to find significant problems with class counsel representing to the court that their firms "regularly charged" certainly hourly rates when no paying client ever actually paid that rate. Rather, all their work was on a contingency basis and they had simply convinced other courts to approve fee awards referencing those "hourly" rates. Wolf sharply criticized both Thornton and Labaton for their statements about "hourly" rates. This led Judge Wolf to cut the total fee award and the allocation to class counsel. Arkansas Tchr. Ret. Sys. v. State St. Bank & Tr. Co., No. CV 11-10230-MLW, 2020 WL 949885 (D. Mass. Feb. 27, 2020), appeal dismissed sub nom. Arkansas Tchr. Ret. Sys. v. State St. Corp., No. 20-1365, 2020 WL 5793216 (1st Cir. Sept. 3, 2020).
Ultimately, the issues caused Judge Wolf to cut the fee award from the $75 million he initially approved to $60 million. Within the final fee allocation, he left the fees untouched for the firms which had not participated in any misconduct and taxed the investigation costs to the firms found to have been less than fully candid.
Judge Wolf also made very specific findings about the need for class counsel to avoid stating that they "regularly charge" certain rates when they are pure contingency firms. Consider the findings with respect to Thornton and Labaton.
As to Thornton:
Garrett Bradley did not, as required by Federal Rule of Civil Procedure 11 and the Massachusetts Rules of Professional Conduct, read the fee declaration in support of the fee request that he signed under oath before it was submitted to the court on behalf of Thornton. It included many false statements. For example, Bradley represented that certain attorneys were employed by Thornton and that the hourly rates attributed to them for the purpose of calculating Thornton's lodestar were “the same as my firm's regular rates charged for their services, which have been accepted in other complex class actions.” G. Bradley Decl. ¶4 (Dkt. No. 104-16) (emphasis added). However, Thornton worked solely on a contingent-fee basis. It had no clients who paid the firm on an hourly basis and no “regular rates charged” for its attorneys. In addition, Michael Bradley was not, as represented, employed by Thornton. Nor had the firm, as Garrett Bradley claimed, ever charged $500 an hour for his services, which in this case were worth far less.
As to Labaton:
Labaton also repeatedly violated Rule 11 and the related Massachusetts Rules of Professional Conduct. Sucharow filed a sworn declaration stating that the lodestar calculations of all of plaintiffs’ firms that he submitted were “based on their current billing rates.” Dkt. No. 104, ¶176. This was not true with regard to Thornton, at least. A reasonable inquiry -- such as a question to Garrett Bradley who was also Of Counsel to Labaton -- would have revealed Sucharow's sworn statement to be untrue. However, evidently neither Sucharow nor anyone at Labaton made any inquiry at all. . .
Sucharow also falsely claimed that the rates attributed to Labaton attorneys were “the same as my firm's regular rates charged for their services, which have been accepted in other complex class actions.” Dkt. No. 104-15, ¶7 (emphasis added). When Sucharow made this statement under oath he believed that Labaton did not have any clients who were charged or paid hourly rates.
Bernstein's lodestar that “[t]he hourly rates for the attorneys ... in my firm included in Exhibit 1 are the same as the regular rates charged for their services, which have been accepted in other securities or shareholder litigation.” Docket No. 129-3 at ¶4. At the August 2, 2018 hearing at which the proposed settlement was approved, Mr. Harrod stated that Bernstein works on a contingent fee basis and did not have any clients who had actually paid the hourly rates represented in his affidavit to be the regular rates charged for the services of the attorneys who worked on this case. See Aug. 2, 2018 Tr. (Docket No. 136) at 38. Mr. Harrod also stated that the preparation of the fee petition had been supervised by ATRS’ Executive Director George Hopkins, who was also centrally involved in the State Street case. Id. at 31-32, 57.
A partner in another firm seeking part of the requested award of attorneys’ fees, Joshua L. Crowell of Glancy Prongay & Murray LLP (“Glancy”), also stated in his sworn declaration that with regard to Glancy's lodestar “[t]he hourly rates for the attorneys ... in my firm included in Exhibit 1 are the same as the regular rates charged for their services, which have been accepted in other securities or shareholder litigation.” Docket No. 129-5, ¶3. However, at the August 2, 2018 hearing Mr. Crowell too stated that his firm worked almost exclusively on a contingent fee basis and had very few paying clients. See Aug. 2, 2018 Tr. at 37. He could not say that any client had ever paid what were represented to be the regular rates charged for the Glancy attorneys who worked on this case. Id. at 38.
In this case, absent important public policy considerations, the other traditional factors would cause the court to award 25% of the common fund, $4,875,000, as attorneys’ fees, and allow the four firms sharing them to divide the fee award in proportion to their respective lodestars as they agreed. See Aug. 2, 2018 Tr. at 34:20-28. However, as described earlier, in 2018, in calculating and presenting to the court their lodestars, Bernstein and Glancy each represented that they had used the “regular rates charged for their [attorneys’] services” and this was not true.As also described earlier, essentially the same false and misleading statement was made by several firms in State Street. Those statements contributed to this court's decision to appoint the Master and, ultimately, to award attorneys’ fees in the amount of 20% of the common fund, $60,000,000, rather than the 25%, $75,000,000, requested.