Friday, July 30, 2021

Referral Fee Litigation for Class Action Plaintiffs

Anthony Rickey and I wrote about hidden conflicts in securities class action litigation and used the State Street case as a key example.  When the special master investigated in that action, discovery revealed an email from Damon Chargois to Labaton, stating:

“We got you ATRS as a client after considerable efforts, political activity, money spent and time dedicated in Arkansas, and Labaton would use ATRS to seek legal counsel appointments in institutional investor fraud and misrepresentation cases. Where Labaton is successful in getting appointed lead counsel and obtains a settlement or judgment award, we split Labaton’s attorney fee award 80/20 period.”

The New York Times reported on the revelations and indicated that the court, client, and class had not been informed of the relationship:

The payment to the lawyer, Damon Chargois, had not been previously disclosed. Mr. Rosen’s investigation unearthed documents showing that Mr. Chargois did no work on the litigation other than help introduce the Arkansas Teacher Retirement System to Labaton roughly a decade ago. In 2011, Labaton filed a lawsuit for the retirement fund that was later consolidated with similar lawsuits filed by a few other law firms.

None of those other law firms, nor Judge Wolf, were aware of the payment to Mr. Chargois. The Arkansas retirement fund also was unaware of any fee arrangement.

In an interesting development, Damon Chargois is now seeking to collect on the referral fee agreement.  He alleges that Labaton had repeatedly pushed him to take less than what he was owed on their agreement.  Reuters' Alison Frankel has an excellent article covering the dispute.  The case will be interesting to watch to see if more information about referral relationships emerges.

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