Docket number: 1:11-cv-10230 (D. Mass)
In November 2016, a Boston Globe’s Spotlight team reporter contacted Theodore H. Frank, director of CEI’s Center for Class Action Fairness (CCAF) concerning double-billing the Globe had spotted in a recent class action settlement by politically active Thornton Law Firm of Massachusetts. Thornton, along with two large plaintiffs firms, Labaton Sucharow LLP and Lieff Cabraser Heimann & Bernstein, LLP had received nearly $75 million in fees for their work on the case, and on November 10, 2017 the lead firm Labaton wrote to the court to advise it had double-counted hours from 17 different “staff attorneys” hired on a temporary basis, with charges worth over $4 million. The class attorneys asserted in the letter and still assert that the attorneys’ fee award in this matter was reasonable and should not be reduced.
Frank wrote a memo for the reporter agreeing that the double billing was likely an inadvertent error (as the firms insist), but that the bill showed other common signs of inflation such as crediting work by temporary contract attorneys paid $25-55/hour as being worth over $350/hour. Frank was subsequently quoted in the Globe’s December 17 article on the case, which detailed the double-billing and also questioned the billing rates of attorneys listed on the fee requests filed for Labaton, Thornton, and Lieff Cabraser. In particular, at least one of the temporary staff attorneys billed at hundreds of dollars an hour told the Globe he was actually just paid $30 an hour, and another frequently works as a court-appointed defender making $53 an hour. More than 60 percent of the fees claimed by Labaton, Thornton, and Lieff Cabraser were claimed to derive from work performed by staff attorneys.
Due to these facts, the court appointed a special master, who discovered that the three firms had—unbeknownst to the court and the client ATRS—had paid a $3.1 million “referral fee” to Texas firm Chargois & Herron, which appeared to have done no work in the case. This opened up several new problems with the fee request, with the special master zeroing in on the fact that such “bare referral fee” is arguably against Massachusetts rules and the expectation of candor to the court. CCAF also observed the relationship and campaign contributions which flowed from Labaton and Chargois & Herron to former Arkansas Treasurer Martha Shoffner, who was a director of the named plaintiff ATRS and convicted of unrelated public corruption. Tim Herron, for example, was Ms. Shoffners landlord, although he provided her free rent for years as ATRS retained Labaton as its outside monitoring counsel.
Three years later, the court agreed with many of the concerns flagged by CCAF and issued a new fee order returning $15 million to the class. The order has been made final as of February 19, 2021 and at least Lieff Cabraser is expected to appeal.
For its work on the case, the district court also awarded CCAF attorneys’ fees over the objections of class counsel.
Proceedings before Special Master
On February 6, 2017, the court issued an order proposing the appointment of a special master to investigate the fees, attaching a copy of the Boston Globe article. On February 17, the CCAF moved to file as an amicus and be appointed guardian ad litem to provide adversarial presentation before the special master. Alternatively, CCAF requested that supplemental notice be sent to class members. Class counsel opposed all these suggestions and insisted that the special master would provide adequate protection for the class.
On March 8, 2017, the court allowed CCAF’s amicus filing and took the motion for appointment as guardian ad litem under advisement. The court appointed a special master, retired District Judge Gerald Rosen to investigate class counsel’s fee request and related matters. The special master will be paid from $2 million that class counsel agreed to surrender back to the clerk of court.
On March 31, 2017, the court issued an order requiring notice to be sent to the class, as CCAF had suggested. The court specifically found that CCAF’s submissions had been “helpful.” CCAF will continue to monitor the case, and is encouraged that Judge Rosen has appointed an attorney and accounting investigator to provide an adversarial presentation so that class counsel’s representations are not unchallenged.
Judge Rosen’s Report and Recommendation was filed on May 14, 2018, under seal, and later released in redacted form. Judge Rosen reached a proposed resolution with the Labaton firm, which CCAF has objected to.
Judge Wolf invited CCAF to provide further briefing on Judge Rosen’s recommendations and the total size of the fee award, which it filed on November 20, 2018.
On June 24-26, 2019, CCAF participated in three days of hearings on the fee motion where its objections were discussed extensively, including the proper rate for contract attorneys and the close relationship between the Chargois & Herron, a Texas firm that received $3.1 million from the attorneys’ fees without disclosure, and former Arkansas Treasurer Martha Shoffner, who was convicted of political corruption. CCAF was allowed to file a supplemental memorandum after the hearing, and has moved for the court to consider a recent academic article by Stephen J. Choi, Jessica Erickson & A.C. Pritchard, Working Hard or Making Work?, which suggests that class attorneys tend to bill excessive hours in large securities settlements, just as appears to have occurred here.
New fee order returns $15 million to the class
On February 27, 2020, the district court issued a new fee order, reducing payment to class counsel from $75 million to $60 million. While the $60 million fee award exceeded the $50 million that CCAF recommended, this award returned $6.2 million more money to the class than would have occurred under the Special Master’s maximum recommendation.
One of the three class counsel firms appealed the new fee allocation, but the appeal was dismissed as premature because the court had not yet finalized the fee awards. On January 19, 2021, the Judge Wolf awarded CCAF $60,690 attorneys’ fees over the objections of class counsel. Judge Wolf found:
CCAF’s work was not only helpful to the court, it also contributed to a decision by the court that provided an additional almost $15,000,000 for the benefit of the class. CCAF deserves to be reasonably compensated.
The district court denied CCAF’s motion to be appointed as guardian ad litem to protect the class without prejudice.
CCAF again acts as amicus before First Circuit
Only one of the three firms—Lieff Cabraser—appealed the new fee award. Lieff argued primarily that it did not have sufficient notice to be sanctioned, but also that the reduction in fees constituted a sanction and should be undone. Because Lieff did not suggest that fees be clawed back from any of the other attorneys, it proposed that it should be awarded out of the residual funds, which could otherwise be distributed to class members. The district court proposed retaining an attorney to defend the decision on appeal, but the First Circuit denied the request.
After the time for any other party to file an opposing brief had elapsed, CCAF again stepped up to the task of representing the silent class members. CCAF filed an extended amicus brief that the reduction in fees did not constitute a “sanction,” and that the multi-year investigation in any event provided sufficient notice to Lieff that the district court was considering sanctions. CCAF also moved for permission to argue the case, which is not normally allowed for amici, but which the First Circuit granted. Theodore H. Frank argued the case before the First Circuit on November 2, 2021.
On February 9, 2022, the First Circuit issued its opinion largely mirroring CCAF’s argument that many of the district court’s findings were not “sanctions” at all and thus not reviewable. The First Circuit also affirmed the district court’s express Rule 11 sanction regarding its the misrepresentation of an academic study in support of the fee award. The panel found incoherent Lieff’s argument that it did not want to increase the overall fee award, yet increase fees for Lieff without reducing the fee award to any other firm.
This case was formerly a project of the Competitive Enterprise Institute and now is being actively litigated by the Hamilton Lincoln Law Institute.
Case Documents