Plaintiffs attorneys passionately defended their $42 million request for legal fees for their role in reaching a settlement on behalf of investors in Bernard L. Madoff Investment Securities during a March 15 hearing in Manhattan federal court.
Responding to criticism from the office of New York Attorney General Eric Schneiderman, who called the fees "wildly excessive" (NYLJ, March 8), lead plaintiffs counsel Barbara Hart of Lowey Dannenberg Cohen & Hart told Southern District Judge Colleen McMahon (See Profile) that there was "no scandal here" and that the objections to the fee request were "personally offensive."
The attorney general and others charged that the plaintiffs’ counsel had merely "piggybacked" on regulators’ work to reach a settlement with Ivy Asset Management.
Schneiderman’s office, the U.S. Labor Department and 13 plaintiffs firms brought separate actions on behalf of investors against Ivy, a subsidiary of Bank of New York Mellon, accusing it of advising clients to invest with Madoff despite serious concerns about his operations.
The parties reached a proposed $219 million settlement, in which Ivy would pay most of the funds.
Plaintiffs lawyers are requesting $40.8 million in legal fees, about 20 percent, and $1.2 million in expenses. Lowey Dannenberg in White Plains, lead counsel and co-liaison counsel with the U.S. Labor Department, would receive $14.3 million if a 20 percent fee is awarded.
Before the hearing, McMahon wrote to all counsel expressing concern "about the amount of time expended on these cases, especially since much of that time was expended on document production and review." She said plaintiffs counsel will be compensated, but she needed more information, such as the total number of hours spent reviewing documents produced by defendants.
She also asked for an explanation of how document review was accomplished—were the documents divided among litigants or did counsel for each separate group of plaintiffs undertake to review all the documents? she asked.
In court on March 15, Karla Sanchez, executive deputy attorney general for economic justice, said the office wasn’t arguing that class counsel is entitled to nothing, but that the fees and rates they requested were too high.
Sanchez said plaintiffs attorneys spent more than 5,000 hours just on motions for class certification, and more than 6,700 hours to oppose the motion to dismiss.
She also pointed out that not all firms relied on contract attorneys, which is expected to decrease the costs of litigation.
McMahon said she disagreed with the way some law firms marked up rates for their contract attorneys.
"There’s no point in using contract" lawyers if they are paid the same rate as associates, the judge said.
Sanchez said the risk for plaintiffs attorneys in this case was "minimal." Her office said that before the mediation that resulted in the $219 million settlement, Ivy Asset offered $140 million to settle substantially identical claims. The efforts of private counsel provided a benefit of no more than $79 million, the attorney general argued.
Class counsel "piggybacked off of the government’s case," Sanchez told the judge. "The facts necessary to prove this case were in our complaint."
But McMahon pointedly told Sanchez, "You didn’t close the deal." The judge said she was unimpressed with the argument that $140 million was already on the table because when the deal didn’t happen, it became a start-over period.
McMahon added that she was impressed with the amount of work performed by the attorney general’s office, of which others took advantage. "That is the real argument," she said.
Arthur Jakoby, a Herrick Feinstein partner who represented Madoff feeder hedge funds and who took part in the settlement, joined the attorney general in opposing the fees.
"There was an army of lawyers" duplicating each other’s work, he told McMahon. "There was no coordination."
Noting there were more than 200 professionals involved, he said, "That was a mid-sized law firm."
Jakoby picked random examples from bills, noting lawyers billed several hours for short conferences and stayed at five-star hotels.
"Everyone here knew there was going to be a ton of money," and that’s the way billing was approached, he said.
Jakoby applauded lead counsel for their work in resolving the case, but he said it’s important to look at the value "that was given on a silver platter by the attorney general."
A class member who also objected to the fee request, Howard Siegel, told McMahon the question is "whether class counsel got lost in the weeds… This case was going to settle."
McMahon said it was unclear why she would have to approve fees not only for class counsel but plaintiffs attorneys who had their own private retainer agreements.
Finally, Hart, of Lowey Dannenberg, stood to refute each objection, at times pacing the courtroom and pointing fingers at various counsel.
She said Cleary Gottlieb Steen & Hamilton, counsel for Ivy, required a global settlement.
Justifying the hours, Hart said class certification and other parts of the litigation were highly contentious.
"Nothing was delivered on a silver platter," she said. "This was hard fought." Her fee was competitive, she added.
"It’s offensive to me. It’s personally offensive," she said about the objections.
Hart pointed out the private investors filed suit 15 months before the attorney general’s complaint.
"Now we’re being called piggy backers," she added, sounding incredulous. "There’s no scandal here," she said. "We aren’t the bad guys."
Plaintiffs attorneys also argued their fees were substantially cut as part of negotiations with the Labor Department.
Other firms that argued for approval of the fee request were Keller Rohrback; Wolf Haldenstein Adler Freeman & Herz; and Kessler Topaz Meltzer & Check.
Peter Muhic of Kessler Topaz, said, "our clients do not retain us to sit back" and wait for a settlement. He said his firm effectively used contract attorneys with low rates.
But McMahon replied, "There are other people in this room who did not save money by using contract attorneys."
The judge repeatedly told attorneys to get to the point and chastised some for telling her what she already knew.
"I will take the attorneys fees under advisement," she told counsel in closing the hearing.
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