Firefighters make their way over the ruins of the World Trade Center one month after the terrorist attacks.
Firefighters make their way over the ruins of the World Trade Center one month after the terrorist attacks. (AP/Stan Honda)

Southern District Judge Alvin Hellerstein’s (See Profile) decision denying attorney fees on a settlement bonus in the Ground Zero litigation was upheld by a federal appeals court Monday.

The U.S. Court of Appeals for the Second Circuit said Hellerstein did not abuse his discretion by denying plaintiffs’ counsel from recovering a contingency attorney fee on a $55 million bonus payment triggered by settlements of some 10,000 lawsuits brought against New York City, its contractors, and the congressionally-funded WTC Captive Insurance Company for exposure to toxic dust in the rescue, recovery and cleanup at the World Trade Center.

But the Second Circuit also vacated Hellerstein’s order that the City defendants had to pay the $55 million in the first place in In Re: World Trade Center Disaster Site Litigation (Cirino v. City of New York) 11-4021-cv(L)

It remanded to Hellerstein to determine the intent of the parties when they included in the 2010 settlement a provision for bonus payments based on the percentage of plaintiffs who participated in the deal.

Judges Peter Hall (See Profile) and Denny Chin (See Profile) and Judge Jane Restani of the United States Court of International Trade, sitting by designation, decided the appeal.

Plaintiffs’ counsel, led by Worby Groner Edelman & Napoli Bern and Sullivan Papain Block McGrath & Cannavo, stand to gain some $187 million in fees after being reimbursed for expenses from the settlement that Hellerstein ultimately approved.

In March 2010, the WTC Captive, funded by Congress with $1 billion to cover claims arising from the site, agreed to pay at least $575 million and as much as $632.5 million in a settlement which would take effect when 95 percent of the eligible plaintiffs agreed to join.

The WTC agreed to pay additional bonus payments as the participation rate of settling plaintiffs climbed above 95 percent and relatively few new lawsuits were filed. Under the deal, plaintiffs’ counsel was to recover a one-third contingency fee.

Hellerstein rejected the settlement, and the parties returned in June with a new agreement that increased the range to a high end of $712.5 million and cut the attorney fees to 25 percent.

Hellerstein excluded almost 400 plaintiffs from the eligible list, and thereby increased the opt-in rate from 96 to 99 percent, triggering a bonus payment of $55 million, instead of $12.5 million.

Hellerstein later held in 2012, over the objection of the defendants—the city, the contractors and the WTC Captive —that a $5 million contingent payment was due based on the relatively few new debris lawsuits that had been filed.

Those two orders on the bonus and contingency payments, and Hellerstein’s ruling that plaintiffs counsel could not recover a percentage of those payments in attorney fees, were the subject of oral argument before the circuit on April 11, 2013.

Writing for the court Monday, Chin said the circuit was vacating and remanding to determine how the parties intended to handle claims that were involuntarily dismissed for failure to prosecute, and whether they should have been on the eligible plaintiffs list.

The circuit accepted the argument of the WTC Captive and reversed Hellerstein on the $5 million contingency payment -rendering moot the bid of plaintiffs’ counsel to collect attorney fees based on the payment.

On the attorney fee issue, Chin applied the factors the circuit uses in assessing the reasonableness of a fee award under Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000).

“In masstort cases, district courts have routinely capped attorneys’ fees sua sponte,” Chin said, adding that Hellerstein was well within his discretion to do so here.

Chin first noted that Hellerstein’s job was harder because the firms did not keep time records, so he was unable to “cross check” the reasonableness of the fees.

Second, Chin said the magnitude and complexity of the litigation weighed in favor of a substantial attorney fees—and that’s just what they will receive.

“This was perhaps the most complex mass tort case in the history of the United States,” he said, while noting the attorneys faced “little risk” given the $1 billion appropriation for the WTC Captive.

“Thus, the attorneys who took on this case did not face all the risks inherent in other mass tort litigations—such as the risk that plaintiffs would be denied any recovery or that defendants would be judgment-proof,” Chin said.

As to the quality of the representation, he noted that Hellerstein was “on the whole, complimentary of plaintiffs’ counsel,” but “chided them for certain delays and raised several ethical concerns about conflicts of interest in the fee arrangements.”

Next, Chin said the 25 percent cap on their recovery from the base settlement amount “was supported by precedent within this circuit and in mass tort cases nationwide.” He said Hellerstein “did not contravene precedent in precluding additional recovery with respect to the bonus payment.”

Finally, Chin said Hellerstein was right to be mindful of public policy concerns in deciding the fee issue.

“The district court was keenly aware that the funds available to these victims are limited,” he said. “It recognized that overcompensation of attorneys would take away money from needy plaintiffs and it was rightly sensitive to the public perception of overall fairness.”

Denise Rubin, senior appellate counsel and general counsel for Napoli Bern and Brian Shoot, partner at Sullivan Papain, argued for the plaintiffs.

Name partner Marc Bern said Monday he was “disappointed for the 10,000 men and women, the heroes of 9/11, who we represented and who are entitled to this bonus and now, at least of this moment, will not be getting it.”

“And although most people don’t like to talk about attorney fees, I have to say I’m very, very disappointed by the findings of the Second Circuit,” Bern said. “We stepped up to represent these men and women when no one else would do it. We risked a tremendous amount of money in litigating this case, which was as hard fought as any litigation I’ve done in nearly four decades as a plaintiffs’ lawyer. No one gave us anything—we took a 100 percent risk. Many of the findings with respect to attorneys are just wrong.”

Margaret Warner of McDermott Will & Emery argued for the WTC Captive, New York City and its contractors. The firm took no position on the attorney fee issue.

“The WTC Captive argued instead that the proper measure was clearly set forth in the agreement as the number of cases filed, and that such cases did not have to remain pending to impact the amount due,” the firm said in a statement. “The Second Circuit agreed with the WTC Captive and reversed the district court.”

Evan Chesler of Cravath Swain & Moore argued pro bono as Second Circuit amicus curiae appointed counsel.