A federal judge plans to appoint a special master to investigate whether prominent law firms in Boston and other cities padded their legal bills by millions in a class-action lawsuit against State Street Bank, saying the lawyers may have to pay up to $2 million, in advance, to fund the investigation.
In the unusual move, US District Court Judge Mark L. Wolf said he wants a former federal judge to review legal bills submitted by Thornton Law Firm of Boston, Labaton Sucharow of New York, and seven other firms to justify the fees they received from the case last year.
Wolf cited a Globe Spotlight Team report showing that the firms claimed stratospheric legal costs for dozens of usually lower-paid attorneys who worked on the case, including the brother of Thornton managing partner Garrett Bradley. Michael Bradley often makes $53 an hour as a court-appointed attorney, but Thornton listed his hourly rate as $500. The firms already have admitted double counting numerous lawyers’ hours in filings to Wolf.
“Questions have arisen with regard to the accuracy and reliability of information provided by plaintiffs’ counsel on which the court relied, among other things, in deciding that it was reasonable to award them almost $75 million in attorneys’ fees and more than $1,250,000 in expenses,” Wolf wrote in Monday’s order, which included a copy of the Globe article.
Wolf said the special master, recently retired judge Gerald Rosen of Michigan, would try to finish the review within six months and then “the court would decide whether the original award of attorneys’ fees remains reasonable, whether it should be reduced, and, if misconduct has been demonstrated, whether sanctions should be imposed.”
A Thornton Law spokesman had no comment.
A spokeswoman for Labaton declined to comment except to say: “We intend to comply with the court’s order.”
One expert on attorneys’ fees in class-action lawsuits said Wolf’s call for an investigation is extremely rare. Ted Frank, a lawyer at the Competitive Enterprise Institute think tank in Washington, said he has seen special masters appointed to review fees only twice — and in both cases the fees had not yet been awarded, unlike the State Street case.
“This is very serious,” said Frank, a leading national critic of legal fees in class-action lawsuits. “The judge is anticipating a real investigatory role for the special master. There’s $2 million in the pot — there’s no incentive to do a brief, perfunctory investigation.”
Judge Wolf could reduce the lawyers’ fees, Frank said, or he could impose sanctions ranging from a reprimand to a referral to the state Board of Bar Overseers or the US attorney.
Wolf’s order means more trouble for Thornton, which is already under federal criminal investigation into its massive political donations program. The US attorney wants to know whether the law firm illegally reimbursed its attorneys for donations. Revelations about the alleged multimillion-dollar “straw donor” scheme, disclosed by the Spotlight team in October, prompted Hillary Clinton, Elizabeth Warren, and many other top Democrats to return money from Thornton.
The inquiry ordered by Wolf would focus on Thornton’s lucrative partnership with Labaton Sucharow in which Thornton often finds potential legal clients for the much bigger New York firm. Labaton was the lead law firm in the State Street case, which alleged that the bank was overcharging clients in foreign currency trades, while Thornton played a secondary role. The litigation ultimately involved nine law firms.
In November, Wolf approved a $300 million settlement of the case, setting aside one-quarter of the money — $74,541,250 — for the lawyers.
But a Spotlight team review of the records submitted to justify the legal bills showed that three law firms submitted bills for the same lawyers, and often with different hourly rates. And the hourly rates claimed in the firms’ filings, which ranged from $335 to $500 an hour, were often 10 times more than what the lawyers normally earned.
‘This concern is enhanced by the fact that different firms represented that they customarily charged clients for the same lawyer at different rates.’US District Court Judge Mark L. Wolf
Among those lawyers was Michael Bradley, Garrett Bradley’s younger brother, who often works in Quincy as a $53-an-hour court-appointed defender. In court filings, however, Garrett Bradley, until recently the House assistant minority leader, reported that Michael worked 406.4 hours on the case, at a cost of $203,200.
Michael Bradley could not be reached for comment.
The other 23 staff attorneys Bradley listed, each with an hourly rate of $425, accounted for $4 million in costs. But one of the lawyers told the Globe in December that he was actually paid just $30 an hour for his services — and not by Thornton but by Labaton Sucharow.
More than 60 percent of the bills that Thornton and two other firms submitted to Wolf came from the work of staff attorneys, based on a review of the firms’ court filings.
Lawyers for Thornton and Labaton have defended their legal fees, noting that the pension funds that sued State Street agreed to pay 25 percent in legal fees if there was a financial settlement. The paperwork filed with Wolf, they explained, merely provided the justification for the agreement.
However, under standard legal practice, the bills submitted to the court are supposed to reflect the actual hourly rate a firm would charge a paying client for similar work, made up of the lawyer’s salary along with a markup for office costs and other expenses.
Wolf is now questioning whether the hourly rates “are, as represented, what these firms actually charged for their services or what other lawyers in their community charge paying clients for similar services.’’
“This concern is enhanced by the fact that different firms represented that they customarily charged clients for the same lawyer at different rates,” he wrote.
“These questions — which at this time are only questions — also now cause the court to be concerned about whether the award of almost $75 million in attorneys’ fees was reasonable,” Wolf wrote.
A week after Wolf approved the legal fees in November, Globe questions prompted the lead law firm in the case, Labaton Sucharow, to submit a letter to the judge admitting that Thornton and two other firms had double-counted 9,000 hours and overbilled by $4 million.
But the author, David Goldsmith, blamed the inflated bills on “inadvertent errors.” He asked Wolf not to reduce the overall legal fees.
Wolf called a hearing for March 7 to give the lawyers an opportunity “to object and be heard” on his proposal to name a special master, and whether Rosen should be the special master.
Rosen, a mediator and arbitrator, served as a judge for more than two decades and masterminded an $820 million deal that rescued Detroit from bankruptcy in 2014.
Under Wolf’s proposal, Rosen would be paid $800 an hour or up to $11,000 a day out of the fees award that the plaintiffs’ firms have already received.
Wolf ordered all the lawyers who filed affidavits — and Michael Bradley — to attend the hearing.Andrea Estes can be reached at email@example.com.