Critics hit law firms’ bills after class-action lawsuits
Attorneys at the Thornton Law Firm had just helped win a $300 million settlement from State Street Bank and Trust in a complicated lawsuit involving eight other law firms. Now, it was time to submit their legal fees to the judge so that they could get paid.
That’s when the younger brother of Thornton managing partner Garrett Bradley emerged as a $500-an-hour “staff attorney” at the Boston firm.
Michael Bradley is a lawyer, but he normally works alone, often making $53 an hour as a court-appointed defender in Quincy District Court, records show. Yet, according to his older brother’s sworn statement on Sept. 14, 2016, Michael Bradley’s services were worth nearly 10 times that rate in the State Street case.
The elder Bradley said Michael worked 406.4 hours on the lawsuit, which centered on international currency trades, at a cost of $203,200.
Michael Bradley wasn’t the only lawyer for whose work Thornton claimed stratospheric — and questionable — legal costs in the filing to US District Court Judge Mark L. Wolf. Garrett Bradley listed 23 other staff attorneys, each with hourly rates of $425, who collectively accounted for $4 million in costs.
But one of the lawyers told the Globe he was actually paid just $30 an hour for his services — and not by Thornton. Like all the other staff attorneys on Garrett Bradley’s list, except his brother, he worked for another firm in the case, which also counted his hours on its list of costs.
The sworn statement by Garrett Bradley — until recently an assistant House majority leader on Beacon Hill — raises troubling questions about the way Thornton and the other firms that brought the State Street lawsuit tallied legal costs to justify their enormous $75.8 million payday.
More than 60 percent of the costs that Thornton and two other law firms submitted to Judge Wolf came from the work of staff attorneys — all of them assigned hourly rates at least 10 times higher than the $25 to $40 an hour typical for these low-level positions — which involves document review.
A spokesman for the lead law firm in the case acknowledged that hourly rates the firms listed for staff attorneys were above the lawyers’ actual wages, but argued that, essentially, everyone does it. Diana Pisciotta, spokeswoman for the Labaton Sucharow law firm in New York City, called it “commonly accepted practice throughout the legal community.”
Critics of the way lawyers are paid in class-action lawsuits acknowledge that firms often dramatically mark up the rates of their lower-paid attorneys when seeking legal fees in court, but they say Thornton has pushed the practice to an extreme.
“This happens all the time,” said Ted Frank, a lawyer at the Competitive Enterprise Institute in Washington and a leading national critic of legal fees in class-action lawsuits. “Lawyers pad their bills with overstated hourly work to make their fee request seem less of a windfall.”
Lawyers in class-action lawsuits commonly receive a major share of any settlement because they are taking the risk that, if they lose, they will be paid nothing.
In fact, plaintiffs in the State Street case, many of them public pension funds, agreed in advance to set aside a quarter of any settlement for attorneys in their lawsuit alleging that the Boston-based bank routinely overcharged clients for their foreign currency exchanges, costing them more than $1 billion.
But, to actually collect the money, lawyers document their costs by filing affidavits under penalty of perjury.
The accounting must be based on actual time records, listing the names and hourly rates of the lawyers who worked on the case, and the total amount billed. The hourly rate is supposed to be what the lawyer would charge a paying client for similar work, including the lawyer’s salary and a markup for office costs and other expenses.
That’s where, critics of contingency fee lawsuits say, lawyers have a built-in opportunity to inflate their bills. And, for a variety of reasons, their bills often get little scrutiny.
“Imagine you’re a lawyer and you’re allowed to write your own check for your fee,” explained Lester Brickman, a Yeshiva University law professor and author of “Lawyer Barons: What Their Contingency Fees Really Cost America.”
“I could write $3,000, but I could add a zero and write $30,000 or add two zeroes and charge $300,000,” Brickman said. “That’s the honor system.”
Thornton officials insist that they did nothing wrong and that the 23 staff attorneys who actually work for Labaton or a firm in San Francisco belonged on Thornton’s list.
Under a cost-sharing agreement between the firms, Thornton paid part of their wages while they were reviewing millions of pages of documents in the State Street case. These lawyers just receive their usual salary and don’t share in the proceeds from the settlement.
Garrett Bradley’s brother, by contrast, will receive the $203,200 listed for him on the filing to Judge Wolf, according to Thornton spokesman Peter Mancusi, who noted that Michael Bradley, unlike the other staff attorneys, was not paid previously for his work.
Neither Michael Bradley nor a spokesman for Thornton would say what he did on the case, but the spokesman described him as an experienced prosecutor and fraud investigator.
Globe questions about the legal bills prompted the lead law firm in the State Street case to submit an extraordinary letter to Judge Wolf admitting that Thornton and the other firms double-counted more than 9,000 hours, overstating their fees by $4 million. The author, David Goldsmith of Labaton Sucharow, blamed the inflated bills on “inadvertent errors.”
According to Goldsmith’s Nov. 10 letter, Labaton and another firm, Lieff Cabraser Heimann & Bernstein, claimed the same staff attorneys that Thornton had listed on its legal expenses, double-counting the lawyers’ cost. Goldsmith said the double-counted lawyers were employees of either Labaton or Lieff Cabraser, but their hours and costs should have been counted only once — by Thornton Law.
To resolve the issue, he said, the other firms dropped the lawyers and Thornton lowered the hourly rate it charged for numerous staff attorneys because it had assigned a higher rate than the other firms.
Despite the resulting drop in combined legal fees, Goldsmith urged Wolf not to reduce the lawyers’ payment from the settlement. In class-action cases, lawyers commonly receive a payment that not only covers costs, but a financial reward for bringing a risky case that could have failed and paid nothing.
Goldsmith suggested that Wolf simply boost the reward to offset the reduced legal fees so that the firms still split the same $74 million, including $14 million for Thornton.
“We respectfully submit that the error should have no impact on the court’s ruling on attorneys’ fees,” wrote Goldsmith, whose firm often joins forces with Thornton.
That may not be enough to satisfy Wolf, who has a reputation for closely questioning claims made in his court.
He called the legal fees “reasonable” at a Nov. 2 hearing and praised the plaintiffs’ lawyers for taking on a “novel, risky case.” But he approved the fees in part based on sworn statements that the lawyers now admit were in error. Wolf could reduce their payments, which were issued earlier this month, or hold a hearing to determine whether the lawyers knowingly submitted false information, a serious breach of professional ethics.
“The double-counting was likely the result of sloppiness, assuming that there would be no objectors’ or court scrutiny of the fee request,” said Frank, who has successfully challenged several settlements and fee requests in other cases, recouping more than $100 million for class members.
Frank said the problems with the legal fees go beyond the double-counting of attorneys. Other law firms contacted by the Globe said it’s common to list an hourly rate for an attorney several times higher than the attorney’s own pay, because the law firm has many other expenses aside from the lawyer him or herself. However, Thornton listed attorneys’ rates at up to 14 times the lawyer’s wages.
Frank said his analysis suggests that the $75.8 million award to the nine law firms was excessive — by at least $20 million and as much as $48.3 million — in part because the lawyers asked too much in the first place. He said that the lawyers’ own documents show that, in similarly sized settlements, the legal fees average only 17.8 percent.
Thornton Law Firm, a personal injury firm that specializes in asbestos-related cases, is already the target of three investigations for its controversial campaign contribution program in which the law firm paid millions of dollars in “bonuses” to partners that offset their political contributions.
Federal prosecutors as well as two other agencies are investigating whether the bonuses were an illegal “straw donor” scheme to allow the firm to vastly exceed limits on campaign contributions. Thornton officials have insisted they did nothing wrong, because the bonuses were paid out of the lawyers’ own equity in the firm.
Thornton’s legal fees in the State Street case feed into a larger debate about how lawyers get paid in class-action lawsuits. Defenders of paying lawyers on contingency say the prospect of a high payoff encourages lawyers to take on exceptionally difficult cases, such as suing a wealthy bank like State Street.
However, Frank said there’s little oversight of lawyers’ fee claims. Defendants usually don’t care what the plaintiffs’ lawyers receive, because their costs don’t change regardless of how much the plaintiffs’ lawyers receive.
And individual plaintiffs typically get too little money to have a strong incentive to challenge legal fees. In the State Street case, the 1,300 plaintiffs would see increases in their individual payments of only about $20,000 apiece if the lawyers’ fees were reduced by $20 million, Frank calculated. A plaintiff might have to spend that much or more to hire another lawyer to investigate.
None of the plaintiffs in the State Street case objected to their lawyers’ request for legal fees. But neither the lawyers nor their clients apparently noticed that the exact same hours for nearly two dozen staff attorneys were claimed by more than one law firm.
“The mistakes came to our attention during internal reviews that were conducted in response to an inquiry from the media,” explained Labaton partner Goldsmith, in his letter to Wolf.
Nor did they notice that Thornton consistently assigned a higher rate than the other firms for the same attorneys — often a difference of $90 an hour.
Labaton officials, in a prepared statement, said the affidavits supporting the fee request weren’t as important as the percentage of the settlement fund the lawyers sought — just over 25 percent, once expenses are added.
“This fee award is reviewed by the Court for fairness . . . we believe the fees awarded are still fair,” wrote Diana Pisciotta, a spokeswoman for Labaton.
Andrea Estes can be reached at email@example.com.