An investigation unsealed Thursday in Boston federal court outlined a multimillion-dollar overbilling scheme by some of the nation’s top class-action law firms and alleged misconduct by a prominent former state lawmaker.
The scathing 377-page report by a court-appointed special master took aim at the business practices of three well-known firms, including Boston-based Thornton Law Firm and its managing partner, former representative Garrett Bradley.
Among the report’s findings: Bradley and other attorneys were “hyper-focused on attempting to increase or ‘jack up’ ” billable hours, and lawyers had a “troubling disdain for candor and transparency that at times crossed the line into outright concealment of facts.” One lawyer with a Texas firm received $4.1 million and never appeared in court and performed no work, the report noted.
The long-awaited report, which recommends sanctions and the repayment of more than $10 million, may shape how courts across the country handle lawyers’ fees in class-action lawsuits.
A related court filing also revealed that a federal criminal investigation into Thornton Law Firm remains active.
The report, its author noted, “chronicles a lamentable and dismaying tale” of a successful settlement “that became tainted and entangled in a web of concealment and highly questionable ethical practices by experienced attorneys who should have known better.”
US District Court Judge Mark L. Wolf ordered the investigation last year following a Globe Spotlight Team report about stratospheric legal bills seeking to justify $75 million in attorneys’ fees and expenses to Thornton, Labaton Sucharow of New York, and Lieff Cabraser of San Francisco in a class-action settlement with State Street Bank in Boston.
In his report, retired federal judge Gerald Rosen recommended sanctions of between $400,000 and $1 million for Thornton because Bradley , the former assistant majority leader in the Massachusetts House, filed “palpably false” statements in court. Rosen also recommended that the state’s legal bar discipline the former lawmaker.
Additional court records also disclosed that the US attorney’s office in Boston has been investigating whether Thornton Law made an illegal payment “to an official of a pension fund.” The official was not identified.
Wolf, the presiding judge in the class-action case, said prosecutors requested copies of all depositions and witness statements. Wolf said one of the prosecutors asked to speak to him, but he would not discuss the case.
Brian Kelly, who represents both Bradley and Thornton Law Firm, said the report is “riddled with factual and legal mistakes and we intend to urge the court to reject it.”
He also called “absurd” the recommendation that Bradley be sanctioned for filing a billing statement containing errors because the mistakes were “inadvertent.”
Bradley, a Hingham Democrat and onetime member of House Speaker Robert DeLeo’s leadership team, resigned in 2016 as the Globe Spotlight Team prepared to publish a story on the firm’s practice of reimbursing partners for their political donations.
The firm, which made its name filing suits for victims of asbestos-related diseases, was a major donor to Democrats across the country.
The investigation stemmed from a 2011 class-action suit alleging State Street Bank overcharged institutional customers for foreign exchange trades. Several plaintiffs’ firms —
including Labaton, Thornton, and Lieff — ultimately agreed to a $300 million settlement with the bank. Wolf awarded $75 million to the lawyers in November 2016.
The Globe reported a month later that the three firms double-counted lawyers — to the tune of 9,323 hours —
and claimed exorbitant costs for dozens of low-paid lawyers, among them Bradley’s brother, Michael. Michael Bradley is a criminal defense attorney in Quincy and was reported as having worked 406.4 hours on the class-action case at $500 an hour.
Wolf appointed Rosen special master in February 2017, months after the Globe report.
Joan Lukey, who represents both Labaton and Lieff, fought to keep the report and its exhibits private, arguing that Rosen has drawn false conclusions that could cause serious damage to Labaton — one of the largest securities class-action law firms in the country.
She also asked Wolf to step down from the case, arguing that he was biased against the firm. Wolf rejected the request.
Wolf has yet to rule on Rosen’s recommendations. The law firms filed objections to the report late Thursday.
In a released statement, Labaton called the report “unmoored from the law governing the conduct in question.”
“The master has asserted several accusations of misconduct against Labaton. Each of them flows from an unprecedented misapplication of the law. Instead of applying the actual rules, the master has unfairly sought to impose his own personal feelings and aspirations.”
In addition, the statement said, the master’s findings are incorrect. “Far from acting as a neutral — as he purports to be — the master has rendered factual findings that are skewed toward his desired result.”
Rosen’s investigation cost $3.8 million so far, money the three firms were required to pay.
In his report, Rosen took aim at Bradley who filed a fee declaration with the court, under pains of perjury, that contained statements that were “palpably false.”
“There is nothing ‘inadvertent’ about these sworn statements to the court; they are simply blatant falsehoods,” Rosen wrote.
Bradley’s filings included a bill for his brother, which Rosen said was “simply not supported.”
Michael Bradley “prepared no legal memoranda” or deposition files in the case, Rosen wrote.
“While Michael Bradley’s experience is no doubt an asset to a potential client in need of criminal representation, it has no relevance to the allegations in the State Street case,” Rosen wrote.
“These facts, taken together, raise serious questions as to the level of any substantive contribution to the case on his part.”
Rosen devotes much of his report to Damon Chargois, a Texas lawyer who received a $4.1 million “referral fee” for introducing Labaton in 2008 to the client in the State Street case, the Arkansas Teacher Retirement System. Chargois has been entitled to a piece of legal fees whenever Labaton represents Arkansas, a frequent plaintiff in securities class-action lawsuits.
Chargois’s fee was not disclosed to the other lawyers and the current executive director of the Arkansas Teacher Retirement System, as well as the judge. Chargois did no work on the case.
“The investigation revealed that Labaton engaged in consistent, conscious, and calculated efforts to conceal Chargois from almost all participants in the State Street litigation; its client, the class . . . and most importantly, the court,” Rosen wrote.
By paying Chargois, there was less money available to the plaintiffs who were members of the class in the lawsuit, he wrote. Rosen did not recommend sanctions against Labaton for its failure to disclose the payment.
In its objection to Rosen’s report, Labaton’s lawyer noted that referral fees are allowed in Massachusetts and asserted that payments to Chargois did not lower the amount of money available to the class.
As a postscript to his report, Rosen raised concerns that Labaton’s and Thornton’s way of generating business may be common in the industry.
He found “very serious questions of class action law, ethical obligations owed both among counsel and to the court, and fundamental concerns about how courts should be assisted by (plaintiffs’ lawyers) in fulfilling their fiduciary obligations to the class.”