Lieff Cabraser loses appeal of sanction for 'materially misleading' description of fee study
Image from Shutterstock.
A federal appeals court has affirmed a federal judge’s nonmonetary sanction against Lieff Cabraser Heimann & Bernstein, imposed for its incomplete description of a fee study.
The 1st U.S. Circuit Court of Appeals at Boston said it had the power to rule on the sanction but not Lieff Cabraser’s appeal of the judge’s criticisms that didn’t result in any sanction.
The study examined typical fees in cases similar to the one in which Lieff Cabraser and other law firms represented investors suing the State Street Bank and Trust Co. The class action had alleged that the State Street Bank and Trust Co. overcharged its customers in connection with certain foreign exchange transactions. The State Street Bank and Trust Co. agreed to a $300 million settlement.
Lieff Cabraser had told the trial court that the law firms’ request for fees of 25% was “right in line” with a study of average and median fee awards in class actions. The 25% figure was correct for the analysis of all class actions. But the law firm didn’t mention study findings that average and median fees were 17.8% and 19.5%, respectively, in recoveries between $250 million and $500 million, the appeals court said.
In support of the fee request, Lieff Cabraser and the other law firms submitted lodestar calculations showing hours expended and typical charges. But U.S. District Judge Mark L. Wolf of Boston appointed a special master to review the legal bills after a report from the Boston Globe found double billing of some hours and higher-than-usual billing rates.
Wolf slashed the $75 million fee award for the law firms to $60 million following the report by the special master, which confirmed billing errors. In addition, an amicus appointed by the district court noted Lieff Cabraser’s inadequate description of the fee study.
Wolf found that Lieff Cabraser’s conduct was “deficient” but not as serious of the conduct of two other law firms. After Wolf reapportioned the fee award, Lieff Cabraser got $1.14 million less than it would have received under the higher award.
On appeal, Lieff Cabraser contended that it should receive an additional $1.14 million from money left over after class members’ claims are processed.
The appeals court said Lieff Cabraser didn’t make that argument before the trial judge, and it would not grant the request. The appeals court also said the judge gave Lieff Cabraser adequate notice and an opportunity to be heard before imposing the sanction.
The appeals court said the law firms were required to exercise “an elevated level of candor” in fee arguments because the State Street Bank “had no dog in the hunt for fees” after agreeing to the settlement.
“Of course, Lieff did not actually say in so many words that the figures it used were the most relevant,” the appeals court said. “It also submitted, as Lieff highlights on appeal, the complete study itself (albeit as part of over 1,000 pages of exhibits). And its citation of many cases included one published opinion in which the district court in this case—had it had plenty of time on its hands—might have found the more relevant [study] findings.”
“In the typical adversary setting, excuses of this type might carry the day even if not to counsel’s credit,” the appeals court said. In any event, the law firm was at least “culpably careless,” and its description of the study was “materially misleading,” the appeals court said.
Judge William J. Kayatta Jr. wrote the decision. Other judges on the panel were Judges O. Rogeriee Thompson and David J. Barron.
Class action watchdog Ted Frank of the Hamilton Lincoln Law Institute had argued against Lieff Cabraser as a friend of the court, according to Reuters. In a statement, he said the 1st Circuit ruling “establishes an important precedent that class counsel has a duty of candor in making fee requests.”