As published on Legal Newsline June 26, 2019:
BOSTON (Legal Newsline) – A lawyer at the center of the scandal over the $300 million settlement of a State Street securities case told a federal judge in Boston it was “stupid and sloppy” to sign a false application for his firm’s share of $75 million in fees, but he didn’t intend to mislead the court.
This week, over hours of often-intense questioning by the lawyer for a court-appointed special master and U.S. District Judge Mark L. Wolf himself, attorney Garett Bradley of the Thornton Law Firm said he never read statements claiming his firm had employed lawyers that racked up thousands of hours in the case at “regular rates” of $450 an hour or more.
Those statements were shown to be false in a series of articles in the Boston Globe starting in December 2016, when the newspaper revealed that some of the same lawyers Thornton claimed to have employed in the State Street case were also on time sheets submitted to the court by Lieff Cabraser and Labaton Sucharow.
The scandal widened after Judge Wolf appointed Gerald Rosen, a retired federal judge, to investigate further. Rosen eventually discovered that Labaton had paid $4.1 million to Damon Chargois, a Texas lawyer whose only role in the case was to introduce the New York-based securities litigation firm to officials at the Arkansas Teachers Retirement System, which served as a lead plaintiff in the State Street case. Labaton has denied wrongdoing but Judge Wolf last year expressed skepticism “all those millions of dollars stayed with Mr. Chargois,” a thinly veiled suggestion of corruption that still hangs over the case.
The judge was also keenly interested in how Garrett Bradley came to employ his brother Michael, normally a $53-an-hour court-appointed criminal defense attorney, at $500 an hour in the State Street case. Bradley billed 406 hours for a total of $203,200 in fees, although the special master said he wasn’t qualified to practice securities law and there was scant evidence of what he actually did on the case.
“He’s my brother,” Garrett Bradley told the judge. “Given an option of choosing him or someone off the street, I’d choose him.”
In testimony that consumed most of the day Tuesday, Bradley revealed in detail how plaintiff securities law firms share fees among themselves – and sometimes friends and relatives – both to spread financial risk and obtain pension funds like ATRS as clients. The main vehicle is assigning “lodestar” hours, or hours of attorney time submitted to the court in lodestar reports the judge uses as a cross-check to make sure the fee is reasonable.
In the State Street case, Thornton, a relatively small firm that operates solely on contingency, “borrowed” hourly attorneys from Lieff and Labaton, paying their monthly salaries while the lawyers never actually left their respective offices.
In the economy of class action litigation, such deals are common, with large firms allocating lodestar hours to smaller firms that either provide clients or might cause trouble for them by challenging their leadership of a case. The leaders often allow smaller firms to collect the difference between the $30 to $50 an hour they pay contract attorneys and “market rates” of $400-$500 an hour they present to the court, while the larger firms collect the “gravy,” or court-assigned multiplier that in the State Street case was 1.8 times the supposed “market rate.”
Often these arrangements are not disclosed to the court or class members, and it was only the fact the Thornton law firm submitted a separate lodestar report in the State Street case that the double-billing and other errors emerged.
Although it had only a handful of actual employees and partners, the Thornton firm stood to collect 29% of the $75 million in fees Judge Wolf initially approved in the State Street case. Bradley, a longtime Democratic state legislator in Massachusetts, made little attempt to portray himself as anything more than a rainmaker in such cases. He told Judge Wolf he was “not that strong a legal writer” who had only a vague familiarity with the Federal Rules of Civil Procedure.
When the judge asked Bradley the most recent case he’d handled in Massachusetts federal court, Bradley answered “I don’t recall.”
“I have a memory of being local counsel in a few cases.”
“Any class actions?” Judge Wolf asked, scowling.
“Possibly. I don’t recall,” Bradley answered.
Under questioning from William Sinnott, the lawyer for the special master Rosen, Bradley revealed the Thornton firm had an almost identical deal with Labaton as Chargois: Under an agreement negotiated by name partner Michael Thornton and “Larry” – Lawrence A. Sucharow – the Thornton firm received 20% of any fees Labaton won in cases in which Thornton brought in the lead plaintiff.
That amounted to more than $9 million in fees over a number of years. Thornton lawyers rarely even officially made an appearance in the courts where the cases were filed, serving only as liaison with the pension funds they recruited.
“That’s the class action model,” Bradley said. “Our role was to get clients for them.”
The money spread widely. Soon after Bradley met Chargois at a Labaton-sponsored meeting in Florida in 2008 or 2009, he said, he and Christopher Keller, now Labaton firm chairman, and partner Eric Belfi each invested around $30,000 in a new restaurant Chargois was opening in Austin, Texas. They quickly lost it all, Bradley said.
Everything, Sinnott asked?
“It was a quick death,” Bradley said.
Like Thornton, Chargois had an agreement with Labaton to collect 20% of any fees Labaton won in a case involving ATRS. But Labaton quickly grew disenchanted with the deal. Chargois threatened to sue Labaton in Galveston, Texas, a notoriously plaintiff-friendly jurisdiction, so Labaton recruited Bradley to negotiate a lower fee agreement in the State Street case, even though Bradley wasn’t a partner at the firm. Bradley said he got it down to “10% of our lodestar and 20% of the gravy,” or 5.5% of the overall fee. That amounted to $4.1 million of the $75 million Judge Wolf awarded.
That amount is now in doubt. While the special master said the $75 million was justified given the $300 million plaintiff lawyers negotiated from State Street in a complex lawsuit over alleged foreign-exchange overcharges, Judge Wolf is likely to follow Rosen’s recommendation to trim the fees by more than $8 million and shift some money to lawyers who represented a class of retirement-plan claimants, who weren’t implicated in any wrongdoing.
In the hearing Monday, Judge Wolf got witnesses to acknowledge a reasonable range in settlements over $100 million is 10% to 25% of the total.
Bradley and other testifying witnesses operated under a sequestration order in which they were required to stay out of the courtroom and prohibited from talking to other lawyers. The questioning of Bradley was often tense and sometimes comical, resembling at times the famous confrontation scene in the movie “A Few Good Men.” Bradley, red-faced and with jaw jutting out, referred to Sinnott disrespectfully as “Bill” and professed to not recall substantial details of the State Street case or his prior legal career.
Under repeated questioning he stuck to his contention he never read past the first page of a fee submission he signed and presented to the court in 2016, which stated his firm was charging its “regular rate” even though it had no paying clients and detailing hours worked by attorneys who were actually employed by the other firms. He said he assumed the rest of the document was “boilerplate” and didn’t read it, even after his own outside attorneys told him the Boston Globe was preparing to write a story about it.
Asked about a 2015 email in which he discussed how to “jack up” the lodestar, Bradley said that was an internal communication intended to inspire his own lawyers to get a larger share of the fees in the State Street case.
“If we didn’t do this work, Lieff and Labaton would have done it,” he said. “It’s a finite amount of work.”
Bradley also expressed regret at the mistakes he made and wariness of his fellow lawyers. Asked by Sinnott if he trusted Chargois, the Texas lawyer who ultimately led to so much trouble for himself, Bradley responded “it’s business.”
“There’s only so much you trust these lawyers unless it’s in writing,” he said.
After the hearings are concluded, Judge Wolf is expected to enter a final order awarding a new fee amount in the State Street case. It is not known whether he will follow the special master’s recommendation that Bradley be sanctioned and fined as much as $1 million for violating Rule 11 of the Federal Rules of Civil Procedure, which prohibits making false court filings.