Boston Globe Exposes Cost Inflating Class-Action Attorneys

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Summary: Is it wrong for class action attorneys to inflate their fees if they took on all the risk?

Class-action lawyers typically do not charge up-front fees. They make money only if they win; but if they do score a victory, they usually take a cut of one third of the settlement or more. While this fee structure has been an industry standard, The Boston Globe recently did an expose that called into question some of the billing practices of these types of attorneys.

  

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“The Boston Globe has a great muckraking piece on one of the biggest scandals in American law: How class-action attorneys submit inflated bills and steer court-approved legal fees to politicians and other insiders, often without public oversight,” Daniel Fisher of Forbes wrote.

For instance, attorney Michael Bradley often works as a court-appointed defender, making $53 an hour. Yet, when Bradley worked for his brother, Garrett Bradley, an attorney at Thornton Law Firm, his rate mysteriously become almost ten times that when it was time to bill losing defendant State Street Bank and Trust as part of a class action settlement. The example of Michael Bradley was just one of many instances of questionable billing in the State Street lawsuit that the Boston Globe investigated.

Defendant State Street Corporation was sued for foreign exchange overcharges, and they agreed to settle the case for $300 million. According to The Boston Globe, Thornton filed its legal costs to US District Court Judge Mark L. Wolf, and he listed 23 other attorneys with hourly rates of $425. Those attorneys collectively accounted for over $4 million in costs, and the attorneys representing the plaintiffs were awarded almost $76 million from the case overall. However, according to The Boston Globe, many of the attorneys were actually low rung staff who typically made $25-40 an hour, not $425-$500 as charged.

The Globe spoke to one of those $425 billed attorneys, and he revealed he was only paid $30 an hour for his work and that he was not paid by Thornton. Instead, he was a staff contract attorney for another firm.  Forbes stated that this highlights the common practice of law firms working together on class-action lawsuits, and how those firms tend to hire unemployed contract attorneys to do routine work like document screening. Those staff lawyers are paid a low fee but then their services are marked up to corporate clients.

In Michael Bradley’s case, however, his spokesman said that he did not accept money up front for his work, and upon award, he will be paid the $203,200 that Thornton stated he was owed.

“When multiple law firms join forces to prosecute a single case — eight that we know of in this case, including New York’s Labaton Sucharow — they typically horse-trade those marked-up hours among themselves to spread the profits and tamp down disagreements that might result in lower fees for everybody. In this case the contract attorneys actually worked for Labaton but appeared on Thornton’s bill,” Fisher wrote in Forbes.

Diana Pisciotta of Labaton Sucharow said that markups are “commonly accepted practice throughout the legal community.” Her firm was one of eight that worked on the State Street case.

While critics of inflated billing exist, they still acknowledge that attorneys who take on class action cases harbor all the risk; and that’s what clients are paying for. However, Ted Frank, an attorney at the Competitive Enterprise Institute in Washington, told The Globe that Thornton was towing the line.

“This happens all the time,” said Frank. “Lawyers pad their bills with overstated hourly work to make their fee request seem less of a windfall.”

In the State Street case, the plaintiffs were a group of pensioners who wanted to recover almost $1 billion in overcharges, and they agreed beforehand with their attorneys to pay 25 percent of their win. However, for those lawyers to claim that fee, they had to file cost documents, which is one reason that they inflate their attorneys’ hourly rates. According to The Globe, “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.”

Source: The Boston Globe

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Do you think class action lawyers are paid too much? Or should they be rewarded for their risk? Let us know in the comments below.