If you have not been following the drama surrounding the question of the attorneys’ fees to be paid to class counsel in the State Street foreign currency exchange overcharge case, you will want to read the latest order from District of Massachusetts Judge Mark Wolf. Among other things, in his February 27, 2020 order, Judge Wolf cut the fees of the law firms that acted as class counsel, from $75 million to $60 million. Perhaps even more significantly, Judge Wolf concluded that lawyers at two of the lead plaintiff law firms had violated applicable provisions of the professional code of conduct and referred the attorneys to the local state bar professional practices unit. Judge Wolf’s findings also include his own reflection about the indispensable role of judge in supervising class counsel and their fees. A copy of Judge Wolf’s order can be found here.



In 2016, the Arkansas Teacher Retirement System filed a class action lawsuit against State Street Bank and Trust Co. in which ATRS alleged that State Street had systematically overcharged its pension fund clients for foreign currency and foreign exchange transactions. ATRS’s counsel in the lawsuit, and ultimately lead counsel in the class action, were three firm: Labaton Sucharow LLP; The Thornton Law Firm; and Lieff Cabraser Heiman & Bernstein LLP.


In 2016, the parties in the class action lawsuit submitted to the court a proposal to settle the case for $300 million. The Court ultimately approved the settlement. In connection with the settlement, the lead plaintiffs’ firms sought an award of approximately $75 million in attorneys’ fees, which the court also approved. However, shortly after the court approved the $75 million fee, a series of articles about the attorneys’ fee request appeared in the Boston Globe.


Among other things, the Globe article raise the question whether the hours of staff attorneys reported in the fee request had been double-counted, resulting in an inflation of the reported collective lodestar figures. The Globe articles also reported that staff attorneys who had been represented in the fee request as having regulator hourly rates of $335 to $500 were typically paid $25 to $40 an hour. The brother of Thornton Managing Partner Garrett Bradley, who had been represented as an employee of the Thornton law firm with a regular hourly rate of $500 an hour, was actually a sole practitioner who never charged that amount and who regularly made $53 an hour. Subsequent articles raised questions about how the firms obtained public pension fund clients and about the firm’s political contributions to politicians’ election campaigns.


In light of these various reports, Judge Wolf appointed a special master to investigate the reliability of the various representations made to the court to obtain attorneys’ fees. In May 2018, the Master filed a detailed report. Among other things, the special master’s investigation unearthed the fact that the Labaton firm had agreed to pay what amounted to a $4 million referral fee to another lawyer, who neither appeared in the State Street case nor did any work on the case. In an email that came to light during the special master’s investigation, this lawyer had stated that “Our deal with Labaton is straightforward – we got you ATRS as a client (after considerable favors, political activity, money spent and time dedicated in Arkansas) and Labaton would use ATRS to seek lead counsel appointments in institutional investor fraud cases. Where Labaton is successful in getting appointed lead counsel and obtains a settlement or judgment aware, we split Labaton’s attorney fee award 80/20. Period.”


Judge Wolf’s February 27, 2020 Order

After the special master issued his report, the law firm’s filed various responses and objections. In his February 27, 2020 order, Judge Wolf considered and addressed the special master’s report and the objections. The bottom line is that he set the plaintiff law firms’ attorney fee award at $60 million.


In setting the fee award at this level, Judge Wolf considered his conclusion that “the submissions of Labaton and Thornton were replete with false and misleading statements.” He went on to say that Labaton and Thornton had “in many respects violated Federal Rule of Civil Procedure 11(b) and related Massachusetts Rules of Professional Conduct.”


Judge Wolf’s order details the specific ways he believed that the attorneys’ conduct violated the rules of professional conduct, including with respect to representations made to the court about billing rates, time billed, and other fee related information. Among other things, Judge Wolf specifically concluded that the $4 million referral fee violated the professional conduct rule prohibiting a lawyer from paying a person for recommending his services.


Judge Wolf stated that a copy of his Memorandum and Order “shall be sent to the Massachusetts Board of Bar Overseers for whatever action, if any, it deems appropriate.”


Judge Wolf included in his Opinion a commentary on the need for judges to be involved in supervising class counsel, particularly with respect to counsel’s fees:


The United States has a proud history of honorable, trustworthy lawyers. However, this case demonstrates that not all lawyers can be trusted when they are seeking millions of dollars in attorney’s fees and face no real risk that the usual adversary process will expose misrepresentations that they make. Therefore, in making fee awards in class actions, it is important that judges be skeptical, and do the hard work necessary to protect the interests of the class and the integrity of the administration of justice.


Judge Wolf’s observations and conclusions are particularly critical at a time when there are serious conversations underway about the general need for securities class action litigation reform. The billing and reporting practices that came to light as a result of the Globe’s journalism and the special master’s investigation raise troubling concerns. These concerns in turn suggest a number of procedural reforms that could address the concerns these circumstances raise.


At a minimum, the various fee arrangements disclosed here suggest a need for greater disclosure requirements for class counsel, particularly with respect to any agreements or understandings for fee sharing. The relationship between the public pension fund plaintiff and the plaintiff law firm also raise their own concerns, which in turn suggests that there should be greater disclosure about the relationship between institutional investors and the plaintiff law firms. (Along those lines, University of Nevada Law Professor Benjamin Edwards and attorney Anthony Rickey of Margrave Law proposed in their 2019 paper the need for additional disclosures in order to disclose potential conflicts between institutional investors and class counsel.)


The outcome of this investigation also suggest a need, which Judge Wolf himself expressly recognized, for courts to become more active in examining and reviewing class counsel’s fee petitions and related submissions. As Judge Wolf also acknowledged, in this process of reviewing class counsel’s fee submissions, courts should be skeptical and take precautions to ensure that the interests of absent class members are adequately protect.


The number and depth of the different reporting problems uncovered as a result of the press coverage and the special master investigation certainly raises the question whether this case was some kind of rare aberration or perhaps indicates that there may be deeper, systemic problems.


For at least three reason, it is indispensable that the court take steps to ensure that potential systemic problems are addressed.


First, courts have a special and distinct role in connection with class action settlements. The interests of the absent class must be protected, at a time when the interests of the class and the interests of class counsel clearly can diverge. The absence in the class settlement context of the usual checks provided by the adversarial process make it vital for courts to be engaged.


Second, a process can be so distorted by misrepresentations creates the risk that the courts and court processes themselves could be brought into disrepute. In that regard, it should not be overlooked that the court had first approved the initial fee request, an approval that in retrospect looks to have been unfounded and ill-advised. If the information that came to light makes the lawyers look bad, the fact that he court initially rubber-stamped the fee request arguably does not look good for the court.


Third, a payment system build on flawed or even undermined processes creates the risk of distorted incentives. The incentives matter, as they determine not only which companies get sued, but even how many companies get sued, which in turn has significant implications for our legal system and for our economy.


These concerns raise the question of whether there should be a separate procedural step for review by special masters or magistrates of plaintiffs’ class settlement-related fee requests.


In any event, the sequence of events here provide a cautionary tale about the need for courts be engaged and to take steps to ensure, as Professor Edwards has separately written, that they have done “the hard work necessary to protect the interests of the class and the integrity of the administration of justice.”