Attorneys weigh in on Citigroup counsel fees

The plaintiff's lawyers in the Citigroup Inc. securities litigation case are tying to inflate the price of temporary attorneys nearly five to nine times the actual cost, according to William Ruane, a former associate general counsel for litigation at Wyeth Pharmaceuticals Inc.

William Ruane

"The market value for the services provided by temporary attorneys . . . is, at most, in the $50-$75 range," Ruane said in a declaration earlier this month in U.S. District Court in Manhattan.

But plaintiff law firm Kirby McInerney is seeking $275 to $550 per hour for such services, according to court documents, justifying the upcharge in part because the law firm trained and supervised the temps. In total, the law firm is seeking 16.5 percent of the $590 million settlement in legal fees for the class action case.

"It's outrageous," Ruane told CorpCounsel.com on Friday. "There are a lot of inefficiencies in the hourly billing system. And the whole trend for the past 10 years or longer for clients who pay for their own legal work is to reduce the cost of that."

But the law firm used a so-called lodestar multiplier method, which computes fees by multiplying the number of hours reasonably spent by counsel times a reasonable hourly rate. The figure can be adjusted for other multipliers, such as the contingency risk taken by counsel and the quality of the work done.

"Let's make believe [the temporary lawyer is] the same as a $500 associate -- that's what the lodestar multiplier is really about," Ruane claimed.

The former in-house counsel, who headed Wyeth's litigation efforts for 20 years, didn't discuss the settlement amount in his filing. But on the fee amount, he wrote, "I certainly never permitted, and I am not aware of any other client who has permitted, outside counsel to inflate that cost by a multiple of 4.5 to 9 solely because the temporary attorneys had been trained and supervised."

He said the plaintiff's firms were asking rates consistent in retaining New York law firms with "permanent, partner-track associates, not for temporary attorneys."

He cited charges for one temporary attorney as especially egregious: A lawyer who spent one month, about 239 hours, reading and digesting one deposition transcript, Ruane noted.

"Even at one of the lower temporary rates ($375 per hour), the project resulted in an asserted lodestar of almost $90,000," Ruane said. "I submit that it is difficult to justify a $90,000 deposition digest . . . The actual cost of the time that allegedly went into the digest was probably closer to $15,000."

Ruane was a witness for attorney Theodore Frank, of the Center for Class Action Fairness, who is also a member of the class as a Citigroup shareholder. Frank has objected not only to the allegedly inflated contract attorney fees, but also to the total fee amount and to the settlement amount.

"It is indisputable that class counsel's proposed billing rate for the contract attorneys is inflated six- to tenfold," Frank said in his court filing [PDF].

"I don't think this is a unique case," Frank told CorpCounsel.com Friday. "This is happening in a lot of securities cases. And I think pension funds, mutual funds, and hedge funds should actually hire someone on a contingency basis to scrutinize these fee requests."

Frank has made it his life's work to oppose padded fees, and has filed objections in about two dozen cases over the years. He told the court he has been successful in about 18 of those cases.

"Like most lawyers, I became a lawyer to correct injustice," Frank said in an interview. "No one else is doing this, and I saw a need. They are taking money from innocent shareholders -- tens of millions of dollars. It's the rich raiding the pensions of the middle class."

U.S. District Judge Sidney Stein has set a settlement fairness hearing on April 8 to discuss the amounts at issue in the Citigroup case.

The Association of Corporate Counsel has also objected to the legal fees in an amicus letter sent to the judge. The case is one of several in which courts are being asked to more closely scrutinize attorney fee requests.

But in its response to the objectors, the Kirby McInerney law firm has defended its fees as reasonable and customary in the industry.

Peter Linden, a Kirby McInerney partner involved in the case, defended the firm's use of contract attorneys in a recent interview with Forbes, saying, "Not only has the practice been endorsed by numerous courts, but it has allowed for more efficient prosecution of the case."

The law firm also presented a court filing from its own expert, professor Geoffrey Miller, of the New York University Law School and a former in-house lawyer in the U.S. Department of Justice's Office of Legal Counsel.

Miller said in the filing that he analyzed the settlement and found it "represents excellent value for the class." He determined the fee request of 16.5 percent of the settlement amount to be "within the ordinary range for percentage fee awards."

The rates are necessary, Miller argued, in order to properly compensate counsel "and to incentivize attorneys to bring similar cases in the future."

The professor went on, "The rates charged by counsel are commensurate with those charged by attorneys with similar expertise and qualifications in New York and around the country."

Frank disagreed, saying that Miller was working on the false premise that the rates charged were for Kirby McInerney attorneys and not for contract lawyers.

As for the law firm's argument that other courts have allowed such rate markups, Frank countered: " ‘Everybody's doing it' -- that's their defense?" he asked. "If that's so, then it's a problem that could reach into billions of dollars."

By Sue Reisinger

Source: Law.com