A decision by a federal district judge in a $590M Citigroup shareholder settlement has reduced requested attorneys fees by a cool $70.8M (from about 16.5% of the total award to about 12%). One basis for the reduction was the plaintiffs' lawyers markup in costs between what they paid for contract lawyer work and what they asked for in attorneys fees. Here's the decision's summary of the reductions:
1) $4 million in time that one plaintiffs’ firm expended in an unsuccessful attempt to become Lead Counsel and now wants the class to pay for that unsuccessful effort;
2) $7.5 million for 16,292 hours of attorneys’ time spent in pursuing discovery after the parties reached an agreement to settle their dispute. That time was spent largely on “document review” by contract attorneys, a full twenty of whom were hired for the first time on or about the same day the parties notified the Court that an agreement in principle had been reached;
3) A $12 million reduction by applying a reasonable blended hourly rate for the large number of contract attorneys of $200— rather than the blended rate submitted by Lead Counsel of $466 per hour—for the 45,300 hours worked by contract attorneys; and
4) A 10% cut from the remaining balance to account for waste and inefficiency which, the Court concludes, a reasonable hypothetical client would not accept. One such unfortunate example is the 157.5 hours for $66,937.50 in requested time spent digesting a single day’s deposition.
WSJ Law Blog reports that last April a lawyer for the lead plaintiffs' firm told the Wall Street Journal the markup practice was fair given the risks that plaintiffs’ firms incur by taking such cases on a contingency basis:
The fact that the billing rates of contract attorneys are in excess of what the law firm pays them is not unusual or untoward … That’s to cover overhead and have a profit built in.
John Steele at Legal Ethics Blog has been following the issue and says the phenomenon of contract lawyers does not bode well for the future of lawyers' incomes. He points to Ted Frank's Point of Law post and a book review by Mark Kessler for further comment on the issue.