A Manhattan federal judge decided to cut 31 percent from the fees being sought by two law firms that won $516 million in securities settlements for the Lehman Brothers investors in 2011. The two firms, Bernstein Litowitz Berger & Grossmann and Kessler Topaz Meltzer & Check, were awarded $56.7 million in fees. This amount is a decrease from the $82.6 million the firms claimed. U.S. District Judge Lewis Kaplan said that the work of a bankruptcy examiner uncovering the bank’s use of an accounting gimmick for reducing the money awarded to the law firms.
“We live in hard times,” Kaplan wrote in the order Friday. “A fee in excess of $82 million, reflecting about 2.18 times the notional reasonable value of the services rendered, even granting that some premium over the lodestar is appropriate, simply seems too much.”
Lodestar is a term used in court to describe an attorney’s hours multiplied by the hourly rate that they charge. Lawyers usually ask for a contingency fee that is higher than what they would have asked for in regards to their work in a successful class action. The plaintiffs in the case recovered roughly $426 million in a settlement last year with the underwriters for Lehman. There was another $90 million that came from a settlement with executives of Lehman, including former CEO Richard Fuld, which had to be funded using insurance.
Kaplan put together a three-page order in which he said the lawyers ‘did a great deal of work.’ He also said that the lawyers benefited from a ‘quite extraordinary’ report from March of 2010 issued by Lehman Brothers bankruptcy examiner Anton Valukas. Valukas works for Jenner & Block as a partner. Once the report was filed, Bernstein Litowitz and Kessler Topaz added new allegations to their lawsuits. Kaplan said that the lawyers had a right to add those new allegations to their lawsuits, ultimately denying a motion to dismiss the lawsuit.
“But the fact remains that this very significant factor in the denial of much of the motions to dismiss and, doubtless, on the price defendants eventually paid to settle, was the product of the examiner’s efforts.”
According to the decision, Bernstein Litowitz and Kessler Topaz said that in the fee request of $516 million also represented 13 percent of the $3.3 billion in statutory damages. Kaplan said that he was ‘bound in good conscience’ to question the fee resulting in a rate of over $900 per hour. He also said that there is no hint that investors would ever be able to recover a third of what could have been recovered if the lawsuit actually went ahead in court.