Special master who reviewed billing in $300M case recommends significant refund, judge says
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A federal judge has directed pension fund officials to consider whether they want to drop their law firm, Labaton Sucharow, after a contentious hearing Wednesday in which he said the firm’s conduct has been called into question in the class action against State Street Bank.
U.S. District Judge Mark Wolf of Boston issued an order Thursday in which he asked the executive director of the Arkansas Teacher Retirement System to decide whether the fund wants to continue to serve as lead plaintiff in the securities class action, the National Law Journal reports.
If the answer is yes, Wolf said, he wants to know whether the fund “intends to continue to seek legal advice concerning this case from Labaton or seek advice instead from counsel whose conduct is not at issue.”
Wolf had appointed a special master last year to examine billing errors by Labaton and two other plaintiffs’ firms that had been awarded nearly $75 million in attorney fees. The class action, settled for $300 million, had alleged State Street had overcharged its customers in connection with certain foreign exchange transactions.
The special master’s report has been filed under seal, but Wolf said in court Wednesday that it recommended “a significant amount of money be returned” to the class from the attorney fees, according to Law360, which covered the hearing.
Wolf said the conduct of Labaton and other lawyers selected by the pension fund “has been called into question,” according to the Law360 account.
A lawyer representing Labaton, Joan Lukey of Choate Hall & Stewart, protested that Wolf had made statements that “revealed items that are under seal.” The judge responded, “Yeah, just as you did earlier.”
After a sidebar, Lukey distributed a statement that said the asserted misconduct relates to a referral fee that was not disclosed to the court. A lawyer representing the special master, William Sinnott of Donoghue Barrett & Singal, differed with the characterization, according to Law360.
“This was not a referral fee, this was a finder’s fee,” he said. “And, more importantly, this was a finder’s fee that was not disclosed to the client, to the class, to co-counsel, or to the court.”
The fee was paid to a lawyer who helped bring the pension fund and Labaton together, according to Law360.
In a later statement, Labaton said the referral fee is legal under Massachusetts law, and, “It’s our position that we complied with all disclosure requirements,” the statement said.
Wolf also set deadlines in his Thursday order for lawyers to propose redactions in the special master’s report before it is unsealed. In court Wednesday, the lawyer for Labaton said portions of the report “are extremely injurious to the reputation” of the plaintiffs’ firms.
The case is Arkansas Teacher Retirement System v. State Street Bank and Trust Co.
