Hero Judge of the Day

Judge Cuts Firm's Fees for Receiver Role by 20 Percent
New York Lawyer by Sheri Qualters - January 7, 2009

Applying a "rule of moderation," a federal judge has cut by 20 percent to $1.7 million Dewey & LeBoeuf's requested fees for the first 20 days of its work on a complex securities receivership case. Despite the Securities and Exchange Commission's opinion that the request was "fair and reasonable," Southern District Judge Denny Chin, in SEC v. Byers, 1:08-cv-07104, faulted the amount of time spent on the matter and the firm's hourly charges for legal services. However, Judge Chin left the door open for Dewey to recoup the $429,533 cut from the firm's $2.1 million bill by noting that the firm may apply for part of or the entire reduced amount at the end of the case, "[depending on the results achieved and the benefits to the receivership estate." The SEC's fraud case is against private equity company Wextrust Capital, a couple of its owners and executives, and affiliated U.S. and overseas companies whose targets included the Orthodox Jewish community in New York. The SEC accused the company of conducting fraudulent private placements and numerous violations of federal securities laws. Timothy J. Coleman, a New York and Washington attorney who co-chairs Dewey's white-collar criminal defense and investigations practice group, is serving as the receiver in the case, with the firm acting as his counsel.

Judge Chin wrote that the judge who initially had the case had to choose quickly among three candidates for receiver in "emergency circumstances" without a detailed fee proposal from Dewey. "But with the benefit of hindsight, I wonder whether the SEC should have made more of an effort to present the Court with more options," Judge Chin wrote. "In this economy, with law firms going out of existence or laying off lawyers for lack of work, and clients - including large corporate clients - insisting upon and obtaining alternative fee arrangements . . . surely there would have been qualified law firms willing to perform these services at rates substantially lower than $850 or $950 per hour for partners and $605 for associates six years out of law school." Judge Chin acknowledged that Dewey "had provided extensive and outstanding legal services that will surely benefit the receivership estate." And he noted that a receiver appointed by the court "who reasonably and diligently discharges his duties is entitled to be fairly compensated."

Rule of Moderation

But he added that it is a "long established principle" that lawyers in receivership situations "should be awarded moderate fees and not extravagant ones." "As a policy matter, the rule of moderation makes particular sense in circumstances such as those here, where hundreds of investors and creditors have been defrauded and victims are likely to recover only a fraction of their losses," Judge Chin wrote. According to the decision, 76 Dewey lawyers, paralegals and support personnel logged 5,013.15 hours from Aug. 11 to Aug. 21 on the Wextrust matter. The firm's fee request averaged $107,383 a day. Finding "some excessiveness and redundancy," the judge ruled that "Notwithstanding the complexity of the situation, the number of hours expended simply is not reasonable."

Judge Chin accepted that Dewey used its standard hourly rates - including $650 to $950 for partners, $425 to $605 for associates, $285 for a summer associate and up to $275 for paralegals - in calculating its bill, but he ruled that the rates for legal services "are excessive in the context of a securities receivership proceeding." Dewey argued that its bill actually represented a $521,501 discount from customary charges, but he said that the discount mostly stemmed from a reduction in bills for nonlegal service and the rate for the receiver in the case. Judge Chin said that the results achieved by lawyers advising a receiver are "critical factors" in setting its compensation. Here, however, "While Dewey has worked hard, it is simply too early to tell the extent to which its efforts will benefit the receivership estate. This is all the more reason to apply a rule of moderation now."In addition to the $1.7 million, Judge Chin awarded Mr. Coleman $57,300 and $85,840 in expenses for Dewey.SEC spokesman John Heine said the agency declined to comment.In a written statement, Dewey stated that the firm was gratified that Judge Chin found the firm "has provided extensive and outstanding legal services," has acted "quickly and under difficult circumstances" and has addressed issues that "were highly complex and covered a wide range of subject matters.""The court exercised its discretion to make part of the fee subject to results and to encourage a speedy resolution of the case," stated the firm. "We completely respect the exercise of the court's discretion."

The firm also stated that it is "grateful" that the SEC advised Judge Chin that the firm's fee application was "fair and reasonable." G&H Partners, a company that is an investor and creditor of Wextrust, objected to Dewey's fee. Barry S. Pollack, a litigation partner at Boston's Sullivan & Worcester, which represents G&H, said the firm is pleased with the court's decision to cut Dewey's fees and the order is a "wakeup call for the SEC." "While Judge Chin was quite polite throughout the order, the decision certainly criticized the SEC for not doing a better job at finding a qualified firm that would offer better rates and scrutinize fee applications more closely," Mr. Pollack said. He added that if the fraud victims receive close to all their money back, he did not think anyone could complain about Dewey's requested fees. "The problem is they are seeking these outrageously high fees without achieving results for the victims," Mr. Pollack said. "The court has created a nice dynamic there that actually provides a financial incentive to Dewey & LeBoeuf to help victims first because that might help them receive more fees."