In the typical adversary setting, [some] excuses [for making misleading statements] might carry the day, even if not to counsel’s credit. Courts need to minimize the number of distracting sideshows that a robust insistence on forthrightness might produce. And pursuit of sanctions by a court can alter the court’s more customary relationship with counsel and its role as neutral decisionmaker. So it is fair to say that courts often and wisely inure themselves to those unfortunately frequent occasions when counsel slide their toes over the uncertain line that separates fair advocacy from deception.
That is from Lieff Cabraser Heimann & Berns, LLP v. Labaton Sucharow LLP, http://media.ca1.uscourts.gov/pdf.opinions/21-1069P-01A.pdf (No. 21-1069, 1st Cir. 2/9/22), and as a lover of good writing I salute Judge William Kayatta for the elegant turn of phrase in that last sentence. “[T]hose unfortunately frequent occasions when counsel slide their toes over that uncertain line” – perfect.
The occasion for Lieff Cabraser’s slippery toes was an application for attorney’s fees in a class action lawsuit:
Lieff Cabraser Heimann & Bernstein LLP served as one of the principal law firms representing a class of investors in a very successful challenge to charges imposed by State Street Bank and Trust Company on foreign exchange products. This appeal arises from the post-settlement process of apportioning a $300 million recovery between the class and its lawyers. The district court ultimately awarded a handsome $60 million fee to the lawyers representing the class. In so doing, though, the district court opined that class counsel, including Lieff's lawyers, engaged in misconduct. Specifically, the court faulted Lieff for…[3] materially misrepresenting a study regarding typical fees awarded in similar cases. For the third misstep, the district court formally sanctioned Lieff under Federal Rule of Civil Procedure 11(b), though without any monetary penalty.
The district court had originally awarded a $75 million fee, but reconsidered when an investigation by the Boston Globe “revealed that class counsel, including Lieff, had double-counted (using different rates) the same hours billed by the same contract attorneys in their lodestar calculations.” This led the court to appoint a special master, who found something even worse than double-counting hours:
The special master learned that lead class counsel, Labaton (with contributions from the others, including Lieff), had paid $4.1 million to a lawyer in Texas, Damon Chargois, who appears to have been paid to entice Arkansas public officials to retain Labaton as counsel to bring this lawsuit. As the district court later summarized, Chargois earned his $4.1 million piece of the pie through “considerable favors, political activity, money spent and time dedicated in Arkansas.” This type of expenditure, the special master concluded, violated ethics rules as applied in a class action (a matter on which we need offer no opinion). [That parenthetical phrase at the end is another nice touch by Judge Kayatta. – MPA]. . . .
Understandably concerned that its initial award of $75 million may have rested on suspect footings, the district court vacated that initial fee award in order to redetermine the award from scratch….[I]t settled on…$60 million rather than the previous award of…$75 million….The court…took “into account the proven misconduct of certain counsel….” In so doing, it referred primarily to the conduct of Labaton and Thornton. It found that while Lieff's conduct “was also deficient,” it was “not as serious as the misconduct” of the other two firms. The court faulted Lieff for [three errors of omission] and for permitting a misleading picture of the Fitzpatrick study [an analysis of typical fees awarded in similar cases] to be presented to the court under its name. The court also declared, based solely on the statement concerning the Fitzpatrick study, that Lieff violated Rule 11(b).
Because all six law firms representing the class signed the memorandum that contained a material misrepresentation about the Fitzpatrick study, the court must have declared that all of them violated Rule 11(b). But the First Circuit’s opinion says nothing about that, presumably because only Lieff appealed. The other firms wisely suffered the sanction in silence and walked away with their reduced, but still quite substantial, fee. Perhaps Lieff’s pride was hurt – it had no other reason to appeal, since the court imposed no monetary penalty for the violation of Rule 11(b). Regardless, Lieff surely must regret the appeal after seeing what the First Circuit had to say about its conduct. I began this post with a quote from the opinion to the effect that Lieff’s excuses for misrepresenting the Fitzpatrick study might have been acceptable “[i]n a typical adversary setting.” I conclude with the court’s discussion of the higher standard of candor and accuracy required of counsel in a non-adversary setting – a standard that Lieff utterly failed to meet:
Lieff's fee memorandum containing the…misleading statement concerning the Fitzpatrick study was made ex parte, with the distinct possibility that no adversary would ever offer any meaningful opposition. The defendant, having bought peace, had no dog in the hunt for fees. Before the pertinent hearing, the district court stressed this point repeatedly, noting that once a settlement occurs “the adversary system doesn't work,” and that the court was therefore “relying heavily on [counsel's] submissions.”
The court's need to rely on counsel in this ex parte proceeding left it vulnerable to being misled, whether by affirmative misrepresentation or by half-truths that deceived through their incompleteness. The applicable rules of ethics called for an elevated level of candor as a result. See Mass. R. Prof. C. 3.3(d) (“In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer that will enable the tribunal to make an informed decision, whether or not the facts are adverse.”); id. cmt. 14A (deeming a petition to approve a class action settlement to be an ex parte proceeding); see also Me. Audubon Soc’y v. Purslow, 907 F.2d 265, 268 (1st Cir. 1990) (“Where counsel appears ex parte, however, the customary checks and balances do not pertain – and the court is entitled to expect an even greater degree of thoroughness and candor from unopposed counsel than in the typical adversarial setting.”). See generally Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse § 7(C)(4) (6th ed. 2021) (“When counsel appears unopposed, a stricter standard of scrutiny…may be applied due to the absence of opposing counsel to correct even inadvertent mistakes.”). . . .
[I]n this ex parte proceeding, the record supports the finding that Lieff at the very least was culpably careless in describing the Fitzpatrick study. The description was materially misleading. And, as the district court noted, in two prior cases Lieff had fully and accurately presented Fitzpatrick’s findings, which gave those courts the opportunity to consider which aspects of the study's findings were most apt. In seeking to deprive this district court of such an opportunity, Lieff provided the court with a record that supports the formality of a measured declaration of a Rule 11 violation without any monetary penalty. [Citations and internal quotation marks omitted.]
