Firm must divulge information on contract lawyers in Citigroup case; challenge to firm’s “excessive” fees

5 March 2013 –  Last week the federal judge in In re Citigroup Inc. Securities Litigation, a shareholder lawsuit against Citigroup being heard in the U.S. District Court, Southern District of New York) ordered a law firm to hand over information about contract attorneys it employed.  It was considered a victory to a shareholder who is challenging the firm’s fees as excessive.

Kirby McInerney, a New York-based plaintiffs’ firm, represented shareholders who in 2007 brought a class action in Manhattan federal court accusing Citigroup of hiding tens of billions of dollars in toxic mortgage assets. Citigroup agreed last year to settle the lawsuit for $590 million.

The agreement resolved claims for massive losses after the bank failed to take timely writedowns on collateralized debt obligations, many backed by subprime mortgages, and engaged in self-dealing transactions that hid the risks.Citigroup has denied wrongdoing.

Kirby McInerney sought almost $100 million in fees, including some for outside contract attorneys, according to court filings.

Ted Frank, a Citigroup shareholder and well-known class action reform activist, objected to the fee request, which he said included rates that were significantly higher than typical hourly rates for contract attorneys in New York. Frank, who would be among the shareholders covered by the settlement, said the fees request was made at the expense of shareholders.

According to Frank, in some cases, plaintiffs’ attorneys billed more than $1,000 an hour for document review performed by outside contract attorneys. More typical rates, Frank said in a court filing, would be $50 an hour.

Frank said in an email exchange with Reuters Legal that about half of the fees Kirby McInerney was seeking was for work contract attorneys performed.

In response, Kirby McInerney said in a January court filing that Frank had “denigrated” the contract attorneys, whose work was “comparable to, and often the same as, the work performed by firm associates.”

Frank had requested discovery in connection with Kirby McInerney’s fee request.

Ruling from the bench, U.S. District Judge Sidney Stein on Thursday ordered Kirby McInerney to submit to the court information about its staff and contract attorneys, including how many worked on the case, their daily time records and expenses.

Stein also granted Frank’s request for biographical information on the contract attorneys, so that he could compare their skills, reputation and experience to Kirby McInerney staff. The firm has said in earlier proceedings that the contract attorneys had similar experience to its staff attorneys, Stein said.

“I think the court, and Mr. Frank, are entitled to specifics,” Stein said at a hearing on Thursday.

Stein, however, denied Frank’s request to depose experts on legal fees.  And most interesting is Judge Stein did not order Kirby McInerney to submit ‘hourly rates’ for contract attorneys.