MANHATTAN (CN) - Finding that they failed to keep tabs of billable hours, the 2nd Circuit today barred lawyers for World Trade Center cleanup workers from collecting "bonus payments" on top of the approximately $187 million fees they anticipate from a settlement.
Thousands of firefighters, police officers, construction workers and others involved in the cleanups of the fallen Twin Towers filed more than 10,000 lawsuits against New York City, private contractors and WTC Captive Insurance Co.
Created in 2003, WTC Captive received $1 billion from a congressional appropriation to insure the city against claims associated with debris removal.
Those cases were consolidated into one case before U.S. District Judge Alvin Hellerstein.
In March 2010, two months before trial had been set to begin, the parties entered into settlement talks.
Hellerstein rejected the first proposal, which he said undercompensated the victims and overcompensated the lawyers.
While the original agreement gave lawyers a one-third contingency fee of a $575 million to $632.5 million principal settlement, the amended settlement decreased the attorneys' fees to one quarter and increased the award to range of $625 million to $712.5 million.
The agreement also called for WTC Captive to provide "bonus payments" if more than 95 percent of eligible plaintiffs participated in the settlement, and "contingent payments" if fewer than 220 new debris removal claims filed before Jan. 5, 2012.
Finding both criteria satisfied, Hellerstein calculated the bonus payments at $55 million and contingent payments at $5 million. He also ruled that the victims' lawyers would not receive any share of these awards.
On Monday, the 2nd Circuit ordered Hellerstein to reappraise the additional payments, but he agreed that any bonus should go to the victims alone.
"The District Court was keenly aware that the funds available to these victims are limited," Judge Denny Chin wrote for a three-judge panel. "It recognized that overcompensation of attorneys would take away money from needy plaintiffs, and it was rightfully sensitive to the public perception of overall fairness."
The lawyers made it difficult to judge what compensation would be appropriate because they "did not submit any evidence of the number of hours that they worked," according to the 28-page opinion.
"The district court observed that 'none of these firms apparently maintained time records,'" Chin wrote. "Without time records, the district court was unable to calculate the lodestar to do a 'cross check' on the reasonableness of the fees."
Although they worked on perhaps "the most complex mass tort case in the history of the United States," their capped compensations already marked a "substantial fee," the opinion states.
Hellerstein was "on the whole, complimentary of plaintiffs' counsel," but he also "chided them for certain delays and raised several ethical concerns about conflicts of interest in the fee arrangements," the opinion states.
This apparently refers to the lawyers' proposal to collect a cut of the bonus payments, which would have them benefit when clients agree to settle or dismiss their claims, according to a footnote of the opinion.
Marc Bern, a senior partner at Napoli Bern Ripka Shkolnik, said the scathing ruling shows that "no good deed goes unpunished."
"There was no other firm willing to take on this case," Bern said in a phone interview. "We represented about 10,000 of these people, of these heroes."
Emphasizing that his firm invested "tens of millions" of dollars to make the case viable, Bern insisted that it submitted "detailed evidence of our hours" to Hellerstein, who issued his rulings sua sponte
without a notice or hearing that would allow the lawyers to make their case.
The appellate court also ignored the submitted billing records, Bern claimed.
"We think the 2nd Circuit is wrong, just plain wrong," he said. "They either failed to understand our position or just plain ignored it."
He added that he was also "deeply disappointed" that his clients will be getting a smaller payout than anticipated.
The appellate opinion directs Hellerstein to consider whether he should have used the insurer's standard for an "eligible plaintiff," which would have reduced the bonus payment to $12.5 million.
A $5 million contingent payment also capsized on appeal, with the 2nd Circuit finding that Hellerstein substituted his "personal notions of fairness" for what the contract called for here.
Bern, who said he was "shocked" by the decision, said he was "considering all of our additional options" for an appeal.
Attorney Brian Shoot, plaintiffs' co-counsel with the firm Sullivan Papain Block McGrath & Cannavo, declined to comment.