Law Firm Agrees to Pay $2 Million to South Gate

One of Los Angeles’ most prominent law firms agreed Tuesday to pay South Gate $2 million to settle a suit contending that it had overbilled the city for its defense of former Treasurer Albert Robles against criminal charges.

The settlement marks a major victory in the city’s effort to recoup funds that officials allege were improperly spent during Robles’ tenure.

The treasurer was recalled from office two years ago and was recently indicted on federal charges of public corruption, money laundering and bribery. Prosecutors allege that his actions cost the small city south of downtown Los Angeles $12 million.

South Gate is facing the possibility of selling public property, raising taxes and cutting services because of the losses.

The city hired Sheppard, Mullin, Richter and Hampton in 2002 to defend Robles after the district attorney’s office accused him of threatening to harm two state politicians, a political consultant and a police lieutenant. The city paid the firm more than $1 million for the defense. The case was dismissed.

The city contends that Sheppard, Mullin overbilled for its services. In October, a Superior Court judge ordered the firm to repay the city $517,000 related to the case.

Then, in January, another Superior Court judge, John P. Shook, concluded that Robles’ case should not have cost the defense more than $150,000.

Shook called Sheppard’s fee “excessive and unreasonable ... transcending beyond the stratosphere into deep outer space.”

Sheppard, Mullin did not admit any liability in agreeing to the settlement, which was reached before a jury trial that would have determined whether the alleged overbilling involved fraud and false claims.

“There’s no wrongdoing here. If you followed this, it’s just a politically motivated billing dispute,” said Fred Puglisi, a partner at Sheppard, Mullin.

“One set of politicians hired us, and they were very happy with the services we provided.... Another group comes in and decides they don’t want to pay. When you don’t want to pay, you make up all kinds of excuses,” he said.

But some legal ethics experts said Shook’s strongly worded ruling and Sheppard’s settlement were not the norm in such disputes.

“It is quite unusual for courts to find that a law firm’s bills are excessive, because the ethics rules on legal fees are rather deferential to the market. Judges tend to say, ‘You make a deal, you live with it,’ ” said Stephen Gillers, a professor at New York University’s School of Law.

“If a judge is saying your fees here were indefensible, then the firm has to worry that current clients might worry the fees they are being charged are not legitimate,” he said.

Robles was a polarizing figure while in South Gate government. Though supporters called him a man of the people, critics said he ran amok, benefiting friends and punishing enemies. The federal charges accuse Robles of enriching himself, friends and family through a series of questionable city contracts and money skimming. He has pleaded not guilty.

South Gate said it spent nearly $11 million on legal fees during the last two years of Robles’ tenure; before that, the city rarely spent more than its legal services budget of about $700,000 a year.

In an effort to recover money, the city focused on law firms that had been hired by previous city leaders whom voters recalled in 2003. An audit by the state controller’s office last year found that Robles and his allies had routinely approved improper contracts with law firms and given attorneys broad leeway in how they billed the city.

At the top of the list is another downtown L.A. firm, Albright, Yee & Schmit, which South Gate has accused in a lawsuit of helping Robles maintain and consolidate his influence over the city. The suit seeks $1.8 million in damages

In addition, the district attorney’s Public Integrity Division is investigating Albright, Yee’s ties to Robles.

Attorneys for the firm have strongly denied any wrongdoing. They say the city is trying to get out of paying its debts by unfairly tarring Albright, Yee’s integrity.

The city faces a deficit of more than $6 million for the next fiscal year. Earlier this month, South Gater voters rejected a utility tax that would have raised nearly $3 million.

Mayor Henry Gonzalez said he was “ecstatic” over the settlement with Sheppard, Mullin.

“We drew a line in the sand and said, ‘This is the first one we’re going to take on.’ We’re encouraged by this decision,” he said. “I think we’re finally seeing the light at the end of the tunnel. This is good for the community, because they’re seeing that we’re recovering some money after being on the verge of bankruptcy.”