Investors Upset Over Legal Fees in Lincoln Case
Small investors who lost their life savings in the collapse of American Continental Corp. and its Lincoln Savings & Loan unit are grumbling about the fees their lawyers will be paid to recover some of the approximately $275 million they lost.
A federal judge in Phoenix has approved a formula that would give the investors’ lawyers $37.5 million if they recover $150 million of the money lost by American Continental debt holders.
The formula gives lawyers 25% of the first $150 million recovered and 29% of any amount over that. It also provides for million-dollar incentives to recover certain amounts by specified dates and allows for out-of-pocket costs, according to a recent notice seeking investor approval of settlements reached with two defendants so far.
If the lawyers recovered $250 million--and few insiders expect that to happen--they would receive $81 million in fees plus millions more in costs and incentive payments.
“This is the biggest windfall that has hit the legal market,” said Harold Rosenberg, a bondholder from Van Nuys who also is a lawyer. “Of course, the lawyers should be rewarded--but how much?”
Rosenberg said more than a dozen bondholders have expressed disapproval of the fee formula, especially since they generally believed that fees wouldn’t exceed 15% of the amount recovered. One plaintiffs’ lawyer, Richard Greenfield of Philadelphia, said last year that legal fees have been as low as 7% in major class actions.
But Frank Barbaro of Santa Ana, one of the bondholders’ attorneys, defended the formula, saying the case is “incredibly” complex and about 50 lawyers have been working more than a year on the case without any compensation.
The lawyers also have spent $5 million of their own money to pay such expenses as travel, filing fees and photocopying some of the 14 million pages of documents generated during the case.
In class actions, plaintiffs’ lawyers are typically paid from the pool of money they recover. The fee is usually set by the court once the case in completed.
