Attorneys in Keating Case Squabble Over Fees : Courts: Three Orange County law firms charge that they are being shortchanged in deal to divide $38 million from lawsuit settlement.

Three Orange County law firms filed angry objections Friday to the proposed split of $38 million in plaintiffs’ attorney fees from settlements in the fraud and racketeering lawsuits against Charles H. Keating Jr. and his cohorts.

The firms charged that the division recommended by Joseph W. Cotchett Jr., chief trial lawyer for investors in Keating’s financial empire, would be unfair because it would reward lawyers who regularly practice securities law to the detriment of local attorneys whom the investors first contacted and who took on significant work.

In its objection, filed in federal court in Tucson, the law firm of Alvarado, Rus & Worcester in Orange charged that Cotchett “made absolutely no effort” to forge a mutual agreement about fees among 18 law firms representing the investors. U.S. District Judge Richard M. Bilby had ordered such agreement.

The Santa Ana firm of Horton, Barbaro & Reilly called Cotchett’s stated criteria for the fee distribution an after-the-fact “rationalization of a haphazard fee distribution which cannot be justified by any rational formula.”

The firm of Menke, Fahrney & Carroll in Costa Mesa charged that Cotchett’s recommendation is “heavily weighted in favor of the lead counsel and those firms who are closely related to lead counsel.”

Under the proposed fee split, Alvarado, Rus would receive $168 an hour for its work; Menke, Fahrney would get $134 an hour; and Horton, Barbaro would receive $74 a hour.

Cotchett’s firm, however, would get $414 an hour, and some of the other law firms that have worked in the past with Cotchett or the other major co-lead counsel, the San Diego firm of Milberg, Weiss, Bershad, Specthrie & Lerach, would receive as much as $625 an hour.

The $38 million in fees--already approved by the court under a pre-existing formula--is part of $152 million in settlement funds to be divided among investors and their lawyers after a Sept. 14 hearing before Bilby. The amount to be released is about 60% of the $252 million that lawyers recovered for investors in settlements. The remaining money will be disbursed later.

In addition, the lawyers won a jury verdict in July of $4.4 billion against Keating and three other defendants who refused to settle. All but one of the defendants are broke or bankrupt; the solvent one is an offshore company.

The investors accused 99 individuals and companies of bilking them out of $288.7 million by misrepresenting the true financial condition of Keating’s American Continental Corp. and its Irvine subsidiary, Lincoln Savings & Loan. Lincoln, the nation’s biggest thrift failure, is costing taxpayers an estimated $2.6 billion.