One way to tell the winners from the losers in post-bankruptcy Orange County is by the size of some of the paychecks. And thanks to the settlement announced Tuesday, former state Treasurer Thomas W. Hayes may have emerged as the single biggest winner.
Hayes, who represents the county and a host of other public agencies in the bankruptcy litigation effort, stands to take home a tidy $6 million--the result of a contingency deal hammered out when he took the job two years ago.
Up until Tuesday, the winners have been attorneys who earned millions from the county's long and painful struggle out of bankruptcy. Before Tuesday's announcement, the county litigation pool had paid out $17 million, largely for the fees of dozens of lawyers working on a string of lawsuits.
And the tab can't be totaled yet; a number of suits are pending.
Far from being critical, county officials say the money has been well-spent. "Merrill Lynch probably outspent us 5 to 1 but our lawyers went toe to toe with them. It was tremendously cost effective," County Supervisor William G. Steiner said. "As for Tom Hayes, he's brilliant. He earned every dime."
Hayes was running a securities firm in Sacramento when he was tapped to help restructure the county's debt and oversee litigation that sought to recover some of the $1.6 billion lost in bad investments.
For two years, he has been a bridge between the county and about 200 public investors, including everything from schools to transportation agencies, that lost money in the county pool and are jointly pressing the litigation. Hayes has overseen payments to attorneys, and made calls on legal strategy, although he is not an attorney.
He took the job on a contingency basis--earning nothing for the first $200 million collected, and 1.5% for anything earned above that. The $437 million settlement with Merrill Lynch announced Tuesday gives Hayes a payday so far of about $5.9 million.
"The whole structure was put together to give me incentive to recover as much as I could, and I think I did a pretty good job," Hayes said. "But I took the job for other reasons. I wanted to see the county resolve the situation."
In contrast, attorneys working on the case were paid by the hour, rather than by traditional contingency fee--which attorneys said turned out to be a bargain for the county.
Plaintiffs' attorneys typically get 33% to 40% of a settlement, though in a huge case such as this one, it would more likely be 20% to 25%, said several attorneys involved.
If this had been a contingency case, lawyers would likely have pocketed $170 million--tenfold the current level of litigation fees.
"It's not like this is a gravy train by any stretch of the imagination," said John Giavannone, who represented county school districts, noting that many of the lawyers have "sacrificed their personal lives for three years," working 80 to 90 hours a week and trekking cross-country for depositions.
"We're not losing money on it, but normally when you hit a large case you might go in and ask for a bonus or something like that," added Giavannone's partner, Merrill Francis. "I don't know of anyone who is asking for a bonus."
Giavannone noted that Merrill Lynch had hired six large, prestigious law firms to work on the case--"with literally thousands of lawyers at their disposal"--and said the county and local governments needed an A-team to respond.
"The county couldn't put up a four-man shop," he said. "When you're fighting with the big boys, you've got to put up a big shop. They hired the best, and we, frankly, had to counter with the best."
If anything, the lawyers said, taxpayers got off cheap. "For the pool participants, doing it on an hourly basis was by far the best deal," Francis said. "You get more bang for the buck."
Marc Winthrop, who represents four local school districts, guffawed when asked about the attorneys' windfall.
"Not me, not on this case," Winthrop said. "The most I've made on this is I've attended four depositions with my clients. I get hourlies, so I made a few thousand bucks."
Regarding Hayes, Winthrop said he'd retire if he got $6 million, but that "everything's relative."
"When you think of it in percentage terms, maybe it's not so much," Winthrop said, noting that in the proposed $10-billion tobacco settlement, lawyers are asking for $500 million.
Chris Varelas, the New York banker who served as the county's top financial advisor in the bankruptcy--and who said he is getting "zero" from the settlement announced Tuesday--called Hayes' seemingly huge chunk "more than fair."
Varelas recalled talking to Hayes before the former state treasurer signed onto the bankruptcy team. Hayes was thinking of asking for $100,000 or $200,000 a year; Varelas shook his head.
"I said, 'You're not asking enough,' " Varelas recalled telling Hayes. " 'You're the only person that everyone agreed to, you have huge credibility. You're going to earn them tens of millions of dollars--you should be compensated for it.' "
Giavannone also said Hayes deserved what he got. "Tom Hayes is the guy--literally was the only guy--that everybody trusted. There were a lot of famous names that were brought up, but Tom Hayes was the one," he recalled. "He wasn't going to earn a penny unless there were some big settlements."