Supervisors Decry Bonus for Law Firm

The Board of Supervisors on Tuesday blasted the law firm that handled Orange County’s bankruptcy litigation for seeking an additional $48 million in compensation and vowed to oppose the effort in court.

“These actions brought by this law firm against the people of Orange County . . . truly give lawyers a bad name,” said Supervisor Tom Wilson. “What they’re trying to do is not in anyone’s interest but their own.”

The law firm, Hennigan, Mercer & Bennett, plans to ask a federal district judge this week to approve the additional payment, which would come on top of the $26 million in hourly fees the lawyers have already collected.

If approved, it would boost the firm’s total compensation to 8.5% of the $865 million it won in settlements with Merrill Lynch & Co. and other companies accused of helping cause the county’s 1994 financial collapse.

The contract with the law firm promised an hourly rate as well as unspecified adjustments based on several factors, including the difficulty and success of the litigation.

The contract was approved by former state Treasurer Thomas W. Hayes, who was appointed by the Bankruptcy Court to oversee the effort to recoup money that the county government and other local agencies lost in the bankruptcy.

Hayes, however, has rejected the law firm’s request for the $48-million bonus, prompting the attorneys to seek a ruling from the federal court.

J. Michael Hennigan, a senior partner with the firm, said the payment request should be viewed in the context of what was accomplished.

“The $26 million got spent over five years fighting over 23 different defendants under circumstances in which our opponents spent almost a quarter of a billion dollars,” Hennigan said. “When you look at it from the perspective of the amount of time and effort involved, it’s very efficient and a small number for what it achieved.”

In major litigation, he added, fee adjustments similar to the one his firm is proposing are common. Fee adjustments are also in the best interests of the client, he said, because if lawyers were paid only an hourly wage, they could be driven to unnecessarily prolong a case.

The $48-million bonus was suggested by a retired federal judge who, at the firm’s request, agreed to analyze the lawyers’ compensation package.

But some county officials reject Hennigan’s argument and say the attorneys have already been generously compensated.

“I think the issue is that almost everyone was under the impression that [the compensation] was strictly for hours billed,” said county Treasurer-Tax Collector John M.W. Moorlach. “And now we come to the end of the road and we get this substantial invoice.”

County Counsel Laurence M. Watson said the county will formally oppose the payment when the law firm submits its demand through the court.

Watson and Supervisor Todd Spitzer said the disagreement could create a conflict of interest when it comes to having the law firm represent the county in any future bankruptcy hearings. Spitzer said the relationship is now “adversarial.”

There is one final step before the county can close the books on the bankruptcy: a procedural hearing this fall at which a judge will disperse the settlement money and formally discharge the bankruptcy.