Holding the Line Against Greed

U.S. District Judge Gary L. Taylor was correct last week in holding the line against the request for more money by Hennigan, Mercer & Bennett, the law firm that represented Orange County in its bankruptcy.

In the early days of the case, partner J. Michael Hennigan argued that private companies like those that had sold investments to Orange County were dealing with public agencies and because of that unique circumstance had a special duty not to take advantage. That would have been a good argument to keep in mind when Hennigan was seeking the outlandish “adjustment” for his firm.

Hennigan’s firm already had received $26 million. Then in a surprise filing at the eleventh hour, it asked for $48 million more.

The lawyers did good work for the county. They managed to get back $865 million in settlements, far more than anyone expected after the county’s investment pool lost nearly $1.7 billion. The bulk of the settlement money came from Merrill Lynch & Co., which had sold most of the investments to the county. Still, the man who administered the county’s bankruptcy litigation, former state Treasurer Thomas W. Hayes, has declared, and properly so, that $26 million is plenty.

When the county declared bankruptcy nearly five years ago, it was entering uncharted waters. There was no certainty about how much would be recovered.

As a result of the settlements, schools that invested in the county’s pool will receive about 97% of their investments. Cities and public agencies will recover 93%. Unfortunately, the county will get back only about one-third of its investment.

The county’s legal help did not come cheap. The law firm billed for hundreds of dollars per hour, totaling $26 million. The new demand, nearly tripling the bill, stunned county officials, who strongly argued that enough was enough. Fortunately, Judge Taylor agreed, although he did award Hennigan’s firm an additional $3 million.

Hennigan, Mercer & Bennett’s fee, as a percentage of the settlements, was far lower than that earned by attorneys in run-of-the-mill contingency cases like personal injuries. Still, $26 million is substantial by any accounting. Beyond that lies greed.