Preying on the Misery of Others – Part II

Bernie Madoff may be the biggest purveyor of the Ponzi scheme, but he isn’t the only one — Sir Allen Stanford makes the “dean’s list” with a whopping $7 Billion of his client’s money. And Madoff and Stanford may be among the worst of those preying on the innocent, but they aren’t alone — there is a whole flock of lawyers out picking the bones of what is left.

An August 14 Associated Press report notes that attorney Ralph Janvey has submitted bills for $27 Million to the United States District Court in Texas. Janvey has been appointed by the court to find as much of Stanford’s missing $7 Billion as possible. Janvey’s first bill was for $20 Million through April 12 and another $7.6 Million for the seven weeks ending May 30 — a million dollars per week — nice work if you can get it. And God knows how much more he has stacked up for the months of June and July.

Thus far, Janvey has recovered $81.1 Million and you have to assume that it represents the “low hanging fruit” — the amounts easily discovered such as bank accounts, real estate, and balances in the funds Stanford managed — you know, the kind of funds that any first-year accounting student could find. The $81.1 Million represents slightly more than one percent of the amount lost by investors. In other words, if you had invested $10,000 with Stanford, Janvey’s efforts would have recovered $116. But after Janvey takes his cut, you would be left with $77.50 — and that’s only until Janvey submits his next bill.

Now let’s put that into perspective. Janvey has hired a team of silk stocking law firms around the country and is billing their time out at as much as $500 per hour. A work year (eight hours per day, 5 days per week, 50 weeks per years) is 2000 hours. While many lawyers work and bill between 2300 and 2500 hours per year, for these purposes we will stick to the 2000 hours — the same number of hours that most people work. At $500 per hour these firms are billing out $1 Million per year per lawyer. ONE MILLION DOLLARS PER YEAR PER LAWYER. (Actually that figure is probably much larger since most firms bill out their associates fees at roughly three times what they actually pay them and pocket the rest as profit.) They also charge $250 per hour for copying records. That’s $250 per hour to the law firms who in turn pay some file clerk less than $25 per hour to do the actual copying. At that rate, the file clerk will make three times more each day than a $10,000 investor has recovered to date.

I have been a lawyer for forty years although I am no longer actively engaged in the practice. I am still enormously proud of being a lawyer and have a great deal of admiration for most lawyers — particularly lawyers in small towns across the nation. My father was a lawyer as are my brother and my sister. When I attended law school it was impressed upon me that lawyers are there to serve the public. Their function, primarily, is to act as a guide through the maze of laws and procedures that govern our lives and to find solutions for conflict. For most lawyers that is still the ethos that drives their practice.

But there are groups of lawyers today whose conduct and billing practices embarrass me and for whom I can find no justification economically, ethically or morally. The first such group is that cluster of bottom feeders known as the class action tort lawyers. In August of 2005 in my column in the Medford MailTribune, I wrote:

“In this world there are four kinds of lowbrows. There are burglars who take your property when no one is looking, robbers who take your property by force when you are looking, embezzlers who take your property by manipulation”¦and there are class action tort lawyers who take your property with the court’s permission. For those of you who want a real lesson in sleaze, I invite you to read John Grisham’s “King of Torts,” an all too accurate revelation of today’s class action tort industry and the lawyers who inhabit its lucrative slag heap.

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“As usual, it is the little guys that get hurt the worst. In this case, these people are your neighbors, the coaches for your Little League teams, the volunteers at charity events, and the guy next to you at the local grocery store. They spent years installing, repairing and upgrading your phones. But one kick in the shins is never enough.

“America’s trial lawyers are never ones to let a little greed get in the way of making a tragedy even worse. And this is the second bitter pill. The minute the market value of Qwest stock began to slide into the abyss, the class action tort lawyers sprang into action and filed a series of lawsuits allegedly on behalf of the former US West stockholders. The class action tort lawyers know that they are never going to have to try the case, never be put to the proof of their allegations. They know that this is a game where they commence discovery, ask a ton of questions, force the productions of hundreds of thousands of documents, and in the process make the defense lawyers very wealthy — they’re being paid by the hour. At a point in time settlement is inevitably reached. And the settlement is always the same. The members of the class get virtually nothing and the class action tort lawyers get rich.

“In the case of the US West employees and shareholders the proposed settlement is 15 cents per share — shares that were worth $60 per share. But the class action tort lawyers are going to get 30 percent of the total settlement — 30 percent of $50 million. And that $15 million dollars is going to come out of the pockets of the employees and shareholders. Their 15 cents per share will be reduced to about 10 cents per share. FIFTEEN MILLION DOLLARS for the lawyers, and 10 cents for the employees and shareholders.”

The second such group are the silk stocking law firms that throw armies of bodies at exorbitant rates at problems that, from the client’s perspective, can be more economically settled through negotiation and compromise — the process by which they are ultimately settled after these law firms have exhausted their respective clients’ funds and patience. At the commencement of litigation these law firms talk bullishly of the opportunity for success and a rosy picture of the ultimate outcome. This will change gradually as the process progresses.

These firms engage in what is referred to as “motion practice.” They file reams of standardized interrogatories — each time billed as if originally created. When receiving the same type of standardized interrogatories from the other side, they object, parse, obfuscate or bury material in truckloads of documents. In each instance, such conduct results in endless rounds of motions, briefs, arguments, orders and requests for reconsideration — all of which are billed out at the extraordinary rates charged by these firms.

Understand that very little of this “motion practice” relates to the substance of the litigation. Rather it is principally designed to increase the number of hours that can be billed. In most of these law firms there are associates who do the work and then partners who review the work. There are computer files full of discovery requests (interrogatories, requests for documents, and depositions) that are developed for each type of litigation. Though these forms of discovery requests are utilized repeatedly, they are billed as if they newly created for each succeeding contest.

There are repeated motions for judgment on the pleadings (almost never granted) and subsequent motions for summary judgment (rarely granted because there are always facts at issue). And when the deadline for trial looms the attorneys begin to urge their respective clients to consider settlement; warning each of the vagaries of trial and the catastrophic consequences of a loss. The clients, having already spent extraordinary sums to pay their respective lawyers, now face the prospect of additional amounts if they should lose — or the now cautionary prospects of winning (severely diminished since the onset of the litigation). In the end a compromise is reached — more than likely the same compromise that could have been reached at the outset if the lawyers focused on resolution rather than the riches that come from encouraging litigation.

This type of conduct is the exception to the rule. But the practice of law for those who engage in such conduct has become much like the excesses of government officials and corporate executives who spend other people’s money without reservation or conscience.

There ought to be a law.