Ark. Teacher Ret. Sys. v. State St. Bank & Trust Co.

• Decision Date: 28 June 2018
• Docket Number: C.A. No. 11-10230-MLW, C.A. No. 11-12049-MLW, C.A. No. 12-11698-MLW
• Citation: 404 F.Supp.3d 486
• Parties: ARKANSAS TEACHER RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff v. STATE STREET BANK AND TRUST COMPANY, Defendants. Arnold Henriquez, Michael T. Cohn, William R. Taylor, Richard A. Sutherland, and those similarly situated, Plaintiff v. State Street Bank and Trust Company, Defendants. The Andover Companies Employee Savings and Profit Sharing Plan, on behalf of itself, and James Pehoushek-Stangeland and all others similarly situated, Plaintiff v. State Street Bank and Trust Company, Defendants.
• Court: U.S. District Court — District of Massachusetts

404 F.Supp.3d 486

ARKANSAS TEACHER RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff
v.
STATE STREET BANK AND TRUST COMPANY, Defendants.

Arnold Henriquez, Michael T. Cohn, William R. Taylor, Richard A. Sutherland, and those similarly situated, Plaintiff
v.
State Street Bank and Trust Company, Defendants.

The Andover Companies Employee Savings and Profit Sharing Plan, on behalf of itself, and James Pehoushek-Stangeland and all others similarly situated, Plaintiff
v.
State Street Bank and Trust Company, Defendants.

C.A. No. 11-10230-MLW
C.A. No. 11-12049-MLW
C.A. No. 12-11698-MLW

United States District Court, D. Massachusetts.

Filed June 28, 2018

404 F.Supp.3d 490

Garrett C. Bradley, Evan R. Hoffman, Michael A. Lesser, Michael P. Thornton, Thornton Law Firm LLP, Boston, MA, Daniel P. Chiplock, Jonathan D. Selbin, Lifee Cabraser Heimann & Bernstein, LLP, David J. Goldsmith, Paul J. Scarlato, Michael H. Rogers, Joel H. Bernstein, Nicole M. Zeiss, Lawrence A. Sucharow, Labaton Sucharow LLP, New York, NY, Robert L. Lieff, Richard M. Heimann, Lieff, Caraser, Heimann & Bernstein LLP, San Francisco, CA, Laura R. Gerber, Lynn Lincoln Sarko, Keller Rohrback L.L.P., Seattle, WA, for Plaintiffs

Beth E. Bookwalter, Daniel W. Halston, Jeffrey B. Rudman, William H. Paine, Wilmer Hale LLP, Boston, MA, for Defendants

MEMORANDUM AND ORDER

WOLF, D.J.

On June 21, 2018, I issued an Order stating that, "[f]or the reasons that will be explained in a forthcoming Memorandum and Order, Labaton Sucharow, LLP's motion seeking my recusal pursuant to 28 U.S.C. § 455(a) is hereby DENIED because a reasonable person could not question my impartiality." Docket No. 315. The

404 F.Supp.3d 491

reasons for that decision are described in this Memorandum.¹

I. SUMMARY

I have been presiding in this class action since 2011. In 2016, I approved a settlement of the case and awarded Lead Counsel Labaton Sucharow LLP ("Labaton") and other law firms that represented the class $75,000,000 in attorneys' fees. A subsequent letter from Labaton informed me of what were characterized as "inadvertent errors" in the fee petition and affidavits Labaton had filed. A Boston Globe article raised further questions about the reliability of the representations that were made in the fee petition.

In 2017, with the agreement of Labaton and the other law firms representing the class, I took the evidently then unprecedented step of appointing a Master to investigate whether false and misleading statements had been made in the petition for fees and related issues. I directed the Master, Retired United States District Judge Gerald Rosen, to report the results of his investigation and to make recommendations concerning whether the fee award should be reduced and whether sanctions should be imposed on any of the attorneys.

In May 2018, the Master submitted his Report and Recommendation (the "Report") under seal to permit the law firms to propose redactions.² The Master has recommended, among other things, that Labaton and some of the firms associated with it be ordered to disgorge more than $10,000,000. The Master also found that Garrett Bradley of the Thornton Law Firm ("Thornton"), and of Counsel to Labaton, included statements that he knew were false in his affidavit in support of the fee petition. The Master recommends that I find Garrett Bradley violated Federal Rule of Civil Procedure 11, impose a sanction on Thornton of $400,000 to $1,000,000, and refer Garrett Bradley to the Massachusetts Board of Bar Overseers for disciplinary action.

The law firms have an opportunity to object to the Master's findings and recommendations. The presiding judge must decide any objections de novo. As Labaton wrote in requesting my recusal, the decisions on objections could have "serious and far reaching adverse ramifications for at least some of the law firms." Docket No. 216-1 at 2.

Labaton has filed a motion asserting that the Master's appointment should be deemed concluded. That motion is not yet fully briefed and remains to be decided. However, if it is granted the Master would not have the opportunity to respond to objections to his recommendations.

Labaton has also moved for my disqualification pursuant to 28 U.S.C. § 455(a). Labaton's motion relies primarily on a colloquy at sidebar during a May 30, 2018 hearing that included questioning of George Hopkins, the Executive Director of class representative Arkansas Teacher Retirement System ("ATRS").

404 F.Supp.3d 492

In a class action, the presiding judge has a duty to assure that the class is represented by an entity or individual whose interests are typical of those of the members of the class and who will vigorously advocate the interests of the class through qualified counsel. This means, among other things, that the presiding judge should examine the adequacy of representation at all stages of the litigation, particularly if there has been a material change in circumstances. My questioning of Hopkins in open court was intended to obtain information relevant to determining whether ATRS continues to be an adequate representative of the class.

My questions to Hopkins were based, in meaningful measure, on a concern that ATRS' long and continuing relationship with Labaton might keep it from vigorously advocating the interests of the class concerning whether Labaton and other firms should be ordered to disgorge more than $7,400,000 for the benefit of the class, and whether Labaton should be required to disgorge an additional $4,100,000 as well. The Master's Report revealed that $4,100,000 of the $75,000,000 fee award had been paid to Damon Chargois, a lawyer in Texas who had done no work on the case, and whose name was not disclosed to ATRS, the class, or the court. That payment reportedly resulted from the efforts of Chargois and his partner in Arkansas, Tim Herron, in introducing Labaton to ATRS. Chargois described that role in a message to Labaton, stating:

We got you ATRS as a client after considerable favors, political activity, money spent and time dedicated in Arkansas, and Labaton would use ATRS to seek lead counsel appointments in institutional investor fraud and misrepresentation cases. Where Labaton is successful in getting appointed lead counsel and obtains a settlement or judgment award, we split Labaton's attorney fee award 80/20 period.

Report (Docket No. 224) at 125 n.111.

Hopkins stated to the Master that he did not believe that the fee to Chargois should have been disclosed to ATRS or the class. This prompted the Master to write that, "[w]e cannot see how, in light of a clear dereliction of his fiduciary duties to the class, Hopkins can fairly and adequately represent the class moving forward." Id. at 258, n.207.

While the merits of the Master's views remain to be decided, on May 30, 2018 I anticipated that the conduct of Hopkins on behalf of ATRS would become an issue in these proceedings, and that ATRS' interests might be aligned with Labaton's interests, which now conflict with the financial interests of the class. In addition, the Boston Globe had investigated and reported on campaign contributions to a Massachusetts county treasurer and the state treasurer by Labaton and Thornton before receiving lucrative contracts to represent funds chaired by those officials in class actions. It also reported that federal prosecutors were investigating Thornton's political campaign contributions. The Master in seeking instruction had told me that federal prosecutors were investigating whether Thornton had made an illegal payment to a pension fund official and asked him to provide information obtained in his investigation.³ The Boston Globe article and the criminal investigation caused me to expect that there would be questions by the media at least about the origins of Labaton's relationship with ATRS when the Master's Report was unsealed. Each of these matters is relevant to whether ATRS remains a typical and adequate class representative.

404 F.Supp.3d 493

In response to my questions on May 30, 2018, Hopkins testified that he did not believe that ATRS should take a position on whether Labaton and other lawyers should be ordered to return some of the fees awarded to the class. He also said ATRS was not, as class representative, receiving legal advice from anyone other than Labaton.

Without being asked, Hopkins also stated that, when he became Executive Director of ATRS, Labaton was one of several firms retained to monitor ATRS' investments and possibly represent ATRS in class actions, and that "political leaders" had persuaded Hopkins to give high priority to such cases. In response to questions about this, Hopkins said that he had over the years discussed class actions, Labaton, and this case with Stephen Faris. According to Master's Report, Faris, as an Arkansas State Senator, had introduced Labaton to ATRS. Hopkins also testified that he had met with Faris on May 28, 2018—Memorial Day—and discussed the May 30, 2018 hearing with him.

After questioning Hopkins, I summarized my concerns about whether ATRS remained a typical and adequate class representative. I noted that the Master's Report raised questions, which were only questions,...