25 F.4th 55
1st Cir.2022Background
- Institutional investors sued State Street for overcharging on FX products; after five years the parties settled for $300 million.
- The district court initially awarded class counsel ~25% ($75M) in fees, relying in part on Professor Fitzpatrick’s empirical study of class-fee percentages.
- Press reporting and a special master revealed serious problems: widespread double-counting in lodestar submissions and a $4.1M payment to a Texas lawyer (Damon Chargois) tied to client recruitment.
- The court vacated the original fee award, appointed a special master, held hearings, and ultimately awarded 20% ($60M), noting misconduct by counsel and criticizing Lieff for several deficiencies.
- The court found Lieff violated Fed. R. Civ. P. 11(b) by presenting a materially misleading description of the Fitzpatrick study (sanctioned without monetary penalty); Lieff appealed only the Rule 11 finding and certain criticisms.
- The First Circuit affirmed the Rule 11 sanction and dismissed Lieff’s challenges to the court’s other criticisms as unappealable.
Issues
| Issue | Plaintiff's Argument (Lieff) | Defendant's Argument (District/ Amicus) | Held |
|---|---|---|---|
| Appealability of district-court criticisms (non-Rule 11) | Criticisms harmed reputation and could affect future allocation of any unclaimed funds; thus appealable | Pure criticisms unconnected to a reviewable order are not appealable; Lieff did not appeal the fee award or allocation | Criticisms unappealable; appealability limited to formal Rule 11 orders or equivalent censure |
| Adequacy of Rule 11 notice / due process | Court never issued a formal "show cause" order; therefore Rule 11(c) notice was insufficient | Court repeatedly warned it would investigate misconduct and consider sanctions over two years; substantial compliance occurred | Substantial compliance satisfied Rule 11 notice; Lieff had fair opportunity to respond |
| Rule 11 applicability where Lieff did not personally sign fee memo | Absent a personal signature, Lieff cannot be held responsible for the filing | Rule 11 covers anyone who presents or later advocates a paper; Lieff’s attorneys were listed and advocated the memo | Rule 11 applies; listing and advocacy sufficed to "present" the filing |
| Merits: Did the fee memorandum materially misrepresent Fitzpatrick’s study? | Statement that 24.85% was "right in line" was fair; study provided; additional evidence supported fee | In an ex parte fee context the memo omitted the study’s key finding that large ( $250–$500M) settlements have much lower mean/median fees, misleading the court | In ex parte context the characterization was materially misleading and at least culpably careless; Rule 11 violation affirmed |
Key Cases Cited
- In re Williams, 156 F.3d 86 (1st Cir.) (criticisms of counsel alone are not appealable)
- Young v. City of Providence, 404 F.3d 33 (1st Cir.) (formal censure or Rule 11 finding is appealable)
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (Supreme Court) (standard of appellate review for Rule 11)
- In re Nineteen Appeals Arising Out of San Juan Dupont Plaza Hotel Fire Litig., 982 F.2d 603 (1st Cir.) (orders resolving fee claims are appealable)
- Me. Audubon Soc’y v. Purslow, 907 F.2d 265 (1st Cir.) (ex parte proceedings demand heightened candor from counsel)
- In re Taylor, 655 F.3d 274 (3d Cir.) (substance-over-form approach to show-cause notice under comparable rules)
- Kaplan v. DaimlerChrysler A.G., 331 F.3d 1251 (11th Cir.) (substantial compliance with Rule 11 notice can be sufficient)