September 2, 1998

Holocaust Suit Settlement Spawns a Legal Fee Fight

By ANN DAVIS

Staff Reporter of THE WALL STREET JOURNAL

WHEN IS a case so heart-wrenching that lawyers should work on it free of charge?

That question has deeply divided a group of prominent plaintiffs' lawyers who reached a landmark $1.25 billion settlement last month with Swiss banks on behalf of Holocaust victims and their heirs.

Attorneys who have vowed not to seek a fee include corporate nemesis Melvyn I. Weiss, whose New York firm has made tens of millions of dollars bringing shareholder class actions, and prosperous litigator Michael D. Hausfeld, whose Washington, D.C., firm has helped to strike huge settlements in environmental and civil-rights suits, most recently involving the Exxon Valdez oil spill and racial bias at Texaco Inc.

"This is a class of people who are probably the most persecuted in all of history," says Mr. Hausfeld, whose father survived the Holocaust but lost many relatives in concentration camps. He and another attorney on the case have been bringing war-reparation cases for Holocaust victims for two decades.

But several other lawyers' say that, while they applaud their colleagues for donating their time, they themselves deserve to be paid. Edward D. Fagan, who has a small personal-injury practice in New York, says he couldn't have afforded to spend two years working on the case for nothing. Mr. Fagan emerged as a pivotal player in the suit against UBS AG and Credit Suisse Group.

Morris A. Ratner, a New York partner in the powerhouse plaintiffs' firm Lieff, Cabraser, Helmann & Bernstein, adds that although many of his partners have family members who suffered in the Holocaust, "we couldn't survive economically if we declined to take a fee every time we represented someone whose claims were emotionally powerful." He says that because the Holocaust was a "unique event in history," his firm would seek a more modest fee than it has in other big cases.

Ultimately, U.S. District Judge Edward R. Korman in Brooklyn, N.Y., will decide how the attorneys should be compensated. But the members of the nine firms on the plaintiffs' executive committee are set to face off today in Mr. Weiss's office, where they are expected to discuss what is a "reasonable" fee request, among other things. Five say they plan to seek fees. Three say they don't. One couldn't be reached.

The dispute is causing consternation at the World Jewish Congress, which was the lead negotiator for Jewish advocacy groups in the case and is prepared to raise objections in court to anything but reimbursement for expenses. "We do not believe that a profit should be made," says Elan Steinberg, the New York organization's executive director. "If this isn't the kind of case that should be taken on pro bono, what kind of case should be?" he says, using the Latin legal term for work done free of charge for the public good.

Normally, plaintiffs' lawyers who bring class-action lawsuits request a percentage of whatever they recover for their clients. In big cases, judges have approved fees amounting to as much as 33% of settlements. But in settlements of $100 million or more, courts generally have set fees in the range of 5% to 15%, according to Mr. Ratner.

The lawyers hoping to be paid say they aren't ready to specify an amount that they think is fair. But a fee of just 5% would amount to $62.5 million. Whatever the amount, the fees would come out of the settlement fund, lawyers in the case say.

Roger M. Witten, lead attorney for UBS and Credit Suisse, says it was always the banks' position that they would never pay attorneys' fees on top of any settlement. "If they then wanted to take money away from the class to pay fees, that was their business," says Mr. Witten of Wilmer, Cutler & Pickering in Washington, D.C.

Several of the plaintiffs lawyers were reluctant partners from the start.

2.

In 1996 and 1997, three groups of attorneys filed competing suits against the Swiss banks in federal court in Brooklyn, seeking compensation for accounts victims had opened and proceeds of property that was plundered by the Nazis in World War II.

Michael D Hausfeld

Messrs. Weiss and Hausfeld, who collaborated on one case, had decided ahead of time not to seek compensation. But the suits were consolidated because they were so similar, and the lawyers found themselves jockeying for position, Mr. Weiss, who has long been active in Jewish causes, ruffled feathers by arguing that the other lawyers should work free of charge or not at all.

"I have nothing against lawyers who can't afford to work pro bono," Mr. Weiss says in an interview. "However, when there are lawyers as good or better who are available . . , on a pro bono basis, the justification for paying those lawyers isn't there."

Judge Korman disagreed and allowed the lawyers who hoped to be paid to remain on the case. But relations grew so testy that he asked New York University Law School professor Burt Neuborne to act as an adviser for all the cases.

Prof. Neuborne, who doesn't want to be paid, nevertheless didn't think a no-fee requirement was fair. A suit to help Holocaust survivors "is something that comes around once in a generation," he says, adding that he views his involvement as a tribute to his daughter, who died while in rabbinical school.

But Prof. Neuborne says there was an understanding among the lawyers that a "quid pro quo" for being involved in the extraordinary case was that "we didn't expect anybody to try to make a very signifi cant profit. We're now going to have to confront what we mean by a reasonable fee." Robert A. Swift, a Philadelphia lawyer, says he objects to attorneys who try "to impute their values to other lawyers." One of the only non-Jewish lawyers with a key role in the case, Mr. Swift has spent more than a dozen years suing associates of former Philippine leader Ferdinand Marcos and Swiss banks that he alleges helped hide Marcos's assets.

"Over the centuries, human-rights victims have been ignored by lawyers," says Mr. Swift. "If you set a precedent of no compensating lawyers, I think you've taken another step to defeating the hope of human rights victims." He says he will seek a fee in the Holocaust case that is "insignificant" compared with the total settlement.

The pro bono faction is also upset by Mr. Swift's ally, Mr. Fagan, who was little known in mass-litigation circles until he burst onto the scene with a Swiss bank case two years ago. Mr. Fagan has since sued European insurers for failing to honor claims by Jewish policyholders and their heirs, a German company that smelted gold looted by the Nazis, and companies he alleges employed war victims as slave laborers.

Some of the attorneys privately snipe that Mr. Fagan jeopardized the Swiss bank settlement by announcing at a press con ference that he was flexible on a settle ment amount. They say he may have been too eager to cash in. Mr. Weiss also points to a retainer agreement that lawyers working with Mr. Fagan have distributed to potential clients in a recent slave-labor case, asking clients to agree to give 25% of any proceeds to plaintiffs' lawyers.

Mr. Fagan declines to discuss his retainer agreements, but says he always wanted to get the most for war victims and isn't involved in the cases for the money. He says he will donate part of any fee he receives in the Swiss bank case to charity.

He points out that lawyers are often paid handsomely and that Mr. Weiss's firm is seeking a $90 million fee in a class-action settlement involving policyholders of Prudential Insurance Co. of America (though a federal appeals court has asked a Newark, N.J., federal judge to recalculate the fee). "The survivors wouldn't be getting any of this money were it not for the combined efforts of many talented lawyers," Mr. Fagan says.

Our opinion

  Sigh. . . ! -- Another horror-story about lawyers, and in The Wall Street Journal of all places. Somebody out there, please send us something nice about lawyers, and we will post it in the blank space below.