[ by Melanie Gretchen ]

The Citigroup settlement, in which the bank agreed to pay $590 million, is facing new problems.  Investors won a class-action lawsuit after alleging they were misled by the company's disclosures.  But the fighting doesn't stop there.  Now the plaintiffs' lawyers, who have requested a $100 million fee, are facing opposition from Ted Frank, a well-known class action reform activist, on the grounds that it is based on excessive rates for contract attorneys hired for document review work.  On his behalf, the Association of Corporate Counsel sent a letter to the Manhattan federal judge who will decide on whether to approve the fee.

"Even without the fee-multiplier, the plaintiffs lawyers request hundreds of dollars per hour for many individual contract lawyers.  But almost no law firms today charge such high rates for contract lawyers." -- Amar Sarwal, chief legal strategist at ACC.

Setting Precedent. The letter marks the first time the ACC has objected to fees in a class action, as part of its campaign to advocate for value-based fee arrangements.  The lawsuit, which was filed in 2007, alleged Citi of hiding billions of dollars in toxic mortgage assets.  After the bank agreed to settle last year, Kirby McInerney, the lead plaintiffs' counsel, applied for almost $100 million in fees, based on the $350-to-$550-an-hour rates charged by temporary contract attorneys staffing the case as above the market rate for such work.

Mr. Frank, who is a Citi shareholder, said in a brief field on Friday that temporary attorneys are typically billed to corporate clients at under $100 an hour.  He argued that $17 million of the time entries have no description except a vague "document review" notation.  Rather, up to 30% of the hours attributed to all the lawyers on the case was for after they had agreed to the settlement in May 2012.  The plaintiffs' lawyers either paid their contract lawyers more than the market rate or "padded the actual rates with the sort of unjustifiable profit margins that paying clients would refuse," he said.

"Either way, there is no basis in the law or in the market to justify the fee request for contract lawyers." -- Mr. Sarwal.

Earlier this month, U.S. District Judge Sidney Stein on 3/1 ordered Kirby McInerney to submit details about its staff and contract attorneys, including the numbers of how many staffed the case and their time records and expenses.

The case: In re Citigroup Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 07-09901.

For further details, go to [Reuters, 3/18/13] and [Dealbook, 3/19/13].