Arkansas Teacher Retirement System v. State Street Corporation et al

Filing 204

Judge Mark L. Wolf: MEMORANDUM AND ORDER entered re: Docket Entry 199 . (Bono, Christine)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

ARKANSAS TEACHER RETIREMENT SYSTEM,
on behalf of itself and all others

similarly situated,
Plaintiff
C.A. No. 11-10230-MLW
V.

STATE STREET BANK AND TRUST COMPANY,
Defendants.

ARNOLD HENRIQUEZ, MICHAEL T.

COHN,WILLIAM R. TAYLOR, RICHARD A.

SUTHERLAND, and those similarly
situated.
Plaintiff
C.A. No. 11-12049-MLW

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
C.A. No. 12-11698-MLW

V

STATE STREET BANK AND TRUST COMPANY,
Defendants.
MEMORANDUM AND ORDER

WOLF, D.J.
I.

May 2, 2017

SUMMARY

On March 8, 2017, pursuant to Federal Rule of Civil Procedure

53, the court appointed Retired United States District Judge Gerald

Rosen as a Special Master.

See Docket No. 173.

The Special Master

was directed to investigate, among other things, the accuracy and

reliability of the representations made by counsel for the class
in this case ("Plaintiffs' Counsel") in their successful request

for an award of more

than $75,000,000 in attorneys' fees and

expenses, the reasonableness of that award in view of information
and issues that have emerged since it was made by the court in

November 2016, and whether the award should be reduced.

Id., 1|2.

The Special Master was ordered to proceed with all reasonable
diligence and to submit, by October 10, 2017 if possible, a report
and recommendation to the court.

Id., §3.

The court authorized

the Special Master to retain other individuals and organizations
to assist him.

Id., Hi.

The Special Master retained William Sinnott, Esq. as his
counsel. After the Special Master spoke and corresponded with the

attorney

for

Plaintiffs'

Counsel,

Mr.

Sinnott

engaged

John

Toothman, Esq. to assist the Special Master and him in the

performance of their duties because of Mr. Toothman's experience
in matters concerning the reasonableness of attorneys' fees in
class actions and other cases.

Three of the eight firms that

represent class members — Labaton Sucharow LLP ("Labaton"),
Thornton Law Firm LLP ("Thornton"), and Lieff Cabraser Heiman &

Bernstein LLP ("Lieff") (collectively "Objecting Counsel") --

objected to the retention of Mr. Toothman.

See Docket No. 194.

The Special Master denied their objection.

See Docket No. 193.

Objecting Counsel have appealed that decision to the court.

See

Docket No. 199.

For the reasons explained in this Memorandum, the court finds

that the Special Master did not make an error of fact or law in

allowing his counsel to retain Mr. Toothman.
Master abuse his discretion in doing so.

Nor did the Special
Therefore, Objecting

Counsel's appeal is being denied.
II.

PROCEDURAL HISTORY

As indicated earlier, after providing Plaintiffs' Counsel

notice and an opportunity to be heard, the court appointed Retired

Judge Rosen to serve as Special Master in this case.

Among other

things, Plaintiffs' Counsel agreed that Judge Rosen was not

disqualified from serving under the standards established by 28
U.S.C. §455.

See Fed. R. Civ. P. 53(a)(2); Docket No. 129 at 2.

Plaintiffs' Counsel have not since modified that view. The Special

Master was directed to investigate issues relating to the earlier
award to Plaintiffs' Counsel of more than $75,000,000 in attorneys'

fees and expenses, and to submit a report and recommendation to
the court.

See Docket No. 173.

The Special Master was given the full power provided by
Federal Rule of Civil Procedure 53(c)(1), which includes the

authority to "take all appropriate measures to perform the assigned
duties fairly and efficiently."

Fed. R. Civ. P. 53(c)(2); Docket

No. 173, 1(4.

The Special Master was specifically authorized to

"retain any firm, organization, or individual ^ deems necessary
to assist him in the performance of his duties."

Docket No. 173,

Hi (emphasis added).
In

this

case,

the

Special

Master

has

a

hybrid

role,

functioning in part like an investigator and in part like a

judicial officer.

In recognition of this dual role, as permitted

by

of

Federal

Rule

Civil

Procedure

53(b)(2)(B),

the

court

authorized the Special Master to communicate with any party ex
parte.

See Docket No. 173, Hs.

It would be impermissible for a

judge to have such communications.

See, e.g., Guide to Judiciary

Policy, Vol. 2A, Ch. 2, Code of Conduct for United States Judges,

Cannon 3, subpart (A)(4) (precluding a judge from "initiat[ing],
permit[ing], or consider[ing] ex parte communications" except
where authorized by law or, when circumstances require it, "for

scheduling, administrative, or emergency purposes."); Haller v.
Bobbins, 409 F.2d 857, 859 (1st Cir. 1969).

Submissions to the

court indicate that the attorney for Plaintiffs' Counsel and the

Special Master have had, orally and in writing, direct, ^ parte
communications.

See, e.g.. Docket Nos. 193 at 3; 199 at 2, 3.

Among other things, the Special Master told the attorney for
Plaintiffs'

Toothman.

Counsel

that

he

was

considering

retaining

See, e.g.. Docket Nos. 193 at 3; 199 at 2-3.

Mr.

After

consulting her clients, she informed the Special Master that they

objected to Mr. Toothman being engaged.

Nevertheless Mr. Toothman

was retained.

Objecting Counsel subsequently filed with the Special Master
a written objection to Mr. Toothman's employment. See Docket No.

194.^

Objecting Counsel argued that: (1) Mr. Toothman could only

be retained as a court-appointed expert pursuant to Federal Rule
of Evidence 706; (2) Mr. Toothman's positions in other cases

involving attorneys' fees demonstrate that he is biased against
attorneys

who

represent

plaintiffs

in

class

actions;

and,

therefore, (3) Mr. Toothman is not eligible for appointment under
Rule 706.

See Docket No. 194.

More specifically. Objecting

Counsel asserted that Mr. Toothman had been previously retained as

an expert in another class action by Theodore Frank, Esq., who

objected to the reasonableness of the requested attorneys' fees in
that case and has attempted to intervene in this case to do so as
well.

Id. at 5-6.

The Special Master denied the objection. See Docket No. 193.

The Special Master explained that Mr. Toothman had not been
appointed as an expert witness under Rule 706.

Id. at 4-5, 7-8.

Rather, Mr. Toothman was engaged as an exercise of the Special

1 The other five firms that represented class members have not
objected to Mr. Toothman's employment.

Master's authority to retain anyone he deemed necessary to perform
his assigned duties.

Id. at 4-5.

The Special Master stated that;

Mr. Toothman will be generally responsible for providing
consulting services to assist the Special Master and his
counsel in fulfilling the duties set forth in the . . .

Order of Appointment. The Special Master expects these
services to include, among other things, assisting in

the preparation and review of discovery and assisting in
the analysis of billing and related data.

Id. at 6 (emphasis added). He also wrote that Mr. Toothman's role
would be:

confined to assisting the Special Master and his counsel
in understanding the technical terms, concepts, and
contexts that underlie legal billing practices in the
area of
commercial class actions based on
his

specialized knowledge in the area, and how these relate
to the specific billing practices in this case.

Id. at 7.

The Special Master characterized Mr. Toothman's "role

[as] akin to that of a judicial technical expert retained to

educate and guide the Special Master and his counsel in this area
of their work under the Order of Appointment." Id. at 9 (emphasis
added).

The Special Master stated that Plaintiffs' Counsel "cannot

point to any evidence that Mr. Toothman is inherently biased or
otherwise unqualified to render technical expertise in the area of

commercial legal billing practices." I^ The Special Master noted

that in support of their claim of bias. Plaintiffs' Counsel relied
exclusively on statements Mr. Toothman made in past cases involving

the reasonableness of fee petitions.

He found, however, that

rather than demonstrate bias, "these cases more aptly demonstrate

Mr.

Toothman's

cases."

extensive

experience

in

reviewing

complex

fee

Id. at 9-10.^

In support of his conclusion that Mr. Toothman is not biased,
the Special Master added:

Mr.

Toothman

is

objectively

qualified

guidance on legal billing practices.

to

provide

After receiving a

Juris Doctor cum laude from Harvard Law School in 1981,

Mr. Toothman spent twelve years as a trial attorney
handling complex commercial litigation in both the

private and public sectors, including as a trial lawyer
with the Department of Justice. During that time, Mr.
Toothman
performed
extensive
work
representing
plaintiffs in contingent fee cases and participated in
over fifty civil trials, as well as appeals in both the
federal and state courts.
Throughout his career, Mr.
Toothman has also served as a court-appointed receiver,

including in one instance on behalf of the U.S. Small
Business

Administration,

and

as

counsel

companies during bankruptcy proceedings.

to

bankrupt

Mr. Toothman

has consulted on the topic of legal fees with major

corporations and various federal entities and agencies,
including the General Accountability Office, the U.S.

Department of Justice, and the U.S. Department of
Energy, Transportation, and Labor, and has served a sixyear term as an Arbitrator for the Virginia State Bar's
Fee Dispute Resolution Program.

In his work as a

consultant, Mr. Toothman has testified in federal and
state

courts across the

country on more

than fifty

occasions, both in support of and against the award of
fees, and has published numerous articles and coauthored

a

book.

Legal

Fees:

Law

and

Management,

2 For example, the Special Master noted that in one case Objecting
Counsel cited as evidence of alleged bias Mr. Toothman discovered

that the petitioning law firm recorded more than 24 hours for a
single timekeeper for a single day. See Docket No. 193 at 10,
n.2.

focusing on legal billing practices. He has also served
as an arbitrator of legal fee disputes.

Id. at 4-5 (emphasis added); see also id. at 9, n.l ("Mr. Toothman
has testified both in support of fees and against awarding fees,

including testifying in support of fees in several public matters."
(citing cases)).

Objecting Counsel appealed the Special Master's denial of
their objection concerning Mr. Toothman to the court.

No. 199.

See Docket

They argue, in essence, that Mr. Toothman is a partisan,

whose business is to opine that courts should reduce requests for
fee

awards,

and,
"a

therefore,

characterize

as

technical

appropriate.

Id. at 5-16.

his

appointment

advisor"

is

not

as

what

they

permissible

or

The question of the propriety of the

appointment of Mr. Toothman as a puiiported technical advisor was
not raised by Objecting Counsel's objection to the Special Master.
See Docket No. 194.

The court is addressing it nevertheless.

III. DISCUSSION

The Order appointing the Special Master provides that any

objection to an order he issues will be decided by the court in
the manner described in Federal Rule of Civil Procedure 53(f).

See Docket No. 173, %9.

As Objecting Counsel recognize, "[t]his

court reviews the procedural decision to retain Mr. Toothman for

abuse of discretion [pursuant to] Fed. R. Civ. P. 53(f)(5)."
Docket No. 199 at 5. The court must decide ^ novo any conclusions

of law and findings of fact made or recommended by the Special
Master.

See Fed. R. Civ. P. 53(f)(3)&(4).

To the extent that Objecting Counsel continue to object to

the employment of Mr. Toothman based on Federal Rule of Evidence

706, concerning court-appointed expert witnesses, the Special
Master did not make an error of law in concluding that the Rule is

inapplicable.

See Docket No. 193 at 7.

The Federal Rules of

Evidence apply to "proceedings" before United States District
Courts and other courts. See Fed. R. Evid. 1101(a). It is doubtful

that the investigation being conducted by the Special Master

constitutes such a "proceeding."

In any event, as the First

Circuit has held, "Rule 706 is confined to court-appointed expert

witnesses;

the

consultants."

rule

does

not

embrace

expert

advisers

or

Reilly v. United States, 863 F.2d 149, 155 (1st

Cir. 1988). Neither the Special Master nor the court has appointed
Mr. Toothman to testify as an expert witness.

Therefore, Rule 706

does not apply.

As indicated earlier, the Special Master wrote that "Mr.

Toothman will be generally responsible for providing consulting
services to assist the Special Master and his counsel in fulfilling
[their] duties."

Docket No. 193 at 6. He also characterized Mr.

Toothman's services as "akin to that of a technical advisor

retained to educate and guide the Special Master and his counsel."
Id. at 9.

As explained earlier, the court gave the Special Master the
discretion to "retain any firm, organization, or individual he

deems necessary to assist him in the performance of his duties."
Docket No. 173, Hi.

The court finds that the Special Master did

not abuse his discretion in deciding that employing Mr. Toothman

would help his counsel and him "perform [their] assigned duties
fairly and efficiently."

See Fed. R. Civ. P. 53(c)(1)(B).

More

specifically, the court finds that the Special Master properly
concluded that Mr. Toothman is eligible to perform his defined and

limited functions because his prior experience and the opinions he

expressed as an expert witness do not manifest a disqualifying
bias.

As the

First Circuit has written, the "use of

[special]

masters [is] permitted where desirable to 'bring[ ] to the court

skills and experience which courts frequently lack.'" Reilly, 863
F.2d at 156 (quoting Reed v. Cleveland Bd. of Ed., 607 F.2d 737,
747 (6th Cir. 1979)).

The corollary of this is that special

masters may retain consultants

with relevant experience and

expertise.

Objecting Counsel's contention that Mr. Toothman should be

disqualified from serving as a consultant to the Special Master by
virtue of his prior work is inconsistent with their earlier

proposal that Retired United States District Judge Layne Phillips
be appointed to serve as Co-Special Master with Judge Rosen.
10

See

Docket No. 129 at 2-4.

Objecting Counsel represented that Judge

Phillips -- who is paid up to $43,000 a day -- has been previously
retained by them and counsel for other parties to mediate class
actions,

including

disputes

concerning

attorneys'

Docket No. 129 at 3; 129-1 at 3; 129-2, HlO.

time

of

his

proposed

appointment.

Judge

fees.

See

Moreover, at the

Phillips

was

being

compensated by Labaton and Lieff, among others, as a mediator in
another class action.

Nevertheless, Objecting Counsel asserted

that there were no grounds for his disqualification.

See Docket

No. 129 at 4.

In any event, the court finds that Judge Rosen did not err in

concluding that Mr. Toothman's prior work does not disqualify him
from assisting the Special Master and his counsel in the intended
manner.

The Special Master found that, like Judge Phillips, Mr.

Toothman has been hired to arbitrate fee disputes, and had also

testified in support of and against requested fee awards.

See

Docket No. 193 at 4-5, 9, n.l.

As indicated earlier, Mr. Toothman has been engaged to provide

guidance to the Special Master and his counsel in conducting their
investigation, reviewing discovery, and understanding concepts
concerning legal billing in commercial class actions.
No.

193

at 6.

There

are

many

issues,

and

some

Sss Docket

controversy,

regarding how to determine reasonable compensation for plaintiffs'
counsel in class actions.

Compare, e.g., Lester Brickman, Lawyer
11

Barons; What Their Contingency Fees Really Cost America, 311-33

(2011) with Myriam Gilles & Gary B. Friedman, Exploding the Class
Action Agency Costs Myth: The Social Utility of Entrepreneurial
Lawyers, 155 U. Pa. L. Rev. 103 (2006).

As the court and the Special Master each noted, with regard
to the award of attorneys' fees in this and many other class
actions, the adversary system does not operate.

Tr. at 12, 14; Docket No. 193 at 8.

See Nov. 6, 2016

The Special Master reasonably

concluded an individual with experience and specialized knowledge

would be valuable in organizing the investigation and analyzing
voluminous evidence, and,

therefore,

would

contribute to the

informed and efficient discharge of the Special Master's duties.

The Special Master correctly concluded that Mr. Toothman is
qualified to serve in that capacity and not disqualified because
of bias.

As explained earlier, the Special Master has a hybrid role in
this case, serving in part as an investigator and in part as the

counterpart

of

a.

magistrate

judge

making

a

report

and

recommendation. The Special Master's investigative role justifies

his authority to communicate with the parties ^ parte. Similarly,
as discussed below, that dimension of his role justifies the
retention of Mr. Toothman as a consultant, "akin to" a technical

advisor, when such employment by a judge making factual findings

12

based on a record generated by the adversary process might not be
necessary or appropriate.

The Special Master's decision denying the objection to Mr.
Toothman's retention reflects a sensitivity to issues that could

emerge when a judge, not also acting as an investigator, appoints
a technical advisor.

See Reilly, 863 F.3d at 157-59.

Technical

advisors "are not witnesses, and may not contribute evidence."

Id. at 157.

However, the Special Master does not intend to ask or

allow Mr. Toothman to provide any evidence for him to consider.
See Docket No. 193 at 10.

In any event, any such evidence would

be included in the record accompanying the Special Master's Report

and

Recommendation

to

the

court.

See

Fed.

R.

Civ.

P.

53(b)(2)(C)&(D); Docket No. 173, 1|ll ("The Master shall make and

preserve a complete record of the evidence concerning his
recommended findings of fact and any conclusions of law.
record

shall

be

filed

with

the

Master's

Report

Such
and

Recommendation."). Therefore, the Objecting Plaintiffs would have

an opportunity to challenge the credibility of any evidence

provided by Mr. Toothman, and the weight, if any, that should be
given to it.

The Special Master also does not expect to receive from Mr.

Toothman any report of opinions on which the Special Master might

rely.

See Docket No. 193 at 10.

13

If the Special Master does

receive such a report, he intends to give Plaintiffs' Counsel

notice and an opportunity to be heard concerning it.

Id.^

Technical advisors are also "not judges, so they may not be

allowed to usurp the judicial function." Id. The Special Master

recognized this principle, stating that he "is not relying on Mr.
Toothman to render the final legal opinion as to whether the fees
awarded to [Plaintiffs' Counsel] were reasonable or not."

No. 193 at 10.

Docket

As a former Federal Judge, the Special Master is

experienced in receiving arguments from lawyers and advice from
law clerks, and making independent judgments concerning both. The
court is confident that he is capable of doing so in this case.

In addition -- and significantly -- the court will review de

novo any recommended findings of fact and conclusions of law as to
which

Plaintiffs'

Counsel

object.

53(f)(3)&:(4) ; Docket No. 173 at 12.

See

Fed.

R.

Civ.

P.

Mr. Toothman will not be

serving as a consultant, "akin to" a technical advisor, to this
court or as a court-appointed expert under Federal Rule of Evidence
706.

While the Special Master may benefit from Mr. Toothman's

advice in discharging his duties. Plaintiffs' Counsel will receive

3 Objecting Counsel assert that they should be allowed to examine
Mr. Toothman if he submits an expert report.

See Docket No. 199

at 17. If and when such a report is submitted. Objecting Counsel
should address their request to examine Mr. Toothman to the Special
Master.
14

full and fair 6^ novo consideration concerning any matters in the
Special Master's Report and Recommendation to which they object.
In summary, the court concludes that the Special Master did

not make any error of law or fact in finding that Mr. Toothman is
eligible to perform the functions for which he has been employed.

Nor did the Special Master abuse his discretion in allowing his
counsel to retain Mr. Toothman.

Therefore, the objection seeking

his disqualification is not meritorious.
IV.

ORDER

In view of the foregoing, it is hereby ORDERED that Objecting
Plaintiffs'

Law

Firms'

Objection

to

Special

Master's

Order

Regarding Retention of John W. Toothman (Docket No. 199) is DENIED.

UNITED STATES DISTRICT JUD

15