Arkansas Teacher Retirement System v. State Street Corporation et al
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
C.A. No. 11-10230-MLW
STATE STREET BANK AND TRUST COMPANY,
ARNOLD HENRIQUEZ, MICHAEL T.
COHN,WILLIAM R. TAYLOR, RICHARD A.
SUTHERLAND, and those similarly
C.A. No. 11-12049-MLW
STATE STREET BANK AND TRUST COMPANY,
THE ANDOVER COMPANIES EMPLOYEE
SAVINGS AND PROFIT SHARING PLAN, on
behalf of itself, and JAMES
PEHOUSHEK-STANGELAND and all others
C.A. No. 12-11698-MLW
STATE STREET BANK AND TRUST COMPANY,
MEMORANDUM AND ORDER
May 2, 2017
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.
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.
The court authorized
the Special Master to retain other individuals and organizations
to assist him.
The Special Master retained William Sinnott, Esq. as his
counsel. After the Special Master spoke and corresponded with the
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.
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
Counsel's appeal is being denied.
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.
things, Plaintiffs' Counsel agreed that Judge Rosen was not
disqualified from serving under the standards established by 28
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
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).
functioning in part like an investigator and in part like a
In recognition of this dual role, as permitted
authorized the Special Master to communicate with any party ex
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
See, e.g.. Docket Nos. 193 at 3; 199 at 2, 3.
Among other things, the Special Master told the attorney for
See, e.g.. Docket Nos. 193 at 3; 199 at 2-3.
consulting her clients, she informed the Special Master that they
objected to Mr. Toothman being engaged.
Nevertheless Mr. Toothman
Objecting Counsel subsequently filed with the Special Master
a written objection to Mr. Toothman's employment. See Docket No.
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
therefore, (3) Mr. Toothman is not eligible for appointment under
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
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
confined to assisting the Special Master and his counsel
in understanding the technical terms, concepts, and
contexts that underlie legal billing practices in the
commercial class actions based on
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
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
Id. at 9-10.^
In support of his conclusion that Mr. Toothman is not biased,
the Special Master added:
guidance on legal billing practices.
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.
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
companies during bankruptcy proceedings.
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
courts across the
country on more
occasions, both in support of and against the award of
fees, and has published numerous articles and coauthored
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,
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."
Objecting Counsel appealed the Special Master's denial of
their objection concerning Mr. Toothman to the court.
They argue, in essence, that Mr. Toothman is a partisan,
whose business is to opine that courts should reduce requests for
Id. at 5-16.
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.
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
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
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
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
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).
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
First Circuit has written, the "use of
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
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.
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
Docket No. 129 at 3; 129-1 at 3; 129-2, HlO.
Moreover, at the
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.
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
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.
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.
regarding how to determine reasonable compensation for plaintiffs'
counsel in class actions.
Compare, e.g., Lester Brickman, Lawyer
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,
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
As explained earlier, the Special Master has a hybrid role in
this case, serving in part as an investigator and in part as the
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
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.
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
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.
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
See Docket No. 193 at 10.
If the Special Master does
receive such a report, he intends to give Plaintiffs' Counsel
notice and an opportunity to be heard concerning it.
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.
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
53(f)(3)&:(4) ; Docket No. 173 at 12.
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
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
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.
In view of the foregoing, it is hereby ORDERED that Objecting
Regarding Retention of John W. Toothman (Docket No. 199) is DENIED.
UNITED STATES DISTRICT JUD
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