Judge rejects Fair Finance attorneys’ fee request

Lawyers helping the Fair Finance Co. bankruptcy trustee recover funds on behalf of shareholders will not be paid based on a percentage of the money they recover—a potentially lucrative proposal.

A federal judge in Ohio on Tuesday rejected the compensation plan submitted by Cleveland-based Baker & Hostetler LLP that could have netted the law firm $32.5 million if it recovered the entire $200 million or more owed to investors.

Since early 2010, trustee Brian Bash has been trying to recover funds for investors of Ohio-based Fair Finance, which was led by convicted Indianapolis financier Tim Durham until his financial empire collapsed in late 2009.

A federal jury in Indianapolis last month returned a guilty verdict on all 12 felony counts for Durham, on eight of 12 counts for co-owner James Cochran, and five of 12 counts for Rick Snow, the company’s chief financial officer.

The government had accused the men of running Fair Finance as a Ponzi scheme that stole more than $200 million from 5,000 Ohio investors who purchased investment certificates from the consumer-loan company.

On Tuesday, Judge Marilyn Shea-Stonum, who is overseeing the Fair Finance case in a bankruptcy court in Akron, dismissed the law firm's request to be paid on a contingency basis instead of hourly.

Shea-Stonum had said earlier this month during a hearing that it appeared the firm was trying “to change compensation 27 months into the case” and called the proposal “troubling,” according to the Akron Beacon Journal.

The proposal called for Bash’s firm, Baker & Hostetler, to be paid 30 percent of the first $50 million recovered, 15 percent of recoveries from $50 million to $100 million; and 10 percent of recoveries of more than $100 million.

As of May 31, Baker & Hostetler lawyers have billed more than $5.8 million in fees for their work pursuing judgments in favor of the investors, and have been paid $1.3 million, according to court documents. They’re still owed $4.5 million, but agreed to forego $1.6 million of that amount if the judge had approved the contingency fee proposal.

During testimony in the Fair Finance trial last month, Bash said lawyers had recovered $5.6 million on behalf of investors, about double what they had recovered in March when they made the request for the fee change.

“Although the trustee believes that significant additional cash will be recovered as a result of the trustee’s lawsuits, there can be no guarantee of that result,” lawyers wrote in a court filing. “Under Baker & Hostetler’s current compensation arrangement, however, the firm will continue to incur substantial hourly professional fees in pending litigation regardless of success. Therefore, the trustee seeks to modify the existing compensation agreement.”

The attorney fees owed to Baker & Hostetler don’t include about $720,000 of trustee payments, according to the documents.

Bash has more than 120 lawsuits still pending that seek to recover investor funds.

Durham and Cochran bought Fair Finance from Donald Fair in 2002.

A sentencing date has not been set.