When is half a million in legal fees a bad day for a law firm?
When you’ve billed for more than $1 million, and the judge cuts it back to $567,000.
That’s what happened in an ERISA case that dates back over a decade. In the case, plaintiff Gretchen Hutto Castellano had asked the court for just over $1 million for her attorney, Ira B. Silverstein. That included an upward adjustment from the $807,000 initially requested because of the delay and extended nature of the litigation, according to the Legal Intelligencer (free registration required).
Castellano’s case revolved around her attempt to recovery $750,000 from her deceased husband’s life insurance policy that was held in a trust by the Regional Employees Assurance League (REAL).
U.S. Magistrate Judge Elizabeth T. Hey acknowledged that the case had a “long and sordid” history, but cut the fee award nearly in half because of what she determined to be overbilling from logging excessive hours, doing duplicative work, and unnecessary travel time, to name a few areas.
The trust’s author, attorney and accountant John Koresko V, was ordered by a federal judge in March 2015 to pay $18.4 million in restitution for his alleged misuse of millions of dollars in funds from several employee-benefit plans. In 2009 the Labor Department’s Employee Benefits Security Administration (EBSA) had accused the firm of activities that violated ERISA regarding more than 100 welfare benefit plans, including what the EBSA alleged were the illegal payment from plan assets of unreasonable and unnecessary lobbying expenses. The original suit named Penn-Mont Benefit Services Inc. of Bridgeport, Penn.; its owner, John Koresko V; Koresko's law firms; and an attorney for the firms.
The judgment against Koresko and the Koresko Law Firm was the remainder of their $38.4 million liability to the benefit plans after nearly $20 million of Koresko’s assets across 10 bank accounts had been frozen and turned over to an independent fiduciary, according to the Intelligencer.
U.S. District Judge Mary A. McLaughlin of the Eastern District of Pennsylvania said in a March 2015 ruling that the Labor Department presented “voluminous” evidence of Koresko’s alleged violations, including the diversion of tens of millions of dollars of plan assets through more than 21 accounts created by Koresko at several banks, the transfer of millions of dollars of plan assets into accounts that only Koresko controlled, the taking out of over $35 million in loans on the trusts’ insurance policies, and the transfer of that money to accounts that only Koresko controlled.
According to the ruling, other allegations included:
- Koresko’s transfer of millions of dollars of plan assets to law firms and consulting firms through which the plans did not benefit;
- the use of death benefit proceeds to purchase property in the Caribbean island of Nevis and in South Carolina;
- the use of plan assets to pay personal expenses; and
- the use of plan assets to pay business expenses.
