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Politically connected get millions in Philadelphia pension fund cases

NEPA News

March 16, 2003

Two Philadelphia law firms got $19 million to represent the city pension fund and other ailing investors in a series of successful class-action lawsuits.

Those same firms gave $460,000 to Ed Rendell's election campaigns since 1990. As Philadelphia mayor, Rendell helped oversee the pension fund.

But Rendell, now Pennsylvania's governor, called it "ludicrous" to say campaign cash influenced the city's choice of lawyers.

"They all have great track records," the governor told The Philadelphia Inquirer in Sunday editions. "We just had a rule, that if someone brought (a lawsuit) to us, they got it. Simple as that. ... It was an opportunity to make money for the city without any risk."

After about two-dozen lawsuits, the city pension fund has recovered about $500,000, although the winnings made little difference to the pension fund's $3 billion-plus bottom line.

The pension fund was the lead plaintiff in lawsuits that represented all investors who lost money on stocks plummeting because of corporate misdeeds.

Thus, the total recovered by the pension fund was just part of the total recovered for all investors by the fund's lawyers _ more than $370 million.

The lawyers helped state officials' election campaigns in Harrisburg and Albany, N.Y., and were hired there, too. Legal scholars label the pattern "pay to play."

John C. Coffee Jr., a Columbia University law professor who specializes in legal ethics, said lawyers use campaign checks to buy their way into class-action lawsuits and wrack up huge fees.

"The fees have been outrageous," said Linda Lettera, general counsel of Florida's pension fund. "The standard is 33 percent. That needs to come down."

Funds in Florida, Connecticut, Wisconsin, and New York City have trimmed millions off legal fees by seeking bids and setting fees in advance. That leaves more money for the actual clients: the pensioners and other investors.

But in the Philadelphia lawsuits, the court-approved fees sometimes totaled 30 percent. The biggest share went to the lead firms. In one such case, the Berger & Montague firm got a $10 million payday.

The other Philadelphia firm, Barrack, Rodos & Bacine, gave $41,000 to then-state Treasurer Catherine Baker Knoll after she gave Barrack the right to sue on behalf of the state's worker pension funds.

Barrack proceeded with two cases that had combined settlements of $102 million. The amount of Barrack's fee was unavailable last week.

Knoll, now lieutenant governor, gave The Inquirer a written statement saying she hired Barrack because it was in "the best interest of Pennsylvania's public pensioners."