Lawyers helping the Fair Finance Co. bankruptcy trustee recover funds on behalf of company shareholders have agreed to forego more than $1 million in fees and switch to a different—and possibly more lucrative—method of receiving payment.
Even so, the Cleveland-based law firm of Baker & Hostetler LLP stands to make millions under an agreement submitted for court approval on Thursday. It says lawyers no longer will be paid by the hour but instead on a contingency based on a percentage of funds recovered.
Since early 2010, trustee Brian Bash has been trying to recover funds for investors of Ohio-based Fair Finance, which was led by indicted Indianapolis financier Tim Durham until his financial empire collapsed in late 2009. Investors lost more than $200 million when the company failed.
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 have agreed to forego $1.6 million of that amount and switch to a contingency fee in which they’ll now receive a third of any recovered funds.
The reason for the change in payment is that shareholder funds recovered from Fair Finance total $2.7 million, the court papers said.
“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. “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 128 lawsuits still pending that seek to recover investor funds.
Perhaps the largest was filed in February against former Fair Finance owner Donald Fair, charging that he aided and abetted Durham’s fraud to make millions of dollars for himself.
The suit seeks more than $150 million from Fair, who sold the Akron, Ohio, company to Durham and fellow Indianapolis businessman Jim Cochran in 2002.
A grand jury in March 2011 indicted Durham, Cochran and Fair Chief Financial Officer Rick Snow on charges of wire fraud, securities fraud and conspiracy to commit wire and securities fraud. All three—who are scheduled for trial in June—deny wrongdoing.
For all of IBJ's coverage of Fair Finance and Durham, click here.