United States District Court, D. Rhode Island
STEPHEN DEL SESTO, AS RECEIVER AND ADMINISTRATOR OF THE ST. JOSEPH HEALTH SERVICES OF RHODE ISLAND RETIREMENT PLAN, et al. Plaintiffs,
PROSPECT CHARTERCARE, LLC, et al. Defendants.
SPECIAL MASTER'S REPORT AND RECOMMENDATION ON
AWARD OF ATTORNEYS' FEES
E. Sherman Special Master.
Report and Recommendation is filed pursuant to the Order
Appointing Special Master entered September 5, 2019, ECF No.
152. In the Order, p. 4, this Court stated:
The role of the Special Master is limited. The Special
Master's objective is to review the motions for
attorneys' fees and make a recommendation as to those
requests. The Special Master is directed to review the
attorney fee motions, ECF Nos. 64 and 78, the objections, the
declarations related thereto, and any other document the
Special Master deems necessary to perform the scope of his
compliance with the Order, I have reviewed the Motions for
Award of Attorneys' Fees filed by the plaintiffs'
counsel, the Objections thereto filed by certain non-settling
defendants, and the several related declarations,
settlements, and other relevant documents. I also met with
interested parties on September 26, 2019.
case arises out of a 2017 receivership proceeding in the
Rhode Island Superior Court for the St. Joseph Health
Services of Rhode Island Retirement Plan (the
“Plan”), St. Joseph Health Services of Rhode
Island, Inc. v. St. Joseph Health Services of Rhode Island
Retirement Plan, C.A. No. PC-2017-3856. Declaration of
Max Wistow in Support of Joint Motion for Class
Certification, etc. (hereinafter “Wistow
Declaration”), Ex. 1, ECF No. 65-1. According to the
petition, the Plan was seriously underfunded and insolvent at
the time of the sale of assets of Roger Williams Hospital and
Our Lady of Fatima Hospital in 2014. Id.
¶¶8-10; First Amended Complaint, ¶54. The Plan
had more than 2700 participants, and, because of the
underfunding, the petitioner sought a 40% reduction in
retirement benefits. Petition ¶15, ECF No. 65-1; Wistow
Declaration ¶3, ECF No. 65. The Plan, at least until
some point prior to the receivership, was a “church
plan” associated with the Catholic Diocese, Petition
¶6, ECF No. 65-1, but had not received contributions
from St. Joseph Health Services since 2008 except for a $14
Million contribution in 2014 from the sale the hospital
assets. Plaintiffs' Counsel's Final Approval
Memorandum (Settlement A), p. 11, ECF No. 150; Wistow
Declaration ¶37, Ex. 24, ECF Nos. 65, 65-24. The
Receiver who was appointed by Judge Brian Stern of the
Superior Court, Stephen Del Sesto, engaged the firm of Wistow
Sheehan and Loveley, PC (“WSL”) as special
counsel to investigate the matter and commence litigation
against potentially liable parties to recover monies for the
Plan and its participants. To this end, the Receiver
contracted with WSL as special counsel, and agreed to pay WSL
based on $375/hour for the investigative work and on a
contingency basis after litigation commenced. Wistow
Declaration Exs. 3, 5, ECF Nos. 65-3, 65-5; Declaration of
Stephen Del Sesto, Ex. 1, ECF No. 144. Specifically, the
engagement letter (hereinafter the “Fee
Agreement”) was approved by the Superior Court and
provided for a fee of 23.3% of funds recovered for the Plan
after commencement of litigation. WSL also entered into
similar fee agreements with the individual plaintiffs. Wistow
Declaration, Exs. 12-18, ECF Nos. 65-12 to 65-18. The
investigation involved the issuance of 12 subpoenas duces
tecum by the Receiver, some of which were contested, and
the obtaining and review of more than a million
documents. Plaintiffs' Counsel's Memorandum
in Support of Motion for Award of Attorneys' Fees, pp.
3-4, ECF No. 64-1; Wistow Declaration ¶16, ECF No. 65.
For this work, WSL was paid $552, 281.25 (1472 hours @
$375/hour). Wistow Declaration ¶18, ECF No. 65.
18, 2018, WSL filed in this Court a class action Complaint on
behalf of the Receiver and seven Plan participants, as
representatives of a class of participants, against fourteen
corporate defendants alleging a federal claim under ERISA and
state claims of fraud and breach of fiduciary duty, among
others. Wistow Declaration, Ex. 7, ECF No. 65-7.
The plaintiffs filed a First Amended Complaint on October 5,
2018. ECF No. 60. Thereafter, the action was approved as a
class action, with the individual plaintiffs as class
representatives, and WSL as class counsel. Memorandum of
Decision, pp. 13-14, ECF No. 162; Memorandum and Order, pp.
18-19, ECF No. 164.
addition, WSL, on behalf of the Receiver and the individual
plaintiffs, sought and was granted intervention in a cy
pres proceeding in the Superior Court that involved the
alleged fraudulent transfer of some $8.2 Million of
charitable assets by St. Joseph Health Services of Rhode
Island and Roger Williams Hospital into a foundation,
CharterCARE Foundation, LLC (“CCF”), to the
detriment of the Plan and its participants. Plaintiffs'
Counsel's Memorandum (Settlement A), pp, 10-11, ECF No.
64-1; Plaintiffs' Counsel's Final Approval Memorandum
(Settlement B), p. 6, ECF No. 140; Wistow Declaration
¶21, ECF No. 65; Wistow Supplemental Declaration, Ex. 3,
ECF No. 79-3. In the Superior Court there was also related
litigation concerning settlement instructions the Receiver
sought from the Court. Plaintiffs' Counsel's
Memorandum (Settlement A), pp. 6-9, ECF No. 64-1.
long after the litigation commenced, WSL, consistent with the
instructions of the Superior Court, Wistow Declaration
¶¶33-34, Ex. 21, ECF No. 65, Wistow Supplemental
Declaration, Ex. 7, ECF No. 79-7, negotiated two settlement
agreements with certain defendants, the first on August 31,
2018, Wistow Declaration, Ex. 25, ECF No. 64-1, and the
second approved by the Rhode Island Superior Court on October
2, 2018. Wistow Supp. Declaration, Ex. 7, ECF No. 79-7. In
the settlement agreements, the settling defendants agreed to
WSL seeking attorneys' fees to be paid out of the
settlement fund. Settlement Agreement (A), p. 21, ¶36,
ECF No. 63-2; Settlement Agreement (B), p. 26, ¶9, ECF
settlements, designated A and B, reached in this case are:
A: The settling defendants, namely CharterCARE
Community Board (“CCCB”) (the parent of the
heritage St. Joseph and Roger Williams Hospitals), St. Joseph
Health Services of Rhode Island, and Roger Williams Hospital,
have agreed to pay $11, 150, 000 to the Receiver (that will
be paid into the Plan), and also agreed to the assignment of
interests of CCCB's interest as a member of CharterCARE
Foundation, LLC (“CCF”) and CCCB's interest
(about 15%) in Prospect Chartercare, the entity that
currently directly or indirectly operates the Roger Williams
Hospital and Fatima Hospital. The former assignment is of
questionable value if the settlements are approved; the
latter could be of significant value, but the value is not
known at this time and the assignment is contested.
Plaintiffs' Counsel's Memorandum (Settlement A), pp.
11-15, ECF No. 64-1.
B (“the CCF Settlement”): The principal
settling defendant here is CCF, the recipient of certain
assets of Roger Williams Hospital and St. Joseph Health
Services of Rhode Island. The other settling defendants are
CharterCARE Community Board, St. Joseph Health Services of
Rhode Island, and Roger Williams Hospital, but they are not
making any monetary contributions. Plaintiffs'
Counsel's Memorandum (Settlement B), p. 1, fn 2, ECF No.
78-1. CCF has agreed to pay $4, 500, 000 to the Receiver,
almost half of its charitable assets that were valued at
approximately $9, 108, 334 as of April 30, 2018.
Plaintiffs' Counsel's Memorandum (Settlement B), p.
6, ECF No. 78-1. The Superior Court approved this settlement
as in the best interests of the Plan on December 27, 2018,
Plaintiffs' Counsel's Memorandum (Settlement B), pp.
6-7, ECF No. 78-1, at which time the Court found the
contingent fee of 23.3% of the recovery to be “fair,
reasonable, and very much a benefit to the receivership
estate.” Wistow Supp. Declaration, Ex. 6, p. 16, ECF
respect to the non-settling defendants, the litigation
against them will continue. The WSL may have to defend
additional litigation relating to the dissolution and
liquidation of the settling defendants for which no further
compensation would be due. Id., pp. 16-17.
Court has approved both Settlements A and B. Memorandum and
Order, ECF No. 164; Memorandum of Decision, ECF No. 162.
Receiver retained plaintiff's counsel pursuant to an
Order of the Superior Court dated October 17, 2017, and the
Superior Court approved the Engagement and Fee Agreement
between the Receiver and WSL. ECF Nos. 65-3, 65-5. Under that
Agreement, as noted, WSL was paid on an hourly basis of
$375/hour for investigation of the potential claims
related to the transaction in question, and is to be paid
23.3% of monies recovered for the Plan after the commencement
of litigation. Id. WSL was paid for 1472 hours of
work at $375/hour, for a total of $552, 281.25. Wistow
Declaration ¶18, ECF No. 65.
stated that it was not prepared to take this case on a pure
contingency basis because of the substantial investigation
required in order to evaluate the litigation risk. As a
result, WSL agreed to a hybrid arrangement with the Receiver
that provided for discounted hourly compensation for the
investigation and contingent compensation for the litigation.
Wistow Second Supplemental Declaration ¶¶9-10, ECF
No. 145. WSL seeks an award of fees consistent with the Fee
Agreement, that is, fees based on a percentage of the funds
recovered for the Plan.
individual plaintiffs' retainer agreements with WSL that
mirror the Agreement with the Receiver and provide for the
payment of fees to plaintiffs' counsel essentially on the
same basis as the agreement with the Receiver. Wistow
Declaration, Exs. 12-18, ECF Nos. 65-12 to 65-19.
does not break down the fees for the class as opposed to the
Receiver. Since WSL was working toward a common goal for both
the Receiver and the class members for the ultimate benefit
of the Plan participants, it is difficult to distinguish
hours spent for the class versus the Receiver.
Plaintiffs' Counsel's Memorandum (Settlement A), p.
28, ECF No. 64-1. This is understandable and is reasonable.
respect to Settlement A, the fee requested is 23.3% of $11,
150, 000, or $2, 597, 950, With respect to Settlement B, the
fee requested is 23.3% of $4, 500, 000, or $1, 048, 500. In
addition, WSL seeks 23.3% of additional sums recovered.
fees total $3, 646, 450. While the Fee Agreement does not
require this, WSL has agreed that the $552, 281.25 that it
received for the investigation should be deducted from the
contingent fees awarded. Plaintiffs' Counsel's
Memorandum (Settlement A), p. 18, ECF 64-1; Plaintiffs'
Counsel's Memorandum (Settlement B), p. 3, ECF No. 78-1.
Thus, the net fees requested are $3, 094,
168.75. Declaration of Stephen P. Sheehan, ECF No.
161 (corrected for a minor mathematical error).
advises that its costs have been reimbursed by the Receiver,
hence, there is no request for costs in this case.
Plaintiffs' Counsel's Final Approval Memorandum
(Settlement A), p. 26, ECF No. 150.