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While Larry Nassar victims wait, lawyers cash in on USA Gymnastics bankruptcy

Survivors of gymnastics physician Larry Nassar’s abuse received the Arthur Ashe Award for Courage at the 2018 ESPY Awards. (Kevork Djansezian/Getty Images)

One year after USA Gymnastics filed for bankruptcy in the face of hundreds of lawsuits filed by girls and women sexually assaulted by former Olympic team physician Larry Nassar, the legal fight over the organization’s money has yet to produce a dollar for an abuse victim.

For the case’s lawyers, however, USA Gymnastics’ bankruptcy has been a lucrative endeavor, according to a review of court filings and interviews with experts, who said the $1,000-plus hourly rates charged by the case’s top attorneys rank as extremely high for a bankruptcy of this size involving sexual abuse victims.

Three lawyers have billed more than $600,000 individually in the first year of the case, according to a review of legal bills filed in court, part of more than $7 million in legal fees approved, by a judge, on a preliminary basis.

Kyle Stephens, who was sexually abused for six years by disgraced gymnastics doctor Larry Nassar, talks to fellow survivors about how she's healing. (Video: Kate Woodsome, Gillian Brockell, Kerri Pang, Jesse Mesner-Hage/The Washington Post)

Among the case’s highest-paid lawyers, records show, is an attorney who specializes in representing abuse victims in bankruptcies who is charging $1,145 per hour in this case, though he’s representing abuse victims of Catholic priests in two other cases for far less.

To some attorneys and victims, the rising legal fees are prompting concerns about how much will be left for victims when the case is over. In bankruptcy court, the corporation that has filed for bankruptcy has influence over only one side of legal representation. Creditors — the people and companies seeking payment from the corporation — also select a lead law firm to represent their interests. But the legal bills from both sides are paid out of the bankrupt corporation’s assets, and corporate bankruptcies can take years to conclude.

“It’s outrageous . . . and the only losers are the kids here,” said Jonathan Little, an Indianapolis attorney representing four victims. “. . . Millions of dollars are not going to be there, when this is all over, for these kids.”

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Corporate bankruptcy work can be among the most lucrative legal disciplines, experts said, but $1,000-plus hourly rates are more commonly seen in cases involving organizations with $500 million or more in assets — or more than six times the size of USA Gymnastics, which has listed $84 million in assets.

More than 140 women took the stage at the 2018 ESPY Awards to shed light on sexual abuse and receive the Arthur Ashe Courage Award on July 18. (Video: Amber Ferguson/The Washington Post)

“In that universe, these hourly rates would be totally normal,” said Stephen Lubben, a professor at Seton Hall law school and an expert in corporate bankruptcies. “So I guess the question here is, if [the lawyers are] doing this as a charitable exercise . . . should they be acting more charitably?”

In cases involving sexual abuse, lawyers commonly discount rates, experts said — sometimes by as much as 40 percent — to ensure legal fees don’t overly deplete the amount of money left for victims.

“All of us have discounted our rates on these cases because, if all the money goes to the lawyers, there’s not going to be anything left for survivors,” said Susan Boswell, an Arizona bankruptcy attorney who has worked on several abuse cases involving the Catholic Church in which she has dropped her hourly rate — normally $700 — to as low as $450, she said.

Jenner & Block, the national firm hired by USA Gymnastics to represent its interests, is discounting its services by 10 percent, but even at reduced rates the firm has billed more than $3.1 million, records show, led by two partners in the firm’s Chicago office.

Jenner & Block partner Melissa Root, who makes $935 per hour, has billed about $860,000, records show, and fellow partner Catherine Steege, who makes $1,150 per hour, has billed about $780,000. These figures represent Root’s and Steege’s normal hourly rates, according to Jenner & Block’s bills filed in court. The 10-percent discount is applied to the firm’s total amount billed, and it’s unclear from court filings whether Root and Steege are working at reduced rates. Steege and Root declined to comment, as did a Jenner & Block spokeswoman.

USA Gymnastics officials declined an interview request. In a statement, USA Gymnastics praised Jenner & Block as “a national firm with a stellar reputation” and highlighted the firm’s discount on the case.

The lawyer hired by Nassar victims to represent their interests — James Stang, perhaps the nation’s preeminent attorney in bankruptcies involving sex abuse — isn’t discounting his services at all. Stang, working for $1,145 per hour, has billed about $615,000, records show, part of $1.9 million billed by his firm, Pachulski Stang Ziehl & Jones.

Since the Catholic Church’s sex abuse crisis began in the early 2000s, at least 20 dioceses and religious orders have declared bankruptcy, and Stang has been involved in at least 13 of the cases, according to his online biography and court filings. Stang occasionally offers significant discounts in abuse cases, records show, dropping his hourly rate to as low as $650 in 2017 to represent victims in the bankruptcy of a Catholic diocese in Montana.

“Each case has different circumstances,” Stang said when asked why and when he discounts his services. “It depends on the complexity of the matter. It depends on who your opponent is. There are a whole number of factors. . . . Sometimes it’s just the passage of time.”

The passage of time does not explain Stang’s widely varying rates on three abuse-related bankruptcies he’s working on this year. While charging $1,145 hourly to represent victims in the USA Gymnastics case, Stang is charging $700 per hour to represent victims in the bankruptcy of the Catholic diocese of Rochester, N.Y., records show, and $675 per hour to work for victims in the bankruptcy of the Catholic diocese of Santa Fe, N.M.

Stang declined to discuss why he is not reducing his rate for victims in the USA Gymnastics case.

“I’m not going to engage with you in a conversation about my firm’s business decisions on what to charge clients,” Stang said. “I have those conversations with my clients.”

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Based on listed assets, USA Gymnastics is slightly larger than the two Catholic bankruptcies Stang is working on, but not so much larger, experts said, to explain such widely varying rates. The Rochester diocese listed about $68 million in assets, and the New Mexico diocese declared about $52 million.

Stang got involved with the USA Gymnastics case through John Manly, a California plaintiff’s attorney who specializes in working on behalf of abuse victims. Manly represents more than 200 Nassar victims, including Olympians Aly Raisman and McKayla Maroney, and has led the legal cases against the three institutions through which Nassar accessed girls and women: Michigan State University, USA Gymnastics and the U.S. Olympic and Paralympic Committee. Michigan State settled with more than 330 Nassar victims for $500 million last year.

Stang had been consulting for Manly on an unpaid basis for two years before USA Gymnastics filed for bankruptcy, according to his application to work on the case filed in court. Stang examined USA Gymnastics’ financial condition free of charge for Manly, according to the court filing, and attended a mediation session last year involving Michigan State, USA Gymnastics and the USOPC.

In bankruptcies involving sexual abuse, the courts often appoint a committee of victims to represent creditors. Three prominent survivors of abuse by Nassar made the decision to hire Stang: Sarah Klein, believed to be Nassar’s first victim in the late 1980s; Rachael Denhollander, the woman who ultimately brought Nassar to justice in 2016; and Tasha Schwikert, a member of the 2000 U.S. Olympic team that won bronze in Sydney.

Stang was the only bankruptcy lawyer the Nassar survivors interviewed, according to Klein.

“Once we talked to him and asked all our questions and went through the process, we all felt very, very confident he was the right person,” Klein said.

Once the Nassar survivors formally hired Stang in December, court records show, his pro bono work ended. He worked those first few weeks for his former rate of $1,095 per hour, records show, until January, when he got a raise to $1,145.

Klein said Stang did not disclose that he discounts his rates in abuse cases.

“Wow. No, I did not know that,” Klein said when informed Stang was working for $700 and $675 hourly in other cases.

Denhollander said she was aware of Stang’s varying rates but declined to discuss why he is charging his full fee in this case.

“I don’t want to publicly comment on it,” Denhollander said. “When you have an organization as bent on corruption and as insular and refusing transparency as USAG, the only option survivors are left with is to hire very skilled attorneys.”

Schwikert, the third co-chair, declined to comment.

Manly downplayed his role in the decision by the survivors to retain Stang, but he said he emphatically supported the hire.

“James Stang’s firm has handled more sex abuse cases against institutions than anybody in the world,” Manly said. “USA Gymnastics went out and hired one of the best and biggest firms in the country, and I can tell you that the committee of survivors are not going to get outlegaled. Is it a lot of money? Sure. But are we going to apologize because we need a top-flight legal team to fight for our clients? No.”

If Stang and his colleagues at his firm capped their fees on the USA Gymnastics case at $675 per hour — the same discount Stang applied in the New Mexico bankruptcy — they would have billed about $500,000 less, according to a Washington Post analysis of the firm’s bills.

Nassar victims “should be pretty upset” that Stang is charging significantly more to work on their case, said Lynn LoPucki, a professor at UCLA law school and founder of the UCLA-LoPucki Bankruptcy Research Database.

“I haven’t ever come across this type of discrepancy in billing, and I’ve talked to a lot of lawyers,” LoPucki said.

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Stang’s main competitor in the niche market of abuse-related bankruptcies is Rob Kugler, partner at the Minneapolis firm Stinson. Kugler charges $680 per hour, and on abuse cases he and his colleagues usually work for a “blended rate” of $450 hourly, he said, meaning the firm’s monthly bills don’t exceed $450 per hour, between Kugler’s time and that of less expensive attorneys at his firm.

“We can still survive on that, in terms of a law firm and being able to make a profit, but it also doesn’t gouge the survivors,” Kugler said. “These are not traditional commercial bankruptcy cases; these are cases involving people who suffered the most horrendous of injuries.”

Kugler has been reviewing the filings in the USA Gymnastics case, he said, and he does not believe it’s more complicated than a large Catholic diocese case.

“There is nothing about that case that justifies fees of $1,000 an hour,” he said. “There just isn’t.”

Stang dismissed Kugler’s commentary as coming from a competitor.

“Rob Kugler markets himself as a cheaper alternative based on his rates. . . . Rates are not what these cases are about. . . . They’re about results,” Stang said.

But Kugler is not alone in suggesting Stang’s fees are excessive.

In March 2018, in the bankruptcy of the diocese of Great Falls, Mont., Judge Jim D. Pappas wrote in a court order that Stang’s hourly rate — discounted in the case to $650 — was still “higher than this bankruptcy judge has, in its 28-years of experience, approved.”

Pappas ultimately approved Stang’s fees. While federal judges can reject fees in bankruptcy cases, according to UCLA expert LoPucki, it rarely happens.

“Fees are approved something like 98.7 percent of the time,” LoPucki said.

Other victims’ attorneys familiar with Stang praised his skills and speculated he can work more efficiently and secure larger payouts for victims because of his experience.

“I think he’s a very good lawyer, and I think he’s a very good human being,” said Mike Reck, a California lawyer representing a victim involved in the Rochester bankruptcy. “If Jim or any other lawyer feels altruistic and wants to drop their rate, they can, but that doesn’t mean they should.”

Erin Kaufman, a Nassar victim involved in the USA Gymnastics bankruptcy, feels differently. A 36-year-old statistician in Atlanta, Kaufman said Nassar assaulted her more than 20 times during her career as a youth gymnast growing up in Michigan, starting when she was 9 years old.

In a recent phone interview, Kaufman expressed confusion when told the lawyer working for her against USA Gymnastics was also working with victims against the Catholic Church for significantly less.

“I just see it as you’re there to represent abuse victims; you should be paid the same,” Kaufman said. “All of this is horrible, but I don’t understand why a lawyer should be making more money off of one abuse victim than another.”

Steven Rich contributed to this report.