Nov 25 (Reuters) - A U.S appeals court on Tuesday largely upheld a lower court's

handling of attorney fees in the $600 million settlement over Norfolk Southern's ( NSC ) freight train

derailment in East Palestine, Ohio, rejecting most of a challenge by law firm Morgan & Morgan

but reviving its claim that it was shortchanged.

The 6th U.S. Circuit Court of Appeals mostly affirmed the allocation of $162 million in

legal fees but ruled that U.S. District Judge Benita Pearson in Ohio's Northern District must

revisit Morgan & Morgan's arguments that its work on the case was "not reflected" in its own

$7.7 million share.

"While it is not at all clear that Morgan & Morgan's assertions are meritorious, the

district court's failure to address them amounts to an abuse of discretion," the panel said.

A spokesperson for Morgan & Morgan and its attorneys at Taft Stettinius & Hollister did not

immediately respond to a request.

Prominent litigator Paul Clement, who represented a group of law firms that served as

co-lead class counsel in the litigation, did not immediately respond to a request for comment.

Clement had argued that Morgan & Morgan's objections to the fee allocation amounted to "sour

grapes," and noted that no other firm challenged its share.

The derailment in February 2023 spilled hazardous chemicals and forced thousands to

evacuate. Lawsuits quickly followed, and by April 2024, Norfolk Southern ( NSC ) agreed to create a $600

million fund to compensate residents and businesses.

The settlement, approved in September 2024, included a "quick-pay" provision allowing

lawyers to collect their fees within 14 days - even while appeals were pending - while victims

waited for their checks.

Morgan & Morgan, which represented some individual plaintiffs, had asked the district court

to halt distributions and give it a role in dividing the $162 million fee award among 39 firms.

The court refused, and Morgan & Morgan appealed.

Circuit Judge Chad Readler, writing for a unanimous panel on Tuesday, said Morgan & Morgan

lacked standing to challenge quick pay because the provision benefited the firm and it had

endorsed the settlement.

The court also upheld the district judge's decision to let lead class counsel oversee fee

allocations, noting that courts often allow lead lawyers to make initial decisions subject to

later review.

In a concurring opinion, Circuit Judge Amul Thapar criticized quick-pay provisions as

creating "an appearance of unfairness" because lawyers get paid while victims wait. He urged

courts to impose safeguards, such as escrowing part of the fees and requiring claw-back terms,

and warned against "rubber-stamping" allocations without scrutiny.

"Victims deserve better," Thapar wrote.