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Ninth Circuit: Government Can Hire Contingency Fees Lawyers

March 16, 2018

A recent The Recorder story by Amanda Bronstad, “9th Circuit OKs Government’s Hiring of Law Firms on Contingency,” reports that a California district attorney’s hiring of outside law firms on a contingency basis did not violate a defendant’s rights to due process, according to the first federal circuit court to address the issue.

In an opinion on Thursday, the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a case that American Bankers Management Co. Inc. brought against the district attorney of Trinity County. The district attorney hired three law firms on contingency to pursue injunctive relief and civil penalties against the company under California consumer protection laws. The panel disagreed with American Bankers’ contention that the hiring of the law firms violated its due process rights under the Fourteenth Amendment.

“Although civil penalty provisions are common across federal and state enforcement regimes, we are the first circuit to consider whether government officials may, without violating federal due process, retain private counsel on a contingency-fee basis to litigate an action for civil penalties,” wrote Judge Michelle Friedland in the unanimous opinion. Relying on its own 1993 decision in United States ex rel. Kelly v. Boeing, which involved a False Claims Act case, the Ninth Circuit rejected the due process claims.

“Because Kelly held the qui tam provisions of the False Claims Act do not offend due process, and because the contingency fee arrangement here is not meaningfully different from qui tam litigation in terms of the incentives it creates or the power it confers, we hold that the contingency fee arrangement at issue here does not offend due process either,” she wrote.

The three firms were Dallas-based Baron & Budd, Carter Wolden Curtis in Sacramento and Philadelphia’s Golomb & Honik. Baron & Budd’s Roland Tellis, who argued the case on behalf of the district attorney and the law firms, wrote in an email that the ruling “has put an end to American Bankers’ delay tactic.”

“The notion that our contingent fee arrangement with the district attorney somehow violated the due process rights of a major financial institution with unlimited resources was laughable,” he wrote. “The Ninth Circuit’s ruling accords with its prior rulings in analogous qui tam actions and with Supreme Court precedent.  We look forward to getting the case back on track. Frankly, it is not my contingent fee agreement that should worry the defendants—they should worry about the allegations of their conduct.”

The lawyer who argued for American Bankers, Brian Perryman of Carlton Fields Jorden Burt in Washington, D.C., did not respond to a request for comment.

Challenges over a government’s hiring outside counsel have come up in several mass torts, including those involving lead paint and opioids. A footnote in Thursday’s opinion acknowledged several state court rulings on the issue, including a New Hampshire ruling that blessed the use of outside lawyers in an opioid case and another in a Rhode Island case against three lead paint companies.

The counties of Santa Clara and San Francisco and the city of San Francisco filed an amicus brief in the American Bankers case. The California communities’ own hiring of outside counsel in a lead paint case was reviewed and approved by the California Supreme Court. “These partnerships are one of the critical tools that public law offices use to pursue a broad range of civil law enforcement cases on behalf of the public,” wrote San Francisco Deputy City Attorney Aileen McGrath and Santa Clara Assistant County Counsel Danny Chou. The “sweeping constitutional ban” that American Bankers would impose “threatens to remove this important device from the arsenal government law offices can deploy in their efforts to protect the public.”

The U.S. Chamber of Commerce and The Pharmaceutical Research and Manufacturers of America also filed an amicus brief. John Beisner of Skadden Arps pushed for a ban on such “unseemly quid pro quo relationships” that “undermine public confidence in the justice system.”

The American Bankers case started in 2015 when Trinity County District Attorney Eric Heryford hired the three firms to pursue a case alleging that American Bankers and several other financial services firms that allegedly used deceptive marketing to offer “ancillary products,” like protection plans, to California credit cardholders. Under contingency contracts, the firms were to receive 30 percent of recoveries.

The case originally was brought in Trinity County Superior Court, but the district attorney voluntarily dismissed and refiled it in the U.S. District Court for the Eastern District of California. American Bankers moved to dismiss those claims and disqualify the outside law firms.

But the company also fired back with its own suit in the Eastern District of California challenging the contingency fee contracts on constitutional grounds. It said the district attorney’s case was more akin to a criminal enforcement action that challenged its First Amendment rights.

In 2016, U.S. District Judge Kimberly Mueller in Sacramento dismissed the case, prompting the appeal.

NALFA Podcast with Glenn Newberry

March 9, 2018

NALFA continued its podcast series with an interview with Glenn Newberry.  Glenn Newberry is the Head of Costs Unit and Legal Director at Eversheds Sutherland International LLP in London.   He is a UK qualified Costs Lawyer where he is head of his firms’ litigation Costs team.  Glenn has earned a Certificate in Reasonable Attorneys and qualified for NALFA fellowship.  He is the first UK-based lawyer to gain this recognition.

In the podcast interview, Glenn talked about his early career as a cost draftsman and his work now as a qualified Costs Lawyers.  As the past editor of Costs Lawyer magazine, the podcast also included a discussion of the role of the UK Costs Lawyer and the work of the UK-based organization Association of Costs Lawyers (ACL).  The ACL and NALFA share many parallels.

NALFA hosts a podcast series on attorney fee and legal billing issues.  We talk with thought leaders throughout the legal profession.  “Glenn has an outstanding skill set for fee and costs issues in litigation in the UK, and through our programs, has gained even more insight on fee and billing issues in the U.S.,” said Terry Jesse, NALFA Executive Director.

To listen to the podcast, visit https://soundcloud.com/thenalfa/nalfa-podcast-interview-with-glenn-newberry

Opinion: Apply NJ Contingency Fee Cap More Broadly

March 8, 2018

A recent New Jersey Law Journal Editorial, “Apply Contingency Fee Cap More Broadly,” speaks to a recent case and rules involving contingency fee caps in New Jersey.  It reads:

The New Jersey Contingency Fee Rule (R. 1:21-7) establishes the outer limits of permissible fees in tort cases. Pursuant to the rule, where the amount recovered is for the benefit of a minor, the fee cannot exceed 25 percent. If attorneys consider a tort fee to be inadequate, they have the right on written notice to the client to apply to the court for a hearing to determine what would be a reasonable fee in light of all the circumstances. Statutorily based discrimination and employment claims are excluded from the rule’s fee limitations.

The rule was promulgated because of the concern that clients could be charged excessive contingency fees in tort matters that had no relationship to the amount and quality of the services provided and the amount of attorney compensation. Discrimination and employment cases are not subject to the rule because their respective statutes provide for a fee shift such that the attorney fee is awarded by a court to the prevailing party, and the fee is paid by the opposing party. As a consequence of the exclusion for statutorily based discrimination and employment claims, the rule as written permits counsel in such cases to settle a matter, not seek a fee shift and charge the client a negotiated contingent fee that exceeds the fee limitations imposed by the rule.

Recently, in A.W. By Her Parent & Guardian ad Litem, B.W. vs. Mt. Holly Board of Education, decided Feb. 1, 2018, the Appellate Division, in a published opinion, addressed a matter where an attorney sought to collect an agreed-upon 45 percent contingent fee from a minor plaintiff in an action brought under the New Jersey Law Against Discrimination and the New Jersey Civil Rights Act. It was contended that the attorney did not need judicial approval of the reasonableness of the fee. In the case, a fifth-grade student was alleged to have been subjected to ongoing harassment, intimidation and bullying by other students on a near daily basis, which resulted in the placement of homebound instruction and the ultimate transfer of the student to a private school.  The claim was for emotional distress, anxiety, depression and post-traumatic stress disorder. The impact to the child and her family was substantial. A lawsuit was filed because of the alleged inadequate response by school administrators. The child and her parents entered into an 18-page retainer agreement where it provided that the lawyer would receive either a 45 percent contingency fee, or, in the alternative, a fee based on the proscribed hours, whichever was greater. The retainer agreement further provided that if the matter proceeded to trial and fees were awarded by the court, then the fee awarded to the law firm would be added to the totality of the child’s recovery for purposes of determining the amount of the 45 percent contingency fee. After routine discovery, the case was settled for $100,000. The settlement precluded the plaintiff from applying for an award of attorney’s fees under the applicable fee-shifting statutes. At the required friendly hearing, counsel sought the 45 percent contingency fee set forth in the agreement plus costs of $4,629.33. The fee agreement itself was not offered into the record. The settlement was approved, but the court was not inclined to grant a fee in excess of 25 percent of the settlement. After briefing and oral argument, the court, recognizing its obligation to scrutinize the settlement and fees for this minor claimant, independently reviewed the reasonableness of the fee. The court observed that no proof was offered at the friendly hearing that either the parents or the minor were aware of the provision in the settlement agreement that had forfeited their right to seek a fee shift. Nor was there any summary or statement put forth as to the attorney’s hours expended. It was determined that the agreement was an unreasonable overreaching and that 25 percent of the recovery was sufficient. The trial court reasoned that although claims with statutory fee shifts are ordinarily excluded from the R. 1:21-7 fee limitations, those fee limitations nevertheless should apply when counsel chooses to forgo an application for a fee shift and instead pursues a negotiated contingent fee percentage.

The Appellate Division affirmed and limited the fee to 25 percent, rejecting the attorney’s contention that the trial court lacked the authority to review the asserted consensual contingent fee arrangement in a statutorily based discrimination action where plaintiffs and plaintiffs’ counsel did not apply for a fee-shifting award against the defendant. Although the Appellate Division did not adopt the trial court’s holding that fee-shifting claims are only excluded from the R. 1:21-7 fee limitations when fee shifting occurs, the court understandably emphasized that reasonableness of attorney fees are always subject to judicial review. Regrettably, the court failed to repeat the trial court’s explicit criticism and condemnation of this fee arrangement.

When the lawyer responded to inquiries of the New Jersey Law Journal, he said that the 45 percent fee had been common practice for his law firm and had been judicially approved in the past in a couple of dozen cases. He stated he will continue to utilize his fee agreement but will be more cognizant about putting the details of his clients’ agreements before the courts.

The cost to hire or engage a lawyer may be burdensome or prohibitive. Contingency fee agreements and fee-shifting statutes make legal services available to people who could not ordinarily afford them. People who are inexperienced and unsophisticated in legal matters usually rely on a lawyer’s advice and counsel as to whether their case has a potential for success and whether the fee agreement is appropriate and reasonable. The majority of attorneys represent their clients fairly. A client may be unaware when a lawyer charges an excessive or unreasonable fee. It cannot be assumed that clients routinely read or review a lengthy retainer agreement or understand the meaning and implications of a complex fee structure.

It is difficult for people without means or power to complain or challenge the amount of fees that they are charged. In 1978, Fee Arbitration Committees were created to resolve disputes when clients filed grievances. The members of the committees universally act in good faith, work hard and are not hesitant to rule in favor of a client. The committees, however, have discretion to decline to hear cases that are complex, raise substantial legal questions, or involve a large amount of money and, especially in those matters, clients may be intimidated in initiating legal proceedings against their attorneys.

The court’s decision in A.W. v Mount Holly Bd. Of Ed. is an important reaffirmation that the bargaining power between lawyer and client, particularly in the context of tort, product liability and discrimination actions, is often uneven, and as a consequence the fee charged is always subject to a review for reasonableness regardless of the terms of the negotiated fee agreement. Although we agree with the decision, we also would like to see the Supreme Court refer the matter to the Civil Practice Committee for consideration of a rule change consistent with the reasoning of the trial court. Specifically, we would support a rule amendment calling for the application of the R. 1:21-7 fee limitations when counsel in a statutory fee-shifting case opts for a negotiated contingent fee in lieu of an application for fees. Excluding fee-shifting cases from the fee limitations in the rule makes sense when a fee shift is ordered, as the fee in that instance is paid by the defendant. But when counsel fees are paid by the client, as was the case in A.W., then there is no reason why the protections afforded by R. 1:21-7 ought not apply.

Lawmakers Question $125M Fee Request in 3M Case

March 7, 2018

A recent Bloomberg Law story by Stephen Joyce, “Covington’s $125M Fee for 3M Case ‘A Little Steep’: Lawmaker,” reports that Covington & Burling LLP came under fire March 5 for a $125 million fee it received to represent the state of Minnesota in its $5 billion environmental lawsuit against 3M Co., which settled Feb. 20 for $850 million.

At a March 5 Minnesota House Ways and Means Committee hearing, state Rep. Sarah Anderson (R) questioned the Big Law firm’s contingency arrangement with the state, reached in 2010.

“I’m just curious as to why we are paying a law firm $125 million for seven years of work,” she said. Referring to her own math, she said the sum works out to about $48,000 per day. “That seems a little steep.” She also said all the legal fees are being shipped outside the state because Covington doesn’t have an office in Minnesota.

Jim Knoblach (R), Minnesota Ways and Means Committee chairman, said additional legislation may be needed to ensure the money could be received and spent appropriately.

The underlying case stems from a lawsuit in 2010, when Minnesota sued 3M, alleging it acted with deliberate disregard by dumping perfluorinated chemicals at four Minnesota sites beginning in the 1950s, largely in unlined pits and trenches, contaminating groundwater.

The complaint alleged the company knew about the risks the chemicals posed but concealed those risks from government regulators for decades. The March 5 hearing was called to review the settlement deal, particularly its impact on the state’s finances.

$10 Million in Costs Cited

Lawyer and state Rep. Debra Hilstrom (D), who said she has followed the case for years, told the hearing the litigation involved more than 27 million pages of documents, more than 200 witness depositions, more than 100 judicial hearings and conferences, and about $10 million in environmental tests, fees, and associated costs.

The agreement the state put in place with Covington was a contingency contract, and such deals can result in legal teams reaping up to 40 percent of any eventual settlement, Ben Wogsland, a spokesman for state Attorney General Lori Swanson (D), told Big Law Business. Covington’s fee was about 14 percent of the total settlement amount.

A Dec. 22, 2010, agreement between Minnesota and Covington said the state was not liable to pay Covington compensation other than amounts recovered from 3M. If the final recovery turned out to be less than sufficient to fully reimburse Covington for its costs and expenses, Minnesota would not be responsible to make the law firm whole, the agreement said. The Minnesota Attorney General’s office didn’t provide Big Law Business with a breakdown of the billable hour fees of Covington lawyers working on the case, which was included in the retainer agreement

“Covington has represented the State of Minnesota in environmental matters for more than 20 years, including the NRD [3M] litigation that was recently resolved. Our work on the NRD case involved a contingency fee arrangement, the attendant risk that we might receive no fee whatsoever, and dedicated efforts by our team in hard-fought, complex litigation lasting over seven years,” a Covington spokesman told Big Law Business in an email.

Anderson also questioned why the state didn’t rely on state Attorney General Lori Swanson (D) and her office to litigate the case.

Wogsland said Covington is “a long-time counsel to the state on environmental matters and has represented Minnesota on environmental matters for over 20 years.” Minnesota state agencies also likely didn’t have the wherewithal to litigate the case, he said. “To litigate this case you needed the best experts in the world, from geologists to chemists to engineers, and this firm [Covington] put up that money to pay for all of that,” he said.

NALFA Podcast with Dr. Silvia Hodges Silverstein

March 6, 2018

NALFA continued its podcast series with an interview with Dr. Silvia Hodges Silverstein.  Dr. Silverstein is the Executive Director of Buying Legal Council, based in New York.  Buying Legal Council is an international trade organization for professionals tasked with sourcing of legal services and supplier management.  Their members work on the client side, hold procurement, operations or other in-house positions at their organizations.  They host conferences and programs throughout the world.

In the podcast interview, Dr. Silverstein talked about her background in academics, legal procurement, and law firm management in Europe and the U.S.  She has authored several articles and conducted numerous studies on a range of law firm management and legal procurement issues.  The podcast also included a discussion of her billing rate survey showing gender inequality in law firms.

NALFA hosts a podcast series on attorney fee and legal billing issues.  We talk with thought leaders throughout the legal profession.  “Dr. Silverstein is a pioneer of legal procurement and law firm management.  Her work at Buying Legal Council helps bring buyers and providers of legal services together with an emphasis on knowledge and performance,” said Terry Jesse, Executive Director of NALFA.

To listen to the podcast, visit https://soundcloud.com/thenalfa/podcast-interview-with-dr-silvia-hodges-silverstein

Two Key Provisions for Your Fee Agreement

February 27, 2018

A recent CEBblog article by Julie Brooks, “2 Key Provisions for Your Fee Agreement,” writes about two keep provisions in fee agreement.  This article was posted with permission.  The article...

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