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Xerox Attorneys Ordered to Disclose Hourly Rates in Fee Dispute

October 24, 2016

A recent Bloomberg BNA story, “In Attorneys’ Fees Dispute, Xerox Ordered to Disclose What It Pays Attorneys,” reports that a federal judge recently ordered Xerox to tell the court how much it paid its attorneys in a long-running ERISA lawsuit. 

In Frommert v. Conkright, 2016 BL 347641, W.D.N.Y., No. 6:00-cv-06311-DGL-JWF, 10/19/16, Judge David G. Larimer ordered Xerox, in a 16-year-long lawsuit brought by Xerox workers challenging the way Xerox calculated their pension benefits, to disclose in a sealed statement to the court the hourly rates it paid its attorneys.  The judge said this was to help the court determine if the contested amount the plaintiffs requested in fees was reasonable. 

In January, the court ordered Xerox to recalculate the workers’ benefits after a case that went through the district court, Second Circuit Court of Appeals and the U.S. Supreme Court. 

Xerox subsequently objected to the workers’ request for attorneys’ fees based on hourly rates of between $250 and $675, arguing that an hourly rate of more than $300 for partners and $200 for associates would be unreasonable. 

However, Robert W. Rachal, a defense-side ERISA attorney with Proskauer Rose LLP in New Orleans, told Bloomberg BNA Oct. 21, “Defense work is not always a good comparison because of the difference in work involved, e.g., defendants typically have far more burdensome obligations in discovery.” 

The plaintiffs argued that the rates charged by the defense firms that have worked on the case—Nixon Peabody, Littler Mendelson and Covington & Burling—far exceeded the $300 per hour rate that Xerox contended was the proper top rate for plaintiffs’ attorneys. 

Defendants criticized the plaintiffs for using law firms outside of the Rochester, N.Y. area, but the judge said in his order, “It does not appear to be unreasonable for plaintiffs to have used a `national’ firm with particular experience in ERISA litigation, considering the issues involved and the legal expertise arrayed against them on the other side.  Plaintiffs contend that they sought Rochester-area lawyers, and that not one attorney or firm was willing to take their case.” 

In ordering this disclosure, the court said that information regarding attorney's fees and fee arrangements is generally not privileged. 

The court ended its order by saying that if Xerox chooses not to provide this information within the required 15 days, the court may proceed with the evidence that has already been presented, coupled with the court's own understanding of legal billing rates based on its 30 years' experience in dealing with such issues. 

According to the court, the evidence of fees presented to the court includes a report by the National Law Journal concerning fees billed by the largest law firms in the country.  “This is a well-known publication that is recognized throughout the legal profession,” the court said, indicating that it could go by those rates. 

In the article, Littler Mendelson had told the National Law Journal that the average billing rate of its partners was $550 per hour, with some partners charging as much as $615 per hour. In that same article, Covington & Burling stated that its average rate for partners was $780 per hour.

NCUA Paid Over $1 Billion in Legal Fees to Pursue Banks in Subprime Mortgage Crash

October 21, 2016

A recent American Lawyer story, “US Agency Paid Two Firms Over $1 Billion in Battle With Banks,” reports that Kellogg Huber Hansen Todd Evans & Figel and Korein Tillery together earned more than $1 billion for helping the National Credit Union Administration (NCUA) pursue many of the world's largest banks over their roles in the subprime mortgage meltdown, the NCUA said.

The NCUA finally released the figures, breaking down the fees and expenses billed by both firms in a litigation campaign that ultimately won the agency more than $4 billion in recoveries.  In all, the NCUA paid $506.3 million to Kellogg Huber and nearly $504.8 million to Korein Tillery for acting as the agency's outside lawyers in cases stemming from the financial crisis.

The NCUA, a U.S. regulatory agency, serves as liquidating agent for a group of failed corporate credit unions that lost billions of dollars related to residential mortgage-backed securities they bought before the recession.  In a series of lawsuits spearheaded by Kellogg Huber's David Frederick and Korein Tillery's George Zelcs and Stephen Tillery, the NCUA accused The Goldman Sachs Group Inc., The Royal Bank of Scotland plc, Morgan Stanley, Barclays plc and several other banks of contributing to the credit unions' collapse.

"We were the first federal financial institutions regulator to sue these firms, and we were going up against some of the world's most powerful institutions," NCUA board chairman Rick Metsger said in a statement.  "The outcome was far from certain, but we engaged expert outside counsel, and our team has been very successful."

Kellogg Huber and Korein Tillery worked the cases under a contingency fee arrangement that entitled them to 25 percent of the agency's net recoveries, the NCUA confirmed.  In all, the agency has recovered some $4.32 billion through settlements and judgments in its financial crisis suits, it said.

Metsger said that the NCUA has paid the law firms a little more than $1 billion in contingency fees alone, which amounts to about 23.2 percent of the agency's total recoveries.  Frederick, Tillery and Zelcs didn't immediately respond to requests for comment. (A partly-redacted copy of the firms’ legal services agreement with the NCUA, obtained in July by The American Lawyer through a Freedom of Information Act request, can be viewed here.)

The NCUA's financial crisis litigation has tracked parallel efforts by the Federal Housing Finance Agency, which filed a group of lawsuits alleging that major banks saddled Fannie Mae and Freddie Mac with billions of dollars in toxic mortgage-backed securities.

The FHFA also relied on outside counsel, tapping Quinn Emanuel Urquhart & Sullivan and Kasowitz Benson Torres & Friedman.  But the FHFA paid those lawyers on an hourly basis, and the New York Law Journal reported last year that the two firms had received some $406 million in fees for their work on the cases.  The majority of that total, about $329.5 million, went to Quinn Emanuel. 

The contrast between the two agencies' fee arrangements elicited some scrutiny for the NCUA.  In 2012, U.S. Rep. Darrell Issa, R-California, criticized the contingency setup in a letter (pdf) to former NCUA inspector general William DeSarno.  The former inspector general issued a detailed response in February 2013 that generally supported the NCUA's process for hiring outside lawyers.

The NCUA's Metsger defended his agency's decision to tie legal fees to the success of the financial crisis lawsuits.  He also acknowledged the NCUA's choice to keep those fee arrangements private until now—a step that, he said, was taken to protect the agency's position amid active litigation.

"While earlier cases in which billions of dollars were at stake were pending, NCUA did not disclose attorney fee arrangements to protect our litigation position and ensure maximum returns," said Metsger.  "Without this fee arrangement, which shifted most of the risk of these legal actions to outside counsel, there would have been no legal investigation of potential claims, no litigation and no legal recoveries."

Article: Using Regional Fee Scales as Evidence of Reasonable Rates

October 20, 2016

A recent article in the DRI’s For the Defense, “Using Regional Fee Scales as Evidence of Reasonable Rates (pdf),” by John E. Zulkey, provides a comprehensive look at the hourly rates of independent counsel.  The article concludes:

The matrices described above are no sil­ver bullet against runaway rates for inde­pendent counsel, and it would be folly for any coverage counsel to argue that a court or an arbitrator is bound by them.  But as the chief judge of the U.S. Court for the Northern District of California explained in applying the Laffey Matrix, “[T]he court must find some objective source for setting counsel’s hourly rates; the court cannot simply look at a lone out-of-context dol­lar figure and pronounce it ‘reasonable.’” In re HPL Tech., Inc. Sec. Litig., 366 F. Supp. at 921–22.

At present, courts and arbitration pan­els are frequently without such an objec­tive source.  Panel counsel rates have been rejected as benchmarks in most states, and the opinions of even seasoned experts on the issue may encounter skepticism.  Accordingly, even if these matrices are not strictly enforced, they may be of use in anchoring a court or a panel to a reasonable range of rates.

John E. Zulkey is an associate with McCullough, Campbell & Lane LLP in Chicago, with experience in a wide range of cov­erage issues, including a specialization in coverage for professional liability claims.  In addition to being a member of DRI and author of the Illinois and Missouri chapters of the DRI Professional Liability Compendium, Mr. Zulkey was the chair of the Chicago Bar Association Civil Practice Committee and was formerly a captain in the U.S. Army.  He has been cited by state and federal courts for his numerous publications on Related and Interrelated Acts Provisions.

This article was posted with permission.

$175M in Attorney Fees in VW Emission Class Action

October 19, 2016

A recent Reuters story, “Volkswagen to Pay $175 Million to U.S. Lawyers Suing Over Emission,” reports that Volkswagen AG, in another step to move past its costly diesel emissions cheating scandal, has agreed to pay $175 million to U.S. lawyers suing the German automaker on behalf of the owners of 475,000 polluting vehicles, two people briefed on the agreement said.

In August, the lawyers in the class action litigation sought up to $332.5 million in fees and costs for their work in a $10 billion settlement that gives U.S. owners of 2.0 liter polluting cars the ability to sell back their vehicles to Volkswagen (VW).

The latest deal with the lawyers means VW now has agreed to spend up to $16.7 billion to compensate U.S. owners and address claims from states, federal regulators and dealers arising from the "Dieselgate" scandal.

The resolution of legal fees clears another hurdle as the world's No. 2 automaker looks to resolve all of the outstanding aspects of a scandal that disrupted its global business, hurt its reputation and led to the ouster of its chief executive officer last year.

VW in September 2015 admitted using sophisticated secret software in its cars to cheat exhaust emissions tests, with millions of vehicles worldwide affected.  The cheating allowed VW's U.S. vehicles sold since 2009 to emit up to 40 times legally allowable pollution levels.

The $175 million includes attorneys' fees and other costs, according to the sources, who spoke on condition of anonymity.

Lead plaintiff lawyer Elizabeth Cabraser, who is part of a committee of 22 lawyers overseeing the owner suits, said in August the amount sought in attorneys fees was far less than the "judicially established benchmark" for class actions of approximately 25 percent of the settlement amount.

U.S. District Judge Charles Breyer is set to hold a hearing in San Francisco on whether to grant final approval of the vehicle owners' settlement announced in June, which would be the largest-ever automotive buy-back offer in the United States.  Breyer must also decide whether to approve the legal fee agreement.

VW has agreed to spend up to $10.033 billion to buy back the vehicles and compensate owners.  It may also offer vehicle fixes if regulators approve.  Under a timetable announced this summer, regulators could approve a fix for some 2015 VW diesel vehicles as early as next month.

In addition, VW has agreed to pay up to $1.21 billion to compensate U.S. VW brand dealers, pay more than $600 million to 44 U.S. states, spend $2 billion on zero-emission vehicle promotion and infrastructure, and another $2.7 billion to offset diesel pollution.

It still faces billions of dollars in potential fines from the U.S. Justice Department in its criminal probe into VW's cheating scandal, and must resolve the fate of larger vehicles that were not part of the initial $10 billion settlement.

VW and U.S. regulators are in continuing discussions over whether the automaker should agree to buy back 85,000 larger 3.0-liter Porsche, Audi and VW vehicles that also exceeded U.S. emission standards, and whether it should offer additional compensation to those owners.

VW may have to pay additional owner attorneys' fees as part of a separate potential 3.0-liter settlement, the sources said.

Judges Wary to Increase Fee Award in Patent Case

October 12, 2016

A recent The Recorder story, “Judges Skeptical of Bid to Boost $4.6M Fee Award,” reports that Universal Remote Control Inc. asked the U.S. Court of Appeals for the Federal Circuit to reconsider posttrial rulings by a Santa Ana judge that might—"in an alternate world," as one of the lawyers put it—result in a modest increase in Universal Remote's hefty award.

Universal Remote and its bitter rival in the television remote industry, Universal Electronics Inc. (UEI), notified the court Monday that they were on the verge of a settlement.  But then came Sidley Austin partner Peter Kang and Jones Day partner Gregory Castanias at a special seating of the Washington, D.C.-based appellate court at Pepperdine University School of Law.

"You still have a live case?" asked a nonplussed Chief Judge Sharon Prost.

Yes, they did.

Market leader UEI got roasted two years ago by a federal jury.  UEI sued over patents on the color-coding and backlighting of TV remote buttons, but jurors found one patent invalid and not infringed, and that UEI deceived the U.S. Patent and Trademark Office about inventorship of a second patent.

U.S. District Judge Andrew Guilford of the Central District of California awarded $4.6 million under Section 285 of the Patent Act.  That was about half the amount Universal Remote requested.  Guilford found UEI improperly brought the case as "payback" after its smaller competitor outbid it for a big contract.  But Guilford also rejected the patent misuse verdict, saying the jury had been acting only in an advisory capacity.  Equitable issues such as patent misuse can be tried to a judge or a jury.

New York-based Universal Remote argued that neither UEI nor Guilford said anything explicit before trial about an advisory verdict.  If the patent misuse verdict had stuck, Universal Remote would have been due a larger fee award, the company argued.

Guilford said he made clear during the trial that he was sitting partly as trier of fact.  "No objection was made, and this was the common understanding," he wrote in a posttrial order.

Sidley's Kang, counsel to Universal Remote, argued Tuesday that Santa Ana-based UEI "never made a peep" about requesting an advisory verdict, because it wanted to have "the hometown jury decide the equitable issues," he said.

But Prost and her colleagues turned the argument back on Kang.  "I think the district court relied at some point on your silence," she said. "You did not say 'I object.'"

She and Judge Raymond Chen also seemed perplexed that the parties were continuing to litigate.  "I'm not sure what getting this case back before Judge Guilford gets you," said Chen, noting that Guilford would be under no obligation to augment the fee award.

Kang said the patent misuse verdict would also have "evidentiary value" in a new round of litigation UEI has filed against his client.

Jones Day's Castanias, who is representing UEI on appeal, disagreed.  "It is an attorneys fees dispute, and that's all it is," he told the court.

Even in "an alternate world" where the jury's verdict was binding, Guilford would still determine fees based on the substantive strength of UEI's litigation position.  And Guilford determined that position was reasonable, Catanias said.

But, Chen asked, if UEI expected the jury verdict to be advisory only, why did it bring a Rule 50(a) motion at the close of trial asking Guilford to decide some equitable issues himself?

Castanias, mentioning repeatedly that his firm wasn't present at trial, said an advisory verdict could still affect how a judge might evaluate the equitable issues. Rule 50(a) provides for bringing "a motion in a jury trial," he said. "It doesn't say 'a motion in a binding jury trial.'"

In the end, the judges sounded likely to rule for UEI, unless the parties manage to settle first.  Guilford is an experienced patent judge, Prost noted, and suggested it's doubtful the court will find that "a well-known, long-standing jurist abused his discretion by calling it as he saw it."

Unpaid Legal Bills in Vaping Bankruptcy

September 27, 2016

A recent American Lawyer story, “In Vaping Bankruptcy, No Smoke, But Plenty of Unpaid Legal Bills,” reports that NJOY Inc., one of the nation’s largest electronic cigarette makers, filed for...

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