A recent article, “Arbitration Provisions in Fee Agreements,” by Randy Evans and Shari Klevens of McKenna Long in Daily Report write about arbitration provisions in fee agreements. They write:
Increasingly, attorneys and law practices look for ways to limit liability while preserving the ability to collect earned attorneys’ fees. One approach that continues to emerge in retainer letters and fee contracts is the use of alternative dispute resolution (“ADR”) provisions, including mandatory arbitration clauses in retainer agreements with clients.
Most states have yet to specifically address the enforceability of mandatory ADR provisions, including mandatory arbitration clauses. As a result, limited precedent exists on the issue. Some states treat attorney-client fee contracts and retainer agreements as they would any other commercial transaction. In those states, enforceable arbitration provisions in other types of contracts probably are likewise enforceable in attorney-client fee agreements.
Other states treat attorney-client fee agreements differently. For example, some states hold for public policy reasons that any contact for the employment of an attorney that imposes a penalty on the client for exercising the legal right to end the attorney-client relationship is unenforceable. Whether a mandatory arbitration provision would be found to violate this limitation on attorney-client contacts is unclear.
Finally, some states permit mandatory arbitration provisions but impose additional disclosure obligations that do not exist in the context of other commercial transactions. Notably, to date, no state appears to have held that a mandatory arbitration provision in the attorney-client context is per se unenforceable in the abstract.
Mandatory arbitration provisions included in retainer agreement can vary in scope and effect. For example, some mandatory arbitration provisions are limited to fee disputes and do not apply to other claims arising out of the attorney-client relationship. On the other hand, broader arbitration provisions require that any dispute arising out of the attorney-client relationship, including legal malpractice claims, be arbitrated.
The advantages and disadvantages of including a binding arbitration provision in an attorney-client agreement generally are the same as those for including such a provision in any other type of agreement. Of course, there are some differences. For example, the risk of attorneys facing jury trials can be greater. The expenses of defending legal malpractice lawsuits (with expert witnesses often required) also can be greater than in many other commercial disputes. Mandatory arbitration can reduce these risks.
With no consensus among the states, enforceability of mandatory arbitration provisions necessarily vary from state to state. However, attorneys and law practices can take steps to increase the likelihood that a mandatory arbitration clause will be enforced.
- Include a Severability Clause
A good first step to reduce the risk, include a severability clause in retainer agreements and fee contracts where a mandatory arbitration clause is included. Then, if a particular state or jurisdiction finds the binding arbitration agreement unenforceable, other protections included the agreement still may remain in effect.
- Use a Proven Arbitration Clause
Because arbitration clauses in the attorney-client context have yet to be fully tested, there is no need to take risks regarding the general enforceability of the provision. As a result, the safer course is to use a boilerplate or judicially tested language for a binding arbitration clause. If that happens, any challenges should turn to the application of lawyer’s law, not a challenge to the provision itself. In addition, in states that have decided to treat attorney-client agreements like other commercial transactions, a generally accepted and commercially enforceable arbitration clause will be a significant asset.
- Include the Bar Association Mandatory Disclosure
Although generally not controlling, ABA Formal Opinion 02-425 certainly is persuasive precedent, especially in states that have adopted the ABA Model Rules of Professional Conduct. Also, states limiting the enforceability of mandatory arbitration clauses have imposed disclosure requirements, typically recommending the disclosures referenced in the ABA Formal Opinion.
Therefore, it is important to make sure the client has been apprised fully and in writing of the advantages and disadvantages of arbitration and has been given sufficient information to permit an informed decision about whether to agree to the inclusion of the arbitration provision in the agreement.
- Address Independent Counsel
For enforceability, Louisiana requires that the client has the opportunity to seek independent counsel. The District of Columbia requires that the client “has actual counsel from another lawyer.” Under either scenario, it is best to have recommended in writing that a client seek and obtain actual counsel from another attorney before agreeing to a retainer agreement with a mandatory arbitration provision. Recognizing that it might not be judicially significant, it nonetheless might be helpful to include a default provision stating that the client’s execution of the agreement confirms that the client has done so or has elected to voluntarily waive this right.
- Segregate Fee Disputes from Other Disputes
As reflected by the ABA Formal Opinion and the Louisiana Supreme Court, serious questions exist regarding the enforceability of a mandatory arbitration provision that limits the attorney’s substantive liability. Rather than risk both binding arbitration for fee disputes and binding arbitration of claims arising out of the representation by combining them, segregate the two into separate mandatory arbitration provisions. By doing so, attorneys and law firms can save one, even if the other is lost.
This article was published with permission. Randy Evans is a partner at McKenna Long in Atlanta and Shari Klevens is a partner at McKenna Long in Washington.
A recent Metropolitan News Enterprise story, “Judge Erred in Denying Fee Award to Attorney Parris—C.A.,” reports that a California Court of Appeals held that a judge, appalled by the size of a fee request by Lancaster Mayor R. Rex Parris, erred in denying fees, in their entirety, given that an award was mandatory under a statute.
Parris, an Antelope Valley attorney, sought a $387,750 award of fees in a case in which his client Jacob Heller, recovered only $2,158, based on Labor Code violations by his former employer. Los Angeles Superior Court Judge Barbara M. Scheper, found the fee request “so unreasonable and excessive as to shock the conscience,” and refused to make any award.
In an unpublished opinion, Presiding Justice Roger Boren wrote, “Despite the court’s understandable shock at the size of Heller’s request, an award of ‘reasonable’ attorney fees is mandated by statute.”
He pointed out that under Labor Code § 1194(a), an employee “is entitled to recover in a civil action the unpaid balance of the full amount of…overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.” Boren wrote, “Given the statutory mandate to award a “reasonable” attorney fee, it was an abuse of discretion to deny fees altogether,”
He pointed out, however, “Notably, the trial court is not required to calculate an attorney fee based on actual time purportedly expended on the case. Labor Code section 1194 does not mandate a fee based on actual time, instead giving the court discretion to determine a ‘reasonable’ attorney fee.”
A recent Texas Lawyer story, “Why Judges Deny or Cut Attorney Fees,” reports that when U.S. Judge Sam Sparks awarded Jerad Najvar’s clients $137,074 in attorney fees—only slightly more than half of the $236,544 they had requested—the Houston lawyer took it in stride. “Judges have a lot of leeway,” Najvar said about the fee award.
Fee-seeking lawyers spend countless hours head-scratching about how to maximize fee awards given such judicial “leeway.” A recent sampling of Texas federal courts' fee rulings shows that even when a legal team wins a $300 million final judgment for a client, the judge can slash a fee request by more than half.
When Roy Hardin’s client requested a fee award from an East Texas federal court, it also faced opposition from a defendant. Hardin represents Retractable Industries (RTI), which won an $11.2 million fee award on Jan. 15 by U.S. District Judge Leonard Davis of the Eastern District of Texas in Marshall. Hardin, a partner in Dallas’ Locke Lord, led a team that secured a $113 million jury verdict for RTI.
On Jan. 15, Davis issued the fee award as well as a $340 million final judgment, based on the jury verdict and additional awards allowed under the antitrust laws. However, in an earlier ruling, Davis had rejected an initial $36 million fee request made by RTI. His team used Davis’ order denying the $36 million proposed fees as a road map for recalculating a new fee request, Hardin said. “We redacted and redacted and came up with a number,” Hardin said.
In another case, U.S. District Frank Montalvo for the Western District of Texas in El Paso issued a 21-page ruling with copious details about why he had reduced by more than half the $2,775 in fees sought by Francisco Ortega’s corporate client. Ortega’s client had requested the fee award for work that Ortega, as a shareholder in El Paso’s Scott Hulse, had done related to its motion to compel discovery. Notably, Montalvo had asked Ortaga’s client to submit the pretrial fee request for his work on the motion.
In his ruling, Montalvo noted that Ortega “affirms under penalty of perjury that he spent approximately 11.10 hours performing activities” on his motion and related documents at an hourly rate of $250. Montalvo, however, concluded that Ortega worked only five hours on those tasks and could only charge $200 an hour, for a total of a $1,000 fee award.
Montalvo provided what he calls “a line-by-line analysis” of Ortega’s invoice. The judge deemed 0.30 hours spent on communications about unanswered discovery requests and 0.40 hours reviewing answers to interrogatories to be excessive. Both of those tasks should have consumed half the amount of time requested, the judge concluded. As to the time Ortega spent researching drafting and finalizing his motion to compel, the judge expressed skepticism. He noted that the Scott Hulse shareholder has practiced for seven years. Given the “simplicity” of the legal standards for the work, and Ortega’s “caliber” as an attorney, the judge concluded, the creation of the seven-page document couldn’t have taken Ortega long to produce.
A recent CBSSports.com story, “NCAA Wants O’Bannon Fees Reduced by at Least $41.7 Million,” reports that the NCAA wants a federal judge to reduce the Ed O’Bannon plaintiffs’ fee request from $50.2 million in attorney fees and expenses to approximately $8.5 million, according to court documents.
In October, O’Bannon lawyers filed a motion seeking $44,972,406 in attorney fees and $5,277,209 in recoverable costs from the NCAA. They also sought “an upward adjustment” of the final fee award amount because the litigation “carried an exceptional risk of defeated and required tremendous amount of time and labor that in turn precluded other employment.”
The NCAA wants the attorney fees to be reduced by at least $36,864,238 and the requested costs by at least $4,916,282. The NCAA claims the O’Bannon lawyers “impermissibly syndicated the case for its own financial gain with an unwieldy network of at least 34 firms. Many of them did very little work and added very little of substance, but padded the lodestar by billing thousands of hours of useless time.”
In its fee challenge, the NCAA requested the following hours be deducted from the O’Bannon victory:
All hours before the plaintiffs filed a new class certification motion on Aug. 31, 2012, with what the NCAA describes as a new theory in the case related to live TV. The lawsuit was initially filed in July 2009, meaning the NCAA wants a reduction in $23.1 million in billable hours filed by the plaintiffs.
80 percent of the hours between Sept. 1, 2012, and Nov. 8, 2015, which is the date when U.S. District Judge Claudia Wilken denied the plaintiffs’ attempt to certify a damages class.
All hours after Nov. 8, 2013 related to damages, group licensing to broadcast, products such as jersey or trading cards, monitoring the related Sam Keller video game lawsuit.
Reducing the overall reduction of requested fees by 50 percent because of the plaintiffs “limited success.”
As an example of unnecessary expenses, the NCAA cited O’Bannon’s lawyers billing 861.5 hours and $389,972 to have attorneys at four different firms prepare for the deposition of former NCAA vice president Greg Shaheen. Four separate timekeepers at four different firms then collectively billed $28,181 to summarize the deposition, the NCAA wrote.
“The value of succeeding should be measured in multiples of the value it cost the NCAA to lose,” O’Bannon lead attorney Michael Hausfeld said. “How many people did they have working on their case and what did it cost them to lose? Why don’t they produce what they spent? What the NCAA owes for losing is, in their terms, just the cost of doing bad business.”
NALFA has developed a practice area that centers on attorney fee disputes. Generally speaking, attorney fee disputes are disputes between parties over the fees/costs associated with legal services rendered. The nature of attorney fee disputes can vary in size, scope and parties involved, but at NALFA, we have officially categorized attorney fee disputes into three general types:
- Attorney-Client Fee Disputes: These fee disputes occur when a fee-paying client(s) and an attorney(s) disagree over the fees/costs in an underlying action or transactional matter. These fee disputes are the most common type and can be initiated by either side.
- Opposing Party Fee Disputes: These fee disputes often occur in fee-shifting litigation when the non-prevailing party must pay the fees/costs of the prevailing party. Typically, the party seeking fees/costs is challenged by the opposing side in court or arbitration.
- Attorney Allocation Fee Disputes: These fee disputes occur among attorneys, working on the same side, over their share of fees/costs in a common fund in an underlying action. This occurs when several law firms work on behalf of the same client or class in a large, complex case.
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