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Fee Dispute Sparks Attorneys to Withdrawal from MDL Case

February 12, 2016

A recent NLJ story, “Fee Fight Spurs Departures from Ethicon MDL Team,” reports that a battle over legal fees and costs has prompted three lawyers to withdraw from the plaintiffs leadership team in the multidistrict litigation over power morcellators made by Johnson & Johnson’s Ethicon Inc.

After a hearing on Wednesday before a federal judge in Kansas, two plaintiffs lawyersRebecca King, an attorney at Houston’s Tracey & Fox, and François Blaudeau, of counsel at Heninger Garrison Davis in Birminghamresigned from the 20-person plaintiffs steering committee, according to co-lead counsel Paul Pennock.

A third committee member, Avram Blair, of Avram Blair & Associates in Houston, also resigned after a similar fee dispute, said Pennock, managing attorney at New York’s Weitz & Luxenberg.

The MDL’s committee was noted for being the first to involve a majority of women members.  Their departures leave 10 women attorneys on a 17-person committee.

Those lawyers along with two other plaintiffs attorneys, one of whom also served on the committee, claimed that they should not have to pay into a proposed common benefit fund for cases they had just settled.

A common benefit fund charges a “hold back” amount on settlements and judgments of individual cases in order to pay for the attorney fees and costs that lead counsel incur in an MDL.

Pennock, who moved to establish the fund on Dec. 31, had insisted that lawyers with recent settlements retroactively pay 2 percent of their fees and costs to the fund given that they were precipitated by the formation of an MDL and plaintiffs steering committee.

After the hearing, Pennock told The NLJ that he agreed to remove the 2 percent requirement and make other changes to the fund, though he declined to say what those would be. He also confirmed the committee’s resignations.

“We resolved our differences and they are out, and we’re moving forward,” Pennock said.  He said he wasn’t sure whether the committee would replace them.

More than 30 lawsuits have been filed alleging that Ethicon’s power morcellators—medical devices used in laparoscopic uterine surgeries—have caused women to develop an aggressive form of cancer.  Ethicon pulled those devices from shelves in 2014 following a U.S. Food and Drug Administration safety advisory.  The cases against Ethicon were coordinated in an MDL on Oct. 15.

King and Blaudeau filed motions on Dec. 30 and Jan. 4 to resign from the committee after settling cases against Ethicon.  Both lawyers joined Blair and Molly Hoffman of Fay Kaplan Law in Washington, another plaintiffs lawyer, in opposing the fund’s approval.

Pennock’s proposal also included holdbacks for future settlements of up to 12 percent fees and costs – an amount that another plaintiffs lawyer, Andrew Sciolla of Pogust Braslow & Millrood in Conshohocken, Pennsylvania, called “excessive” in a Jan. 21 motion.

Attorney Fees Cross New Threshold: $1,500 Per Hour

February 11, 2016

A recent WSJ story, “Legal Fees Cross New Mark: $1,500 an Hour,” reports that the day of the $1,500-an-hour lawyer has arrived.  Partners at some of the nation’s top law firms are approaching—and, in a few cases, surpassing—that watershed billing rate, making the $1,000-an-hour legal fees that once seemed so steep look quaint by comparison.

Despite low inflation and weak demand for legal services, rates at large corporate law firms have risen by 3% to 4% a year since the economic downturn, according to Citi Private Bank’s Law Firm Group.

“We just raise them every year,” said John Altorelli, a finance lawyer at DLA Piper LLP in New York, who says the firm has set his rate at more than $1,500 an hour.  Mr. Altorelli, who filed for personal bankruptcy in 2014 to halt a legal battle with the estate of his former law firm, Dewey & LeBoeuf LLP, cracked the $1,000-an-hour mark a decade ago.  His fees have risen steadily ever since.

To soften the blow to clients, Mr. Altorelli does more than half his work on some kind of fixed-fee basis.  “Using hourly rates is really anachronistic, but we still do it,” he said.  Raising rates ensures that law firms keep up with the competition and helps them wrest more money from clients, who routinely demand discounts for all but the most sensitive work.

“If you think of the rules of supply and demand, how in the world can they keep raising their rates?” said Jeff Carr, a former general counsel of oil-and-gas services and equipment company FMC Technologies who for years has been an outspoken opponent of hourly legal rates.

The rate creep has boosted law firms’ revenue at a time when many of them are under pressure from lower-cost legal-service providers and corporate clients that are keeping more legal work in-house.  Revenue at law firms rose 4% last year, according to Wells Fargo Private Bank’s Legal Specialty Group, though demand rose just 0.5%.

“Lots of law firms will charge whatever the market can bear,” said the head of one of the nation’s 200 largest law firms.  Documents filed in chapter 11 bankruptcy cases offer a rare public glimpse at mounting fees.  These court filings show the rates of partners specializing in corporate restructuring, as well as those with specialties like tax, litigation and corporate law.

A review of filings over the past three months in about two dozen bankruptcy cases shows that senior partners routinely charge between $1,200 and $1,300 an hour, with top rates at several large law firms exceeding $1,400.  Proskauer Rose LLP’s hourly partner billing rate has climbed as high as $1,475, while Ropes & Gray LLP’s tops out at $1,450, court papers show.

Kirkland & Ellis LLP’s top hourly billing rate is now $1,445.  And rates at two firms—Akin Gump Strauss Hauer & Feld LLP and Skadden, Arps, Slate, Meagher & Flom LLP—peak at $1,425 an hour.

Martin Bienenstock, who leads Proskauer’s restructuring practice, called the $1,225 an hour he billed clients last year “a market rate similar to my peers at other firms,” and said he charges the same rate for nonbankruptcy work.

“The clients have kept coming back and growing during my 38-year career,” he said in an email, adding that clients generally prefer dealing directly with senior lawyers versus younger associates with lower rates.

In disclosing their firmwide rate increases, many firms tell the courts it is a standard way of keeping pace with “economic and other conditions.”  These include rising fixed costs, such as real estate and salaries.

In theory, a law-firm partner’s pay rises and falls with the success of the firm.  But, as competition for top talent increases, many firms feel the need to guarantee salaries or ensure a partner’s pay doesn’t fall, even in down years.

Still, only elite lawyers can charge $1,400 an hour or more.  Such rates are found almost exclusively in New York and other major markets, and only in the least price-sensitive fields like mergers and acquisitions, restructuring, tax, antitrust and high-stakes litigation and appeals.  For lawyers at the very top of those fields, hourly rates can hit $1,800 or even $1,950.

“You have a very few people at the very top where price is almost no object,” said legal consultant Bruce MacEwen, who likens it to the way celebrities, sports stars and best-selling authors are paid.  “It is a talent market.”

Most lawyers in the U.S. fall well below those high marks.  In a survey of in-house legal departments by BTI Consulting Group, the average highest rate paid for law-firm partners was $875 an hour in 2015, up more than 27% from three years earlier.  Of the respondents, 38% had paid more than $1,000 an hour for a lawyer, and the highest rate those in the survey paid was $1,600 an hour.

For many firms, the stated rate is simply a starting point in discussions with corporate law departments.  As a result, said legal consultant Ward Bower of Altman Weil, “sophisticated” law firms tend to implement annual rate increases to offset clients’ requests for discounts.

Such discounts are becoming more commonplace.  A decade ago, law firms could typically get clients to pay around 92% of their stated rates, according to Thomson Reuters Peer Monitor. Last year, that fell to less than 83%.  Smaller companies can get squeezed the most on fees, because they don’t send enough work to any one law firm to get the best deals.

Companies with $4 billion or more in annual revenue were twice as likely as those with less than $100 million in revenue to use some form of alternative fee, according to a survey from industry trade group the Association of Corporate Counsel.

Some industry watchers view the raise-and-discount approach with skepticism.  “If clients are pushing back on rates, the answer isn't to raise them” and then ask for a discount, Mr. MacEwen said.  “The answer is to provide better total value.”

Federal Circuit Defers to Magistrate Judge on Attorney Fees in Patent Case

February 10, 2016

A recent The Recorder story, “Acacia Subsidiary Wins Attorney Fee Fight Against Newegg,” reports that the U.S. Court of Appeals for the Federal Circuit has deferred to the judgment of U.S. Magistrate Judge Paul Grewal on attorney fees in a nonpracticing-entity patent case against Newegg Inc.

The Federal Circuit affirmed Grewal's finding that a suit brought by Acacia Research Corp. subsidiary Site Update Solutions, while at times "highly problematic," was "not so egregious" to be deemed "exceptional" under Section 285 of the Patent Act.

"Although reasonable minds may differ, the district court ruled from a position of great familiarity with the case and the conduct of the parties, and it determined that Site Update's tactical blunders and mistakes do not warrant fees," Judge Jimmie Reyna wrote for a unanimous panel in Site Update Solutions v. CBS.

The panel rejected the position taken by Newegg general counsel Lee Cheng, who vowed last year to "explore the limits of Section 285 jurisprudence."  Since then his company has lost two appeals at the Federal Circuit, while two others were sent back to district court for reconsideration, including one that "appears to have significant merit," according to the appellate court.  The company also recovered $15,000 last fall because of a frivolous appellate argument.  A fifth case was argued to the Federal Circuit on Monday.

Cheng said he was "disappointed but not surprised" by Monday's ruling.  He said it serves as further evidence of "how hard it is for defendants to obtain even a modicum of justice against organizations like Site Update and its parent, Acacia Research."

Collins Edmonds Schlareth & Tower partner John Collins, who had the winning argument for Site Update, did not immediately respond to a request for comment.

A year ago, Grewal issued a 34-page opinion setting out his reasons for denying fees, even under the looser standard adopted by the U.S. Supreme Court in 2014's Octane Fitness decision.  Site Update's initial claim-construction positions were "highly problematic," he found, but the company eventually took a more reasonable approach in response to Newegg's criticisms.  Ultimately it wasn't a winning argument, but it was "not so egregious as to make this case exceptional," Grewal wrote.

Newegg and Paul Hastings partner Yar Chaikovsky say it was a phony argument designed to leverage a nuisance-value settlement.  But Reyna wrote in Monday's nonprecedential ruling that they were essentially asking the Federal Circuit to substitute its judgment for Grewal's.  The Supreme Court instructed the Federal Circuit in a companion case to Octane Fitness that it must show deference to district courts on fee awards.

"We do not believe that the district court based its ruling on an erroneous view of the law," Reyna concluded, "and we are not left with a definite and firm conviction that the district court erred in its assessment of the evidence."

A Host of Attorney Fee Issues Arise in the MDL Process

February 9, 2016

A recent NLJ story, “GM Trial Spotlights MLD Flaws” reports that the rift among plaintiffs lawyers that followed last month's stunning collapse of the first trial over General Motors Co.'s ignition-switch defect raised serious accusations of backroom deals and lucrative fee arrangements.  It also underscores some common concerns about flaws in the multidistrict litigation process.

The lead attorneys in the MDL against GM were forced to withdraw their first bellwether case Jan. 22 amid revelations that their client might have ­committed fraud and perjury.  A few days later, a plaintiffs lawyer, Lance Cooper, who once worked on the MDL's executive committee, filed court papers claiming the botched trial was doomed from the start, having capped a "long series of poor decisions and mismanagement" by lead attorneys, one of whom might have arranged a "quid pro quo" with GM that maximized his fees.

The lead attorneys and GM denied the allegations and said Cooper had a "fundamental misunderstanding" of the MDL process, in which bellwether trials are used to determine the valuation of a potential settlement — not win every case.

Lurking behind the slugfest that erupted between attorneys in the GM case is a common dispute in MDLs, typically between lead attorneys and individual lawyers whose cases get transferred to an MDL.

"Once people are in control of the litigation, the lead lawyers, as Cooper's motion points out, are the ones who dole out the work," said Elizabeth Burch, a professor at the University of Georgia School of Law.  "And these are substantial fees.  The fees really drive this litigation."

To help the lead attorneys pay for the costs of litigation that could involve hundreds or thousands of cases, MDL judges typically approve a common benefit fund in which individual plaintiffs attorneys contribute a percentage of their contingency fees.  Lead attorneys use those fees to pay for discovery, depositions and other costs, which can total millions of dollars.  Another way in which lead counsel get fees is by negotiating an amount with a defendant as part of a confidential settlement.

But a lack of transparency in the process means that most MDL settlements don't have the "checks and balances" that class actions do, Burch said.  "It's really difficult to figure out where the money goes," she said.  "You don't have a judge ensuring the settlement is fair, reasonable and adequate."

Control of the MDL extends beyond the pool of fees.  In the litigations over DePuy Orthopaedics Inc.'s hip implants and National Football League concussion injuries, some plaintiffs lawyers have criticized settlements for excluding claims brought by their clients.  "There's benign explanations — too many cooks spoil the broth — and then there's other explanations for why some people are shut out of the decision-making," said Alexandra Lahav, a professor at the University of Connecticut School of Law. "Somebody has to control it, and lawyers are used to controlling their own cases and find it frustrating."

Attorney infighting became acute in the GM case.  Cooper, of The Cooper Firm in Marietta, Georgia, was appointed as one of 10 members of the executive committee.  Although Cooper admits he never served on an MDL committee, he sought the appointment after one of his cases first revealed the ignition-switch defect.

His role, however, was short-lived. On April 20, 2015, Cooper told Robert Hilliard, one of the lead plaintiffs lawyers in the MDL, that he would no longer be on the committee, according to an email that Hilliard ­submitted on Feb. 1.  In an interview, Cooper said he had grown frustrated after the lead attorneys gave him unspecified assignments and shut him out of some of the most significant depositions in the MDL.

"Given the way it was run, I didn't want to be a part of it anymore," Cooper said.  "It was just a process that seemed to be more focused on billing hours than actually helping the client."

He filed a Jan. 25 motion asking U.S. District Judge Jesse Furman in New York to remove the lead lawyers — Hilliard, Steve Berman and Elizabeth Cabraser — from their leadership positions.  Two days later, Cooper filed a second motion asking Furman to reconsider his approval of a fund for 1,385 of Hilliard's clients who settled confidentially with GM on Sept. 17.  Cooper alleged that Hilliard cut a deal with GM to put his five remaining lawsuits up as bellwethers so as to maximize his fees in exchange for minimizing the automaker's potential exposure.

Lead counsel defended their management of the MDL and countered that Cooper owed $100,000 in cost assessments.

Hilliard presumably would have gotten his share of the common benefit fund regardless of whether he won or lost the first bellwether trial, Burch said.  Lead lawyers, like Hilliard, front much of the costs at the start of an MDL, unlike individual lawyers, who don't contribute to the common benefit fund until their cases go to trial or settle.  In their Feb. 1 response, lead counsel said that members of the GM executive committee had advanced $1.6 million so far for the MDL.

By settling most of his cases, Hilliard likely got a "great fee upfront" and "money in his pocket immediately," Burch said.

Hilliard has defended his settlement, which he said in court filings excluded his five bellwether cases simply because GM didn't want to settle them.

What happened in the GM case also has highlighted criticism of the bellwether trial selection process.  The most common method of selecting bellwethers is one in which plaintiffs attorneys pick some cases, and defendants pick some cases.  But that process doesn't necessarily result in cases that could represent the entire MDL, Lahav said.

"[The defendant] picks three.  They'll pick the absolute worst cases from the plaintiffs' point of view.  Plaintiffs, we think, pick the best cases," she said.  The GM bellwether was a case that plaintiffs attorneys picked.  Hilliard has defended his bellwether choice.

Even so, in their Feb. 1 filing after the trial imploded, lead counsel admitted there were flaws in the system and said they planned to "present to the court a proposal to improve the bellwether ­process."

Furman, however, doesn't appear to be halting the trial schedule.  The next GM starts trial on March 14.

Non-Prevailing Software Maker Faces $2M in Fees in Patent Case

February 8, 2016

A recent The Recorder story, “Apple Goes After Quinn Client on Patent Fees” reports that Massachusetts software maker Aylus Networks Inc. must have breathed a sigh of relief when four of its 33 patent claims escaped Apple Inc.'s bid for inter partes review last year at the Patent Trial and Appeal Board (PTAB).

Now the company might be wishing it hadn't been so fortunate.  After proceeding with a stripped-down version of its patent infringement case in San Francisco over Apple's AirPlay feature, Aylus not only has lost on summary judgment, it's facing a $2 million fee motion from the iPhone maker.

Based on disclaimers it made to the PTAB, Aylus knew or should have known that its case against Apple had no chance, DLA Piper partner Mark Fowler argues in his Feb. 4 fee motion.  Nevertheless Aylus "proceeded with the lawsuit and forced Apple to incur significant fees and costs during fact discovery, expert discovery, summary judgment and Daubert and trial preparation."

The dispute is over Aylus' RE44,412 patent, which describes using a computer or mobile device to control video display signals.  Aylus sued Apple in U.S. district court in San Francisco in 2013, saying Apple TV infringes the patent when users project images from their mobile devices to TV screens.

After the PTAB cast a cloud over most of the patent claims, Aylus agreed to limit its San Francisco case to two of the claims that survived, to avoid having the litigation stayed.  But U.S. District Judge Edward Chen agreed with Apple last month that, based on the language of the patent and the way Aylus itself had interpreted it before the PTAB, there could be no genuine argument that Apple infringed.

Specifically, Aylus had contended that infringement occurs when Apple's iTunes Store servers and its mobile-device software direct content delivery to Apple TV. Apple argued, and Chen agreed, that the two patent claims describe negotiating content only from a control point proxy, in this case the iTunes servers.

In fact, that's what distinguished the two claims from the many others that the PTAB swept up into inter partes review, Chen wrote in his summary-judgment order.  And Aylus confirmed the distinction in its arguments to the PTAB, which Chen analogized to a prosecution disclaimer.

Quinn partner Amar Thakur had downplayed those arguments as just "scattered statements" at the PTAB, and accused Apple of trying to rewrite the claims after the PTAB decision.

Though the litigation dates to 2013, Apple said it's being "conservative" by asking for fees only from May of last year, after the PTAB decision and after Apple explained in discovery that AirPlay doesn't work the way described in Aylus' patent.  By then, Fowler writes, "there can be no doubt that Aylus had no objectively reasonable basis for continuing its patent infringement suit against Apple."