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Eleventh Circuit Upholds Fee Award in Chinese Drywall MDL

June 10, 2021

A recent Law 360 story by Carolina Bolado, “11th Circ. Upholds Fee Award in Chinese Drywall MDL,” reports that the Eleventh Circuit ruled that court-appointed class counsel in the defective Chinese drywall multidistrict litigation could receive 45% of the total fees paid to attorneys who negotiated settlements for 497 Florida plaintiffs because their work on the common case helped lead to the individual recoveries.

The appeals court said U.S. District Judge Marcia G. Cooke did not abuse her discretion when she awarded class counsel $5.8 million of the more than $40 million paid by Taishan Gypsum Co. Ltd. to end claims over shoddy drywall imported from China.

The class counsel includes firms Colson Hicks Eidson, Lieff Cabraser Heimann & Bernstein LLP, Morgan & Morgan, Herman Herman & Katz LLC and Seeger Weiss LLP.

The Eleventh Circuit said that although the attorneys for the 497 plaintiffs had worked hard to get the deal, their work "did not exist in a vacuum."

"They benefited from the decade of foundational work that class counsel exerted in this groundbreaking MDL, which involved evasive defendants in China, complex jurisdictional challenges requiring two trips to the Fifth Circuit, decertification attempts and liability determinations," the appeals court said. "That class counsel has otherwise been compensated for this work does not prevent them from continuing to reap the rewards of their efforts."

The 497 plaintiffs were part of 1,734 Florida cases remanded in 2018 from the MDL in Louisiana to Judge Cooke in the Southern District of Florida for further proceedings.

Following the settlement with the 497 plaintiffs, class counsel said that much of their foundational work was used to secure the deals, entitling them to 20% of the total settlement. After a global settlement was approved in January 2020 between Taishan and the remaining class members, the class counsel amended their award request to 60% of the attorney fees paid out to the individual plaintiffs, according to the opinion.

In May 2020, Judge Cooke awarded them a 45% cut.

The counsel for the individual plaintiffs appealed the decision, arguing that common benefit fees are only appropriate when there is a common fund from which to award them. In this case, there is no common fund or judicial supervision of a fund, they said.

They also argued that class counsel have already been highly compensated for their common benefit work by the MDL court.

But the Eleventh Circuit said that particularly in complex litigation, courts have broad managerial power and discretion to award fees.

"The district court had control over the funds pursuant to the agreement of the parties to litigate common benefit fees in the SDFL and the actions taken by the court after the settlement agreement was first filed," the appeals court said. "Awarding a portion of these fees to class counsel was therefore within the district court's power."

The appeals court added that preventing appointed counsel from recovering fees when their work leads to settlements down the road would make it more difficult for courts to find competent lawyers to take on that work.

Jimmy Faircloth, who represents the attorneys who worked on the individual settlements, told Law360 the ruling conflicts with Eleventh Circuit precedent by allowing contractual attorney fees to be used as a fund for purposes of the common benefit doctrine.

"[The ruling] allows MDL authority to reach even deeper into the jurisdiction of a transferor court following a remand," Faircloth said. "This creates a slippery slope with negative consequences for the class action device."

Patrick Montoya, who represents the class counsel, said he was pleased the Eleventh Circuit affirmed Judge Cooke's "well-founded opinion recognizing class counsel's efforts in this decade-long, hard-fought case."

"The settlement obtained by class counsel was an unprecedented result against Chinese companies and the first of its kind in the United States," Montoya said. "Judge Cooke and the Eleventh Circuit prevented a group of splinter lawyers from doing an end-around and unfairly benefitting from the class counsel's monumental efforts and the excellent results obtained for class members by class counsel."

Attorney Fee Award Not Limited to What Insurer Paid

June 9, 2021

A recent Metropolitan News story, “Attorney Fee Award Not Limited to What Insurer Paid,” reports that the Court of Appeal for this district has affirmed a $146,010 award of attorney fees to a defendant in a malicious prosecution action who prevailed on his anti-SLAPP motion, rejecting the plaintiff’s contention that the amount was unreasonably high because the defendant’s lawyers at Lewis, Brisbois, Bisgaard & Smith LLP had actually been paid by their client’s insurer at a lower hourly rate than the judge used in his computation..

Presiding Justice Tricia A. Bigelow of Div. Eight wrote the opinion, which was filed Monday and was not certified for publication. The fees were set by Los Angeles Superior Court Judge Craig D. Karlan on remand from the Court of Appeal which, in 2018, reversed an order denying Santa Monica attorney Thomas McCullough Jr.’s anti-SLAPP motion.

That motion came in response to a suit by Lawrence Pasternack who had been the defendant in a suit brought by McCullough on behalf of a client.

Karlan rejected Pasternack’s position that an award must be based on an hourly rate of $140 because that’s what the insurer paid.  “The lodestar method provides that fees may be awarded for the reasonable value of that tune, not the actual rate paid,” the judge said.

He found veteran attorney Roy G. Weatherup’s $600 an hour rate to be reasonable and set payment at $96,240 for 160 hours of work on the case, including the appeal. However, he declined to apply that rate to a second partner in the firm, Caroline E. Chan, saying, without questioning her skills, “that the nature and complexity of the legal issues on appeal does not warrant” payment at $600 an hour for two partners, and lowered her hourly rate to $250.

Weatherup had explained that a $140-an-hour rate was accorded to the insurance company as part of a package deal entailing hundreds of cases being directed to the firm. Karlan said that “$140 per hour is not the market rate for experienced appellate lawyers in Los Angeles County and the Court exercises its discretion to not so narrowly focus on the ‘package rate’ agreed to in this matter.”

“It is well established,” Bigelow wrote, “that an attorney who accepts a reduced rate from a client is not precluded from seeking a reasonable hourly rate pursuant to the lodestar method” in recovering from the client’s adversary where fee-shifting takes place.

But the cases establishing that are inapposite, Pasternack insisted, because none of them involved the circumstance where fees, fixed in advance, had already been paid to the lawyers. There was no need, given that Lewis Brisbois had already received its fees, to determine what a reasonable amount would be to compensate it, he argued.

“We are not persuaded,” Bigelow responded. “None of the cases limit their holding in this way.”

There was nothing unconscionable about the fee, Bigelow said, elaborating:

“The record shows Lewis Brisbois submitted evidence regarding the hours expended and reasonable rates for the work done….The trial court was entitled to rely on Lewis Brisbois’s declarations to determine the reasonable rates for experienced attorneys in Los Angeles County….

“The trial court thoroughly examined the record and reduced both the time claimed and the hourly rate for one of the partners.”

The case is Pasternack v. McCullough, B302137.

Attorneys on appeal were Gregory M. Hatton, Arthur R.  Petrie, II and John A. McMahon of Hatton, Petrie & Stackler for Pasternack and Weatherup, Chan, and Bartley L. Becker of Lewis Brisbois for McCullough.

Weatherup commented yesterday:

“My client, Tom McCullough, and I, are very pleased by the Court of Appeal decision affirming the fee award.  Lawrence Pasternack has filed several malicious prosecution actions against Mr. McCullough, all of which were found to lack merit. After more than 10 years, we are pleased that they are over.”

He added:

“We will submit a request for publication to the Court of Appeal.”

Bigelow also wrote the Feb. 6, 2018 opinion reversing the denial of McCullough’s anti-SLAPP motion by Los Angeles Superior Court Judge Nancy L. Newman, Bigelow said: “We conclude the denial of Pasternack’s nonsuit motion in the underlying collection ease demonstrates the collection claim was legally tenable and thus, Pasternack has failed to establish a probability of prevailing on his malicious prosecution claim.”

Two Law Firms Seek $2.75M in $17.5M Nutraceutical Class Settlement

June 8, 2021

A recent Law 360 story by Rose Krebs, “2 Firms Seek $3.75M For $17.5M Nutraceutical Suit Deal,” reports that Bernstein Litowitz Berger & Grossmann and Kessler Topaz Meltzer & Check are seeking a $3.75 million fee award for brokering a proposed $17.5 million deal to end a Delaware Chancery Court suit over Nutraceutical's $446 million sale to a private equity firm in 2017.

In a brief made public Monday, the two firms said the proposed settlement is "a significant achievement for the class and warrants approval."

Also, "the requested award is fair and reasonable in light of the benefits achieved, the stage of the litigation, and counsel's efforts," the firms said.

A stipulated settlement was submitted to the court in April proposing to end a proposed class action filed last year by investor Paul Eric Weiss against former Nutraceutical International Corp. directors and HGGC LLC, the private equity firm that acquired the nutritional supplement manufacturer.

Weiss asserted Nutraceutical was sold to the private equity firm in a deal that "cashed out public stockholders at an inadequate price" and was led by a board with "divided loyalties."

Weiss said the deal resulted from a "tainted sale process" fueled by the board's desire for the company to remain "in familial and familiar hands" following the retirement of former Nutraceutical CEO and Chairman Frank W. Gay II. Gay's brother, Robert C. Gay, is HGGC's co-founder and executive director, and the Gay brothers co-founded Nutraceutical in the 1990s, according to the suit.

"At a time when the company was executing well on its long-term business plan and not for sale, [Frank] Gay and the other directors agreed to a single-bidder sales process with HGGC. HGGC then leveraged its numerous connections with the company to secure exclusive negotiations and an unfair price for company stockholders," the suit argued. "The board's conduct was not intended to, nor did it, maximize stockholder value."

Weiss said the unfairness of the deal was apparent when California-based HGGC — which was co-founded by retired NFL quarterback Steve Young — "sold a 40% minority interest in the company to other private equity purchasers in a transaction that valued Nutraceutical at $650 million" within two years of the acquisition.

HGGC had long targeted Nutraceutical as a potential acquisition, over time leveraging its "myriad relationships with company insiders, including the three-member special committee formed to review and negotiate Nutraceutical's proposal, to ensure that it faced no competition and secured a friendly purchase price that did not reflect the company's true value," the suit claimed.

Weiss argued that when Frank Gay was approaching retirement after 25 years as Nutraceutical's CEO, the company was looking for "a familiar successor to take over the company," and turned to a former chief financial officer who had left the company to take a job at HGGC.

Instead of leaving HGGC, the potential successor suggested to Nutraceutical's board that the private equity firm could instead buy the company, the suit alleged.

Weiss accused the former Nutraceutical directors of running "an exclusive sales process that would inevitably result in one (and only one) successful bidder for the company — HGGC."

The suit also said certain unidentified managers of Nutraceutical provided some equity to help fund the deal, while some managers gained certain equity and employment benefits from the deal.

Weiss also claimed the Nutraceutical board secured stockholder support for the transaction after sending out a misleading and inadequate proxy.

Under the proposed settlement, which is set to be considered by the court at a hearing next week, a $17.5 million settlement fund will be set up for Nutraceutical's former public stockholders, excluding defendants and former company and HGGC officers, according to court filings.

In their brief, the two firms told the court the $17.5 million "settlement fund represents a 5.8% premium to the $41.80 per share merger consideration" and that "the per-share settlement fund is significant — particularly considering the risk that plaintiff could have prosecuted this action through trial without securing any recovery for the class."

Lack of Jurisdiction Dooms Billing Suit Against K&L Gates

June 7, 2021

A recent Law 360 story by Justin Wise, “Lack of Jurisdiction Dooms Billing Suit Against K&L Gates,” reports that a federal judge has dismissed a health center's lawsuit alleging K&L Gates LLP and one other firm engaged in deceptive billing practices during a South Carolina bankruptcy action, ruling the lawsuit is not sufficiently related to a bankruptcy matter to justify federal jurisdiction.

In a three-page order handed down Friday, U.S. District Judge Jill N. Parrish rejected arguments from Chicora Life Center, a Utah-based subsidiary of Chicora Garden Holdings, that the court could hear the dispute since it arose and was related to Chicora Life's prior bankruptcy. Federal courts only have jurisdiction over such cases when it can affect the administration of an estate, Judge Parrish wrote, something that's impossible in this matter since the bankruptcy proceeding was terminated in 2017.

"The outcome of this action cannot 'conceivably have any effect on the estate being administered in bankruptcy' because the bankruptcy proceedings terminated over two years before this action was filed," Judge Parrish wrote. "In short, this court lacks jurisdiction because this lawsuit cannot have any impact 'on the handling and administration of the bankruptcy estate,' nor can it affect 'the estate of the debtor' in a closed bankruptcy case."

Douglas Durbano, a Utah lawyer and developer who manages Chicora Life and also served as counsel for Chicora Life in the current case, told Law360 that he'd seek to move forward with the claims in a different venue.

"The matter will be refiled in a court that does have jurisdiction," he said, adding that he's "studying" possible new venues based on the ruling and previous court admissions from the firms.

K&L Gates declined to comment on the dismissal. Attorneys for the firm did not immediately return a request for comment.

Chicora Life Center sued K&L Gates and South Carolina law firm McCarthy Reynolds & Penn LLC in August, alleging that its attorneys engaged in, among other things, fraudulent billing practices and malpractice during its representation in a South Carolina bankruptcy proceeding.

According to the lawsuit, K&L Gates used several tactics to increase its billing in the Chapter 11 proceeding against Charleston County over a lease termination dispute. The billing practices resulted in about $1.6 million in fees between May and October 2016.

The health center also alleged that actions from K&L Gates and McCarthy Reynolds attorneys caused the bankruptcy court to approve a "cramdown" plan against its own interests. The "cramdown" plan called for the county to purchase a Chicora Life property to satisfy its obligations to creditors, a scheme that it claimed led to a $3 million tax liability, according to Friday's ruling.

In a court filing this year, K&L Gates said it secured an "extremely favorable" settlement for Chicora Life where Charleston County agreed to purchase the property in question for $30 million. It also said a fee examiner appointed by the bankruptcy court determined the firm was entitled to all of its requested fees

Article: Actual and Necessary: A Guide to Keeping Time So You Get Paid

June 6, 2021

A recent ABI Journal article by Brittany B. Falabella and Allison P. Klena, “Actual and Necessary: A Guide to Keeping Time So You Get Paid,” reports on good billing practices in large Chapter 11 bankruptcy.  This article was posted with permission.  The article reads:

Billing time is one of the most dreaded aspects of private practice in any field of law, but not because it is hard or overly time-consuming. The extra step of recording discrete, detailed time entries is much more than an annoyance. For bank­ruptcy practitioners employed under §§ 327, 1103 and 1051 of the Bankruptcy Code and certain credi­tors’ counsel,2 it is a step that cannot be done in a sloppy, haphazard way — at least, if the attorney wants to be paid.

In non-bankruptcy areas of practice, an attorney may have to explain generic, unclear and blocked billing to a client. However, a bankruptcy practi­tioner’s bills are subject not only to this review, but also to that of multiple other parties, including the U.S. Trustee’s Office, debtors, committees, interest-holders and, most importantly, the court, before the practitioner will be awarded compensation under §§ 330 and/or 331. Developing proper billing habits from the start will pay for itself — literally.

Although most new attorneys who enter an established bankruptcy practice will have standard forms for fee applications, taking the time to under­stand the law informing a court’s analysis is the first step in understanding how to effectively and proper­ly keep time for easy approval. The first part of this article discusses the Code sections and cases that likely apply to every fee application. The second part discusses the common pitfalls that can result in a court reducing a fee request, and easy and practi­cal tips to avoid them. By making proper billing a habit rather than a dreaded task, the foundation will be laid to get paid in full.

The Laws of Getting Paid: Section 330 of the Bankruptcy Code

Under § 330, after notice and a hearing an attor­ney may be awarded (1) “reasonable compensa­tion for actual, necessary services rendered” and (2) “reimbursement for actual, necessary expens­es.”4 On the court’s own motion or that of any party-in-interest, a court can, however, reduce the com­pensation requested.5 In making the determination of whether and how much to reduce a request, the court is directed to

consider the nature, the extent, and the value of such services, taking into account all rel­evant factors, including —

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were neces­sary to the administration of, or ben­eficial at the time at which the service was rendered toward the completion of, a case under this title;

(D) whether the services were per­formed within a reasonable amount of time commensurate with the com­plexity, importance, and nature of the problem, issue, or task addressed;

(E) with respect to a professional per­son, whether the person is board cer­tified or otherwise has demonstrated the skill and experience in the bank­ruptcy field; and

(F) whether the compensation is rea­sonable based on the customary com­pensation charged by comparably skilled practitioners in cases other than cases under this title.6

In addition, the court “shall not allow compensation for — (i) unnecessary duplication of services; or (ii) services that were not (I) reasonably likely to benefit the debtor’s estate, or (II) necessary to the administration of the case.”

The Lodestar Method

The lodestar method is a court’s starting point for deter­mining whether fees billed were reasonable. The “lodestar” equals a reasonable amount of time for the matter multiplied by a reasonable hourly rate.8 Reasonable time is the time that the court believes a billing attorney should have spent on the matter. Then, a “reasonable hourly rate” is calculated with reference to a billing attorney’s experience and skill, as well as prevailing rates in the community for similar services provided by reasonably comparable attorneys. The sum (i.e., the lodestar) may then be adjusted to account for the specific demands of the case, often with reference to some or all of the 12 Johnson factors.

The Johnson Factors

The Johnson factors are derived from the Fifth Circuit’s decision in Johnson v. Georgia Highway Express Inc.,9 and consist of the following: (1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney’s opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attor­ney’s expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the expe­rience, reputation and ability of the attorney; (10) the unde­sirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys’ fee awards in similar cases.

However, courts have not taken a uniform approach to the Johnson factors. Some courts view the factors as already subsumed into the lodestar method,10 while others apply the lodestar method and then look to the Johnson factors to decide whether the lodestar amount should be modified.11 Still other courts consider the Johnson factors in conjunction with calculation of the lodestar.12 Although these distinctions may matter in some cases, the one- and two-step processes will often generate essentially similar results, especially given that enhancement of the lodestar is a rare occurrence.

Biggest Pitfalls and Strategies to Avoid Them

Even with an understanding of the law, unless time records are maintained in anticipation of bankruptcy court review, a practitioner will often fall into some of the pitfalls discussed below. In many cases, a simple fix can nip errors in the bud. This avoids the headache of reviewing and editing voluminous invoices at the end of a fee-application period or the end of a case, and, most importantly, permitting the court to allow fees in full and without objection.

Not Enough Detail/Excessive Billing

Vague time entries are virtually always a problem. A gen­eral, shorthand description might be easy to understand for the time-keeper doing the work and making a contemporane­ous record (it goes without saying to always keep contem­poraneous time). However, the court and other parties who analyze vague, generic time entries do not have the benefit of the billing attorney’s on-the-spot thoughts.

Time entries should be drafted with an eye toward explaining and justifying why the work was “reasonable and necessary,” and how it benefited the estate or a constituent. Entries such as “reviewed emails” are certainly insufficient, but even additional details, such as “conference with X con­cerning research and strategy” or “conference with X con­cerning pending matter related to debtor” might not provide enough detail for a court to determine whether the time was justified.14 Vague entries can cause the court to spend time attempting to decipher the context, conduct an evidentiary hearing,15 or simply deny the compensation.

While courts frequently complain that counsel have engaged in excessive billing, the heart of the issue is fre­quently that the court does not understand how the amount of time billed was “reasonable and necessary.” In other words, the billing entry was not specific or detailed enough to explain to the court that the full amount of time delegated to a task benefited the estate or was necessary to the admin­istration of the case. This issue is often remedied if detailed descriptions are crafted with an eye toward the benefit to the case as previously explained.

Vague and ambiguous entries are a common and costly mistake. No attorney, particularly a new associate, wants their entries to be the reason that the firm’s fee application is reduced or its approval delayed. Taking the time to carefully prepare time entries is essential, not optional.

Tip: Have an attorney or professional assistant who is not working on the case review the time entries. If that person cannot understand the value of the time billed or the task that was completed, more detail should be included until it becomes clear. If it becomes necessary to bill significant time to certain tasks, make sure the explanation is particularly thorough to explain the circumstances.

Block-Billing

Similar to time entries that are insufficiently detailed, time entries that are block-billed — multiple tasks com­bined in a one-time entry — do not establish for the review­er (1) how much time was spent on a particular task, or (2) whether the time spent on each task was reasonable. For example, if an attorney records 3.0 hours total for “review of a motion for approval of DIP financing; telephone call with debtor’s counsel concerning alternative financing sought; and email to client regarding financing options for debtor’s continued operation under chapter 11 and recommendation not to object to the filed DIP financing motion,” the court has no idea whether the review of the motion took 0.6 hours (presumably reasonable) or 2.7 hours (perhaps unreason­able absent additional undescribed factors). According to the U.S. Trustee’s guidelines, while block-billing is gener­ally not allowed, a single daily entry that combines de mini­mus tasks can be combined, provided that the entry does not exceed 0.5 hours.16

A consequence of block-billing is that the court may conclude that it lacks the information to trim excessive time from a particular task among those blocked, and may choose to reduce the total time billed by a discretionary percentage.17 The goal is to establish that your work was reasonable and necessary. Do not give a court an “excuse” to question the reasonableness of your time by block-billing.

Tip: Break up time entries so that each task corresponds to the amount of time spent on that task — even if the amount of time is modest. Making use of time-tracking software or timers and developing good habits can be quite helpful in mastering detailed task-billing.

Not Delegating to Proper Staff/Duplicative Billing

Whether certain tasks are properly completed by senior-level attorneys, lower-level attorneys or support staff is largely out of the control of an associate. Nevertheless, there will be times when tasks that would be more suitable for a junior-lev­el attorney must be completed by a senior attorney, or where an attorney may need to complete a task that would ordinar­ily be delegated to a staff person. Similarly, there are times when multiple attorneys must participate in the same hearing or conference, which reviewing courts often view skeptically.

In such situations, courts are more inclined to allow the “double billing” if the exigent circumstances are explained in the entry and such staffing situations are kept to a mini­mum.18 When matters are not explained or apparent from the time description, the court is left to question how the time and/or rates are reasonable and necessary.

Tip: While a junior associate might not have much con­trol over the delegation of tasks, associates typically draft the fee applications, so they should keep this issue in mind when reviewing bills and flag any issues with a supervising attorney prior to filing. A good-faith reduction for certain tasks might go a long way with the court and other parties-in-interest. At a minimum, make sure your own time is not subject to objection or reduction. If you find yourself bill­ing time to routine tasks, be sure the circumstances are fully explained in the entry.

Conclusion

Given the consequences of failing to record time properly, it is well worth the time to develop the habit ofrecording specific time entries that are separated by each task performed and that indicate that how the time spent was both reasonable and necessary. With such a “reason­able and necessary” standard as a guide, a professional can ensure that the court and other interested parties under­stand the value being added to the case and that the fees requested are fully warranted.