A recent Texas Lawyer story, “Fifth Circuit Decision Fails to End Huge Fee Case,” reports that in 2011, Peter Vogel took on an unusual and difficult federal court assignment: to act as a receiver over a “vexatious litigant” who hired and fired 45 Texas lawyers while allegedly stiffing them for hundreds of thousands of dollars in attorney fees.
Four years and numerous appeals later, Vogel’s receivership is finally over. The partner in Dallas’ Gardere sorted through the tangled case full of unpaid invoices that ultimately distributed nearly $1 million to 22 different law firms to keep the complicated litigation moving. But the litigation itself is far from over, as the U.S. Court of Appeals for the Fifth Circuit’s recent decision in Baron v. Vogel indicates.
Jeffrey Baron, an internet entrepreneur who founded Ondova Limited—a licensed bulk domain name registrar—was sued in Dallas U.S. district court over a contract dispute in 2009. Ondova later filed for bankruptcy, which automatically stayed the district court case. At that stage of the litigation, Baron repeatedly hired and fired 45 lawyers, according to the bankruptcy trustee.
The district court deemed Baron a “vexatious litigant” and appointed Vogel as receiver over Baron’s business to assess the attorney fee claims and disburse Baron’s assets to resolve them. The district court ultimately ordered that Baron pay $870,237 to 22 different law firms and solo attorneys in 2010.
Baron appealed the appointment of the receiver to the Fifth Circuit in 2011 and ultimately won. In that decision, the appellate court found that the trial judge had no authority to establish a receivership “to control Baron’s hiring, firing and nonpayment of numerous attorney.”
But because the circumstances that led to the appointment “were primarily of Baron’s own making,” the Fifth Circuit concluded that charging Baron’s receivership fund for reasonable receivership expenses—without allowing any more of his assets to be sold—was an equitable solution. The case was remanded back to the district court to reconsider the fees it had previously awarded to Vogel and whether they should be discounted.
The district court authorized several interim fee payments to Vogel and the lawyers who assisted him—which Baron appealed. And in its most recent ruling, the Fifth Circuit has concluded that it has no jurisdiction at this time to decide the seemingly never-ending attorney fee dispute.
In any field of analysis, a professional methodology is always preferred to an ad hoc personal or solo methodology. But in legal fee analysis, each attorney fee expert and legal bill auditor have their own individual or solo methodology for analyzing attorney fees and legal billing entries.
Even if qualified, no two attorney fee experts or legal bill auditors follow the same process or methodology when reviewing attorney fees for reasonableness. In fact, some attorney fee experts and legal bill auditors vary their methodology depending on the client (i.e. fee-seeking or fee-challenging). This has resulted in one-sided fee experts and legal bill auditors.
“The challenge for legal fee analysis is to move beyond the personal ad hoc methodologies. At NALFA, we're interested in developing some general methodology principles for analyzing reasonable attorney fees. This would ensure reliability in the results, regardless of client,” said Terry Jesse, Executive Director of NALFA.
A recent blog post, “California Court Allows Insurer to Sue Independent Counsel for Fees” by Whitney Warren, discusses the recent California Supreme Court decision in Hartford Casualty Insurance Company v. J.R. Marketing LLC. She writes:
The California Supreme Court recently ruled in Hartford Casualty Insurance Company v. J.R. Marketing LLC that an insurer may seek direct reimbursement from independent defense counsel (referred to as Cumis counsel in California) for allegedly excessive and unreasonable fees. While this decision may have defense counsel running for the hills or, at the very least, taking a closer look at the time and effort spent on matters, it has little impact outside the precise parameters articulated by the court.
The decision focused on a court order requiring Hartford, the insurer, to promptly pay fees charged by Squire Patton Boggs, Cumis counsel. The order additionally required Squire Patton’s fees to be necessary and reasonable, and, “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the [underlying lawsuit].”
After Hartford attempted to avoid its duty to defend for nearly 10 years, while Squire Patton generated the disputed fees, Hartford sought to be reimbursed by Squire Patton for some of the $15 million paid by Hartford for the independent defense. The law firm argued in response that the insurer must instead obtain reimbursement from the insured, who may then have the right to indemnification from the firm. Squire Patton further claimed a ruling in Hartford’s favor would violate public policy by contravening the Cumis rule and section 2860.
These arguments did not convince the court that Cumis counsel “should be absolutely immune from liability for enriching themselves.” Accordingly, the California Supreme Court determined a CGL insurer may seek reimbursement when (and only when):
(1) the insurer initially refused to defend its insured against a third-party lawsuit; (2) compelled by a court order, the insurer provided independent counsel under a reservation of rights—so called Cumis counsel—to defend its insured in the third party suit; (3) the court order required the insurer to pay all “reasonable and necessary defense costs,” but expressly preserved the insurer’s right to later challenge and recover payments for “unreasonable and necessary” charges by counsel; and (4) the insurer now alleges that independent counsel “padded” their bills by charging fees that were, in part, excessive, unreasonable, and unnecessary[.]
Throughout the opinion, the court limited its holding. The court did not decide “whether, absent such an order, an insurer that breaches its defense obligations has any right to recover excessive fees it paid Cumis counsel." The court also stopped short of deciding who is “unjustly” enriched if independent counsel—representing the insured, but compensated by the insurer—is allowed to retain payments that were unreasonable and unnecessary in the underlying defense, nor “whether a dispute over allegedly excessive fees is more appropriately decided through a court action or an arbitration.” The opinion was tied to a specific court order with express provisions enforcing Hartford’s payment of defense fees.
On remand, the trial court will have to address whether the underlying defense fees are, in fact, unreasonable and unnecessary and whether Squire Patton was unjustly enriched by the allegedly unreasonable fees. While limited in its application, Cumis or independent counsel must be aware of the possibility that if fees charged are susceptible to a reasonableness challenge, the insurer may seek recoupment directly from the law firm, instead of the insured.
Whitney Warren is an associate attorney at Amy Stewart PC. After graduating cum laude from Southern Methodist University Dedman School of Law, Whitney assists the litigation group in representing the firm’s commercial insurance policyholder clients, focusing her practice on research and analysis of insurance coverage issues, management of complex e-discovery projects, and providing counsel on insurance’s most rapidly evolving field: cyber liability policies.
A recent Texas Lawyer story, “Bank of America Claims Akin Gump’s Legal Fees Excessive,” reports that Bank of America describes Akin Gump as one of the “preeminent” U.S. bankruptcy law firms, but is nonetheless complaining that the firm is charging “excessive and unreasonable” fees for representing the official creditors’ committee in Cal Dive International Inc.’s Chapter 11 case.
The law firm of Akin Gump is acting as the co-counsel to the official committee of unsecured creditors in the bankruptcy suit. On July 15, 2015, Akin Gump filed the first interim application for interim allowance of compensation and reimbursement of expenses. In the application, the law firm is seeking total compensation of $973,628 for its work on the case during this period. In addition, the firm is seeking $20,000 for expense reimbursement.
Bank of America, the "DIP agent" for the lenders under the DIP [debtor in possession] facility agreement, recently submitted its objection to Akin Gump's application for compensation. In the objection, Bank of America criticized Akin Gump's handling of the case.
For example, Bank of America stated in the objection, "Committee counsel billed over 300 hours on their retention application—incurring in excess of $100,000 in fees—including over 150 hours spent on conflicts checking. In comparison, the debtors' lead counsel spent approximately 35 hours on their own retention application. The DIP agent believes that the fees incurred for time spent on conflicts checking are inappropriate."
Bank of America also comments that "the payment of fees pursuant to the first interim application could deplete the amounts available under the approved budget, and thereby negatively impacting the debtors' ability to administer these Chapter 11 cases."
According to Bank of America, "The first interim application, if allowed in full, would deplete estate funds to the point of risking a default under the DIP facility agreement. The DIP agent and the DIP lenders have not agreed to—and will not—advance additional funds to administer these cases."
In its objection, Bank of America requests that the court allow the first interim application only to the extent of $576,512.67, which reflects reductions in fees, in the amount of (a) $217,087.50 for duplicative efforts, (b) $138,517.83 for inappropriate amounts billed in pursuit of the DIP objection, and (c) $41,510, for inappropriate billing incurred in connection with committee counsel's retention application, for a total of $397,115.33 in reductions.
A recent Texas Lawyer story, “Houston Lawyers in Fight Over Contingency Fees,” reports that Houston lawyer Hamilton G. Rucker filed a suit seeking more $3.1 million as his share of contingency fees in Deepwater Horizon litigation, alleging that Houston lawyer Jan Woodward Fox and Houston’s Reich & Binstock have “made it clear” that they will not honor the fee-sharing agreements.
Rucker and his firm, Rucker Law Firm of Houston, allege in a petition filed on July 31 that Fox and Reich & Binstock are not honoring fee agreements with Rucker for representing the city of Houston (COH) and the Metropolitan Transit Authority of Harris County (Metro) in litigation against BP and other defendants related to the 2010 Deepwater Horizon oil spill.
"In short, even though Rucker was the attorney who catalyzed the litigation on behalf of COH and Metro, defendants Fox and [Reich & Binstock partner Dennis] Reich have thwarted Rucker's efforts to claim his rightful portion of the attorney's fees due," Rucker alleges in a petition he filed in the 164th District Court in Harris County.
Rucker and his firm bring breach of contract, unjust enrichment, tortious interference, fraud and quantum meruit causes of action against the defendants. He seeks at least $3.1 million in actual damages, interest and attorney fees.
In Rucker Law Firm v. Fox, Rucker alleges that he was co-counsel in Deepwater Horizon litigation for the city of Houston and Metro with Fox, Reich and Norman Jolly of Norman Jolly P.C. of Houston. Rucker alleges that Jolly assigned his interest in the litigation to him and that he "continued to comply with his obligations as counsel" for the COH and Metro along with meeting Jolly's obligations.
Rucker alleges that on April 17, 2013, the Houston City Council approved an agreement with lawyers to litigate claims against BP and other responsible defendants, with a 33.3 percent contingency fee for any recovery made through settlement prior to trial. He alleges that according to an "internal agreement between the parties," Fox, Reich and Jolly would split the contingency fee equally, and Jolly would pay all expenses. Rucker alleges that "it was understood by all parties" that he would work on the litigation because he was then an attorney at Jolly's firm.
Additionally, Rucker alleges, he, Jolly, Fox and Reich entered into an agreement, also providing for a 33.3 percent contingency fee, with Metro to litigate the transit agency's claims against BP and others. He alleges that all firms were to split the fee equally and he was individually listed on that agreement.
Rucker alleges that in September 2013, Jolly assigned his one-third interest in the COH litigation and his one-quarter interest in the Metro litigation to Rucker, who by then was a former associate of Jolly's firm, and Jolly withdrew from the litigation. Rucker alleges that he reimbursed Jolly $25,000 in expenses for the lawsuits.
Rucker alleges that he was an attorney of record in both suits and worked on them, even after both were transferred to the Deepwater Horizon MDL.
"Despite his efforts, Reich and Fox have attempted to keep Rucker out of the 'settlement loop' and deny him his attorney fee interest (both original and assigned) in the COH litigation and the Metro litigation," he alleges in the petition.
In September and October 2013, Rucker alleges, he informed Fox and Reich that Jolly had assigned his interests in the litigation to him, but Fox and Reich attempted to "exile" Rucker from the litigation, including efforts to exclude Rucker from settlement negotiations.
On July 6, Rucker alleges, Fox and Reich informed him that expenses were to be submitted to the client in anticipation of a settlement. He alleges that when he reminded Fox that he had incurred more than $25,000 in expenses because of Jolly's assignment, "Fox then feigned ignorance of any assignment, responding, 'What assignment?'"
He alleges that on July 9, Fox and Reich informed him of a proposed settlement between BP and Metro, but "refused to discuss any matters" relating to the city of Houston.
Rucker alleges that the settlement in the city of Houston litigation totaled $12.2 million, according to a media report, and Metro will receive $9.2 million in settlement. Rucker alleges that that entitles him to more than $1.6 million in fees from the city of Houston settlement and another $1.5 million from the Metro settlement.
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