A recent NLJ story, “Calif. Judge Warns Plaintiffs Lawyers About Fees in Class Action,” reports that a California federal judge has fired a warning shot at a cadre of plaintiffs lawyers, cautioning them not to regard their proposed class action against The Coca Cola Company as a way to pile up legal fees.
U.S. District Judge Jeffrey White of the Northern District of California issued the blunt admonishment to the plaintiffs’ attorneys in Engurasoff v. Coca Cola, one of the six cases preliminarily encompassed in proposed multidistrict litigation alleging Coca Cola falsely claims its iconic product does not contain added preservatives and artificial flavors.
White closed his August 21 order with a stern broadside against the plaintiffs’ counsel: “The court admonishes plaintiffs that, to the extent they view this case, or the related cases, as an opportunity to settle a class action and obtain a large sum of attorneys’ fees, the court will review any request for attorneys’ fees as part of a class action settlement with close scrutiny,” the judge wrote.
Citing the plaintiffs’ 15-page brief and “voluminous exhibits” that went “far beyond” the legal application to the plaintiffs’ case of the Supreme Court’s June 12 ruling in POM Wonderful v. Coca Cola, White concluded with the observation that “Plaintiffs have been expending additional, unnecessary hours.”
A recent New Jersey Law Journal story, “Jury to Decide if Goldman Sachs Pays Ex-Employee's Legal Bill,” reports that the U.S. Court of Appeals for the Third Circuit has reversed an order requiring Goldman Sachs & Co. to pay millions in legal fees for the defense of a former company vice president who faces criminal charges for sharing program code for the company’s high-speed trading platforms with another company. Instead, the court said a jury must determine whether the company should have to indemnify the former employee.
By a 2-1 margin, the appeals court vacated the ruling of a Newark federal judge that called for Goldman Sachs to pay for the criminal defense of Sergey Aleynikov, a former computer programmer for the company. The U.S. District Court for the District of New Jersey held that the company was obligated to pay Aleynikov’s defense because he held the title of vice president, but the appeals court remanded the case to the district court for a trial on the plaintiff’s claim.
The appeals court said U.S. District Judge Kevin McNulty of the District of New Jersey, who granted summary judgment to Aleynikov erred in focusing his analysis on the meaning of the term “vice president,” even though that term does not appear in the relevant section of the company’s bylaws. The Third Circuit said the plaintiff’s right to advancement of fees depends on the interpretation of the term “officer” as discussed in the bylaws.
Goldman Sachs’ bylaws provide for indemnification and advancement of legal fees to officers, but a jury must evaluate whether Aleynikov is an officer, the appeals court said. McNulty, the motion judge, said the doctrine of contra proferentem dictated that any ambiguity about whether Aleynikov is an officer should be decided against Goldman Sachs. That doctrine says that when one side was unilaterally responsible for drafting, courts should construe ambiguous terms against the drafter.
The New York Times reported on this case in “At Goldman Sachs, Even the Legal Fees Are Different.” The story reports that Goldman Sachs’ ambiguous bylaws has the effect of letting the firm decide whose legal bills it will pay and whose it won’t. Put simply, being able to choose which of its officers will receive advance payments for legal bills gives the firm significant leverage over those who become ensnared in an investigation or lawsuit. The bylaws of JPMorgan Chase, Bank of America and Morgan Stanley, by contrast, are unambiguous on whose legal fees will be covered. (Usually, but not always, employees found liable for wrongdoing have to repay the legal advanced they received.)
A recent New York Law Journal story, “Fees Case Draws Support for Contingency Arrangements,” reports that an attorney fee dispute that is making an encore appearance before the Court of Appeals this month could have wide-ranging effect on New York’s contingency fee system, according to lawyers supporting a firm’s fee arrangement.
At the heart of the fee dispute is a contingency fee arrangement between the late Alice Lawrence and Graubard Miller for work the firm did in 2004 and 2005 on the lucrative real estate holdings left by Lawrence’s late husband, Sylvan. The high court heard the appeal of an Appellate Division, First Department, ruling that imposed an hourly fee approach to Graubard Miller’s payments.
In an amicus brief to the Court of Appeal, the New York State Trial Lawyers Association has urged the court to reinstate the contingency fee and argued that beyond the significant difference in the two calculations—about $3 million in hourly payments for Graubard Million versus $16 million in contingency fees—the case presents an opportunity for the court to acknowledge that contingency fee agreements must be enforced appropriately.
“The contingency fee method of attorney compensation, we submit, eliminates the problem of evaluating the value of the services rendered by the attorney on a time basis,” the trial lawyers’ group said as amicus in Matter of Lawrence, Deceased, 149. “[The First Department’s] decision upholding substantive and procedural unconscionability threatens the basis of the contingency fee system, which is designed to avoid that very problem.”
The association said Alice Lawrence was a sophisticated client who sought the fee arrangement which turned out to benefit Graubard Miller more than she or even the firm anticipated. The arrangement, which came after Lawrence had paid Graubard Miller about $22 million through 20 years’ worth of hourly billings, called for the firm to get a 40 percent contingency of recovered funds.
The trial lawyers’ group argued that the firm should not be a victim of its own success, namely that it then secured an unanticipated settlement of $11 million over Sylvan Lawrence’s disputed holdings with his brother, Seymour Cohn, within about five months of reaching the contingency fee arrangement. But the group also asked the court to view the case in a broader context, such as how contingency fee arrangements provide clients with Alice Lawrence’s financial means to secure expert legal help, especially in medical malpractice and other cases involving injured litigants.
“Apart from enabling clients who are not independently wealthy to hire the very best attorneys in the applicable field of law, the contingent fee retainer provides an attorney with an extra incentive to go the extra mile to maximize the recovery, for it is that recovery that will dicate the amount of their fee," the group said.
It added, however, that the "desirability of the contingency fee from the attorney's perspective is greatly lessened if the entire nature of the contract is retrospectively changed--from recovery-based to hourly-based--in those circumstances in which the attorney's very success makes the first measure much larger than the second."
The contingency fee has been in dispute since Alice Lawrence balked in 2005 at paying $44 million on the $111 million secured on her behalf. She said the fee was unconscionable. The $16 million figure is now the amount at issue in the litigation.
A recent NLJ story, “Plaintiffs Attorney Fees Slashed in BofA Case,” reports that plaintiffs attorneys who won a recent $32 million class action settlement from Bank of America Corp. are entitled to a whopping 70 percent less than the $8 million compensation they sought, a federal judge decided. U.S. District Judge Edward Davila of the Northern District of California was unsparing in his dissection of the fees requested by 10 law firms that took on Bank of America on behalf of plaintiffs alleging they were harassed by the bank’s debt collection robocalls. In the end, using the lodestar method, Davila found just $2.4 million in fees to be justified.
Davila devoted about half of his 22-page order (pdf) granting final approval to the deal to the matter of legal fees. His Aug. 29 order in Rose v. Bank of America also found fault with the non-monetary “prospective relief” to which the bank agreed in order to prevent future violations of the federal Telephone Consumer Protection Act (TCPA) that prohibits automated calls of texts to consumers without their prior consent.
The judge’s criticism of the fees was wide-ranging. He questioned the participation of so many firms, along with the total of 18 attorneys and eight paralegals. While not quibbling about the hourly fees charged, he found the number of hours billed bloated and duplicative. One example he highlighted: The “particularly excessive” 800 total hours in settlement negotiations and mediation spent by representatives for all firms. “In the Court’s experience, there is little reason why so many attorneys would need to be present.” Davila wrote, and reduced the hours billed to 400.
The judge also criticized the distribution of hours worked; of the 2,560 hours reported, 1,670 were billed by attorneys with rates of more than $500 an hour, while only 890 hours were billed by those with lower rates. “Few clients would stand for such an inefficient allocation of time,” Davila wrote.
He also found little to like in the “nominal” changes the bank agreed to in order to prevent future TCPA violations. Because the bank will continue to use the definition of “prior express consent” that got it in trouble to begin with, “it would appear that most, perhaps all, Class Members will continue receiving automated calls,” Davila wrote. “Because the primary goal of this litigation, as described by Class Counsel, was to put an end to these phone calls, the touted relief falls short and is particular concern,” he wrote.
A recent article “Massachusetts Court Awards Attorneys’ Fees for In-House Counsel’s Work,” by Trisha M. Rich, Peter R. Jarvis and Allison Martin Rhodes of Holland & Knight, write about the recent ruling in Holland v. Jachmann in Massachusetts.
In a question of first impression, the Massachusetts Court of Appeals recently held that trial court judges have discretion to award attorneys’ fees for work performed by in-house counsel for claims brought under the state’s unfair trade practices law. The case, Holland, et al v. Jachmann, 85 Mass.App.Ct. 292, 2014 WL 1887534 (2014), decided on May 14, 2014 arose out of a dispute between two entities that had formed following a corporate split by Omniglow Corporation, a manufacturer of light sticks and other luminescent products.
Following the split, the relationship between the two resultant companies, Cyalume and Omniglow (which had retained the original Omniglow name), quickly began to collapse. Shortly thereafter, Omniglow sued Cyalume for unfair business practices under Massachusetts state law. The trial court found in Omniglow’s favor and awarded Omniglow legal fees that included an award for work performed by Omniglow’s in-house counsel pursuant to Massachusetts’ unfair business practices statute.
On appeal, Cyalume argued that Omniglow’s in-house counsel was a salaried employee, who did not bill Omniglow for his services and, therefore, Omniglow did not “incur” those fees. In addition, Cyalume argued that the in-house counsel’s failure to keep daily records made the value of his work speculative. The Massachusetts Court of Appeals disagreed and affirmed the trial court ruling, explaining that as a practical matter, every hour that in-house counsel spent on the Cyalume litigation was an hour that he could not spend on the other legal matters and as a result, that had a concrete and financial impact on Omniglow. Further, the appellate court reasoned, denying the attorneys’ fees to Omniglow based on its decision to use in-house counsel instead of outside counsel would undermine the deterrent purposes of the applicable law and would in essence reward the defendants. The appellate court also noted that the award of attorneys’ fees would further the broad remedial purpose of the statute.
The appellate court also rejected the argument that the lack of daily and detailed timesheets was fatal to the attorney fee claim. The court noted that in-house counsel was able to produce a month-by-month list of the time he spent on the case, with brief –albeit non-specific – descriptions of the work that he had completed. In deciding on the amount of the award, the trial court considered:
The in-house counsel’s competence and experience
The length of the trial
The difficulty of the legal and factual issues
The enormous amount of time spent in pre-trial preparation
The plaintiffs’ degree of success
The appellate court noted that while contemporaneous time records would have been preferred, the documents provided, coupled with the trial judge’s first-hand knowledge of the litigation, provided a sufficiently non-speculative basis for the appellate court to find that the trial court judge had not abused his discretion.
The court’s decision in Massachusetts results in the state joining a growing number of jurisdictions that recognize that fee recoveries can be appropriate for work completed by in-house counsel. However, the immediate implications of this opinion may be limited since it applies only to cases under Massachusetts unfair business practices statute. Moreover, this particular case boasted what the appellate court viewed to be excessively egregious conduct by the defendants, which arguably called out for punitive measures. Finally, at least some courts may require some detailed time records before imposing such substantial attorney fee awards. And more generally, different jurisdictions have taken different positions on whether or when attorney fees can be awarded for work by in-house counsel.
Forward-thinking lawyers would be wise to identify potential fee-shifting cases early and to request that in-house counsel keep contemporaneous and detailed time sheets. While many states have precedent for awarding fees for in-house counsel, fee petitions and best supported by timely and accurate records.
Trisha M. Rich is a litigation attorney in Holland & Knight’s Chicago office, where she practices complex commercial litigation and legal ethics and professional responsibility. Peter R. Jarvis is a partner in Holland & Knight’s Portland office, where he practices primarily in the area of attorney professional responsibility and risk management. Allison Martin Rhodes is a partner in Holland & Knight’s Portland office, where she focuses her practice in legal ethics and risk management, including attorney disciplinary defense.
This article was re-printed with permission. NALFA also reported in this case in “In-House Counsel Can Recover Fees in Massachusetts”
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