A recent Courthouse New Service, “Judge Slashes ‘Eye Catching’ Attorney Fees” reports that a federal judge trimmed a $4.5 million fee request from a merger dispute, citing block billing, excessive time claims and other deficiencies. Volcano Corporation requested $3,557,034 in attorney fees and $1,023,995 in expenses for a total of $4,581,030 after being granted summary judgment in a dispute over a merger agreement.
Volcano, a medical device maker, acquired CardioSpectra in 2007 in a $25.2 million merger that promised an additional $38 million in “milestone” payments to former Cardio shareholders. The company’s milestones were based on regulator approval of CardioSpectra’s optical coherence tomography system for high-resolution imaging of coronary arteries. Volcano made its first milestone payment of $11 million, but did not follow through with subsequent payments after failing to acquire further regulatory approval, resulting in a shareholder lawsuit.
Lead plaintiff Christopher Banas sued Volcano in 2012, claiming Volcano breached its contractual obligation to use “good faith and reasonable commercial efforts to achieve Milestone 2 and that Volcano failed to pay shareholders after Milestone 3 and 4 were satisfied,” according to U.S. District Judge William Orrick’s summary of the proceedings.
Orrick on Dec. 12 granted Volcano’s motion for summary judgment and denied Banas’ cross motion for summary judgment, citing, in part, misrepresentation of the merger agreement. Orrick said, however, that Volcano’s subsequent request for attorneys’ fees were excessive.
“Volcano seeking s staggering amount for a breach of contract case, which was resolved in summary judgment,” Orrick wrote. “It’s documentation of those fee and costs, however, was remarkably deficient.” Orrick cited “block-billing” as one deficiency.
“There is no way to determine whether the time claimed for any particular task is reasonable because Volcano did not identify the fees of time associated with these tasks individually,” Orrick wrote. “I am reducing Volcano’s bill by 20 percent for block billing.”
Orrick added that while he agrees with “some” of the plaintiffs’ criticisms of Volcano’s documentation, he did not agree with them all of them. “The rates requested by Volcano, while high, are within the prevailing market rates for similar cases in the Northern District,” Orrick wrote. He awarded Volcano $2,586,963 in fees and $937,503 in expenses for a total of $3,524,466.
Legal bill auditors are companies who provide quantitative analysis of legal billing entries. Legal bill auditors help to categorize and summarize billing entries. Legal bill auditors are hired by clients such as insurance carriers, law firms, corporations, government agencies and municipalities to analyze legal billing entries in underlying litigation and transactional matters.
Legal bill auditing is part art and part science. No two legal bill auditing programs are the same. As a professional body, our mission is to ensure quality and reliability across the legal fee analysis profession. NALFA’s rating system will help fulfill part of this mission. Our rating system will also assist clients who use legal bill auditing.
Legal billing auditing programs will be rated by process, methodology, technology, personnel, customer service and leadership. NALFA has identified the following U.S.-based legal bill auditing programs (members and non-members) to be rated:
MBT Legal Fee Solutions (Member)
KPC Legal Audit Services (Member)
Bottomline Technologies (Member)
Legal Fee Advisors (Member)
Alan Gray (Non-Member)
Sterling Analytics (Non-Member)
Legal Cost Control (Non-Member)
Stuart Maue (Non-Member)
Hamlin & Burton Liability Management (Non-Member)
"We look forward to working with members and non-members in rating the nation's top legal bill auditing programs," said Terry Jesse, Executive Director of NALFA.
A recent Law Technology Today story, “What is, and is not, an Alternative Fee Arrangement,” reports on the structures of alternative fee arrangements. This is part one of a two part blog series. The story states:
Fee agreement promote specific behaviors. For example, billing based on time causes people to spend more time on matters. That fact doesn’t change if the hourly rate is discounted, blended, or rack. In a truer sense, alternative fees are about relationships with clients that are not based on how many six-minute increments it took to complete a task. Hourly rate billing is cost-plus billing. In the broadest sense, alternatives are those billing methods that are not cost-plus. But to be more precise, here are the definitions I use throughout the rest of this post:
Structures That Are Not Alternative Fee Arrangements
Hourly rates. Clients are billed for the amount of time a given lawyer works, whether in hours, tenths of hours, or some other fraction of hours, multiplied by an hourly rates. Most firms have standard rates, book rates, or rack rates for all of their lawyers.
Hours x Rate = Revenue
Discounted hourly rates. Clients are billed for the amount of time a given lawyer works, whether in hours, tenths of hours, or some other fraction of hours, multiplied by an hourly rate that is less than the lawyer’s standard, book, or rack rate. Most firms will discount hourly rates for many of their larger clients.
Hours x Discounted Rate = Revenue
Blended hourly rates. Instead of using each lawyer’s standard, book, or rack rate, a common or “blended” number is used. For example, if the standard hourly rates for lawyers on a matter are $800, $600, and $400 per hour, the negotiated blended rate may be $550 per hour.
Hours x Rate = Revenue if (and only if) Revenue ˂ Cap Amount
Why are these not alternative fees? All of these fee structures incentivize lawyers working under them to bill more time. More time yields more revenue. As a rule of thumb, if the term “hourly rate” appears in the fee structure, the fee is not alternative, regardless of what adjective precedes “hourly rate.”
Discounted hourly rates, blended hourly rates, uncollected hourly rates, or Thursday hourly rates are all hourly rate structures, where more time spent equals more revenue. None of the approaches based on time fundamentally change the behavior of lawyers to the client’s benefit. The “more is better” mentality that so infects the legal system is not limited or altered in any meaningful way.
Bankruptcy fee examiners that included NALFA members Nancy Rapoport and Robert Fishman filed an Amicus Brief (pdf) with the U.S. Supreme Court in Baker Botts v. Asarco. At issue in the case is whether the Bankruptcy Code grants bankruptcy judges discretion to award compensation for defending a fee application. The amicus brief states:
This Court’s decision here should avoid any per se rule—either generally permitting or generally prohibiting—the compensability of defense fees. Implicitly or explicitly, moreover, the Court should note the practical dimension of the review, resolution, and approval process for professional fees in Chapter 11 proceedings. The facts of this case are, in so many ways, exceptional. With or without a fee committee or a fee examiner, the consensual resolution of fee disagreements is the norm. Any per se rule would discourage that resolution. A system without restraint on the award of defense fees could encourage meritless fee requests and license to defend them beyond reason or necessity. A system that made defense fees virtually unobtainable could encourage meritless objections.
NALFA also reported on this case in “U.S. Supreme Court to Hear Historic Fee Enhancement Case” and “Fifth Circuit Upholds 20 Percent Fee Enhancement in Historic Case”
NALFA welcomes Robert M. Fishman to our membership. NALFA certifies Robert Fishman as a qualified bankruptcy fee examiner. Mr. Fishman is a partner at Shaw Fishman Glantz & Towbin LLC in Chicago. Mr. Fishman is the firm’s co-chair of the Bankruptcy, Reorganization and Creditor Rights practice. Mr. Fishman was recently featured in Crain’s Chicago Business story, “Meet the Bill Gatekeeper in Detroit’s Bankruptcy.” The article states:
Fishman says he fell into bankruptcy practice “by accident” after a stint at the Illinois attorney general’s office. The mix of dealmaking, litigation and client variety proved a good match for his temperament. After 18 years in private practice, he left 155-lawyer Ross & Hardies, which later merged with McGuireWoods. He joined a small real estate firm at two firms, and established a bankruptcy practice there. He wanted more control over his work, he says.
Fishman has built a national profile on his work with the Alexandria, Va.-based American Bankruptcy Institute, where he was president from 1997 to 1998, and his involvement in the United Airlines, Kmart and Peregrine Financial Group.
The fee examiner role is the most prominent he has held in a big case. Fishman says, “the kind of opportunity I just felt I couldn’t say no to,” although not because of the money. Rather, Fishman sees the assignment as an important credential for business development. He speculates that more municipalities may file bankruptcy. If that happens, he says, “I’ll be in a very good position to be considered for that.”
The following language can fit into any retainer agreement or engagement letter, and permission is given for its use:
ATTORNEY-CLIENT FEE DISPUTE In the event either of us seeks a mediation of a...
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The U.S. Court of Appeals for the Sixth Circuit in Lasley v. Commissioner, affirmed a district court’s order awarding reduced attorneys’ fees under the Social Security Act. The...
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A new study, “Global Risk 2014-2015: Building the Transparent Bank” by Boston Consulting Group reports that since the financial crisis, both sides of the Atlantic have paid out a total of...
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A recent New York Law Journal story, “Firms Turn to Specialists to Boost Collections,” reports that as pressure mounts on law firms to boost revenue, several firms have upgraded procedures...
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A recent Law 360 story, “Biggest Cos. Foresee Legal Cuts in 2015,” reports that two-fifths of legal departments at companies with revenue exceeding $10 billion said they expect their legal...
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