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The Ethics of Fee Splitting and Referral Agreements

April 25, 2016

A recent ABA Journal story, “When Can Two Lawyers From Different Firms Divide in a Referral Agreement?” reports that ABA Formal Ethics Opinion from the ABA’s Standing Committee on Ethics and Professional Responsibility addresses the propriety of referral fees, explains that clients must consent to such arrangements, and also provides examples of when a lawyer does or does not have a conflict of interest.

Under ABA Model Rule 1.5(3), lawyers may refer cases to lawyers in other firms and receive a fee, as long as the referring lawyer performs legal services or assumes joint responsibility for the case. Comment 7 to Rule 1.5 explains that these arrangements most often occur between a referring lawyer and a trial lawyer.

The opinion notes in a footnote that state adoptions of Model Rule 1.5(e) vary dramatically. Some states only require client consent and a total reasonable fee. A few states prohibit referral fees altogether. Other states mandate joint responsibility or joint financial responsibility.

Clients must consent to such an arrangement and be fully informed of the agreement regarding the division of fees before or within a reasonable time after the start of the representation. Lawyers often cannot receive a referral fee or assume responsibility for the case, however, if they have a concurrent conflict of interest. A lawyer cannot be involved in the case if there is a concurrent conflict of interest unless the lawyer meets the requirements of Model Rule 1.7(b), which includes having each affected client giving informed consent.

The opinion explains that the fee arrangements must be approved by the client and confirmed in writing. “The agreement must describe in sufficient detail the division of the fee between the lawyers including the share each lawyer will receive,” the opinion reads. Such fee agreements “should not be entered into toward the end” of the attorney-client relationship. “Instead, the division of fees must be agreed to either before or within a reasonable time after commencing the representation.”

Former Texas Attorney Wins Fees on Appeal

April 22, 2016

A recent Texas Lawyer story, “Former Galveston Attorney Wins Appeal on Attorney Fees” reports that a Houston appeals court issued an opinion affirming a judgment awarding former Galveston attorney Anthony Griffin over $100,000 in damages in a suit he filed to collect unpaid fees from a former client.

In the April 12 opinion, the First Court of Appeals also modified the judgment to remove the portion of the judgment awarding $5,000 in additional damages to the plaintiff under the Texas Deceptive Trade Practices Act (DTPA).

"The jury awarded addition DTPA damages even though it found no actual damages. We have already determined that the jury's finding of zero actual damages is supported by legally and factually sufficient evidence. As a matter of law, in the absence of actual damages on the DTPA claim, additional damages are not available here," Justice Evelyn Keyes wrote in the opinion. The panel also included justices Terry Jennings and Jane Bland.

In January 2015, the Supreme Court of Texas accepted Griffin's resignation of his law license in lieu of disciplinary action.

The appeal in Schlein v. Griffin is in a suit Griffin filed in County Court-at-Law No. 2 in Galveston County against Schlein, alleging she failed to pay him for representing her in a divorce and for other matters.

As detailed in the opinion, Schlein hired Griffin in 2009 to represent her in a divorce under a fee contract that called for a $35,000 retainer. However, because Schlein had spent more than $179,000 in attorney's fees by that time, a family court judge had enjoined her from spending more money on lawyers without court approval. Griffin agreed to represent her without collecting the retainer.

According to the opinion, Griffin provided legal services to Schlein from the end of 2009 through October 2011 — including the divorce — for a suit she filed against a builder of a house that was damaged during Hurricane Ike, a tax issue and in a criminal case. He also, at Schlein's request, stored some imported Peruvian tile in his warehouse because she was worried that her ex-husband or someone close to him would steal the tile.

After the divorce decree was signed on Oct. 24, 2011, Schlein and Griffin met at his office. However, Keyes writes that Schlein expected to pay Griffin a $35,000 retainer check at that October 2011 meeting, but he gave her a bill for $110,524 in attorney fees for the divorce. Keyes wrote that after Schlein "refused to pay the full fee," Griffin sent Schlein a notice of termination and a demand for payment of $95,000 by Nov. 1, 2011.

Griffin withdrew from the divorce, and Schlein never paid him, and on March 14, 2013, Griffin sued Schlein for nonpayment of fees, alleging breach of contract. Schlein filed a counterclaim alleging breach of contract, legal malpractice, breach of fiduciary duty, fraud and violations of the DTPA.

After trial, a jury found that Schlein breached the fee agreement and Griffin did not, and it determined that Griffin was entitled to $105,750 in damages for attorney fees for his work on the divorce, $22,299 for costs in the divorce and $62,836 for fees in the suit Griffin filed against Schlein to collect the fees. However, the jury also found Griffin violated the DTPA, and awarded him zero damages but $5,000 in additional damages.

The trial court signed a judgment awarding Griffin $128,149 in damages and attorney fees and awarding Schlein $5,000 on the DTPA claim. Schlein and Griffin both appealed.

The appeals court overruled Schlein on these points of appeal: that the trial court erred in permitting Griffin to bring the suit in his individual capacity; the trial court erred in excluding evidence of 32 grievances and lawsuits filed against Griffin; the trial court erred in permitting undisclosed rebuttal witnesses to testify about Griffin's character; the trial court erred in submitting a jury question on her breach of fiduciary duty claim that put the burden of proof on her; the jury's finding that Griffin did not breach his fiduciary duties was based on insufficient evidence; the trial court erred in excluding Griffin's original petition from evidence; the jury's finding of zero actual damages on the DTPA claim was based on insufficient evidence; the trial court erred in permitting Griffin's expert to testify on the reasonableness and necessity of attorney fees in the divorce; and Griffin's expert witness testimony was insufficient to support the amount of damages.

Griffin appealed the award of the additional DTPA damages, and the appeals court found that the jury's finding of zero actual damages was "supported by legally and factually sufficient evidence" and as a matter of law, additional damages are not available.

Dispute Over Fees in $2.87B Judgment Against Cuban Government

April 21, 2016

A recent DBR story, “Miami Attorneys Fight Over Fees in $2.87B Award Against Cuba” reports that two Miami attorneys and former friends are locked in a fierce battle over who should receive legal fees from a $2.87 billion judgment against the Cuban government on behalf of a Cuban man who was driven to suicide by Fidel Castro and Che Guevara.

Andrew Hall sued Jeremy Alters on behalf of Alfredo and Gustavo Villoldo, sons of Gustavo Villoldo, a successful Cuban businessman who committed suicide in 1959 after being arrested and interrogated by Guevara.  Both attorneys insist they represent the Villoldos.

This isn't the first time Alters of the Morelli Alters Law Firm has been sued by other attorneys who claimed he either tried to steal their lawsuits or appropriate the idea for a lawsuit.  He also is being sued by former partners who claim they are owed money and is the subject of a Florida Bar investigation.

The latest lawsuit against Alters was filed in Miami-Dade Circuit Court by Hall on behalf of the sons.  The suit claims Alters was fired by the Villoldos after botching a previous suit and has no right to any further legal fees on the judgment obtained by the Hall, Lamb and Hall partner in 2011.  The suit seeks a preliminary injunction to prevent Alters from acting on behalf of the Villoldos. Alters filed the original lawsuit in 2008.

At the time, Miami-Dade Circuit Judge Beatrice Butchko's award was the largest U.S. civil judgment ever leveled against Cuba, although the chances of collecting the full amount were considered a long shot.

Alters obtained a $1.4 billion verdict from Miami-Dade Circuit Judge Peter Adrien.  But Hall's lawsuit said Alters essentially botched the case by failing to request arbitration and meet other requirements for jurisdiction under the Foreign Sovereign Immunities Act.

"He failed to follow proper procedures," Hall said.  "His lawsuit was not worth the paper it was written on."  The case was withdrawn, and Hall filed a new version.  The Cuban government never responded to either lawsuit and has refused to comment.

Alters' attorney Andrew Berman said the problem was that Alters was unable to locate Cuban assets to freeze in the United States.

Hall argued a different legal theory, claiming Cuba threatened and terrorized Gustavo Villoldo, a Bay of Pigs veteran and CIA operative who helped track down Guevera in the Bolivian jungle.

Asset Hunt

Berman said Alters and Hall began working on the new case cooperatively.

"Andy took over the case from Jeremy.  He said they would work together to collect on the judgment," said Berman of Young, Berman, Karpf & Gonzalez in Miami.  He noted Hall was concurrently representing Alters in a case brought by Argentinian lawyers claiming he essentially stole their idea for a massive bank overdraft class action.

Hall, who specializes in finding assets and collecting judgments for victims of terrorism, was busily searching for Cuban assets and said he already has collected $35 million to $40 million for his clients.  "Andy started cleaning up the case essentially," said Matt Leto, Hall's co-counsel at Hall, Lamb and Hall.

Meanwhile, Alters took a different tack and hired a high-profile Washington law and lobbying firm, Arent Fox, to lobby the U.S. State Department to push the Villoldos to the front of the line for payment.  Alters is seeking up to 20 percent of the total legal fees depending on the recovery.

Hall said he was not invited to any of the State Department meetings and didn't know Alters was working that line of attack.

"He disclosed a year later that he had hired a lawyer and was having meetings with the State Department, which was unauthorized by us," Hall said.  "Even worse, he provided wrong information to the State Department."

That's when relations between the two lawyers turned sour.  Hall filed a motion with Butchko to restrain Alters from any further action.

"Jeremy has spent years laying the groundwork for Mr. Villoldo to collect on this particular claim and now that he is close, Mr. Villoldo wants to cut him out," Berman said.  "That just isn't right. Mr. Hall led Jeremy to believe everything was fine."

Awarding Attorney Fees in Arbitration at Issue in Texas

April 20, 2016

A recent Texas Lawyer story, “Disputed $45.8M Arbitration Award Includes $3.04M in Attorney Fees” reports that an international digital security company won a $45.8 million arbitration award, including $3.04 million in attorney fees, against a consortium of U.S. retailers that includes Wal-Mart.

Confirmation of the award is pending in state court in Dallas.  But the consortium has objected to award, arguing it should be vacated because the three-member arbitration panel exceeded its authority.

The consortium has also objected to the attorney fees, arguing that no statutory basis exists in Texas law upon which the digital security company, Amsterdam-based Gemalto, could obtain attorney fees.  Nor did the two sides include in their agreement to arbitrate any preset conditions for fees, the consortium argued.

But Gemalto, represented by Mayer Brown lawyers, countered—and persuaded the arbitration panel—that it is due the attorney fees because both sides sought attorney fees prior to the panel issuing Gemalto the damages award and that the American Arbitration Association's rules, specifically, Rule 47 (d), allow for attorney fee awards in such instances.

"That is a really key issue.  Our contract didn't really say if we should or should not get attorney fees.  It just said arbitrators would decide of costs.  We relied on AAA rule 47(d) that if both sides ask for attorney fees, then the arbitration panel can award them," said Carmine Zarlenga, a partner in the D.C. office of Mayer Brown, who helped the team representing Gemalto.

Rule 47 (d) states specifically that the arbitrators may include an award of attorney fees if all parties have requested such an award.

In the dispute, Gemalto alleged that the consortium, Merchant Customer Exchange, had wrongfully terminated a service contract for the development of a mobile payment platform for its convenience.  The consortium included, in addition to Wal-Mart, Target and Kohl's and operated more than 80,000 stores.

In March, the arbitration panel issued a 42-page ruling that the consortium had terminated a contract for its convenience and therefore owed Gemalto $40 million.  Then, after a separate bifurcated hearing, the same panel added to the award $5.8 million in pre-judgment interest and attorney fees.

Texas Supreme Court Issues Two Attorney Fee Rulings

April 19, 2016

A recent Texas Lawyer story, “Texas Supreme Court Issues Two Attorney Fee Rulings” reports that the Texas Supreme Court today issued two rulings that favored parties seeking attorney fees in a First Amendment case and a breach-of-contract case.

The state's law against strategic lawsuit against public participation, or SLAPP, suits require mandatory awards of reasonable attorney fees and does not allow a court to reduce the amount for equity and justice, the court ruled in one case.

In another case, the justices found that a city does not have governmental immunity from an attorney fee claim dealing with the activities of a city-owned public utility company.

First Amendment Fees

The Texas Citizens Participation Act, the anti-SLAPP law, allows a defendant to file a motion to dismiss.  If he wins he can collect attorney fees, court costs and other expenses from his opponent, the high court explained in Sullivan v. Abraham.

The Sullivan opinion by Justice John Devine explained that Salem Abraham sued Michael Quinn Sullivan for defamation.  Sullivan denied the allegations and moved to dismiss the lawsuit under the anti-SLAPP law.  The trial court granted dismissal.

Sullivan had asked for almost $67,300 in attorney fees, nearly $4,400 in costs and expenses.  But the trial court granted just $6,500 in fees, $1,500 in expenses and court costs.  On appeal, the intermediate appellate court upheld the trial court's award, determining the law required reasonable attorney fees but allowed the trial court the discretion to reduce fees if "justice and equity" required it.

On appeal, Sullivan argued that the intermediate appellate court used caselaw under the Declaratory Judgments Act—which allows considerations of justice and equity—which is different than the anti-SLAPP law—which simply calls on reasonable fees.

The high court's decision in the case would make a high school English teacher swoon.  Four pages of the 10-page decision exhaustively explained fine points of grammar—commas, modifiers, antecedents and more.  In the end, the high court ruled that the law's language and punctuation clearly required reasonable attorney fees—with no consideration of justice and equity—to the winner of a motion to dismiss.  The case now heads back to the trial court to determine what's a reasonable fee.

Fees Against City Utility

A previous 2016 case by the Supreme Court—Wasson Interests v. City of Jacksonville—also decided the April 15 opinion in Wheelabrator Air Pollution Control v. City of San Antonio.

The opinion by Justice Paul Green explained that Wheelabrator Air Pollution Control, Casey Industrial and a San Antonio city board contracted for the design and construction of a coal-fired power station owned and operated by CPS Energy, a city-owned public utility.  CPS Energy agreed to pay Wheelabrator $41.82 million and Wheelabrator completed the work in 2007.  But CPS Energy said it would withhold 10 percent because of a dispute between Casey Industrial and CPS Energy.

Wheelabrator sued CPS Energy in 2011 for breach of contract and quantum meruit, seeking attorney fees and more.

The case history is long, but relevant to the dispute before the Supreme Court, CPS Energy argued that the trial court didn’t have jurisdiction and must dismiss the claims for attorney fees because CPS Energy had governmental immunity.

Wheelabrator countered that CPS Energy didn't have governmental immunity because it was performing a proprietary function, among other things.  The trial court dismissed the attorney fee claims, and an intermediate appellate court affirmed the ruling.

Immunity would apply if the case arose from the city's governmental function, but not if it arose from the city's proprietary function, Green wrote.  Previously, the Supreme Court has held that when a city operates a public utility, that is a proprietary function.

"We conclude that CPS Energy is not shielded by governmental immunity," the opinion said.  "Wheelabrator's claim for attorney fees does not implicate immunity."

The Supreme Court didn't address whether the attorney fee claim has merit, but it did send the case back to the trial court for further proceedings.

NALFA Spotlight: Bruce R. Meckler

April 13, 2016

NALFA Spotlight is a new feature that focuses on one specific member, new and significant attorney fee jurisprudence or new trendsetting attorney fee scholarship.  These newsworthy people, issues,...

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Law Firms Seek Unpaid Legal Fees

April 8, 2016

A recent Bloomberg BNA story, “Big Law Docket Scanner: Firms Do Battle Over Unpaid Fees” reports that some law firms use courts to collect unpaid legal fees.  Below is a list of large law firms...

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