A recent Reuters story, “Delaware Bans ‘Loser-Pays’ Rules in Corporate Class Actions,” reports that Delaware's governor has signed into law a ban on companies adopting rules that could force investors who bring and lose certain lawsuits to pay the company's defense fees.
However, Delaware lawyers feared fee-shifting would effectively wipe out shareholder litigation and the ability to police corporate boards. The bill, signed by Governor Jack Markell, applies to lawsuits brought under the state's corporate law, which governs most U.S. publicly traded companies and their relations with investors.
Companies with fee-shifting bylaws would have had grounds to seek to recoup legal defense costs. Traditionally each party in U.S. litigation pays its own way regardless of the outcome. Debate over the tactic began in May 2014 when the Delaware Supreme Court ruled in a case involving ATP Tour Inc that fee-shifting provisions were not invalid and might be a permissible way to discourage litigation.
To placate big business, the new law allows companies to adopt rules that require investors to sue in Delaware, a tactic known as forum selection. Supporters argue that corralling lawsuits in Delaware allows the state's judges to weed out weak cases without fear that investors would file in a court in another state, usually where the company has its operations.
Class actions challenging merger deals have become a sore point for business groups. Small investors often file multiple cases over every deal, and while only rare cases result in money for investors, they often generate hundreds of thousands of dollars for the shareholder attorneys.
While the new law was the target of an unusually intense lobbying campaign and a rare close vote in the state's Senate, experts said it may not change much. For one, only about three dozen mostly small companies adopted fee-shifting tactics since the ATP ruling.
Shareholder lawyers said concentrating the class actions in Delaware might improve procedures for handling the cases, but not much else. "I don't know that it achieves getting rid of weak cases," said Juan Monteverde of Faruqi & Faruqi, who specializes in class actions.
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 program will provide clarity to legal bill auditing. 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 professionally active, U.S.-based legal bill auditing programs (members and non-members) to be rated:
Legal Fee Solutions, LLC (Member)
KPC Legal Audit Services (Member)
Bottomline Technologies (Member)
Alan Gray, Inc. (Member)
Legal Fee Advisors (Non-Member)
Sterling Analytics (Non-Member)
Elevate Services, Inc. (Non-Member)
"We are not interested in legal bill auditing programs being uniform, just competent. 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.
Attorney fee experts are judicially qualified expert witnesses who provide expert declarations on the reasonableness of attorney fees and expenses in underlying cases. Attorney fee experts are retained when attorney fees and expenses are at issue by both fee-seeking and fee-challenging clients.
NALFA qualifies attorney fee experts from across the U.S. The following NALFA profile quotes are based on Bio/CV, case summaries and case materials submitted to and verified by NALFA. Members are listed in alpha order.
Pat Gallagher: “Outstanding Skills in Assessing Reasonable Attorney Fees”
Gallagher Law Firm
Gary Greenfield: “Widely Respected on Attorney Fee and Legal Billing Issues”
Litigation Cost Management
Robert Kaufman: "Highly Experienced on Cumis Counsel Billings"
Woodruff Spradlin & Smart
Costa Mesa, CA
Bruce Meckler: "The Nation's Most Experienced Attorney Fee Expert"
John O'Connor: "Highly Qualified on Large, Complex Attorney Fee Disputes"
O'Connor & Associates
San Francisco, CA
For more on NALFA fee experts, visit http://www.thenalfa.org/Network-Directory/
NALFA would like to welcome Jeffrey L. Cohen to our membership. Mr. Cohen is a fully qualified bankruptcy fee examiner. Jeffrey L. Cohen is a Partner at Cooley LLP in New York.
Mr. Cohen served as counsel to the Official Fee Review Committee in the Adelphia Communications bankruptcy cases, wherein the Fee Committee reviewed over $600 million in fees and expenses. Mr. Cohen currently serves as the fee examiner in the Endeavour Corp. bankruptcy cases in the U.S. Bankruptcy Court for the District of Delaware. Mr. Cohen also regularly represents debtors and creditors’ committees around the country including among others, Crabtree & Evelyn, Brookstone, Skymall, Filene’s Basement, Atari, Blockbuster Video and Pizzeria Uno.
For more information on Jeffrey L. Cohen, visit http://www.cooley.com/jcohen and http://www.thenalfa.org/Network-Directory/cohen/
Today, in a 6-3 decision (pdf), the U.S. Supreme Court ruled that bankruptcy attorneys must bear the expense of defending their fees, which could make it harder for lawyers to get paid for their Chapter 11 work. The case, Baker Botts v. ASARCO, dashes the Texas law firm’s hope, along with those of other firms involved, of recovering nearly $7 million in costs incurred while defending the original fee application against attack by the mining company ASARCO LLC.
Bankruptcy lawyers expressed alarm that the court’s decision will open new fronts in bankruptcy litigation that could swallow up legitimate fee awards and make it less appealing for lawyers to take on such cases. “The court’s decision makes it harder for bankruptcy attorneys to get paid,” Mayer Brown Brian Netter said. “Under the incentive structure created by today’s opinion, reorganized companies can be expected to challenge the compensation of the law firms who made it possible for them to emerge from bankruptcy.”
Robbin Itkin, who heads Liner LLP’s business-solutions and financial restructuring group, said the decision has “far reaching ramifications.” The ruling, she said, “does not just adversely affect the ability of the debtor’s bankruptcy lawyers to be paid, but all professionals involved in bankruptcy cases whose fees need to be approved by the bankruptcy court.”
Baker Botts partner Aaron Streett, who leads the firm’s Supreme Court and constitutional law practice, said Monday, “While we are of course disappointed in the holding that bankruptcy attorneys may not be compensated under [the Bankruptcy Code] for defending meritless objections to their fee applications, we respect the court’s conclusion.”
Jeffrey Oldham of Bracewell & Giuliani, who argued and won the Supreme Court case for ASARCO, dismissed concerns that the decision would harm bankruptcy law practices. “All the decision does is put bankruptcy lawyers in the same place as lawyers who operate outside bankruptcy” and who are not compensated for defending their fee awards, he said. “There is no evidence that this is the kind of issue that bankruptcy lawyers base their career decisions on.”
Justice Clarence Thomas, writing for the majority, noted that the bankruptcy court awarded the firms $120 million for their work in the bankruptcy proceeding, as well as a $4.1 million enhancement for "exceptional work," and $5 million for litigation costs of defending their fee application.
But Thomas agreed with the U.S. Court of Appeals for the Fifth Circuit that the bankruptcy court had no authority to award the $5 million for fee defense. "Time spent litigating a fee application against the administrator of a bankruptcy estate cannot be fairly described as 'labor performed for'—let alone 'disinterested service to'—that administrator," Thomas wrote.
Thomas invoked the so-called "American Rule" of litigation, in which each side pays its own attorney fees, unless a statute or contract says otherwise. During oral argument, Chief Justice John Roberts Jr. called the rule "patriotic," one of several signs that the court was ready to reject the law firms' pleas.
Dissenting Justice Stephen Breyer argued that the fees sought by the Texas firms were part of the "reasonable compensation" allowed by the code for bankruptcy lawyers. "In some cases, the extensive process through which a bankruptcy professional defends his or her fees may be so burdensome that additional fees are necessary in order to maintain comparability of compensation," Breyer wrote on behalf himself and fellow dissenters Ruth Bader Ginsburg and Elena Kagan.
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