Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

NJ Ethics Board: Referral Fees Only for In-State Attorneys

March 15, 2024

A recent Law 360 story by Emily Sawicki, “NJ Ethics Board Says Referral Fees Only For In-State Attys”, reports that new guidance provided by the New Jersey Supreme Court's Advisory Committee on Professional Ethics recommends against the payment of referral fees for out-of-state lawyers, reasoning that such fees, considered payment for legal services, can only be provided to attorneys licensed to practice law in the state.

The opinion on referral fees, Opinion 745, came as a response to inquiries regarding attorneys from outside New Jersey requesting referral fees, the advisory committee said, including instances in which in-state attorneys who spend their winters in Florida "present local lawyers with legal issues that involve New Jersey law," and attorneys from neighboring states represent New Jersey clients. Opinion 745 was issued March 7 and made available.

In both of these instances, it is generally not appropriate to pay out-of-state lawyers referral fees, the opinion stated, unless the attorney is eligible and licensed to practice law in New Jersey.  The opinion also detailed limitations on who should pay such fees.  "Only New Jersey lawyers who are certified trial lawyers … may pay a referral fee," according to the opinion, which clarified that the state's professional conduct rules "prohibit other New Jersey lawyers from paying referral fees."

New Jersey's Rules of Professional Conduct also detail the limited scope under which referral fees should be paid, pointing out such fees are only appropriate for attorneys who are not part of the same law firm.  Clients must consent to each of the lawyers involved and be notified of the fee division, and the fee must be "reasonable," the ethics rules dictate.  "The division is in proportion to the services performed by each lawyer, or, by written agreement with the client, each lawyer assumes joint responsibility for the representation," according to the professional conduct rules.

The ethics committee clarified that the fee is "considered payment for legal services rendered in the case," but is not payment "in proportion to actual services rendered."  Because of this distinction, only New Jersey lawyers are eligible to collect such fees.  "People who are not permitted to practice law in New Jersey may not receive fees for legal services rendered," the opinion said.

The referral fee guidance also notes that it is not appropriate to pay a referral fee to a lawyer who is unable to take up a case or must bow out of a case due to a conflict of interest.  However, if a certified New Jersey lawyer must exit because an "unforeseen conflict arises in the midst of litigation and was not foreseeable," it is appropriate to pay the lawyer for legal services rendered, the opinion stated.

"Certified lawyers may pay referral fees to lawyers who were in good standing and eligible to practice law at the time of the referral but who later were suspended or disbarred at the time the case was concluded and the referral fee was payable," the opinion stated, citing precedent set in 2008 in the New Jersey Appellate Division case Eichen Levinson & Crutchlow LLP v. Weiner.

In that case, the opinion said, "the court reasoned that the referring lawyer was not required to have performed any legal work on the referred cases to obtain the referral fee and, at the time of the referral, the lawyer was eligible to practice."

The payment and acceptance of referral fees are dictated by individual state ethics rules and, therefore, there may be instances in which a New Jersey lawyer may accept a referral fee when doing work in other states.  It is up to the lawyer to ensure such fees are permitted, and that services fit the "specific needs of the client."

The Nation’s Top Attorney Fee Experts of 2024

March 14, 2024

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on reasonable attorney fees and ethical billing practices. We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe. Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts. Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove outside attorney fees and expenses in court or arbitration. The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us. Here are the nation's top attorney fee experts of 2024:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA

"ABOTA Trial Attorney With Over 35 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY

"Experienced on Analyzing Fees, Billing Entries for Fee Awards "
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA

"Excellent at Communicating Her Fee Analysis to Juries, Triers of Facts, and Clients"
Jacqueline S. Vinaccia
Vanst Law LLP
San Diego, CA

"Real World Billing Review Combined With Over 40 Years of Trial Experience"
Fred M. Blum
Edlin Gallagher Huie + Blum
San Francisco, CA

"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN

Tesla Investors Weigh in on $5B Alternative Fee Proposal

March 13, 2024

A recent Law 360 story by Jeff Montgomery, “Tesla Investors Weigh In On $5B Fee Proposed For Class Attys”, reports that Tesla Inc. stockholders are sounding off to Delaware's chancellor after class attorneys sought a stock-based fee potentially worth more than $5 billion at current share prices following the Court of Chancery's reversal of Elon Musk's $55.8 billion stock-based pay plan on Jan. 30.  Chancellor Kathaleen St. J. McCormick said in a letter that the judicial code bars her from considering communications outside the case process.  But she directed attorneys for the class to come up with a method for "handling" the stockholder communications ahead of a yet to be scheduled hearing and argument on the fee.

Nothing in the chancellor's letter characterized the aims or identities of those attempting to contact the court.  Founder Elon Musk owns 20% of Tesla's shares followed by institutional investors, with individuals accounting for less than 1%.  The proposed fee seeks just over 11% of the total formerly earmarked for Musk and now available for company use, well below the 33% sometimes awarded in complex cases that proceed through a full trial.

"I have not read these communications because, as you all are aware, Rule 2.9 of the Delaware Judges' Code of Judicial Conduct prohibits me from considering ex parte communications concerning a pending proceeding," the chancellor wrote in the latest entry of a derivative action launched in 2018.  Some of the letters apparently originated with small stockholders, some of whom have gravitated to X, formerly known as Twitter, to share thoughts on Tesla, Musk, the case, the fee and letters sent to the chancellor.  Some, using the hashtag #DelawareCourt81, have proposed sending letters directly to the parties or to Tesla for forwarding.

Tesla's top five institutional holders hold about 19% of the business, led by The Vanguard Group at nearly 7%.  Blackrock accounts for 5.8%, with State Street Corp. at 3.3%, Geode Capital Management at about 1.6% and Capital World Investors at about 1.3%.  None of the top five immediately responded to requests for comment and counsel for the stockholders did not provide details.

Lawrence Hamermesh, former director of the University of Pennsylvania Carey Law School's Institute for Law and Economics and professor emeritus at Widener University Delaware Law School, said he would not be surprised if the letters Chancellor McCormick referred to were sent by larger investors opposing the requested fee.

"That'd be my guess," Hamermesh said. "Without knowing everything about it, I harbor a certain lack of sympathy with them.  The upshot of the case is they're avoiding dilution" that would have resulted had Musk won.  "The award would dilute them back in a real small way, at least in terms of proportional interest. They're way better off" with the decision.  Nevertheless, Hamermesh said, given the 29,402,900-share cut of the 266,947,208 shares freed up by Chancellor McCormick's decision, the court is certain to be pondering the billions involved.

"She has to be thinking to herself: 'There's no case, no effort, no measure of success that's worth that much to lawyers. You don't need to give them that much to incentivize them to take this case."  In the absence of precedent or clear rules, he added, "it's a gut-level, gut-check thing. How much is enough? Either they become more rich, or fabulously rich."

Chancellor McCormick put the fee in play with an order rescinding Musk's 12-tranche, all-stock compensation plan on Jan. 30 after a week-long trial in November 2022. The ruling cited disclosure failures, murky terms, conflicted director architects and Musk's own conflicted influence in Tesla's creation of a mountain of fast-triggering stock options.

At the time of the ruling, Tesla's stock was trading at more than $191 per share, putting the potential maximum award at around $5.6 billion.  Slipping since has pruned the potential maximum by hundreds of millions.  Costs for the derivative case included more than $13.6 million in attorney fees and more than $1.1 million in expenses during the multi-year Chancery action.  Requested fees would equal a $288,888 hourly rate that the fee motion said was justified by the case's complexity, results and attorney skill levels, among other factors.

$43M Trust Not on the Hook for Attorney Fees in Georgia

March 12, 2024

A recent Law 360 story by Emily Johnson, “Ga. Panel Finds $43M Trust Not On Hook For Legal Fees”, reports that the Georgia Court of Appeals rejected a request from beneficiaries of a $43 million furniture fortune, finding that the trust's ex-trustees should not be saddled with attorney fees and litigation costs while the trust's beneficiaries sued them for allegedly mishandling the trust and overpaying themselves.

At the same time, an appellate panel said that former trustees Phillip Faircloth and Ted Sexton were not faced with a threat of irreparable injury, so the lower court erred in granting the interlocutory injunction that ordered the trust to pay for Faircloth and Sexton's attorney fees while the trust sues them.  The lower court's interlocutory injunction required the current trustees to take up the cost of the former trustees' legal battle, including attorney fees and litigation costs.  "In sum, the record lacks evidence to support a finding that the interlocutory injunction is necessary to prevent an irreparable harm having no adequate legal remedy," the appellate panel said.

Beneficiaries of a trust tied to furniture tycoon Sherwin Glass, who founded Farmers Furniture Co., sued Faircloth and Sexton in 2017.  The appellate court panel found that because the trust has been lending money to Faircloth and Sexton for their legal costs, they were not harmed, a requirement for an interlocutory injunction.  "Due to the loan by Farmers, they have not been harmed by going unrepresented, and any monetary harm can be remedied by repayment of interest paid pursuant to the loan," the appellate panel said.

The appellate panel left in place a lower court's rejection of the request that the former trustees reimburse the trust about $4.6 million in legal fees that had already been paid.  This is the third time the case has been before the state's Court of Appeals, according to the decision.

Counsel for the Glass Dynasty Trust told the panel in September that the injunction required the trust to pay 50% of attorney fees and costs incurred by two of the firms representing Faircloth and Sexton, as well as 100% of the fees incurred by another, within 14 days of receiving an invoice.

Representing Faircloth and Sexton, J. Randolph Evans, partner at Squire Patton Boggs LLP, told Law360 Pulse on Monday that the court's decision is one of the biggest decisions this year in the state, saying this has "turned indemnity/insurance law on its head."

"The whole purpose of us having [a] duty to defend is so we don't have to front money to the lawyer," Evans said. "They pay the lawyer. Now they're saying, you pay the lawyer, and sue the insurance company and get back the money."  Evans said that the decision means that the former trustees and others won't be able to enforce a duty to defend from insurance carriers or indemnitors unless you can't pay for your defense.

The implications of the panel's decision for Georgia are enormous, he said.  "They went one step further, which made people really react," Evans said. "It's not just that you don't have the money; if you can borrow the money, you can't enforce the duty to defend."

Article: Why the Catalyst Theory Matters in Class Actions

March 11, 2024

A recent Law.com article by Adam J. Levitt, “Arguing Class Actions: Why the Catalyst Theory Matters”, examines the catalyst theory in class action litigation.  This article was posted with permission.  The article reads:

The story presents a conundrum.  Plaintiffs file a class action, which the defendant initially resists.  Plaintiffs counsel spends hundreds of thousands of dollars (or more) in lodestar and costs prosecuting the case, but after potentially years of hotly contested litigation, the defendant issues a recall or announces a refund program that fixes the problem and then argues that the case is moot.  The question: Should those who filed this case, and consequently induced (or “catalyzed”) the defendant to fix the problem, be paid?

The right answer is obvious.  Of course the plaintiffs lawyers should be paid.  Without plaintiffs counsel’s actions and active litigation threat, the defendant would have never changed its behavior, ultimately for consumers’ benefit.  The law routinely rewards those who confer benefits on others, even in the absence of, say, a contractual guarantee (as with the doctrine of quantum meruit).  In short, nobody works for free.  Nobody, as some would have it, except plaintiffs lawyers.

The Rise and Fall of the Catalyst Theory

Rewarding lawyers for catalyzing a change used to be noncontroversial. See, e.g., Marbley v. Bane, 57 F.3d 224 (2d Cir. 1995) (“a plaintiff whose lawsuit has been the catalyst in bringing about a goal sought in litigation, by threat of victory … has prevailed for purposes of an attorney’s fee claim…”); Pembroke v. Wood Cnty., Texas, 981 F.2d 225, 231 (5th Cir. 1993) (recognizing viability of catalyst theory); Wheeler v. Towanda Area Sch. Dist., 950 F.2d 128, 132 (3d Cir. 1991) (same).

But the law became murkier in May 2001, with the U.S. Supreme Court’s decision in Buckhannon Bd. & Care Home v. W. Virginia Dep’t of Health & Hum. Res., 532 U.S. 598 (2001).  There, an assisted living facility sued West Virginia, arguing that a regulation violated the Fair Housing Amendments Act.  After the suit was filed, the Legislature removed the regulation, mooting the case.

In a 5-4 decision, the Supreme Court ruled that the plaintiff was not a “prevailing party” for purposes of the applicable fee-shifting statute.  Discarding the “catalyst theory,” it ruled that: “A defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change” sufficient to make the plaintiff a “prevailing party.” Id. at 605.  As Justice Ruth Bader Ginsburg explained in her dissent, the Buckhannon decision frustrates the goals of the catalyst theory because it “allows a defendant to escape a statutory obligation to pay a plaintiff’s counsel fees, even though the suit’s merit led the defendant to abandon the fray, to switch rather than fight on, to accord plaintiff sooner rather than later the principal redress sought in the complaint.” Id. at 622 (Ginsburg, J., dissenting).

The Catalyst Theory Today

Notwithstanding the Buckhannon decision, the catalyst theory remains a powerful tool outside of Buckhannon’s specific context.

First, Buckhannon has no bearing on state causes of action.  In California, Cal. Code Civ. Proc. §1021.5 allows a court to award fees to a “successful” party.  The California Supreme Court has explained it takes a “broad, pragmatic view of what constitutes a ‘successful party,’” Graham v. DaimlerChrysler, 34 Cal. 4th 553, 565 (2004), and explicitly endorsed the “catalyst theory [as] an application of the … principle that courts look to the practical impact of the public interest litigation in order to determine whether the party was successful.” Id. at 566.  In short, it disagreed with the U.S. Supreme Court regarding what it means to “prevail” or “succeed” in a litigation.

The catalyst theory has also largely survived in the context of favorable settlements.  For example, in Mady v. DaimlerChrysler, 59 So.3d 1129 (Fla. 2011), the Supreme Court of Florida considered an award of attorney fees to a consumer who accepted defendant’s offer of judgment, an offer that neither conceded liability nor plaintiff’s entitlement to fees, in a case filed under the Magnuson Moss Warranty Act (MMWA), which guarantees fees to a “prevailing party.” Id. at 1131.  Explicitly considering and distinguishing Buckhannon, the court found that a party may “prevail” with a settlement.  In doing so, it rearticulated the logic underpinning the catalyst theory:

[The plaintiff] achieved the same result with a monetary settlement only after being forced to bear all of the costs and expenses associated with litigation and facing the statutory penalty if the offer of judgment had not been accepted. DaimlerChrysler could have resolved this dispute during the “informal dispute settlement” phase, but instead waited until after [plaintiff] was forced to commence this action and incur the expenses of this litigation. Id. at 1133.

Further, even in federal court, attorney fees may be awarded under statutes other than those limiting such awards to “prevailing” parties.  For example, in Templin v. Indep. Blue Cross, 785 F.3d 861 (3d Cir. 2015), the Third Circuit explained that a fee may be awarded for an Employee Retirement Income Security Act claim under the catalyst theory, because ERISA does not limit fee awards to the “prevailing party.” 785 F.3d at 865.  Including the Third Circuit, at least five circuits have endorsed the catalyst theory under such statutes: Scarangella v. Group Health, 731 F.3d 146, 154–55 (2d Cir. 2013); Ohio River Valley Env’l Coalition v. Green Valley Coal, 511 F.3d 407, 414 (4th Cir. 2007); Sierra Club v. Env’l Protection Agency, 322 F.3d 718, 726 (D.C. Cir. 2003); Loggerhead Turtle v. Cty. Council, 307 F.3d 1318, 1325 (11th Cir. 2002).

Despite the ongoing recognition of the catalyst theory in many contexts, there remains the risk that courts may apply the catalyst theory narrowly, or that defendants may find a way around it. Consider Gordon v. Tootsie Roll Indus., 810 F. App’x 495, 496 (9th Cir. 2020), a “slack-fill” case in which the plaintiff alleged that the defendant’s boxes of Junior Mints were mostly air.  After the plaintiff moved for class certification, the defendant changed the box’s label.  The plaintiffs dismissed and moved for fees.

The fee application was denied because “Gordon’s theory of the case was that the size of the box was itself misleading, and that Tootsie Roll should either fill the Products’ box with more candy to account for the size of the box … or shrink the box to accurately represent the amount of the candy product therein[, and] Tootsie Roll did not make either of these changes.” Id. at 497 (internal quotation omitted).  Considering the disincentives (or, conversely, the moral hazards) that arise from this type of narrow application of the catalyst theory, courts should take a decidedly more equitable view when adjudicating this important issue.

A Way Forward

For practitioners, a few lessons come out of this case law and history.  First, in writing their complaint, attorneys must think through the various paths that a company might take to remedy the purported harm.  Recall that in Gordon, the plaintiff focused entirely on the misleading box, but not on the misleading labeling. Second, favorable settlements and offers of judgment remain viable tools, and may support a catalyst theory attorney-fee payment even if the defendant resists paying fees in the settlement itself.  Finally, despite Buckhannon, the catalyst theory remains readily available under a host of statutes (state and federal).  In relying on citing those statutes, plaintiffs should not shy away from the catalyst theory’s compelling logic.  Courts understand that basic fairness requires that attorneys be paid if their lawsuit ultimately confers a significant benefit.  Nobody should work for free.  Not even plaintiffs lawyers.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.  DiCello Levitt senior counsel Daniel Schwartz also contributed to this article.