A recent Columbus Dispatch story, “Ohio Senate OKs Cap on Contingency Fees to Outside Lawyers,” reports that a move to make Ohio the latest to cap what the state can pay outside lawyers in contingency fee contacts passed the Ohio Senate over objections from Democrats and lawyers groups. The legislation, called Ohio’s Transparency in Private Attorney Contract Act, would set attorney payment caps on a sliding scale, starting at 25 percent of damages up to $10 million and ending with 5 percent that exceed $25 million.
Since 2012, at least 14 states have adopted new rules that limit the use of outside counsel, and several have put caps on attorney fees. The American Legislative Exchange Council (ALEC), a conservative organization that brings together lawmakers and business leaders to write model legislation, has called for contingency fee caps in legislation called the Private Attorney Retention Sunshine Act. Ohio Attorney General Mike DeWine supports the bill.
Both the Ohio State Bar Association and Ohio trial lawyers oppose the bill, calling it “a cure in search of an illness.” They said the caps hinders Ohio’s participation in multistate or national litigation – something DeWine’s office disputes – and make it harder to find lawyers with the expertise to handle what can be complex, specialized lawsuits.
The DOJ recently announced a $714 million settlement with The Bank of New York (BNY) Mellon for overcharging customers on foreign currency exchanges. Dewine called the settlement “an extraordinary outcome to litigation that was extremely hard-fought for more than four years.” DeWine didn’t mention the two outside plaintiffs’ law firms who led the fight, including Lieff Cabraser, that stand to earn as much as $43 million from the case.
In the BNY Mellon case, DeWine’s contract with Lieff Cabraser allows for a 13 percent fee, which works out to $43 million for the lawyers. That amount presumably would be shared with Murray Murphy Moul & Basil, which had a similar contract. Any fee, however would have to be approved by Manhattan U.S. District Judge Lewis Kaplan. Under the pending Ohio bill, the outside firms’ fee in the BNY Mellon case would be capped at $20 million.
A recent Reuters story, “AIG Investors’ $970.5 Million Settlement Wins U.S. Court Approval,” reports that American International Group Inc shareholders won approval of a $970.5 million settlement resolving claims they were misled about its subprime mortgage exposure, leading to a liquidity crisis and $182.3 billion in federal bailouts.
U.S. District Judge Laura Taylor Swain in Manhattan granted final approval at a hearing to what lawyers for the investors call one of the largest class action settlements to come out of the 2008 financial crisis. It marks the largest shareholder class action settlement in a case where no criminal or regulatory enforcement action were pursued, the plaintiffs’ lawyers said. For the plaintiffs’ work on the case Swain awarded the law firms Barrack Rodos & Bacine and The Miller Law Firm $116.46 million in attorney fees and more than $4 million in expenses.
Swain noted that no potential class member had objected to the terms of the deal, which she said was strong evidence that is was “fair, reasonable and adequate” and should be approved. She added that the amount was “very substantial” and that shareholders would face significant risk if they continued to litigate instead of settling.
The case is In re: American International Group Inc. 2008 Securities Litigation, U.S. District Court for the Southern District of New York, No. 08-04772. For more on this settlement, visit http://www.aig2008securitiessettlement.com/
A recent study, The 2015 Carlton Fields Jorden Burt Class Action Survey: Best Practices in Reducing Cost and Managing Risk in Class Action Litigation (pdf), reports that across industries, companies spent $2 billion on class action lawsuits in 2014, slightly less than $2.1 billion they spent in 2013. This year, spending is expected to return to 2013 levels.
Overall, the world’s largest companies spend $20.2 billion annually on litigation in the U.S. Of this sum, approximately $2 billion (10.1 percent) goes towards class actions. As such, class actions comprise the fourth largest segment of the $20 billion market for litigation services in the U.S., following commercial litigation, employment litigation, and IP litigation.
The study classifies class actions as: Routine, Complex, High-Risk, and Bet-The-Company. As the risk levels increase from routine to bet-the-company, outside counsel fees jump dramatically. At the high end of their respective ranges, complex matters can be nearly seven times more expense than routine class actions, and bet-the-company matters can be nearly eight times costlier than even high-risk matters. In 25 percent of bet-the-company class actions, companies spend more than $13 million a year per case on outside counsel. In 75 percent of such actions, the cost of outside counsel exceeds $5 million per year per case.
Other findings of the class action survey include:
Higher Risk and More Matters Funnel More Dollars into Class Actions in 2015
Percentage of Companies with Class Action Suits Grows
Exposure Can Be Severe Even in Routine Class Actions
More Class Actions Are High-Risk or Bet-The-Company Matters
Defense Costs Remain a Secondary Concern for Corporate Counsel
Companies Increase Role of Outside Counsel in Early Case Assessment
Alternative Fee Arrangements More Than Doubles Between 2011 and 2015
A recent New York Times story, “Chunk of New Jersey’s Money from Exxon Settlement is to Go to Legal Fees,” reports that New Jersey’s decision to settle a multibillion-dollar lawsuit with Exxon Mobil Corporation has come under broad criticism, as lawmakers and environmentalists have questioned why the state would agree to accept only $225 million – a small fraction of the $8.9 billion in damages it was seeking in court.
But if the deal is approved, the state will not even get that much: New Jersey’s recovery will most likely total about $180 million or so, after attorney fees and expenses are deducted, records show. The litigation was handled on a contingency basis by an outside law firm, Kanner & Whitely of New Orleans, which specializes in environmental lawsuits. The firm, retained by the state, had worked closely with its attorney general’s office and Department of Environmental Protection, the records show.
A state official said that the Kanner firm would receive roughly 20 percent of any recovery, if the settlement and attorney fees were approved by a judge. In the decade or so of litigation in the Exxon case, the state, working with the Kanner firm, won key rulings on liability. Last year, a trial commenced to establish what damages Exxon should pay for contamination at two refinery sites in northern New Jersey.
The firm was to be paid on a contingency basis, with a sliding scale that included a fee of 20 percent of recoveries over $25 million after a trial, according to the retainer agreement, signed by attorney general at the time, Peter C. Harvey, and the lawyer Allan Kanner. A judge later invalidated that fee scale, saying the rates had to comply with New Jersey’s court rules, which do not specify a percentage for recoveries over $3 million except to say the fees must be “reasonable.” The fees also had to be approved by a judge.
Since that ruling, the attorney general’s office has endorsed the original fee scale, including the 20 percent figure, as “presumptively reasonable,” according to a 2010 filing by the office in a $3 million settlement handled by the Kanner firm. Under the state’s retainer agreement, litigation costs are born by the outside firm if there is no recovery by the state.
In deciding whether to approve the legal fees in the Exxon case, Judge Hogan would quite likely consider issues like the risk the law firm undertook, the number of hours its lawyers worked and their standard billing rates, said John Leubsdorf, a law professor at Rutgers University who has written extensively about legal fees.
A recent Texas Lawyer story, “Tough Questions at $5 Million Fee Fight Before SCOTUS,” reports that predicting how the highest court’s nine justices will rule after they have heard oral arguments and before they issue an opinion qualifies as “risky business,” according to Aaron Streett, a Baker Botts partner. Street recently argued his firm’s $5 million fee fight waged against a company that acquired ASARCO, a copper mining company, before the U.S. Supreme Court.
Baker Botts served as debtor’s counsel to ASARCO when it entered Chapter 11 bankruptcy in 2005. The bankruptcy court awarded Baker Botts, and its co-counsel, about $120 million in fees, including enhancements, for winning a $7 billion fraudulent-transfer verdict on behalf of their client. But Baker Botts and another firm also serving as debtor’s counsel wound up fighting for payment from the company that acquired their client.
The U.S. Court of Appeals for the Fifth Circuit issued a ruling that allowed the lawyers to keep their core fees and enhancements, but not the more than $5 million they had sought for the expenses of litigating to preserve those fees.
During oral arguments at the Supreme Court on Feb. 25, Streett uttered less than two paragraphs of his argument before Justices Sonia Sotomayor and Antonin Scalia—a pair that rarely works in tandem—began peppering him with questions. Scalia asked if Baker Botts, as debtor’s counsel seeking fees, was acting against the bankruptcy trustee’s interest. Sotomayor asked, if Baker Botts had hired another law firm to represent it, would it have been “entitled to fees too?”
She later added: “When you’re defending fees, you’re acting for yourself. There is a self-interest involved, because you could just give up on the objections and walk away. The only reason you’re fighting them is because it puts more money in your pocket.”
Chief Justice Roberts also seemed skeptical. If Congress wanted fees on fee to be awarded, “they would have spelled it out a little more clearly” in the bankruptcy statutes, he said. After that, Scalia commented: “I assume that the lawyer’s fees are set at a high enough level that they take into account the fact that sometimes you will have to litigate to get the fees.”
But the hearing had moments that looked favorable for Baker Botts. At the hearing, the firm got an assist from the U.S. Department of Justice, which had filed a friend of the court brief in Baker Botts’ favor. Brian Fletcher, an assistant to the U.S. solicitor general, argued that U.S. trustees need to have debtor’s counsel compensated.
Compensation for the successful defense of a fee application may be appropriate because it ensures that the professional receives the statutorily prescribed reasonable compensation for the services it rendered in the underlying bankruptcy case,” Fletcher told the justices.
During his allotted time, Jeffrey Oldham, a partner in Houston’s Bracewell & Giuliani, who represents ASARCO, argued that the bankruptcy code compensates “all types of professionals for their services rendered,” but “when adversarial fee litigation arises and a professional either hires a lawyer or just happens to be a lawyer and engages in purely self-interested fee litigation work at the expense of the estate, that is not a service rendered on behalf of the estate.” He added: “There is simply nothing in the statute that authorizes estate funds for a professional to engage in self-interested litigation.”
NALFA also reported on this case in “NALFA Bankruptcy Fee Examiners File Amicus Brief in Asarco Case” and “U.S. Supreme Court to Hear Historic Fee Enhancement Case” and “Fifth Circuit Upholds 20 Percent Fee Enhancement in Historic Case”
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