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$105M in Attorney Fees Sought in Puerto Rico Restructuring

November 16, 2018

A recent Bloomberg Law story by Daniel Gill, “Proskauer Tops Firms Asking $105M in Puerto Rico Case,” reports that attorneys restructuring Puerto Rico‘s massive public debt have billed about $105.4 million, with Proskauer Rose and O’Melveny & Myers accounting for more than half the total.  Proskauer Rose LLP has asked for $35.1 million in fees for its work representing the Financial Oversight & Management Board appointed to act for Puerto Rico and others in the largest municipal debt reorganization in U.S. history, while O’Melveny & Myers LLP has billed $28.3 million.  O’Melveny represents the Puerto Rico Fiscal Agency and Financial Advisory Authority.

Other big firms that have billed Puerto Rico include Paul Hastings LLP ($24.9 million) for its work on behalf of unsecured creditors and Greenberg Traurig ($10.2 million) which represents the Puerto Rico Electric Power Authority.  Jenner & Block ($6.1 million), represents retired public employees, and Munger, Tolles & Olson is special counsel for the Oversight Board ($800,000).

These are interim fee requests and do not include local counsel they employed or requests for expense reimbursements, which could be substantial given the territory’s remote location.  “The amount of legal fees is not surprising given the unique procedural and substantive issues and level of complexity of the case, as well as the amount of money and number of parties involved,” said Howard Weg, a partner with Robins Kaplan LLP in Los Angeles specializing in bankruptcy and insolvency matters.

Although technically not a bankruptcy case—Puerto Rico filed for debt restructuring under a 2016 federal law known as PROMESA—it’s by far the largest municipal debt reorganization in U.S. history.  Puerto Rico filed in May 2017 with around $74 billion in debt, plus another $49 billion in unfunded pension liabilities.

For contrast, the previous largest municipal bankruptcy—Detroit’s 2014 case—involved about $18 billion in debt.  In that case, the attorneys and financial advisers earned about $178 million.  Jones Day, Detroit’s lawyers praised by the judge in the case, billed about $57.9 million.

Professionals hired in the Puerto Rico case must seek court approval of their fees, as is the case with municipal Chapter 9 bankruptcies.  Proskauer also represents the utility known as Prepa, the Highway and Transportation Authority, the Sales Tax Financing Corporation known as Cofina, and the Employees Retirement System.  Whatever money is ultimately available to pay the island’s creditors will be reduced by the professional fees allowed in the case.  So far that amount, including fees requested by financial advisers, is over $228 million.

Last week, a lawyer for the Oversight Board told the federal judge overseeing the cases that the Puerto Rico legislature was planning to tax the lawyers and financial advisers in the case.  The lawyers suggested that such a move may necessitate raising billing rates.

The case is In re the Financial Oversight and Management Board for Puerto Rico, D.P.R., 17-03283.

Seventh Circuit: EEOC Should Not Be Sanction with Attorney Fees in CVS Win

November 15, 2018

A recent Law 360 story by Emma Cueto, “7th Circ. Again Rejects CVS’ Atty Fee Win Against EEOC,” reports that a Seventh Circuit panel has preserved its rejection of an attorneys' fee award in favor of CVS Pharmacy Inc. against the U.S. Equal Employment Opportunity Commission in a suit over the company’s severance agreements, saying that using a novel legal theory that was ultimately shot down did not make the suit frivolous.

Despite arguments that the decision would extend fee fights, the panel reiterated that the district court made an error in awarding $307,000 in attorneys' fees to CVS.  The panel said that even though the EEOC did not prevail in its argument that the regulatory language allowed it to file the suit without going through an initial conciliation process, the commission has a “legal hook on which to hang its case,” and that it should not be sanctioned for bringing the suit.

“[The district court] reasoned that the EEOC should have realized even before filing the suit that EEOC regulations required initial conciliation before it could proceed with an enforcement action,” the decision said.  “But that was not at all clear at the time the EEOC acted.”

The dispute between CVS and the EEOC stems from an employee agreement that the agency claimed was meant to confuse employees and to have a chilling effect on employees' rights to lodge discrimination claims with the agency.  The agency sued over the agreement in February 2014.  The district court granted CVS summary judgment in September 2014, finding that the EEOC hadn't met its obligations to conciliate the dispute before suing and therefore wasn't authorized to bring the action in court.  Another Seventh Circuit panel affirmed the dismissal in 2015, and a full Seventh Circuit declined to hear the case.

On remand, the trial court awarded CVS $307,902 in attorneys' fees, finding that the EEOC should have known before suing that its regulations required initial conciliation before it could proceed with an enforcement action.  In June, a new Seventh Circuit panel threw out the attorneys' fees, saying it took more than a loss on the merits to justify awarding the fees and that the district court's decision "impermissibly rested on hindsight,” a phrase it used again in its decision.

The panel was asked to revisit the case in July, when attorneys with Jones Day argued that the court used an improper standard and that the decision would unleash a wave of prolonged fee fights.  The EEOC argued in favor of the panel’s original decision, saying it was in keeping with past case law.  In its amended decision, the panel ruled that it had been correct to use a more permissive standard instead of reviewing the district court ruling only for an abuse of discretion, explaining that the lower court had made a legal error, meaning the abuse of discretion standard was not the correct one to use.

It then said that the question as to whether the EEOC should have to pay attorneys' fees rested on whether its legal theory — which relied on a novel interpretation of the unique wording in a subsection of Title VII of the Civil Rights Act of 1964 — was “far enough afield” as to be unreasonable.  The panel noted that there was a difference in the wording of the subsection the EEOC highlighted and no clear precedent that shut down its theory.  In addition, it added, CVS by its own admission spent more than 800 hours defending against the suit and specifically told the district court the questions required a deep understanding of Title VII.

The case is the U.S. Equal Employment Opportunity Commission v. CVS Pharmacy Inc., case number 17-1828, in the U.S. Court of Appeals for the Seventh Circuit.

Defense Seeks $3.2M in Fees After $1M Jury Verdict in Whistleblower Suit

November 14, 2018

A recent Law 360 story by John Petrick, “Ex-UBS Analyst Seeks $3.2M in Atty Fees After $1M Jury Win,” reports that an ex-UBS analyst who won a nearly $1 million verdict in his whistleblower suit against his former employer asked a New York federal judge this week to award him $3.2 million in attorneys’ fees, saying that federal securities law requires the bank to fork over the funds.  Two law firms that represented former UBS analyst Trevor Murray, who emerged victorious from a nearly seven-year fight with the bank after he alleged he was fired in 2012 for complaining he was being pressured to falsely report better market conditions to boost UBS’ revenue numbers and impress investors, each asked for fees for their work on the case, according to filings.

Now that he’s won a jury verdict in the case, the Sarbanes-Oxley Act provides that the company cover his legal bills from Broach & Stulberg LLP and Herbst Law PLLC, he said in the petitions.  “For the entirety of Murray’s struggle, Broach & Stulberg has stood by his side, opposing every defense motion, persisting on his behalf and ultimately, winning and defending a favorable verdict,” Murray said in the petition on that firm’s fees.

Murray filed the lawsuit in February 2014, claiming UBS pressured him to skew his research to support the bank’s CMBS trading and loan origination activities and to report better conditions in the market because the commercial mortgage-backed securities line was a significant revenue generator.  In late 2011, Murray allegedly told the bank’s head CMBS trader he was concerned that certain CMBS bonds were overvalued, according to the suit.  But Murray was told not to publish anything negative about the bonds because they had been purchased by the UBS trading desk, he claims.

He was fired shortly thereafter, just a month after receiving what he said was an excellent performance review.  UBS had pushed back hard against Murray’s contentions in court, including arguing in March 2016 that the Sarbanes-Oxley claims should fail because Murray was terminated as part of a downsizing that resulted from the global financial downturn’s financial impact in 2011.  UBS also argued that Murray didn’t have a reasonable belief that the conduct he reported was a violation of applicable laws or regulations, and therefore the court should toss his claims.

But in March 2017, U.S. District Judge Katherine Polk Failla sided with Murray, finding he’d put forward sufficient evidence that he engaged in a protected activity and that the activity was a contributing factor to his termination, and sending the case to trial.  After a three-week trial, a jury in Manhattan awarded Murray nearly $1 million, finding he was fired for refusing to skew his research to impress investors, according to filings in the case.

The Herbst law firm in a petition asked for $638,950 to cover attorneys’ fees and another $1,160.55 plus interest in costs, court records show.  A day later, Broach & Stulberg filed a petition seeking about $2.6 million for their work on the case.

Peter Stack, a spokesman for UBS, told Law360 the company would challenge the fee bid, noting it was significantly higher than the verdict itself.  “The claim of Mr. Murray's attorneys that their efforts should be valued at more than triple the jury's award to Mr. Murray is wholly unwarranted,” Stack said.  “We look forward to addressing the matter in court.”

The case is Murray v. UBS Securities LLC et al., case number 1:14-cv-00927, in the U.S. District Court for the Southern District of New York.

SCOTUS Won’t Hear Case Involving Fee Award Calculation Method

November 13, 2018

A recent Law 360 story by Michael Phillis, “High Court Won’t Hear $17.3M Fee Dispute in Gas Royalty Row,” reports that the Supreme Court declined to take up a challenge to a Tenth Circuit panel's decision that said an incorrect method of calculating the $17.3 million attorneys' fees award for work on a $52 million settlement over gas well royalty payments meant the award should be set aside.

The Tenth Circuit panel’s decision, which will now remain intact, reversed a lower court's award of attorneys' fees and an incentive award of half a percent for lead plaintiff Chieftain Royalty Co.  The panel agreed with two class members who objected to that award, Charles David Nutley and Danny George, who said the lower court was required to use the lodestar approach under Oklahoma law instead of using the percentage-of-the-fund approach for allocating fees.

In its petition for review, Chieftain Royalty said the lodestar method that is based on how many hours the attorneys worked was "burdensome and creates a perverse incentive for class counsel to litigate inefficiently."  The petitioner preferred common-fund awards that distribute a percentage of a fund.

Chieftain Royalty further argued that in diversity class actions such as in the instant case, the courts should be able to decide how to award reasonable attorneys' fees instead of being forced to defer to the applicable state law.  The objectors, however, said Oklahoma law required the lodestar approach and must be applied, and the Tenth Circuit agreed.

Chieftain had filed the state-law putative class action against EverVest Energy Institutional Fund in 2011, alleging the oil and gas company underpaid lease royalties on gas from wells in Oklahoma.  The $52 million settlement, meant to benefit around 21,000 class members, netted final approval about four years later.  The objectors appealed with respect to the fees and incentive awards.  They argued the Oklahoma Supreme Court has held that reasonable attorneys' fees should be calculated by the lodestar method in common-fund cases.

The Tenth Circuit panel said in mid-2017 that while the circuit had no binding precedent on whether federal courts must follow state laws governing how to calculate attorneys' fees, it found a consensus among five other circuits that have considered the issue.  "When state law governs whether to award attorney fees, all agree that state law also governs how to calculate the amount," the panel said.  The decision nixed the awards and remanded the case, adding that class counsel didn't provide the necessary records about their hours to be used in a lodestar calculation, throwing their fees into question.

In an opposition brief Nutley filed in October, the objector said the high court should not take the case, although he did say that there was a circuit split on the issue.  However, the brief said that the question posed by the petitioner on whether "common-fund fee awards are governed in diversity cases by state or federal law" wouldn't fully deal with the question at hand.

"This court should direct the parties to brief and argue the additional question of whether, in a common-fund case like this, 'a reasonable attorney's fee' is presumed to be the attorney's lodestar ... provided it does not exceed a reasonable percentage of the common fund," the opposition brief said.  "An affirmative answer to that question would resolve many conflicts in federal common-fund jurisprudence by providing a uniform rule that is consistent with this court's prior holdings defining 'a reasonable attorney's fee.'"

Eric Alan Isaacson, an attorney for Nutley, said the Tenth Circuit got it right.  He said the justices likely recognized the case was a poor vehicle to resolve conflicts among various courts.  "As Nutley's Brief in Opposition pointed out, there are many conflicts in the federal decisions on common-fund fee awards, so that if the Supreme Court granted certiorari to consider Chieftain's arguments that federal law controls, the Court should also have the opportunity to clarify what the controlling federal law is," Isaacson told Law360.

The case is Chieftain Royalty Co. v. Charles David Nutley et al., case number 18-301, in the Supreme Court of the United States.

Article: Challenge Calif. Insurer Limits on Independent Counsel Rates

November 12, 2018

A recent Law 360 article by Susan P. White, “Challenge Calif. Insurer Limits on Independent Counsel Rates,” reports on hourly rates and independent counsel in insurance coverage litigation in California.  Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  This article was posted with permission.  The article reads:

When a liability insurer agrees to defend its insured after the insured has been sued, this is often cause for celebration, as the insured believes its defense will be paid.  The insurer may reserve its rights to deny coverage, and advise that such reservation creates a “conflict of interest” entitling the insured to “independent” counsel.  Thus, instead of the insurer selecting the insured’s defense counsel, which is common under a duty to defend policy, the insured gets to choose its own counsel.  Still reason to celebrate, right?  But, as you may suspect, this selection right comes with a catch.  The insurer advises that while the insured can choose its own counsel, the insurer only agrees to pay a very low hourly rate, maybe $225 or $250 per hour (it varies, sometimes dramatically so), which is much less than what is being charged by the insured’s independent counsel.  If the litigation against the insured is significant, the delta between the rate the insurer agrees to pay and counsel’s actual rate can add up to millions of dollars.

An insurer claims it need only pay these low hourly rates pursuant to the requirements set forth in California Civil Code section 2860(c), which governs the financial relationship between an insurer and an insured’s independent counsel. Section 2860(c) states:

The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.

While section 2860(c) allows an insurer to only pay independent counsel the same rates it pays to other lawyers to defend similar actions in the same locale, an insured should not simply accept the insurer’s say so on this.  There are several ways to both challenge an insurer’s unilaterally imposed rates.  This article addresses a few such ways.

First, an insured should demand that the insurer produce detailed information about the counsel to whom it is paying these low rates.  An insurer often imposes “panel counsel rates” in these situations, which are rates that an insurer pays to certain law firms that have special agreements with the insurer, often in writing.  In these agreements, the panel counsel often agree to charge the insurer reduced hourly rates, regardless of the type of case, or location of the litigation, typically in exchange for the anticipation of a large volume of work from the insurer.  Under such a situation, an insured can argue that there is no “similarity” of actions as mandated by the statute.  Instead, the panel counsel’s rates are unaffected by the complexity, sophistication, nature of the allegations, legal claims, factual circumstances, location or any other factors of the cases in which they are appointed.  Thus, such rates provide no support under the § 2860 requirements.

Second, an insured should demand that the insurer provide detailed information about the specific cases that the insurer is touting as “similar actions in the community where the claim arose or is being defended,” to support the low hourly rates imposed.  With this information, an insured can ascertain whether such cases are, in fact, “similar” or not.  For example, are these purported “similar” actions less complex than the lawsuit against the insured? Do they involve different legal and/or factual issues?  What about the amounts in controversy — are they dramatically less and thus, the exposure potentials are not even comparable?  Also, where are these other actions pending?  Are they in different communities?  The more an insured can demonstrate dissimilarities the better to demonstrate that the insurer cannot support the hourly rate it seeks to impose pursuant to § 2860.

Third, if the parties cannot informally agree on an acceptable hourly rate for independent counsel, either party can seek to resolve the dispute through final and binding arbitration pursuant to § 2860.  And, in any arbitration, if the arbitrator determines that insurer’s evidence does not satisfy the § 2860 requirements, the insured should argue that a “reasonableness” standard should be applied to determine the appropriate rate for the insured’s independent counsel (with evidence to support that independent counsel’s actual rates are “reasonable”).  Indeed, a “reasonableness” standard is a ubiquitous standard for attorneys’ fees in insurance litigation and other contexts.

An insured need not simply accept its insurer’s word when it imposes inappropriately low hourly rates on an insured’s independent counsel.  Instead, an insured should challenge such rates, when appropriate, either informally or in arbitration.

Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  Susan resolves complex insurance coverage disputes through litigation, arbitration and mediation.  These include bad faith claims, as well as other commercial and contract matters.  She has also successfully recovered millions in attorneys’ fees and costs for her insured clients.