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Miami Attorney Wins Major Fee Dispute Against Big Tobacco

May 29, 2020

A recent Daily Business Review story by Raychel Lean, “In Rare News for Plaintiffs Lawyers, Miami Attorney Stages Fee Fight Against Big Tobacco – And Wins $2.4 Million” reports that the first court order sanctioning a Florida Engle progeny defendant with attorney fees has landed, and it’s causing a stir.  Four years after R.J. Reynolds refused a $250,000 settlement offer, Coral Gables attorney Richard J. Diaz secured a $2.4 million fee award for his client — more than double the $1 million in compensation jurors awarded at trial.

Miami-Dade Circuit Judge Alan Fine awarded the fees, along with $117,500 in costs, after a Zoom bench trial.  It’s an outcome that Diaz says shows just how stubborn tobacco giants can be in defending themselves from lawsuits over smoking-related illnesses and could even signal a new era of reckoning for the industry.

Of the roughly 150 Engle plaintiffs who could have fought for fees thus far, 145 of them settled, according to Diaz, who said that’s often because plaintiffs lawyers don’t keep time records the way defense firms do.  But that could change, as Diaz says he’s received an influx of calls from plaintiffs attorneys now inspired to push harder for fees.

“I think this now has motivated a lot of plaintiffs lawyers to stop settling these fee claims and start fighting them because they’re realizing that they’re leaving half a million to a million dollars on the table every time,” Diaz said.  “Then the counter effect, I think, will be that they [tobacco defendants] will be more reasonable and, ultimately, we’ll be able to settle more of these claims.  But sometimes they’ve got to get hit too many times to realize they’re getting hit, and then they’ll back down.”

This case revolved around Stefanny Sommers, who sued in 2008 on behalf of her husband Bert Sommers, a wealthy lawyer and real estate developer.  He died in 2007 after smoking for decades and suffered from multiple smoking-related diseases.  The case meandered through the courts and changed hands with various lawyers before Diaz came aboard in 2014.  He almost went straight to trial, but litigation stalled after jurors were blocked from considering punitive damages.  After about three years, Sommers opted to try the case while the appeal continued to play out.

It was a “royal nightmare” figuring out how many hours had been spent on the case, according to Diaz, as plaintiffs lawyers don’t normally keep meticulous records.  It meant opening every email and attachment, combing through phone records and filings, and being deposed.  One lawyer even shut down his practice for two weeks to reconstruct his bills, but Diaz said it was worth the effort.

“Out of those 150 opportunities to get huge fee awards from the defendants, only about five times have lawyers challenged it because it is so labor intensive,” Diaz said.  ”The tradition has been to kind of just take whatever you think you can get and the numbers are what they are, but I made a decision a year ago that I was going to take them on, fight them and see what I could do.”

Diaz said he now requires his team to use billing software, having estimated that they missed out on at least 10% of their fees because of a lack of meticulous business records.  “It taught us a lesson.  This will not happen again,” Diaz said.  “They won’t have the ability to attack whether the records were sufficiently accurate, contemporaneous and complete."

Federal Judge: Accept Fee Award or Hire Fee Expert

May 28, 2020

A recent Law 360 story by Chris Villani, “Judge Makes Schlichter Bogard $5M Fee Offer It Won’t Refuse” reports that Schlichter Bogard & Denton LLP and two other firms will receive nearly $5.25 million in fees after a federal judge during a hearing offered the attorneys representing Massachusetts Institute of Technology workers in an $18 million ERISA settlement a choice: take the deal or pay for a special master.  The fee award is less than the $6 million Schlichter Bogard, Fair Work PC and the Law Offices of Michael M. Mulder sought for guiding the class to a settlement with MIT on the eve of trial last fall.  But it's more than U.S. District Judge Nathaniel M. Gorton typically hands out in cases like these.

Judge Gorton had already rejected the firms' bid for a 33% cut.  And he told them again that while he had no issue with the nuts and bolts of the settlement itself — including awarding the firms $522,000 in expenses and giving $25,000 each to four named plaintiffs — he does have a problem with the $6 million fee ask.  "The custom of the courts is generally to award between 20 and 30% and the custom of this particular session is to award no more than 25%,"  Judge Gorton said, noting those numbers have held up even when the lawyers achieved certain "nonmonetary" benefits for the class, as was the case here.

"After careful consideration, I have decided to split the difference," Judge Gorton said, offering the firms 29%, or $5,249,000.  He then made them an offer: They could either accept the 29% fee or pay for the appointment of a special master whose recommendation would guide Judge Gorton in the apportionment of fees, though the report would not be binding.

Speaking for the firms, Schlichter Bogard's Jerome Schlichter took the deal on the spot.  "We will accept the court's ruling that the 29% fee will be what the court awards rather than go down the road of having a special master," Schlichter said.  Prior to Judge Gorton's fee ultimatum, Schlichter touted the lawyers' success in achieving the largest settlement of its kind.  Schlichter Bogard effectively pioneered class action suits against prominent universities over retirement plan fees.  None of the cases his firm has filed has achieved a settlement of $18 million, and suits filed by other firms against Brown University and the University of Chicago were settled for $6 million and $3.5 million respectively, Schlichter said.

21 Percent Fee Request in Doubt in Namenda Class Settlement

May 27, 2020

A recent Law 360 story by Frank Runyeon, “$750M Namenda Deal OK’d But 21% Atty Fee Request in Doubt” reports that a Manhattan federal judge approved a landmark $750 million settlement over allegations that an Allergan PLC subsidiary thwarted generic competition for its Alzheimer's drug Namenda, but cast doubt on awarding $157 million in attorney fees, calling the figure "astronomically large."  During a teleconference fairness hearing, U.S. District Judge Colleen McMahon swiftly approved the settlement, which compensates wholesalers that accused Allergan and its Forest Laboratories LLC unit of anti-competitive conduct to keep generic versions of Namenda off pharmacy shelves.  The deal is one of the largest ever by a single drugmaker in an antitrust case.

But the judge quickly pivoted to criticize the payout for attorneys representing the class.  "With no disrespect meant about the quality of the work that went into this prosecution, I am a little nonplussed at the notion of awarding 21% of this settlement in attorneys fees," Judge McMahon said.  "It is an astronomically large number," the judge added.  "It is over four times lodestar, and, at these numbers, bears little resemblance to the work that's been done."

Judge McMahon said she had "some concern about duplication because of some things that I have seen in the record, and so before I reach a final decision on attorneys fees I want to take a look at time records."

Class counsel Bruce Gerstein said he would send over the records "expeditiously," but asked the judge to consider that the class members are "sophisticated" corporations who had agreed to the fees.  Attorneys had initially sought a third of the $750 million settlement, but dialed down their requested share following objections from wholesalers.

Judge McMahon said she would deal with the motion for attorney fees quickly, as soon as she could review the documents.  She noted that the allocation plan for distributing the fees was approved, and that the attorneys' $5.8 million in expenses would likely be approved in the forthcoming decision.

Demand Grows for Hourly Rate Data in Big Bankruptcy

May 26, 2020

A recent Legaltech News story by Rhys Dipshan, “Reorg Launches New Database to Bring Big Data Analytics to Bankruptcy Fees” reports that the recession is already choosing its winners and losers: The once-strong appetite for M&A work is increasingly being replaced by a growing demand in bankruptcy services.  And due to efforts started in advance of the current economy, some in the legal tech space are looking to capitalize on this new opportunity.

Financial intelligence provider Reorg has announced the launch of its Legal Billing Rates Database, which aims to provide corporations and law firms with benchmarks regarding outside counsel’s bankruptcy fees.  The goal is to help general counsel and other corporate officers make informed bankruptcy hiring decisions, as well as help law firms competitively set their rates.

Darby Green, Reorg’s senior director of product, strategy and innovation, explained that the database pulls interim, monthly, and final fee applications from U.S. Bankruptcy Court dockets in the Southern District of New York and the District of Delaware, which she called the “preeminent jurisdictions for these types of large Chapter 11 [bankruptcy cases].”  She noted that “the attorneys involved in these [cases] come from all over … and also fee examiners expect that from jurisdiction to jurisdiction you’re not changing your fee, so it can become a good place to get an overall sense of what these fees look like.”

To be sure, while demand for bankruptcy services has grown in recent weeks, the new database was not built in response to the current market.  “When you build a data science-driven tool, it actually takes a very long time to do; we’ve been working on this behind closed doors for more than a year,” Green said.

She added that the development was “really a time-consuming process” given the need to structure docket data that was obtained via PACER.  For example, “even something as simple as figuring the department [took time].  Since every law firm is structured a little bit differently, you’re not going to necessarily find ‘bankruptcy lawyers’ at every firm, you might find ‘restructuring,’ you might find ‘financial insolvency,’ etc.”

Of course, Reorg is far from the only company offering legal spend or bankruptcy analytics, with LexisNexis, Bloomberg, Wolters Kluwer, Bodhala and Brightflag, among others, competing in the market.  What’s more, legal research providers such as Fastcase and Casetext are also planning on expanding their bankruptcy analytics and services.

Green, however, believes that where Reorg stands out is in its sole focus on bankruptcy fees.  “Our understanding is that we are the only company that is applying machine learning and this type of analysis to bankruptcy dockets.  There are a lot of providers looking at district court dockets, but what is unique about us is that because we’re so focused on the high yield and stress and distress markets that we are really embedded in bankruptcy dockets, and that provides an advantage,” she said.

Article: How to Avoid Attorney Fees Disputes in California

May 25, 2020

A recent Daily Journal article by Heather L. Rosing and David M. Majchrzak, “The Evolution of Fee Disputes: How To Protect Yourself in a New Day & Age” reports on avoiding attorney fee disputes in California.  This article was posted with permission.  The article reads:

While attorneys and clients have always disputed over fees, the number and severity of clashes appear to have risen in recent years, with notable consequences.  We are a service industry, and what we are selling is our skill and our time, with only so many hours in the day.  If an attorney is not paid, especially if that person is in a small firm or in solo practice, the situation can have a significant impact on the ability to continue operations and meet expenses.  It is therefore critical for every practitioner to carefully examine ways of avoiding these disputes, which can also sometimes lead to counterclaims for legal malpractice.

The #1 best way for an attorney to achieve protection is to pay close attention in the case intake process.  Many attorneys embroiled in fee disputes have bemoaned accepting the client in the first place.  “Why didn’t I see the red flags?  If I did anything wrong, it was accepting this client despite my gut feeling that it was a bad idea!”

When considering accepting a new client, the attorney should ask why the client needs legal services and what the goal is.  Understanding what your client hopes to get out of the representation will allow you to assess what it will cost to provide the services.  In turn, this allows you to formulate a rough budget, and discuss with the potential client whether that person has ability to fund the representation.  A large number of fee disputes occur simply because the client is surprised by the cost of legal services and is not financially prepared for the situation.

Another critical inquiry is whether the client has had other attorneys assist with the same matter.  Who came before you?  Were they terminated?  Does the client owe them money?  Maybe there were several attorneys before you.  What does this mean?  Is it a red flag?  If the potential client’s history of representation makes you uncomfortable, this may not be the right client for you.

Once you have decided to accept the representation, it is time to fashion the fee agreement, which requires a careful examination of Business and Professions Code Section 6147 for contingency fee matters and Business and Professions Code Section 6148 for hourly matters. Among other requirements, these statutes mandate that fee agreements must be signed by both the attorney and the client.  The client must be provided with a copy.  Critically, the failure to ensure that your fee agreement conforms to the statutory requirements of the Business and Professions Code could give the client having the option of voiding your fee agreement, leaving you with a quantum meruit claim, which is less preferable than a fee claim based on a contract.

But complying with the Business and Professions Code is not enough.  The agreement should clearly state the scope of the representation, and, in certain circumstances, discuss what is not included.  If neither you nor the client are clear on exactly what you are doing for the client, a fee dispute may ensue.  The 1993 case of Nichols v. Keller, 15 Cal. App. 4th 1672, further describes the potential malpractice-related consequences of failing to clarify the scope of engagement and make referrals on issues related to your representation.

For hourly engagements, it is also important to determine whether an advance retainer is necessary and whether the client has the ability to make that payment.  If, for example, you are going to represent someone in a business litigation matter, and you request a $10,000 retainer, and they balk, this is a good indicator that they will not be able to sustain your fees.  Prudent practitioners often times require that the retainer be regularly replenished and that the client provide a special pretrial retainer in an amount necessary to try the case 60-90 days before trial.

While a properly drafted contingency fee agreement provides the attorney with a lien on the recovery, hourly arrangements do not automatically include a lien.  If an hourly attorney is interested in securing a lien through the initial fee agreement, Rule of Professional Conduct 1.8.1 (Business Transactions with a Client and Pecuniary Interests Averse to the Client) and the 2004 case of Fletcher v. Davis, 33 Cal. 4th 61 should be studied.  It is possible to obtain a valid charging lien in an hourly case with the proper documentation, and it is oftentimes prudent to get one if there is an expected recovery from a third party.

Another consideration is whether your arrangement is for a flat fee.  Rule of Professional Conduct 1.5 not only discusses the concept of an unconscionable or illegal fee, but also, in subsection (e), sets forth the circumstances in which a flat fee is allowable.  This must be read in conjunction with Rule of Professional Conduct 1.15(b), which describes the special language that must be included in the fee agreement in order to place a flat fee in your operating account.  It is also important for an attorney to clearly differentiate between an advance retainer and a flat fee for the client, as unsophisticated consumers of legal services may not readily understand the difference.

The fee agreement should also discuss the issue of fee disputes up front.  For example, you can include language that says that the client should bring any problems with any bill to your attention within 30 days of receipt, so that you can proactively address them.  The agreement can also let the client know that, in the event of a fee dispute, the client has the option of participating in mandatory fee arbitration through the local bar association, pursuant to Business and Professions Code Section 6200 et seq.  In the event that the dispute cannot be resolved through Bar Association arbitration, the fee agreement can mandate private arbitration, if that is your preference.

There are many resources for crafting the best fee agreement.  The State Bar of California has form fee agreements at www.calbar.org, and some legal malpractice insurers provide sample language. It is important, though, to take the time to customize every fee agreement to the specific situation, so both the attorney and the client are clear on the terms of engagement from the outset.

The next step in avoiding fee disputes is to do upfront budgeting combined with the issuance of regular bills.  There is no downside to letting the client know early and often what the matter will cost. In litigation, because the cost can vary significantly based on how the dispute evolves, it may be necessary to update the budget at regular intervals.  Disputes are far less likely if the client is not surprised by a bill.

Business and Professions Code Section 6148 discusses certain requirements for billing fees: “All bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”  For costs, the statute requires that “[b]ills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  There also certain requirements about responding to a client request for a bill.

The State Bar of California also provides use full guidance to attorneys in the form of fee arbitration advisories, which can be found at http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-AdvisoriesThese advisories deal with a variety of common issues, such as bill padding, nonrefundable retainer provisions, determination of a reasonable fee, the form of proper billing, and much more.  Knowing upfront what can cause a fee dispute puts you way ahead of the game.

Another key to avoiding fee disputes is clear communication.  The Rules of Professional Conduct require that attorneys keep clients updated on significant developments.  The proactive practitioner, however, will go far beyond this, frequently talking and emailing with the client about case status, strategy, goals, and budgeting.

Sometimes, however, despite clear and frequent communication about the matter and regular bills, the client simply lacks the cash flow to fund the continued representation.  In that instance, the attorney should have a candid conversation with the client as soon as possible.  It may be that the client is desirous of settlement in light of the situation.  The client may choose to liquidate investments or seek the help of friends and family members to fund the representation.  It may be that a payment plan is appropriate.  It may be that the attorney is comfortable continuing with representation because the attorney has a valid lien that complies with the Rules of Professional Conduct.  A failure to proactively address nonpayment, however, exacerbates the situation and increases the likelihood of a disintegration of the attorney-client relationship.

The consequences of allowing a full-blown fee dispute to emerge can be severe.  Not only can the fee dispute affect the ability of the attorney to run his or her law firm, but fee disputes can lead to counter allegations of malpractice, true or not.  It is well-known that lawsuits for fees invite cross-claims for malpractice.  Then, the attorney has to fund an insurance deductible and faces the prospect of increased premiums (and potentially insurability issues) in the future.  If the attorney is uninsured, this means that he or she must raise or reserve a substantial sum for the defense of the claim.  Litigation over the malpractice issues also interrupts the attorney’s normal operations and can cause high levels of stress and anxiety.  Finally, even an attorney goes through the whole process to secure a judgment for his or her fees, there may be issues with collectibility and bankruptcy.  Most fee awards are dischargeable in a Chapter 7 proceeding.

The solution is straightforward and commonsensical — a thoughtful case intake procedure, a tightly crafted fee agreement, proactive budgeting, and regular billing and communications.  These four steps will help you maximize your revenues, best serve the clients, and avoid unpleasant proceedings with client you once served.

Heather L. Rosing and David M. Majchrzak practice in the areas of legal ethics, risk management, and litigation of professional liability claims at Klinedinst PC in San Diego.