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Fee Request Leads to Legal Malpractice Claim

November 25, 2014

A recent The Recorder story, “Plaintiffs Shop Slammed by Appeal Court for Suspect Fees,” reports that a $5 million fee award that was based on a $6 million recovery was sent back to San Francisco Superior Court for a new round of hearings after First District Court of Appeals described it as “fraught with the potential for conflicts of interest, fraud, collusion and unfairness.”

The First District Court of Appeals ordered a trial judge to consider whether “some or all of the fees” earned by Initiative Legal Group (ILG) should be disgorged, saying the Century City firm’s conduct “appears to be unprecedented.”  The published decision in Lofton v. Wells Fargo Home Martgage is a win for attorneys at Carlson Calladine & Peterson and Chavez & Gertler, who accused Initiative Legal Group and its principals of cheating clients out of millions while misleading the judge who supervised the litigation.

Lofton is a wage-and-hour case that attorneys Kevin McInerney and James Clapp brought on behalf of home-mortgage consultants in San Francisco Superior Court in 2005.  ILG brought a similar action in Los Angeles Superior Court on behalf of California class members in 2006.  That class was decertified and ILG refiled the case as several separate suits on behalf of 600 individual consultants.  The cases were mediated together in 2011, with the Lofton class action settling for $19 million—about $2,000 per class member after fees and expenses—and ILG’s case settling for $6 million—or about $10,000 per plaintiff before fees and expenses.

In seeking fees from S.F. Superior Court Judge Loretta Giorgi, the attorneys said they expected the consultants represented by ILG to opt out of the Lofton settlement and collect from the ILG fund.  But none of them did because ILG encouraged them to file class claims, according to the First District.  Meanwhile, ILG kept all of the $6 million as its attorney fee, save a $750 payment to each plaintiff in exchange for release of claims.

One plaintiff, David Maxon, refused the payment, leading ILG to offer an additional $1,000 to all plaintiffs a few months later.  Maxon again refused and, represented by Marc Chavez and Richard Zitrin, persuaded S.F. Superior Court Judge Harold Kahn to freeze the remaining $5 million while they brought a fraud and malpractice suit against ILG.  Kahn said the record appeared to reflect “egregious misconduct and bad faith on the part of ILG.”

At arguments earlier this month and in an opinion, the appellate court expressed similar concerns.  “It is manifest that ILG intended to effectuate distribution of the almost $5 million in fees to itself without court approval,” Justice Peter Siggins wrote for a unanimous panel.  “Such a move by lawyers representing so many plaintiffs in a common fund situation appears to us unprecedented.”

Siggins wrote that “there is a question on this record whether ILG is entitled to any fees at all” because of the duplicative nature of the ILG cases.  Even if they are entitled, ILG may have to “disgorge some of all of the fees” if Maxon can provide misconduct, Suggins wrote.

New York's Contingency Fee System Upheld in Fee Dispute Case

November 24, 2014

A recent New York Law Journal story, “$44 Million Contingency Fee Upheld Graubard Miller,” reports that a contingency fee agreement that netted Graubard Miller $44 million for five months’ work was valid and must be adhered to, the state Court of Appeals ruled.  The law firm took substantial risk by making the agreement with Alice Lawrence in January 2005, and the fact that the real estate matter on which it had long represented Lawrence unexpectedly settled in May 2005 did not make it unconscionable, the court decided.

Judge Susan Phillips Read wrote that it was “dangerous business” to assess the fairness of a contingency fee arrangement, especially when the objection is that “the size of the fee seems too high to be fair.”  “It is the nature of a contingency fee that a lawyer, through skill or luck (or some combination thereof), may achieve a very favorable result in short order; conversely, the lawyer may put in many years of work for no or a modest reward,” Read wrote in Matter of Lawrence, Deceased, 149.

She added, “Absent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written.”  Read said invalidating agreements in hindsight should be done with great caution because it is “not unconscionable for an attorney to recover much more than he or she could possibly have earned at an hourly rate.”

“Whether $44 million is an unreasonably excessive fee depends on a number of factors, primarily the risk to the attorneys and the value of their services in proportion to the overall fee,” she wrote.  Here, Read said, Graubard spent nearly 4,000 hours preparing for trial in May 2005 that was averted by the surprise settlement, and the firm risked several more years on litigation with no guarantee of payments beyond the hourly fees guaranteed during the first year of the agreement.

NALFA also reported on this case in “New York Fee Dispute Case Can Effect State’s Contingency Fee System”

Texas House Introduces Legislation on Attorney Fees

November 21, 2014

A recent Law 360 story, “Texas House Floats 2 Bills Over Atty, Contingency Fees,” reports that two bills proposed in the Texas House would change the way litigants can recover attorneys’ fees from opposing parties and the way clients can challenge contingency fee agreements in court. 

HB 230 would expand the possibility of recovering attorneys’ fees to include legal entities other than individuals and corporations, in reaction to a 2014 intermediate appellate ruling that barred recovery of fees from a partnership. 

This bill is in reaction to a February 2014 ruling from the 14th Court of Appeals in a referral fee dispute between Fleming Nolen & Jez LLP and The Burton Law Firm.  The ruling, currently on appeal to the Texas Supreme Court, narrowly construed the statute governing attorneys’ fees to eliminate a fee award against the Fleming firm because it was organized as an LLP, not a corporation.

HB 247 would limit contingent attorney fee agreement disputes such that a party may bring an action on a claim the agreement was obtained by corruption, coercion, force, fraud or other undue means or that the agreement was forged.

And in HB 247, lawmakers have been asked to limit claims against attorneys over contingency fee agreements unless a party to the agreement is asserting it was signed because of fraudulent or criminal conduct.  The bill provides that a claim arising out of a qualified contingency agreement or the representation that is the subject of the agreement “shall be dismissed with prejudice” if the suit was brought on grounds other than the fraudulent conduct laid out in its subsection (d).

The bill would also provide that for aggregate settlements of multiple clients that meet certain disclosure requirements outlined in the statute, the settlement is irrebuttably presumed to be fully disclosed, read, understood and voluntarily entered into by all parties to the agreement, presumed to be fair, accepted, reasonable and made in the best interests of the parties by the parties or through their attorneys and presumed to be final and not subject to subsequent litigation.

Third Circuit Got it Wrong on Advancement of Defense Costs

November 19, 2014

A recent New Jersey Law Journal editorial, “Third Circuit Got It Wrong on Advancement of Defense Costs,” writes about the recent decision in the U.S. Court of Appeals for the Third Circuit, Aleynikov v. Goldman Sachs Group.  The case raises serious questions about the effectiveness of advancement for individuals who may elect to litigate that issue in federal court in the Third Circuit.  The editorial states:

Explicitly or by implication, the statutes allow companies to advance reasonable attorney fees and defense costs, subject to repayment if the individual is ultimately found to have acted wrongfully.  Advancement is a natural corollary to the right of indemnification; if the individual cannot afford to pay an attorney to provide a defense from the outset of litigation, the right to indemnification at the end of the case is less meaningful.

In the underlying case, Goldman Sachs computer programmer Sergey Aleynikov was convicted of criminal offenses in federal court but the U.S. District Court of Appeals for Second Circuit reversed and directed an acquittal.  Goldman refused to pay his legal fees.  Aleynikov filed suit for indemnification as to his legal fees for his successful defense of the federal charges and for advancement of fees he was incurring in the case.

The key issue on the motion for advancement was whether the plaintiff was an “officer” entitled to the request relief.  There are hosts of people called “vice president” at Goldman Sachs and the company argued that only those with executive supervisory authority and responsibility were “officers” entitled to advancement under the advancement clause of its bylaws.  The third circuit found the term “officer” was ambiguous and the ambiguity could not be resolved and remanded the case to the trial court.

We believe the Third Circuit ignored the fundamental precept that the right to interim advancement is separate from the right to final indemnification, and that undue delay may moot the right to advancement.  The district court understood it better.  As it noted, “To stay advancement is to destroy its utility.”

We also believe that the opinion should have been nonprecedential.  The policy considerations voiced by the district court were not captured by the Aleynikov majority, and the precedent may well deprive subsequent claimants of an effective remedy in federal court.  Under the Third Circuit’s internal operating procedures, a precedential opinion is an unlikely candidate for en banc review; nor is there a path to consideration by the U.S. Supreme Court.

NALFA also reported on this case in Jury to Decide if Goldman Sachs Pays Legal Bills”

NALFA Welcomes DGT Costs Lawyers

November 18, 2014

NALFA would like to welcome DGT Costs Lawyers to our membership.  DGT Costs Lawyers is Australia’s premium legal cost management firm.  DGT Costs Lawyers is the first international firm to qualify to review fees/legal bills in the U.S.

DGT Costs Lawyers is a boutique law firm that specializes and offers services exclusively in the complex area of legal costs law and practice. Services include acting in and/or mediating fee disputes between practitioners and clients, acting in assessments to determine quantum of court ordered costs, consulting on fee arrangements for law firms and in-house counsel, as well as auditing of legal bills. DGT has been doing this type of work since the 1980's and are based on the east coast of Australia.

“We’re excited to have our first international member.  Law costs firms from aboard deal with the same issues as our domestic member firms.  Hourly rates, billing entries, fee disputes and litigation management are issues without borders,” said Terry Jesse, Executive Director of NALFA. 

For more on DGT Costs Lawyers, visit

Lenovo Fights Fee Request in Laptop Litigation

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The Root Cause of Skyrocketing Defense Costs

November 14, 2014

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NALFA Goes International

November 14, 2014

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$91M Fee Award in Pfizer Neurontin MDL

November 13, 2014

A recent Law 360 story, “Attys’ Fee Award Cut to $91M in Pfizer Neurontin MDL,” reports that a Massachusetts federal judge awarded $91 million to the plaintiffs attorneys in...

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Florida Supreme Court Takes Up Attorney Fee Caps in Workers Comp Cases

November 12, 2014

The Florida Supreme Court heard oral arguments in a case that asks the justices to decide whether the attorney fee caps in the state’s workers compensation laws are constitutional.  The...

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