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Attorney Who Quit Before $27M BofA Verdict Stills Get Fees

July 26, 2016

A recent Law 360 article, “Atty Who Quit Before $27M BofA Verdict Still Get Fees” reports that a Massachusetts attorney with a contingency agreement should get fees after representing a car dealership for 17 years in a suit against Bank of America NA, even though he bowed out before a third trial and $27 million verdict, the Massachusetts Appeals Court ruled Wednesday.

Attorney George Deptula persuaded the appeals court that he had objectively good reasons to stop representing Prestige Imports of Weymouth and its owner, Helmut Schmidt, in a suit that claimed a BofA predecessor mishandled checks that were used in an employee’s embezzlement. Two previous verdicts had been reversed on appeal, and the third verdict, which came down in 2011, is also at the appellate level.

Deptula withdrew from the case in 2010, citing an acrimonious breakdown in the attorney-client relationship and trust with his client. The attorney later filed for an attorney’s lien against Prestige for his past work. A trial court rejected the lien on the grounds that Deptula was subjectively motivated to withdraw from the case because he thought it was a "loser" and that he would never get his contingency fees. 

The trial judge had credited testimony from another of Schmidt’s lawyers that Deptula pressured his client to reject BofA's $2 million settlement offer if Deptula did not get a $400,000 to $500,000 fee, which exceeded the original contingency agreement. That other lawyer — Schmidt's son-in-law, Ted Killory — said that he told Deptula it was unethical to pressure his client to not take the deal. The meeting ended with “yelling and swearing,” Deptula’s receptionist testified. 

But Massachusetts law instructs the courts to not look at a lawyer’s subjective reasoning for withdrawing — if that could even be divined — but at whether objective facts demonstrated good cause to withdraw, the appeals court said Wednesday.

And Deptula certainly did have reason to withdraw, the appeals court said, citing vitriolic letters from Schmidt to Deptula about the attorney's integrity, work ethic and loyalty. The tensions dated to 2004, but came to a head in 2008, after the pair lost an $8 million verdict at the appellate level.

“In the hallway outside the court room, Schmidt expressed — either by ‘screaming and yelling’ or just ‘in a somewhat angry voice’ — that he thought that Deptula had failed to make the argument they had agreed he would make,” the appeals court wrote. “Schmidt put his feelings into writing in a letter dated April 17, 2008, and titled ‘WHAT A DISAPPOINTMENT!!!’”

In another instance, Schmidt grew angry with Deptula because they had hired a second lawyer to help out with the trial, implying Deptula was dodging work and forcing it on the new lawyer.

Deptula not only withdrew from the case, but also contacted his insurance company, fearing a malpractice suit.

“Throughout my representation, you have frequently questioned my strategy decisions, rejected my input and work product, and hampered me from exercising independent professional judgment,” Deptula wrote in his withdrawal letter.

Schmidt, represented by Killory and the attorney Schmidt said had done most of the work anyway, won the $27 million verdict in 2011. 

The court remanded the issue of how much Deptula will get on a quantum meruit basis. His original contingency fee was for 15 percent of the first $1.5 million, 20 percent of the next $1.5 million, and 25 percent of anything over $3 million.

“As other jurisdictions have recognized, allowing attorneys to withdraw from contingent fee agreements and still retain compensation risks undermining the viability of the arrangements altogether,” the appeals court wrote. “However, an attorney who agrees to bear the risk of losing a case is not thereby forced to bear the risk that his client's behavior will cause a breakdown in the attorney-client relationship. When an attorney withdraws due to the behavior of the client, he is thus entitled to the reasonable value of services rendered, even while losing the opportunity for a larger payoff if, as occurred here, another attorney is able to win a significant judgment.”

The underlying suit involved the embezzlement of hundreds of thousands from Prestige by its former comptroller, starting in the late 1980s. Schmidt and his wife guaranteed loans for cars sold off the books, leading to a suit from then-South Shore Bank. The Schmidts countersued, claiming negligence and consumer protection violations.

In reversing the $8 million verdicts Deptula helped secure for the Schmidts in 2002 and 2003, the appeals court found that the trial judge had incorrectly instructed the jury about BofA’s bad faith, mixing in elements of negligence and indifference, which was too broad of a basis under Massachusetts law.

The case is Bank of America NA v. Prestige Imports Inc. et al., case number 15-P-248, in the Massachusetts Appeals Court.

The Ethical Rules of Attorney Fee Sharing

July 25, 2016

A recent ABA Journal article “Sharing Fees with a Lawyer Outside the Firm is OK as Long as Certain Rules are Followed” by David Hudson report on the ethical rules of attorney fee sharing.  The article reads:

One of the many stories about Huey P. Long—the legendary "Kingfish" who reigned over Louisiana politics during the 1920s and '30s—goes like this: When the future governor and U.S. senator sat for his oral bar exam in 1915, he faced questioning from noted admiralty lawyer George Terriberry, who asked him at one point what he knew about admiralty and maritime law. "Nothing at all," answered Long.

That candid response led Terriberry to ask a trenchant follow-up question: “Well, what would you do if you had an admiralty case?” Long just as craftily responded: “I’d associate Mr. Terriberry with me and divide the fee with him.”

Long passed his bar exam.

Whether that story is true or just another tall tale about one of the most fascinating characters in American history, it does help to show that dividing fees when one lawyer refers a case to another lawyer outside the firm is a long-standing and common practice, especially when it’s necessary to bring in a trial lawyer to handle a litigation matter involving a contingency fee.

But the division of fees is subject to certain limitations, which are generally set forth in Rule 1.5(e) of the ABA Model Rules of Professional Conduct. (The Model Rules are the primary basis for binding ethics rules in every state, with some variations, although California sets forth its rules using a different format from the Model Rules.)

Under Model Rule 1.5(e), lawyers who are not in the same firm may divide a fee only if (1) the division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and (3) the total fee is reasonable. A referral fee arrangement also subjects both lawyers to the conflict provisions in Model Rule 1.7.

The application of the rules on division of fees is discussed in detail in ABA Formal Opinion 474, which was issued April 21 by the Standing Committee on Ethics and Professional Responsibility.

The opinion points out that “joint responsibility” is not defined by the black letter of Model Rule 1.5(e). However, the opinion points out, “Comment [7] to Rule 1.5 provides guidance noting that ‘Joint responsibility for the representation entails financial and ethical responsibility for the representation as if the lawyers were associated in a partnership.’ Implicit in the terms of the fee division allowed by Rule 1.5(e) is the concept that the referring lawyer who divides a legal fee has undertaken representation of the client.”

Dane S. Ciolino, a professor at New Orleans College of Law at Loyola University who teaches legal ethics, says, “The upshot of this opinion is that if you want to share a fee, then you must actually undertake to represent the client. Prior to this opinion, ‘joint responsibility’ was required, but it was unclear what the term joint responsibility meant. Now it is clear that joint responsibility means joint representation.”

AVOID CONFLICTS OF INTEREST

Opinion 474 also emphasizes that “because the client is represented by both the referring lawyer and the lawyer to whom the client was referred, a referral fee arrangement under Model Rule 1.5(e) subjects both lawyers to the conflict provisions of Rule 1.7.”

Rule 1.7(a) provides that, subject to some exceptions, “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” Under the rule, such a conflict exists if (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person, or by a personal interest of the lawyer.

The exceptions are set forth in Rule 1.7(b), which allows a lawyer to represent a client even when there is a concurrent conflict of interest if (1) the lawyer reasonably believes that he or she will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve assertion of a claim by one client against another client represented by the lawyer in the same litigation; and (4) each affected client gives informed consent, confirmed in writing.

“To divide a fee with another lawyer, the referring lawyer must either work on the case or assume joint responsibility, which typically means either ethical or financial responsibility, or both,” says Keith Swisher, a legal ethics consultant in Phoenix. “Thus, the referring lawyer is effectively representing the client one way or the other. In light of this fact, the opinion was correct to apply the conflict-of-interest rules to the referring lawyer. In other words, if the lawyer has an unwaived or unwaivable conflict, the lawyer should not be permitted to work on the case or assume responsibility—and therefore should not be permitted to receive a fee.”

The opinion’s larger implication, Ciolino says, “is that a fee-sharing lawyer has all of the professional responsibilities attendant to full-blown legal representation, including the duties of loyalty, confidentiality, competence and diligence, among others.”

BE REASONABLE

The opinion explains that the total fee must be reasonable, approved by the client and confirmed in writing. “The agreement must describe in sufficient detail the division of the fee between the lawyers, including the share each lawyer will receive,” the opinion states. The agreement “should not be entered into toward the end” of the attorney-client relationship. “Instead, the division of fees must be agreed to either before or within a reasonable time after commencing the representation.”

Swisher says the opinion “also serves as a good reminder that clients’ fees should not be increased solely because referring lawyers are involved. In other words, the mere presence, or some might say baggage, of one or more referring lawyers should not financially harm the client.”

That early timing requirement is not followed uniformly by all the states, says Swisher. “Certain jurisdictions, most notably California, permit the lawyers to set the division at the end of the representation—so long as the client is notified before, even if just barely before, the fees are actually divided among the lawyers. Because the opinion’s interpretation provides earlier notice to clients, because it effectively forces the lawyers to better plan out the division of responsibilities ahead of time, and because the interpretation is seemingly implicit in the rule’s wording, the interpretation is sound—although not every lawyer will welcome it.”

Actually, as Opinion 474 points out in a footnote, there is a significant amount of variation in state ethics rules governing division of fees. Colorado, for instance, prohibits referral fees outright, while a few others have not incorporated ABA Model Rule 1.5(e) into their ethics codes. Some states, such as California, only require client consent and a total reasonable fee and do not require joint responsibility. Other states require that there always be some form of joint responsibility.

“Referral fees are a fact of life, and I believe that those states that prohibit them are engaged in a futile mission,” says Peter A. Joy, a professor at Washington University School of Law in St. Louis who teaches legal ethics. ”The ABA Model Rule approach recognizes that referral fees are here to stay, and the Model Rule requires the fee sharing to be based on either a proportion of the work performed or by sharing joint responsibility for the matter. The ABA approach is a reasonable one, but states such as California, which only require client consent and a reasonable total fee, better reflect the reality of law practice.”

Beastie Boys’ Attorney Fee Award to Be Cut

July 22, 2016

A recent Bloomberg Law story “Beastie Boys’ $845,000 Legal Fee Award Will Be Cut” reports the Beastie Boys will have to settle for less than the $845,000 in legal fees that a court ordered paid to them, the U.S. District Court for the Southern District of New York ruled July 12 (TufAmerica, Inc. v. Diamond , 2016 BL 223961, S.D.N.Y., No. 12-3529, 7/2/16 ).

The fee award should be reconsidered to “prevent manifest injustice” because the company that sued the venerable hip hop group for copyright infringement—and lost—is in dire financial condition, the court said. It ordered the parties to meet and work out a more appropriate sum.

TufAmerica Inc. sued the Beastie Boys in 2012, alleging that tracks from their 1989 album “Paul's Boutique” improperly sampled certain funk music recordings from a few years before.

However, in March 2015, the court ruled that TufAmerica didn't have standing to bring its infringement claims because it wasn't the copyright holder or its exclusive licensee (59 ptd, 3/27/15).

Section 505 of the Copyright Act, 17 U.S.C. §505, allows a court to order the loser in a copyright infringement case to pay the winner's legal fees. The Beastie Boys won such an award.

But TufAmerica moved for reconsideration, pleading that it would go out of business if it had to pay the full amount. After looking at the plaintiff's financial documents, the court agreed that a lower award would be appropriate.

Judge Alison J. Nathan issued the court's ruling.

Zarin & Associates P.C. represented TufAmerica. Sheppard, Mullin, Richter & Hampton LLP represented the Beastie Boys.

Former Goldman Sachs Programmer Can’t Recoup Legal Fees

July 21, 2016

A recent Reuters story “Ex-Goldman Programmer Cannot Recoup From Bank-Judge” reports that a former Goldman Sachs Group Inc programmer who has spent seven years and incurred more than $8 million in bills fighting charges he stole computer code failed to persuade a Delaware judge to force the bank to advance some of his legal fees.

Vice Chancellor J. Travis Laster of the Delaware Chancery Court ruled that Sergey Aleynikov did not prove that his former title as a Goldman vice president made him an "officer" eligible for reimbursement under the bank's by-laws.  Aleynikov has been convicted twice, first in the federal court in Manhattan and later in a New York state court there, over charges he stole code from Goldman in 2009 as he prepared to join a Chicago high frequency trading startup.  Both convictions were later reversed, but Aleynikov still faces civil claims by the Wall Street bank, and is suing FBI agents he said had no cause to arrest him.

Laster's decision followed an April 28 trial over whether Goldman must advance money to help Aleynikov defend against civil claims it brought in the Newark, New Jersey federal court.  In 2014, a federal appeals court in Philadelphia said the meaning of "officer" in Goldman's by-laws was ambiguous, but declined to apply a legal doctrine requiring that such ambiguities be interpreted against the drafter, Goldman.

Aleynikov urged that Delaware law went the other way, and Laster in his decision listed many factors supporting why he was "personally inclined" to think the doctrine should apply.  Nevertheless, he said he was legally precluded from revisiting the issue, and that the record did not offer a "convincing basis" to explain what "officer" meant.

"Because Aleynikov had the burden of proof, he failed to prove that someone who held the bare title of 'Vice President,' but who otherwise held a position with the responsibilities of an employee, qualified as an officer for purposes of (fee) advancement under the Bylaws," Laster wrote.

The case is Aleynikov v. Goldman Sachs Group Inc, Delaware Chancery Court, No. 10636.

Largest Attorney Fee Awards in U.S. History

July 20, 2016

NALFA tracks attorney fee requests and attorney fee awards from across the U.S.  Here are some of the largest common benefit class action attorney fee awards to date in U.S. history:

Case Fund Value POF
     
In re Enron Securities, Derivative & ERISA Litigation (2008) $7.2 Billion 9.52%
     
In re Nasdaq Market-Makers Antitrust Litigation (1998) $1.07 Billion 14%
     
Shaw v. Toshiba Am. Info. Sys., Inc. (2000) $1.1 Billion 15%
     
In re Sulzer Hip & Knee Prosthesis Liability Litigation (2003) $1.045 Billion 4.80%
     
DeLoach v. Philip Morris Cos. (2003) ˃ $1 Billion 5.90%
     
Visa Check/Mastermoney $3.383 Billion 6.50%
     
In re WorldCom Inc. Sec. Litigation (2005) $6.133 Billion 5.50%
     
In re AOL Time Warner Inc Sec. & ERISA Litigation (2006) $2.65 Billion 5.90%
     
In re Royal Ahold Sec & ERISA Litigation (2006) $1.1 Billion 12%
     
In re Tyco International Ltd. (2007) $3.3. Billion 14.50%
     
In re Diet Drugs Products Liability Litigation (2008) $6.44 Billion 6.75%