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Archive: 2019

Article: How the Contingency Fee Provides Access to Justice

May 19, 2019

A recent article in Legal Intelligencer by Samuel H. Pond, “The ‘Great Equalizer—How the Contingent Fee Provides Access to Justice” reports on the benefits of the contingency fee model in civil litigation.  This article was posted with permission.  The article reads:

The core principle of our legal system is that all people, no matter their station in life, can bring their disputes to be heard in a court of law.  That’s in theory, in practice, however, justice is not always so available to those with limited means.  However, one innovation has somewhat evened the playing field—the contingent fee agreement.

Leveling the Playing Field

The pursuit of justice can be expensive, with litigation costs and attorney fees piling up quickly.  The average billing rate in 2018 for Pennsylvania attorneys was $262 per hour, according to Clio, a Canadian research firm tracking legal industry metrics.  Corporations and insurance companies often have unlimited resources at their disposal during litigation, putting the average person at a great disadvantage.

Under a contingent fee agreement, a client in a civil matter does not need to pay an attorney unless the case is successful.  Often, attorneys will also front all litigation costs.  Thus, the client does not have to pay anything out of their pocket.  Thus, all fees and costs are paid out of the recovery.

‘Not Going to Get Bullied’

This arrangement has greatly expanded access to the justice system and allowed those with modest means obtain the justice they deserve.  It’s the only way an injured worker can go up against a big insurance company and feel comfortable and confident. You’re not going to get bullied.  It’s a great equalizer.

The contingent fee has allowed ordinary people to sue large corporations and influential entities and receive monetary compensation.  In addition, the contingent fee has given credence to the idea all should be held accountable for their actions and no one is above the law.

Incentivizing Success

In addition, the contingent fee ensures that a lawyer’s interests are fundamentally linked to those of the client.  It incentivizes lawyers to provide the best quality service to clients because if they fail, they will not get paid.

The contingent fee agreement also discourages the filing of frivolous matters.  It is highly unlikely that an attorney on a contingent fee agreement will take on a case that lacks merit because doing so would mean investing thousands of dollars on a case with no hope of recovery.

Contingent fees restore some fairness to the system.  A powerful corporation with its economic clout and high-priced attorneys cannot simply steamroll over a litigant of modest means.  The average person can still get a fair shake by hiring a worthy champion to take up their cause.

Samuel H. Pond is the managing partner at Pond Lehocky Stern Giordano, the a workers’ compensation firm.  For more than 30 years, he has been representing workers injured on the job.  He is also the host of the Legal Eagles radio show, which aims to educate the public on the law.

Texas Legislation Changes Fee-Shifting Provision in Dismissals

May 17, 2019

A recent Texas Lawyer story by Angela Morris, “Why Are Civil Defense Lawyers Thrilled the Texas House Passed This Bill?,” reports that, just as lawmakers are pushing to narrow Texas’ anti-SLAPP motion to dismiss, the Texas House also passed a bill that would sweeten the deal for civil defense attorneys to make more use of a different type of motion to dismiss.

Under current law, this motion, known as the “91a motion to dismiss” because it’s located in Texas Rules of Civil Procedure Rule 91a, allows attorneys to argue for the dismissal of a case that has no basis in law or fact.  There’s a mandatory loser-pays provision that says the prevailing party collects attorney fees from the losing party.  Defendants have not used the motion too frequently because they don’t want to risk paying attorney fees to plaintiffs if they lose a dismissal fight.

House Bill 3300, which the Texas House passed 136-5, proposes a small but significant tweak to the law.  In the loser-pays provision, it changes the word “shall” to “may,” which gives a judge discretion to decide to award fees.  The bill heads to the Senate where, in the final weeks of the session, it must get a public hearing in committee, pass committee and pass the full Senate.

Texas Lawyer asked attorneys on Twitter whether this legislation, if passed, might lead defendants to file 91a motions to dismiss more often.  Here are a handful of the tweets we got in reply, edited for style and grammar.

“Yes — no question. Loser-pays is the only disincentive to filing a 91a motion in every case.  And defendants often waive their fee recovery from plaintiffs because courts are more likely to grant 91a dismissal if it doesn’t require saddling plaintiffs with fees,” tweeted Anne Johnson, a partner in Haynes and Boone in Dallas.

“As things stand, TRCP 91a creates a sort of game of chicken: A lot of defendants will file the motion but then pull it down before it is heard, unless they are almost 100% confident they will prevail.  With mandatory fees, the risk of paying the other side money is just too high,” tweeted Christopher Kratovil, managing member of Dykema’s Dallas office.

“As someone who works more in federal court — where 12(b)(6) reigns — I’ve always thought 91[a]‘s mandatory fee-shifting was a big problem.  This would be helpful.  I suspect more plaintiff oriented folks strongly disagree,” tweeted Raffi Melkonian, a partner in Wright, Close & Barger in Houston.

“I’m against the mandatory fees provision.  The fees usually aren’t too high, but it still discourages the use of an otherwise valuable tool,” tweeted Jadd Masso, a member of Clark Hill Strasburger in Dallas.

“This is a welcome change, though the Rule 91a standard itself should be clarified and improved,” tweeted Lee Whitesell, an associate with Hogan Lovells in Houston.

How Rohrmoos Ruling Could Change Attorney Fees in Texas

May 16, 2019

A recent Law 360 story by Michelle Cassady, “4 Ways Rohrmoos Could Change Fee Fights in Texas,” reports that the Texas Supreme Court's recent opinion laying out what evidence is needed to prove up attorney fees already is being called by some practitioners the seminal case on the topic and one that could have a major impact on fee fights in the state.

In its Rohrmoos Venture v. UTSW DVA Healthcare LLP ruling, issued, the court sought to dispel what it said was confusion on the part of lawyers and courts about two methods of calculating fees: the Arthur Andersen eight-factor test and the lodestar method.  It said the lodestar method — determining fees by multiplying the number of hours spent working on the case by a reasonable hourly rate — should be the starting point for calculating fees.

The state's high court intended the 56-page opinion to be a "big black-letter case," said Jadd Masso of Clark Hill Strasburger PLC, characterizing it as "the conclusion of an evolution on the part of the court" that encompasses its 2012 opinion in El Apple I Ltd. v. Olivas and its 2013 opinion in City of Laredo v. Montano.  Masso said the lengthy opinion amounts to a "treatise on attorneys fees in Texas."  "It is the way, the truth and the life, and the only way to get fees is through the lodestar method," he said.  The El Apple decision was a signal from the court it wanted to encourage the use of lodestar, Masso said.  And with Rohrmoos, there's no more question about whether there's more than one way to prove up fees, he said.

Here are four ways that the ruling could change fee fights in Texas.

Detailed Billing Records Will Become the Norm

The Rohrmoos opinion didn't mandate real-time billing records to prove up attorney fees, but the court said they are "strongly encouraged to prove the reasonableness and necessity of requested fees when those elements are contested."  While most defense attorneys already do keep such records, the ruling will likely have a bigger impact on plaintiffs attorneys and others who work on a contingent fee or flat fee basis, said Frank Carroll of Roberts Markel Weinberg Butler Hailey.

"I think they have put the final nail in the coffin that anything short of contemporaneous billing records is sufficient," he said.  "People need to avoid the idea that 'this doesn't apply to me.'"  Carrol said lawyers doing simple, flat-rate cases for small amounts of money may not need to worry about keeping those records.  "But for everyone else: Proceed at your own peril if you don't follow the mandate of El Apple, City of Laredo, and this case."

Some defense lawyers, like Michelle Hartmann of Baker McKenzie, already are being pushed by clients into alternative fee arrangements rather than the hourly rate model.  "But we still enter all of the hours that go toward the case.  Not because we're going to bill the client for them, but to double check profitability and see if that was a good fit for both the client and the firm," she said.  "I think most defense attorneys do it now, even with flat-fee arrangements.  But this is a reminder you still need to keep good billing records."

Lawyers Could Face Lengthy Cross-Examinations on Fees

The attorney who represented UTSW in the Rohrmoos case, Wade Howard of Liskow & Lewis, said he tried at oral arguments before the high court to stress that putting hundreds of pages of detailed billing records before the jury would "do nothing" to help them determine what costs are actually reasonable and necessary.  Other practitioners have said that while the jury panel might not be going through those documents page by page, it does provide the other side "better ammunition to cross examine a lawyer," said Kelli Hinson of Carrington Coleman Sloman & Blumenthal LLP.

"They can then ask the tough questions, like, 'Why did you spend 50 hours on a motion for summary judgment that never got filed?' or 'Why were three attorneys doing this when one would have been sufficient?'" she said.  "So the jury gets the advantage of that even if they themselves don't pore through the record."  The Texas Supreme Court seemed to understand that the new guidance could have unintended consequences and warned in its Rohrmoos ruling that it was not "endorsing satellite litigation as to attorney's fees."

But courtroom opponents could easily use the records "as an opportunity to try and make the burden that the claimant has to meet even harder than this decision intended it to be," Hartman said.  And finding that sweet spot could be a years-long process, Hinson said.

"They said we don't want attorneys on the stand for days going through the bills bit by bit," she said.  "I think that's going to be where we struggle over the next few years — trying to find that fine line between what's enough and what's too much."

Outside Experts Could Be Used to Back Up Fee Requests

The ruling could also mean that attorney fees — which in many cases are the largest element of damages — will stop being treated like the "stepchild" of litigation, said John W. Bridger of Strong Pipkin Bissell & Ledyard LLP.  Bridger said that for years he's been advising other attorneys on the value of having an outside expert testify to the reasonableness of requested fees rather than the attorney on the case taking the stand.

For one, it can keep defense lawyers out of the sometimes awkward position of attacking the plaintiffs' attorney fees in front of a jury, and secondly, he said, it would encourage attorneys to spend more time developing the evidence to prove fees.  "This case only pushes us more and more toward outside experts, particularly where the attorneys' fees are larger than the amount in controversy," he said.

And the increasing amount of fees being sought is another reason calling in an outside expert could be worthwhile, said Kurt Kuhn of Kuhn Hobbs PLLC.  "It's inevitable that you're going to see people develop that evidence more. It clearly can't be an afterthought," he said.  "To get an outside expert is going to give you, in front of a jury, a little more credibility."

Counsel-to-Counsel Fee Agreements Could Proliferate

Hinson also speculated that the guidance could cause an uptick in attorneys agreeing to their respective fees ahead of time, keeping that issue out of litigation entirely.  "I do think it will be interesting to see if attorneys veer more that way so at least they know they won't get overturned for not having enough evidence," she said.

In the Rohrmoos opinion, the court "hints at" and "suggests" that stipulating to fees before trial in an agreement with opposing counsel could be a way to avoid contentious fee fights, Masso said.  Because the ruling could be interpreted as requiring "more work" on the part of attorneys trying to prove up fees, Masso said it's possible you'll see more negotiation and agreement on fees.  "This opinion makes the litigation of attorneys' fees a little more complex than it was before," he said.  "And there's no way that it doesn't result in that litigation getting a little more complex, and a little more involved and lengthy."

The cases is Rohrmoos Venture et al. v. UTSW DVA Healthcare LLP, case number 16-0006, in the Supreme Court of Texas.

Florida Legislation Changes Fee-Shifting Rule in Insurance Coverage

May 15, 2019

A recent Law 360 story by Jeff Sistruck, “4 Things Attys Need to Know About Fla’s ‘AOB’ Reform Bill,” reports that Florida Gov. Ron DeSantis gave the insurance industry cause for celebration when he said he would sign legislation aimed at curbing what carriers call an epidemic of abusive litigation by repair contractors seeking payment under property policies.  Here, Law360 breaks down four key provisions of the so-called Assignment of Benefits reform bill.

Fee-Shifting Switch

The bill passed by the Florida Legislature is expected to have a significant impact on long-standing insurance practices in the Sunshine State, where homeowners often assign their insurance benefits to contractors working on hurricane-damaged houses.  Once signed by the governor, it will take effect July 1.

In recent years, insurers have complained that some contractors have abused the Assignment of Benefits, or AOB, system by accepting assignments from policyholders and then performing excessive repairs or imposing inflated charges, leading to widespread coverage litigation.  Reform advocates have blamed that spike in litigation for increases in insurance premiums.  According to attorneys and experts interviewed by Law360, the surge in AOB actions was attributable in large part to Florida’s “one-way” attorney fee rule, which required an insurance company to pay an assignee’s costs to litigate a coverage suit, regardless of which side prevailed in court.

The new bill replaces that rule with a formula that allows for an award for either the assignee or the insurer — or neither — based on a comparison of a court’s judgment and pre-suit settlement offers.  That change doesn’t apply to policyholders who sue their insurers directly.  The formula for determining attorney fee awards compares the gap between the insurer's pre-suit settlement offer and the assignee's pre-suit demand, dubbed the "disputed amount," and the difference between the judgment obtained and the settlement offer.  If the difference is less than 25% of the disputed amount, the insurer is entitled to attorney fees.  If the difference is 25% to 49% of the disputed amount, neither party gets fees.  And if the difference is 50% or more, the assignee is entitled to a fee award.

Beth A. Vecchioli, senior director for government consulting at Carlton Fields, said the new fee shifting provision is an attempt to “level the playing field so everyone has skin in the game.”  “The current one-way attorney fee provision was always originally designed to help consumers who don't have the same financial resources as their insurers to go through litigation,” Vecchioli said.  “Once these assignments started popping up, though, the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.  It didn't seem fair or right that the insurance industry still had to deal with this one-way attorney fee provision in those situations."

However, Rob Friedman of Friedman PA, who represents policyholders, said that while the bill’s fee shifting provision applies only to contractors wielding AOBs, he is concerned that insurers may use their legislative success to try to curtail or eliminate the one-way fee rule in disputes with policyholders, too.  “[The one-way fee provision] has been one of the most important protections insurance consumers have under the law,” Friedman said.  “While this erosion of that protection is limited to assignment of benefits situations, I am concerned the industry is targeting the one-way fee provision more broadly.  This may be a slippery slope for the industry to push for doing away with that provision altogether or to erode it in other contexts as well."

Pre-suit Protocol

The new bill states that assignees must give insurance companies notice of intent to file a suit and cannot serve the insurer before it has a chance to make a coverage determination within the statutory time frame.  The insurer must respond within 10 days with a settlement offer or a demand for appraisal or other alternative dispute resolution.

Fred Karlinsky, co-chair of Greenberg Traurig LLP's insurance regulatory and transactions practice, said that in the past, some contractors have quickly filed suit before even giving insurers the chance to perform their own investigations.  “Under this legislation, we will hopefully avoid some of these 'gotcha'-type situations,” he said.  As Friedman sees it, though, the new raft of pre-suit requirements may discourage contractors, particularly smaller operations, from taking on repair jobs.  Companies will have to “lawyer up” at the outset of a job just to understand their rights and obligations under the AOB reform bill, he said.

“A small 'mom and pop' contractor isn't going to want to take on a $1,000 roof repair under an assignment of benefits if they have to hire a lawyer just to tell them what their rights and obligations are,” Friedman said.  “There are so many pitfalls in this statute that a contractor could wind up facing a coverage denial for violating any number of requirements."

Limiting AOBs

In another notable change, the bill opens the door for insurers to offer policies that cannot be assigned to a third party as long as they clearly provide notice to prospective policyholders of those restrictions and also offer assignable policies with the same coverage.  If an insurer opts to sell both types of policies, the restricted policy must cost less.  In addition, an insurer must notify its policyholders “at least annually” of the coverage options it is making available.

According to attorneys and experts, that provision provides clarity for the insurance industry, which had faced confusion about whether insurers can ever place restrictions on AOBs.  “This concept was originally developed by the [Florida] House under the theory that it is better for consumers to have more options than less,” said Vecchioli of Carlton Fields.  “They recognized that they couldn't completely restrict all assignments.  This is a smart, consumer choice-driven option, allowing insurers to offer both options."

Assessing the Impact

The new bill also contains a built-in mechanism for assessing the effectiveness of the AOB reforms.  Starting on Jan. 30, 2022, insurers must submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year.

According to attorneys and experts, those numbers will give the Florida Legislature concrete information to decide whether additional measures are needed to further rein in abuses of the AOB system.  The true test of the legislation will come when the next major hurricane or other catastrophe hits the Sunshine State, yielding huge quantities of AOB-related claims data, sources said.  "We would welcome the Legislature continuing to monitor AOB fraud and making any changes they feel are appropriate,” Greenberg Traurig's Karlinsky said.

Milberg Wants New Look at $12M Fee Request in Argentine Bond Case

May 14, 2019

A recent New York Law Journal story by Jack Newsham, “Milberg Claims Firm Cheated Out of $12M Fee in Argentine Bond Case,” reports that, the plaintiffs firm Milberg has sued a group of European investors that it previously represented in years of Argentina bond litigation, alleging the investors fired the law firm to avoid paying an $11.9 million fee.  In the suit, the New York firm is asking a federal judge to throw out an arbitral award that left Milberg with a mere $87,000.

According to Milberg’s suit, filed in Manhattan federal court, money manager Hans Wilhelm Brand fired the firm shortly after receiving a $162 million settlement offer from Argentina and learning that Milberg would be entitled to an $11.9 million contingency fee if he accepted.  People and entities whose money Brand managed, called the HWB investors, switched lawyers and reached a nearly identical settlement a year later, according to Milberg’s suit against the investors.

Milberg said it initiated arbitration against the HWB investors in 2017 seeking legal fees, but received a stunning decision from a three-man disputes panel in February 2019 that found the investors’ payments to Milberg and its other lawyers, totaling $513,000, was sufficient.  The neutrals at the International Centre for Dispute Resolution acknowledged Milberg had done more work for the HWB group than the firm’s billing records might indicate, but said “qualitative considerations have their limitations,” and said no further fees were merited.

“Anyone with passing familiarity with complex litigation prosecuted on a contingency fee basis … would be shocked to learn that a hard-fought case lasting well over a decade, which resulted in a settlement recovery by plaintiffs of $162 million, could end with an award of fees to plaintiffs’ counsel of zero,” the law firm said in its petition. (The firm was paid $87,000 before the arbitration over legal fees began.)

Documents Milberg filed in its suit indicate that it took over the HWB entities’ claims from Marc Dreier by 2010, after Dreier admitted to orchestrating a massive investment fraud scheme and his law firm failed.  The clients had previously paid $110,000 to Dreier and around $300,000 to Argentine lawyer Patricia Rosito Vago and her nonlawyer husband, the arbitral award said in a footnote.

Michael Spencer was the lead Milberg lawyer on the Argentine bond cases, according to the arbitral award, and the firm said the HWB group was its biggest Argentine bonds client.  Milberg received between $5 million and $5.5 million from other clients for its work on those cases, the award said.

The arbitrators noted that Milberg clocked 172 attorney hours and 90 paralegal hours on the HWB entities’ cases, worth $142,900, but spent “more time on the representation of HWB than is reflected in its HWB-specific time records.”  Still, the panel declined to award Milberg any more than it had been paid, saying the $513,000 the HWB investors had paid to all their lawyers was “a reasonable total fee recovery.”

In its lawsuit, Milberg, which reorganized in 2018 and now does business through the firm Milberg Tadler Phillips Grossman, argued that the award should be vacated because it showed manifest disregard for the law.  After firing Milberg, the award said, the HWB clients hired the firm Wilk Auslander to go to bat for them; that firm was paid $1.6 million after billing $2.3 million, according to the award. Milberg argued that Wilk Auslander failed to secure a better settlement than Argentina offered in 2016 through its bond dispute settlement program known as the “propuesta.”

But Wilk Auslander partner Jay Auslander, a lawyer for HWB investors, said in an interview that Milberg had ridden the coattails of other law firms whose clients held much greater amounts of Argentine bonds.  It was those firms that did the heavy lifting, he said, not Milberg.  “That [Milberg] caused the propuesta is, in our view, absurd,” he said in the interview. “We had a highly qualified, highly experienced three-lawyer panel that had a very high level of juridical sophistication and heard a tremendous amount of evidence. … We believe their award will not reasonably be challenged.”