Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Advancement of Fees

Chancery Court: Railroad Operator’s Attorney Fees Must Be Covered

November 27, 2020

A recent Law 360 story by Rose Krebs, “Railroad Operator’s Fees Must Be Covered Chancery Says,” reports that a Delaware vice chancellor ruled that American Rail Partners LLC must cover legal expenses incurred by a railroad ownership company that it sued over unjust enrichment claims, saying an agreement in place "unambiguously" provides that expenses be covered.  In a 24-page memorandum opinion, Vice Chancellor Paul A. Fioravanti Jr. said fee advancement provisions of American Rail Partners' limited liability agreement are "quite broad" and unambiguous.

"For purposes of this action, there is no dispute that the plaintiffs are covered persons under the broad advancement and indemnification provisions of the company's limited liability company agreement," the opinion said.  International Rail Partners LLC, its manager Gary O. Marino and Boca Equity Partners LP sued American Rail for the advancement of fees earlier this year, asserting that their LLC agreement entitles them to "mandatory advancement and indemnification" related to a suit filed in the First State's Superior Court in February.

Boca Equity is the sole owner and only member of International Rail, according to court filings. International Rail is one of two members of American Rail, the opinion said.  Despite the "broad scope" of the advancement provisions, American Rail had argued it should not be required to advance legal fees because the LLC agreement "does not provide indemnification for claims between the company and any covered person — what it calls 'first-party claims,'" the suit said.

American Rail argued that "an indemnification or advancement provision may only cover first-party claims if it expressly says so," the opinion said.  The vice chancellor, however, said that argument was "not based upon a plain reading" of the agreement, and there is a "strong public policy in favor of indemnification and advancement" in Delaware.  That policy aims to assure key corporate officers that they will not have to shoulder the risk of paying legal expenses for claims related to the performance of their duties, the opinion said.

In April, Vice Chancellor Fioravanti refused to toss the suit, saying questions remained about fee advancement provisions agreed to by the parties. The vice chancellor said he couldn't conclude as a "matter of law" that American Rail offered the only "reasonable" interpretation of the applicable limited liability agreement.  Although Vice Chancellor Fioravanti identified certain shortcomings with how the complaint was pled, including a failure to invoke certain advancement provisions that were later referenced in briefings, he said there was not enough cause to toss the Chancery Court suit.

Law Firm Seeks Defense Fee ‘Advance’ from Trustee

October 19, 2020

A recent Law 360 story by Andrew Strickler, “Brown Rudnick Seeks Defense Bill ‘Advance’ From Trustee,” reports that facing a $300 million malpractice suit over its work for a bankrupt chemical company, Brown Rudnick LLP told a New York federal judge it is "unmistakably" entitled to having its legal bills covered by the trustee now suing the firm and a trust director.  Rather than pursue "immunity" from the massive potential liability, Brown Rudnick told the court it only seeks an "advance" on its mounting bills under the terms of a trust agreement at issue in the case, which it said provides for the payment of legal costs for any agent sued over work for the trust.

Brown Rudnick also argued that if it ultimately loses the case, it would be required to return the money to the trustee.  Therefore, the payment would not violate ethics rules or case law disfavoring lawyers securing blanket protections from a client's legal malpractice claims.  "[T]here is no public policy concern with advancement of fees where a party commits to returning the fees if ultimately adjudicated to have committed malpractice for which it cannot receive indemnity," the firm said.

Brown's unusual stance in the case stems from work commenced nearly a decade ago for a litigation trust formed in the bankruptcy of Lyondell Chemical Company, of which a Brown Rudnick partner was the original trustee.  After the bankruptcy declaration, trustee Edward Weisfelner of Brown Rudnick filed numerous claims against investor Leonard Blavatnik's company, Access Industries Holdings Inc.  He also lost a trial three years ago in which he tried to recoup some $300 million in credit line repayments made by AIH.

A replacement trustee, Mark E. Holliday, then sued Brown Rudnick, saying the firm committed malpractice by failing to establish at trial that Lyondell had been insolvent, a finding that would have made the money available for clawback as avoidable preference payments.  Brown has denied botching the trial, and insisted that a trust advisory board refused to give Weisfelner authority to settle before it decided to "roll the dice" at trial.

In counterclaims brought in August, Brown pointed the finger at a trust advisory board member, Paul Silverstein, as personally responsible for not settling, and for going after Brown Rudnick in court.  As part of that personal liability claim, the firm accused Silverstein of breaching his duty regarding the "advance fee" portion of the trust agreement, and the board generally of "depleting whatever negligible [trust] funds remained" through their salaries and legal bills.

In the motion, which answers Holliday's own bid for a dismissal, the firm did not put a number on its legal expenses thus far.  But the firm did say that, as of March of last year, the trust had a cash balance of $1.96 million, which it called insufficient to cover its bills.  And at a September hearing, Judge Engelmayer encouraged the parties to reach a settlement, and suggested that a discovery "autopsy" on the bankruptcy court trial would be costly.  He also noted that experts alone could cost the parties $1 million.

Silverstein "committed gross negligence by, among other things, directing the assertion of this malpractice suit against Brown Rudnick despite the fact that the Trust lacked adequate funds to pursue its claims and advance Brown Rudnick's defense costs," the firm said.  The personal liability and counterclaims "clearly arise out of the same transaction/series of transactions, i.e., authorizing suit against Brown Rudnick without advancing funds, or having sufficient funds to advance, to Brown Rudnick for its defense," according to the filing.

Insurers Must Cover Former Executives Defense Fees in Litigation

August 28, 2020

A recent Law 360 story by Mike Curley, “Insurers Must Cover Ex-RCAP Execs' Defense Costs,” reports that a New York appeals court has found that Westchester Fire Insurance Co., Aspen American Insurance Co. and RSUI Indemnity Co. must pay defense costs incurred by five former executives for RCAP Holdings LLC in a suit by the bankrupt company's litigation successor, reversing course from its own May opinion.

In the opinion, the five-judge panel broke from its earlier opinion in finding the excess insurers must advance defense costs to former RCAP Executive Chairman Nicholas S. Schorsch and his fellow former officers and directors, Edward M. Weil Jr., William Kahane, Peter M. Budko and Brian S. Block, in a suit by the RCS Creditor Trust alleging they drove RCAP into bankruptcy.  The panel did, however, leave intact its other holdings from the prior opinion, including its conclusion that a so-called insured-versus-insured exclusion does not bar coverage for the ex-officers and directors.

According to the new opinion, the insurance companies are obligated to pay for Schorsch and the others' defense costs because the policies provide that the insurers must advance such costs for any claim before its "final disposition."   By the plain policy terms, if there is a possibility that coverage applies to an underlying complaint, the insurer must pay for the insureds' defense of the complaint until and unless the trial court finds coverage is barred, the panel wrote.

"This court's finding that the creditor trust action 'may reveal' that defendants insureds' claim is not covered necessarily means that there is a possibility of coverage under the policies for the advancement of defense costs for the defendants insureds," the panel wrote.

The new opinion comes after the directors pushed for a reconsideration in June, arguing the May ruling ignored the plain language in the policies and settled New York law on the matter.  Under the plain policy language, the directors argued, the insurers' obligation to pay for defense costs is cemented in the facts of the complaint against them, even if a court later finds there was no duty to defend.

In May, the appeals court agreed that the insured-versus-insured provision did not apply because of the bankruptcy exception, saying that when the insured-versus-insured exclusion and the bankruptcy exception are read in tandem, the term "comparable authority" is clearly broad enough to encompass RCS.mmIf the insurers intended to exclude claims brought on creditors' behalf by an entity like the trust, they could have inserted language to that effect, the panel said.

The May opinion, however, reversed Justice Sherwood's granting of summary judgment on the directors' breach of contract claims, because the lower court has not ruled on the merits of Westchester and RSUI's other defenses, such as the argument that the directors were not acting in their capacity as officers of the company, but enriching themselves as individuals.

The opinion largely follows that prior opinion, keeping the determination that the bankruptcy exception to the insured-versus-insured provision applies to the litigation trust, as well as the reversal of the summary judgment on Schorsch's counterclaims.  Both the May opinion and the new opinion also vacate Justice Sherwood's finding that the insurers must pay indemnity costs in the creditor trust suit and the awarding of attorney fees incurred by Schorsch and the other defendants in this action.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA