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Article: Rohrmoos Highlights Steps to Securing Attorney Fees in Texas

July 8, 2019

A recent Law 360 article by Amy Anderson, Tiffany Raush and Joshua Norris, “Rohrmoos Highlights Steps to Securing Atty Fees in Texas,” reports on the recent Texas Supreme Court case, Rohrmoos Venture v. UTSW DVA Healthcare.  This article was post with permission.  The article reads:

In Rohrmoos Venture v. UTSW DVA Healthcare LLP, the Supreme Court of Texas has finally thrown down the gauntlet for attorney fees claims: Submit your billing records or else!

While the court’s opinion issued April 26, 2019, stopped short of actually mandating submission of billing records in support of an attorney fees request, “billing records are strongly encouraged.”  In reality, nothing short of contemporaneous billing records would likely satisfy the stringent evidentiary requirements articulated in Rohrmoos.

In Rohrmoos, the lessee prevailed in a lease dispute against its landlord; however, it supported its attorney fees claim only with the testimony of its attorney.  The attorney testified as to the mountain of documents, emails and depositions he reviewed, prepared for and completed in addition to time spent in trial.  He also testified regarding his rate, why that rate was reasonable and why the fees in this case (about $800,000) were so high compared to the total amount in dispute (about $300,000).

He did not introduce his billing records, which would have certainly been voluminous, and instead asserted before the court that the billing records would give the jury no additional basis on which to award his client attorney fees.  The jury awarded the lessee $800,000 for fees incurred in addition to conditional amounts for appeal.  The landlord challenged the fee award and, in particular, the failure to produce billing records in support.  The court of appeals affirmed the award concluding that billing records were not required to prove attorney fees in this case.

The Supreme Court of Texas disagreed.  The court issued a lengthy, 20-plus page opinion to address the issue of the attorney fees claim, apparently flummoxed that practitioners, parties and lower courts did not understand that Texas exclusively subscribed to the lodestar method following City of Laredo v. Montano.

The lodestar method requires the calculation of reasonable hours multiplied by a reasonable rate, producing the “lodestar.”  From there, adjustment up or down is possible depending on particular circumstances not already accounted for in the lodestar calculation.  If it was unclear before, it is clear now — the lodestar method applies to every claim for attorney fees in Texas.  And, as the Rohrmoos court sees it, there is little to no reason for an award to ever deviate from the lodestar.

Attorney fees claims are valuable to parties because they constitute an entirely separate claim for damages.  An award of fees is meant to compensate the winning party and make that party whole.  The award is not intended to punish the losing party, nor is it intended to benefit the attorney.  The contours of the court’s Rohrmoors opinion provide important clarifications, reminders and cautions on the issue of attorney fees, several of which are highlighted in the following practice pointers.

Get Your Ducks in a Row Ahead of Time — Chapter 38 (Probably) Won’t Save You

Texas follows the “American Rule” regarding attorney fees recovery — each party pays its own way.  To “shift” the payment of attorney fees, parties must point to either a contract provision or a statute.  In Texas, we have long revered Chapter 38 as the attorney fees saving grace for oral contracts or the occasional contract without an attorney fee provision.  But Chapter 38 has fallen from grace over the past decade following several state and federal court opinions holding that it does not apply to limited liability companies or limited partnerships.

Even before that spate of decisions, however, Chapter 38 had its limitations.  As discussed in Rohrmoors, to prevail on an attorney fees claim under Chapter 38, parties have to show (1) they prevailed on a claim entitling them to attorney fees, and (2) they recovered damages for that claim.  Thus, while a party who successfully pursued a breach of contract claim for damages can recover attorney fees under Chapter 38, a party who successfully defended a breach of contract claim cannot.

It is imperative that attorney fees are properly addressed in a contract. Among other things, the Rohrmoors decision demonstrates that contractual fee-shifting provisions should specify when a party is a “prevailing party.”  If the contract is silent, the trial court will likely apply Chapter 38 prevailing party law — meaning that your successful defense of a breach of contract claim will not yield an attorney fee award.

Parties should also consider whether fee recovery should be limited to fees “incurred.”  In Rohrmoors, the court explained that use of the word “incurred” limits the amounts of fees to only those fees for which the requesting party is liable.  Without using “incurred,” a party may recover attorneys’ fees that are reasonable and necessary to the representation without a showing that they were “incurred.”  While broader is better if you are seeking the fees, and limited is better if you are defending against fees, what is best is to predictably know how the fee provision will be interpreted and applied by the court.  Therefore, clarity is king.

Litigation Is Nigh — Now What?

When the parties to a contract find themselves staring down inevitable litigation, the focus is naturally on the claims giving rise to the litigation: breach of contract, breach of warranty, fraudulent conduct, etc.  Early on, attorney fees may not be foremost in mind, but they should be.  Informed consideration of likely avenues for recovery of attorney fees will help the parties evaluate their potential damages and their potential risks in litigating.

In addition, Chapter 38 has “presentment” requirements and other fee-shifting statutes, such as the Deceptive Trade Practices Act, may have similar preconditions.  Developing your attorney fees claim, or defending against the opposing party’s fee claim, is often overlooked until trial approaches when the costs have already been incurred and discovery is coming to a close.  Understanding the fee claim and developing or defending it alongside the core claims will pay dividends in the long run.

Proving It Up for the Win

Rohrmoors clears up any lingering mystery: Plan to submit your attorneys’ billing records to support your fee claim.  “Sufficient evidence [to support a fee claim] includes, at a minimum, evidence of (1) particular services performed, (2) who performed those services, (3) approximately when the services were performed, (4) the reasonable amount of time require to perform the service, and (5) the reasonable hourly rate for each person performing such services.”

From that, the factfinder determines the reasonable hours times the reasonable hourly rate resulting in the lodestar.  Only in extremely limited and unusual circumstances may the factfinder apply a multiplier upward or downward to account for factors not otherwise baked-in-the-cake of the lodestar.

Thus, when proving up your attorney fees, it is critical to provide accurate and complete billing records in support of your claim.  The Supreme Court of Texas stated this was “strongly encouraged” in Rohrmoos, but the clear implication of that opinion as a whole is that it is indispensable to recovery of fees.

That means the attorneys’ time entries should be detailed enough to provide sufficient information for review and payment, but not so detailed that extensive redacting is going to be required to protect work product or attorney-client privileged information.  Such extensive redaction may fall short of the Rohrmoors’ requirement that the evidence show the particular services performed and may also fail to satisfy segregation requirements.

Also consider whether a fee claim will require a separate, retained expert.  The attorney in Rohrmoors opted to testify as his own expert, which is fairly common.  There are multiple schools of thought on this.  The attorney who generated the fees is going to have a better grasp on the facts and nuances of the case, especially in complex litigation where the total hours and requested award might be especially large.  Most judges know that a retained expert is no less self-interested than the lawyer in the case.  On the other hand, to a jury, a retained expert may appear at least somewhat less self-serving.  If the attorney’s rate is particularly high, it may be helpful to have another attorney explain why that rate is reasonable.  Finally, if there is a great degree of tension between opposing lawyers related to the litigation, cross examination of the lawyer in the case on the issue of fees could get heated.  In that case, it may be better to have one degree of separation with a retained expert.

Amy K. Anderson and Tiffany C. Raush are associates and Joshua A. Norris is a partner at Jones Walker LLP in Houston.

$75M Fee Award Draws Judicial Scrutiny in State Street Case

July 4, 2019

A recent Law 360 story by Aaron Leibowitz, “$75M Fee Award in State Street Row Faces Judge’s Scrutiny,” reports that a Boston federal judge heard arguments on whether to reduce a $75 million attorney fee award for three firms that brokered a $300 million class action settlement with State Street Corp., saying the firms may have misled him about how fees are typically calculated in massive deals like this one.

In the first of up to three days of hearings, lawyers representing Labaton Sucharow LLP, Thornton Law Firm and Lieff Cabraser Heimann & Bernstein LLP said the 25% cut of the settlement that they received was reasonable under the circumstances, even in a so-called "megafund" settlement worth hundreds of millions of dollars   Some experts have suggested attorneys should receive a relatively smaller percentage of the total award when a settlement is that large.  Richard Heimann, an in-house attorney representing Lieff Cabraser, said the firms made note of those expert opinions when they first filed their fee request in 2016, and never had any intention of leading the judge astray.

"We discussed all this in the briefs," Heimann told U.S. District Judge Mark L. Wolf. "We were hardly hiding from your honor."  But Judge Wolf wondered why the firms had failed to mention in those briefs that a study they cited found that, in settlements ranging from $250 million to $500 million, the average fee award was 17.8%, well below the 25% they requested after their $300 million settlement.  The judge said he "basically trusted" the firms' own calculations at the time, suggesting it would have been difficult to reject their proposal given that multiple regulatory agencies had already reviewed it.

But a lot has changed since then, the judge noted. He has since vacated his original attorney fee award in the wake of a Boston Globe report that raised questions about the double-billing of attorneys' hours and a special master's investigation that found additional billing issues.

"I know much more than I knew in 2016," the judge said.  The special master, retired U.S. District Judge Gerald Rosen, held in his report that the 25% figure the firms used for attorney fees was proper, a point that his attorney emphasized again in court.  But Judge Rosen has maintained that Judge Wolf should lower the fee award by as much as to $10.6 million, including more than $4 million for hours that were allegedly double-billed and $2.3 million for so-called contract attorneys at Thornton who were paid a higher rate than he said they should have earned.

As the hearing wore into the late afternoon, attorneys for the three firms described their billing practices in detail and grappled with the varying definitions of contract attorneys versus staff attorneys.  Judge Rosen has suggested only that the billing for contract attorneys was improper, but the arguments also addressed rates charged for some staff attorneys who pored over documents in the case.

Joan Lukey of Choate Hall & Stewart LLP, representing Labaton, said the firm defines staff attorneys as those who are not on track to become partners but receive full benefits and do in-depth document work. In the State Street case, some received more than $400 an hour, she said.  "It troubles me when I hear suggestions that they should be treated as something other than what they are, which is very skilled and talented attorneys," Lukey said.

Frank Bednarz, a representative of the Hamilton Lincoln Law Institute — a nonprofit firm that has provided amicus guidance to Judge Wolf in the case — countered that those rates were far higher than what staff attorneys should be charged.  A more appropriate figure, he said, would be around $200 an hour.

A representative for Labaton told Law360 after the hearing that the firm hopes Judge Wolf ultimately accepts the special master's recommendations.  "Counsel for Special Master Rosen highlighted some of the factors supporting the reasonableness of the court’s original award of a 25% fee to class counsel," the firm said.  "That included the special master’s view that the underlying State Street action hinged on a complex and challenging case, with novel legal issues, at substantial risk of success, and the excellent work done by counsel in obtaining a record recovery for the class — against a highly formidable adversary."

Representatives for other parties in the case did not immediately return requests for comment after the hearing.  The underlying suit, filed in 2011, alleged that State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade.

The hearing will continue with witness testimony on some of the key issues that Judge Rosen flagged in his report, including allegedly false representations made to the court by Thornton's Garrett Bradley, a former Massachusetts state representative.  Judge Rosen's attorney, William Sinnott of Barrett & Singal PC, said that there was "no legitimate basis" for Bradley to sign the fee declaration he submitted in the case, in part because the firm did not have any hourly clients.  "It was just so outrageously inaccurate," Sinnott said.

The case is Arkansas Teacher Retirement System v. State Street Corp. et al., case number 1:11-cv-10230, in the U.S. District Court for the District of Massachusetts.

Insurer Fights $19M Fee Request in Coverage Action

June 14, 2019

A recent Law 360 story by Ryan Boysen, “Insurer Fights $19M Atty Fee Bid in Heparin Coverage Suit,” reports that Travelers Property Casualty Co. is pushing back against American Capital Ltd.’s request for nearly $19 million in attorney fees following a 2017 ruling that found the insurer liable for some defense costs in underlying tainted blood thinner litigation, calling the request untimely and its hourly rates “extraordinarily high.”

In an opposition brief, Travelers said the fee request submitted by the private equity firm’s attorneys at Reed Smith LLP ran afoul of several basic tenets of controlling Maryland law, starting with a local rule that requires a motion seeking attorney fees to be filed “during a 14 day window” that starts when judgment is entered, which happened two years ago in this case.

Travelers said American Capital also never properly preserved its right to seek attorney fees, which means the claim was “extinguished” when U.S. District Judge Deborah K. Chasanow ruled mostly in favor of American Capital following a four-week bench trial.  “Accordingly, the final judgment bars defendants’ untimely motion, which the court should deny,” Travelers said.  Even if those procedural problems were fixed, the hourly rates that led to the $19 million figure were “wildly in excess” of local Maryland guideline rates and further inflated by glaringly inefficient work practices, the insurer said.

At one point in time, for example, 36 lawyers and 21 attorneys at Squire Patton Boggs were working on the matter, the insurer said, before American Capital’s lead attorney John Schryber departed and ultimately ended up at Reed Smith.  “The defendants have submitted no factual basis regarding reasonable Maryland hourly rates sufficient to justify the request for a massive departure from the guideline rates,” the insurer said.  Expert testimony picking apart those rates and other aspects of the fee request was filed under seal along with the brief.  Travelers said that if the motion weren’t denied outright, it would seek a trial on the matter.

The coverage dispute stemmed from the tidal wave of litigation American Capital had been facing over a bad batch of the blood thinner heparin manufactured by its portfolio company Scientific Protein Laboratories LLC.

Travelers argued it wasn’t obligated to defend American Capital in those suits because SPL wasn’t technically an insured under its policy, but Judge Chasanow ultimately found that other language in the policy extends coverage to all companies the insured holds a “majority interest” in.  That order appears to have been the first federal ruling to clarify that the “majority interest” language — "widely-used" by various insurers, according to the opinion — extends coverage held by a private equity firm to its portfolio companies.  The Fourth Circuit upheld that reasoning earlier this year.

Besides being untimely, Travelers said the $19 million request was massively bloated because, while Maryland law allows victorious insureds to seek attorney fees as damages in coverage disputes, those fees can only cover the insured’s efforts to prove the insurer’s duty to defend.  Instead of narrowly tailoring its request to isolate the time spent on that specific issue, Travelers said American Capital simply dumped the whole kitchen sink into its request and sought reimbursement for work that was likely done on separate claims that were ultimately defeated, like a claim for bad faith damages.

Those other claims, Travelers said, had nothing to do with establishing its duty to defend.  Therefore the fee request overall is tainted by including hours that were likely billed for work on those claims and other legal arguments that were equally unrelated, Travelers said.  “Simply put, defendants have failed to identify what part of its claimed $16.5 million in alleged fees and nearly $2.0 million in expenses actually were for establishment of a duty to defend,” Travelers said.

Travelers also said that American Capital hadn’t proved it ever actually paid any of the $19 million in fees, or that it ever had an obligation to do so.  That’s an open question because American Capital and SPL entered into a fee-sharing agreement with Baxter Healthcare Corp. to fight and then settle the heparin suits.

Professional Fees in Puerto Rico Bankruptcy Pass $400M

June 5, 2019

A recent Bloomberg Law story by Daniel Gill, “Professional Fees in Puerto Rico Restructuring Pass $400 Million,” reports that attorneys and financial advisers employed in Puerto Rico’s epic bankruptcy-like restructuring have billed more than $400 million in less than two years since the proceedings began, according to a court-appointed fee examiner.  More than 50 firms have sought compensation in the case, Brady C. Williamson, the fee examiner appointed to review and make recommendations regarding professionals’ applications for compensation, said in his report June 5.

Proskauer Rose LLP, which represents the federal board created to oversee the restructuring, the Financial Oversight and Management Board, submitted a bill totaling about $20 million for services rendered from June 1, 2018 through Jan. 31.  For the same time period, O’Melveny & Myers LLP, counsel for the AAFAF, a Spanish acronym for Puerto Rico’s fiscal authority, is charging about $17 million.  Paul Hastings LLP, counsel for the unsecured creditors committee, seeks $3.6 million.  Other firms with a bill exceeding $1 million include Greenberg Traurig LLP, Brown Rudnick LLP, and Jenner & Block LLP.

The fee applications, which are public documents, don’t face any objections, Williamson said.  He recommended that some of the bills from Oct. 1, 2018 to Jan. 31 be approved.  He asked the court to defer ruling on other bills until a hearing on July 24.

Professional fees will likely continue to rise due to increased litigation and contested settlements, Williamson said.  The oversight board recently filed more than 200 lawsuits, and a proposed settlement of Puerto Rico’s electric utility PREPA’s debts is being contested.  Williamson said he “remains concerned about the potential for inefficiency and duplication of efforts in the management” of lawsuits, noting the many firms pursuing claims.

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.