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Category: Fee Dispute Litigation / ADR

Fee Allocation Dispute in Antitrust Case in Seventh Circuit

January 15, 2020

A recent Law 360 story by Celeste Bott, “Attys Spar Over Fees From Antitrust Row at 7th Circ.,” reports that a Seventh Circuit panel took issue with an attorney’s arguments that the allocation of attorney fees from an underlying case should have been settled in arbitration and that Cozen O'Connor wasn’t entitled to its share of a $4 million deal for representing that attorney in the fee dispute.  Judges Amy J. St. Eve, Diane P. Wood and Ilana Rovner said attorney Michael Needle appeared to waive arbitration, noting that he didn’t move to compel it and had previously stated that the district court was the proper forum to resolve all claims in a dispute over a $4.2 million settlement fund.

“How can you come in and argue now there’s no jurisdiction because it should have gone to arbitration, when you argued the opposite in the district court?” Judge St. Eve asked.  The panel heard argument in two related cases, both stemming from a Racketeer Influenced and Corrupt Organizations Act case alleging that International Profit Associates Inc. and its affiliates bilked small businesses into buying expensive but useless consulting.

Needle and Merle L. Royce were co-counsel on a contingent fee basis representing 16 plaintiffs in the RICO case, and in 2013 obtained a $4.2 million settlement, then disagreed over the fees for their work, according to court documents.  Cozen O'Connor represented Needle in the fee dispute and later sought a lien to get paid.

After the settlement, Royce said the fees should be limited to one-third of the settlement proceeds, while Needle sought a much larger sum of $2.5 million, according to briefs in the case.  In 2015, Royce filed an interpleader complaint to determine how the fees should be allocated, and a lower court ruled that the pair were entitled to one-third of the settlement, with 60% to Needle and 40% to Royce.  Needle argued on appeal that the fee dispute should have been decided in arbitration under a binding mediation provision in the fee agreement.  That provision means there’s no jurisdiction to proceed, said Frank C. Fusco, arguing for Needle.

The judges pushed back on that argument and against Needle’s assertion that he was wrongfully sanctioned for asking for an extension that was ultimately granted.  They said he waited “until the last minute” and that the district court had the right to grant him extra time yet still find his actions sanctionable.

Alan R. Borlack of Bailey Borlack Nadelhoffer & Carroll, arguing for Royce, said the sanctions were warranted, noting that even the lower-court judge had said he had “never encountered” anyone so “unrelentingly obstructionist” as Needle in more than six decades of practicing law.  Needle had asked for the added time allegedly because he had failed to file time sheets and was seeking a transcript from a status hearing, Borlack said.

“These were disingenuous reasons for an extension,” Borlack said.  “This case goes to whether a district court can have control of a courtroom so it can administer justice.”  And in the Cozen O'Connor appeal, Fusco told the panel the firm was wrongfully granted a lien because the fee agreement didn’t provide for compensation if the firm withdraws, and that the firm’s work didn’t help Needle recover funds.

Judge Orders Attorney Fees Dispute to Mediation in Qui Tam Action

January 8, 2020

A recent Law 360 story by Khorri Atkinson, “Hospital, Whistleblower Told to Mediate Atty Fees in FCA Suit,” reports that Health Management Associates Inc. and a whistleblower, whose complaint against the now-defunct hospital chain helped the government secure more than $260 million to settle fraud charges, were ordered by a D.C. federal judge to mediate their dispute over an undisclosed amount in attorney fees.

U.S. District Judge Reggie Walton certified the case for two months of mediation during a brief hearing after attorneys representing HMA and whistleblower Bradley Nurkin admitted they're gridlocked.  The parties are battling over whether the fees racked up throughout the litigation should be calculated based on rates offered in Florida, where the suit was initially filed, or in Washington, D.C., where it was later transferred as part of multidistrict litigation.

If the hospital chain and Nurkin, a former CEO of HMA affiliate Charlotte Regional Medical Center, fail to reach a compromise after the 60-day timeline, Judge Walton told the attorneys he would send the case to the Middle District of Florida.  HMA attorney D. Hunter Smith of Robbins Russell Englert Orseck Untereiner & Sauber LLP initially urged for the case to be remanded immediately because all pretrial matters have been concluded and the only remaining issue is the attorney fees, which Nurkin is entitled to.

The attorney added that Nurkin wants to keep the case in D.C. only because his counsel would receive a higher hourly rate than what is offered in the Sunshine State.  Moreover, a portion of Nurkin's fees were incurred in Florida, Smith said.  But Edward Sanders of Sanders Law insisted that D.C. is the most appropriate location for his client, who filed the whistleblower complaint under seal in December 2011.  The suit alleged that HMA paid local emergency room physicians and pressured them to unlawfully bill false inpatient service claims and fees under Medicare and Medicaid.  The kickback scheme at that facility had cost the government between $100 million and $150 million, according to the complaint.

In response to the hospital chain's remand bid, Sanders said in a recent filing that after the U.S. Department of Justice intervened in Nurkin's case in 2013, and seven other similar whistleblower cases, the litigation was transferred to D.C. at HMA's request.  And because the DOJ reached the $280 million settlement with HMA in 2018 in the district, "qui tam rates commonly charged" in D.C. should be used to determine the attorney fees, Sanders said. Nurkin had received $15 million from the settlement.

Fee Allocation Dispute Between Firms in Pelvic Mesh MDL

December 17, 2019

A recent Law 360 story by Mike LaSusa, “Blank Rome Says Andrus Wagstaff Owes Pelvic Mesh Fees,” reports that Blank Rome LLP has sued Andrus Wagstaff PC in Pennsylvania federal court, saying it is "beyond argument" that Andrus Wagstaff owes the Philadelphia-based firm nearly half a million dollars in fees related to multidistrict litigation concerning allegedly defective pelvic mesh implants.  Blank Rome claimed in a lawsuit that it was hired by Andrus Wagstaff to help increase the amount of attorney fees the Colorado-headquartered firm was awarded for its work on massive multidistrict litigation that accused Boston Scientific Corp. of making defective pelvic mesh implants.

According to Blank Rome's lawsuit, a court-appointed committee had initially recommended setting aside $8,715,000 in attorney fees for Andrus Wagstaff.  Blank Rome claims its work helped raise Andrus Wagstaff's take to a total of $13 million.  Blank Rome says it therefore boosted Andrus Wagstaff's fees by $4,895,000, which should entitle Blank Rome to a $489,500 incentive fee pursuant to an agreement between the two firms.  But according to the suit, Andrus Wagstaff hasn't lived up to its promise.

"Andrus Wagstaff has continued to refuse to provide payment to Blank Rome for the full amount of its performance incentive fee, going so far as to attempt to insert new language into the parties' agreement — in violation of basic rules of contract construction — in an effort to avoid paying Blank Rome's fee in its entirety," the suit says.

Blank Rome argues that the fee agreement it entered with Andrus Wagstaff provided that the firm would give Andrus Wagstaff "an across-the-board 25% discount of Blank Rome's standard hourly base fees."  Additionally, Blank Rome says it was supposed to get an incentive fee amounting to 3% of any attorney fee increase between $1 million and $2 million, 6% of any increase between $2 and $4 million, or 10% of any increase over $4 million.

However, according to a letter from founding partner Aimee Wagstaff cited in the complaint, Andrus Wagstaff disputed Blank Rome's assertion that it won an increase of $4,895,000.  Instead, Andrus Wagstaff claimed Blank Rome could only take credit for $3,285,000 of the increase.  Moreover, Andrus Wagstaff interpreted the agreement to mean Blank Rome would get 3% of the first $2 million of the increase — in other words, $60,000 — plus 6% of the remaining $1.285 million increase, or $77,100.

Blank Rome wants the court to declare that its interpretation of the fee agreement is correct.  The firm is also making a claim of breach of contract against Andrus Wagstaff, and it wants $489,500 in damages plus attorney fees and costs.

New Jersey Legislation Targets Fee-Shifting in Arbitration

November 14, 2019

A recent New Jersey Law Journal story by Suzette Parmley, “Exception to Attys’ Rule Misapplied, Fla. Court Says,” reports that legislation that would establish certain consumer protections related to arbitration organizations cleared the Senate Commerce Committee by a 3-2 vote.  Among the proposed protections is prohibiting any arbitrator from requiring a consumer to pay fees and costs incurred by an opposing party if the consumer does not prevail in arbitration.

S-1490 states: “Under New Jersey’s current law, there are rules governing arbitrators and arbitration generally, but there are no rules pertaining to the regulation of arbitration organizations.  This bill prohibits a neutral arbitrator or arbitration organization from administering any consumer arbitration that requires a non prevailing consumer who is a party to the arbitration to pay the opposing party’s costs or fees.”

The measure would also prevent arbitration organizations from administering cases in which the organization has, or has had, a financial interest.  It would apply to any arbitration administrator who provides services for any disputes that may arise and result in forced arbitration between a consumer and a company, according to a Nov. 14 release on the bill’s committee passage.

“Unlike administrative or judicial proceedings, arbitration proceedings are not made public, making it difficult for the state to monitor these cases to ensure they are being carried out fairly,” said Sen. James Beach, D-Burlington, the bill’s primary sponsor, in a statement.

“More often than not, a private arbitrator is chosen by the company involved in the dispute, giving them an unfair advantage over the consumer,” added Beach.  “Through this bill, the state will have a better understanding of what is truly happening in these proceedings, allowing us to ensure consumers are being treated fairly."

Insurers Want REIT Attorney Fees Resolved in Arbitration

October 30, 2019

A recent Law 360 story by Joyce Hanson, “Insurers Say REIT’s Atty Fees Must Be Resolved in Arbitration,” reports that Lloyd's of London underwriters and other insurers have asked a Florida federal court to deny a real estate investment trust's bid for attorney fees after closing out the REIT's lawsuit over a $20.6 million insurance claim, saying an arbitration panel should decide fees.

The underwriters and insurers said that The Cornfeld Group LLC wrongly asserts that the question of attorney fees must be decided by the court and not by the arbitration tribunal that has reviewed all coverage and loss issues between the parties in the REIT's suit seeking coverage for five properties damaged during Hurricane Irma.  They pointed to The Cornfeld Group's insurance policy in making their argument, saying the parties signed off on an agreement that all matters related to the policy would be referred to an arbitration tribunal.

"This court previously found that this agreement constituted a valid delegation clause, representing the parties' clear and unmistakable intent to allow issue of arbitrability to be decided by the arbitration tribunal," the underwriters and insurers said.  "Indeed, the court specifically ruled that the arbitration tribunal shall review all issues between the parties and held that the arbitration tribunal will have the power to issue any orders on any matter."

The Cornfeld Group on Oct. 15 asked for $39,108.50 in total fees, calculating that Stephen A. Marino Jr. of Ver Ploeg & Marino PA was due $23,820 for 39.7 hours of work at an hourly rate of $600, while his colleague, S. Alice Weeks, was due $13,200 for 44 hours at an hourly rate of $300.  In addition, The Cornfeld Group sought $2,088.50 for about eight hours of paralegal work.

According to the January complaint, The Cornfeld Group submitted proof of loss to support its estimate of approximately $20.6 million in damages caused by the 2017 hurricane at five properties.  However, the insurers only paid out $1.25 million in coverage under the commercial property insurance policy — which ran from March 22, 2017, through March 22, 2018 — and indicated there were coverage issues, although they had yet to specify what they are, according to case records.

The five South Florida properties covered collectively by the insurer defendants were: Margate Commerce Center-Lakeview Warehouse and Banks Road Commerce Center, both in Margate, Newport Beachside Resort in Sunny Isles Beach, Peary Court Units 101-149 in Key West and Stock Island Business Center on Stock Island near Key West.  On March 15, the insurers said they agreed with the REIT that the suit should be arbitrated, but they claimed they do not owe coverage under the policy.

U.S. District Judge William P. Dimitrouleas appointed Cornfeld's nominee to serve as the third member of an arbitration panel and break an impasse over the REIT's $20.6 million claim for insurance coverage for hurricane property damage.  In selecting Florida-based independent umpire, appraiser and adjuster Paul E. Middleton to join the arbitration panel, Judge Dimitrouleas said he chose the Cornfeld candidate over the professionals suggested by the insurers, because Middleton's "experience and qualifications appear to meet the requirements of the policy's language and spirit, as well as the interests set forth by the parties."

The Cornfeld Group moved on July 22 for entry of final judgment, and Judge Dimitrouleas on Aug. 16 signed an order partly granting the REIT's motion.  The motion asked for an award of attorney fees and costs, but Judge Dimitrouleas said any request for attorney fees and costs would have to be filed in compliance with local rules and referred to a magistrate judge.  The insurers reiterated in opposing Cornfeld's fees motion that they don't believe they owe coverage under the policy, and they also asserted that "there is simply no basis" for the fee claim.

Cornfeld can't sue in Florida, because the policy calls for New York law to apply, and the REIT is falsely attempting to establish itself as the "prevailing party" in the Florida suit, the insurers said.  They also questioned Marino's proposed $600 hourly rate, calling it "excessive."