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Category: Fee Dispute Litigation / ADR

MoFo Settles Suit Over Billing Practices in Texas

May 13, 2019

A recent Texas Lawyer story by Brenda Sapino Jeffreys, “MoFo Settles Texas Suit Over Billing Practices,” reports that Morrison & Foerster has settled a lawsuit in Texas state court filed by a group of former clients who alleged the firm engaged in “egregious overbilling.”  Houston lawyer Peter Taaffe, who represents the plaintiffs, confirmed that his clients, who sought more than $1.5 million in damages, came to an agreement with Morrison & Foerster in mediation.  Terms of the settlement in Synergies v. Morrison & Foerster were not disclosed.

“The parties have come to a mutual settlement and the terms of the settlement are confidential.  The plaintiff parties also add that ‘Morrison & Foerster provided plaintiffs with valuable legal work, and plaintiffs appreciate its counsel,’” Taaffe, of counsel at The Buzbee Law Firm, said in a written statement.  On May 9, the plaintiffs filed a notice of nonsuit with prejudice as to all of the plaintiffs’ claims against Morrison & Foerster.

The plaintiffs, including Firestar Diamond International and its owner, jewelry designer Nirav Modi, initially filed a complaint Feb. 13 in U.S. District Court for the Western District of Texas.  Before Morrison & Foerster filed a response, the plaintiffs voluntarily dismissed that complaint.  They refiled it on Feb. 26 in state district court in Travis County.

In the Travis County petition, the plaintiffs alleged they hired the firm to assist them in winding down companies, but instead of doing the work efficiently and promptly and keeping them informed, the firm concentrated on liquidating assets and transferring money to the firm’s client trust account.

“MoFo then expended an exorbitant and excessive amount of time, primarily on matters that had little to do with winding down the entities.  In the course of two months, MoFo had 34 different timekeepers bill 669 hours at a cost of $485,321,” the plaintiffs alleged in the petition.  They further alleged that they paid the firm $30,000 in retainers, and the lawyers collected $625,319 that was deposited in the firm’s trust account, for a total of $655,319.  However, the plaintiffs alleged, the firm “unilaterally decided to pay itself from these funds” leaving only $170,998 in the trust, and it ultimately only returned $117,305 to them.

The plaintiffs, which include Firestar and related companies, maintain a principal place of business in Austin, according to the petition. They also include Synergies Corp., AVD Trading and Firestar Group.  Plaintiff Modi is facing allegations by India’s Punjab National Bank of engaging in a bank fraud scheme, reportedly involving at least $1.8 billion, according to news reports.  The plaintiffs brought breach of fiduciary duty, negligence, fraud, breach of contract and theft causes of action against Morrison & Foerster.

Fee Allocation Dispute in Citigroup 401K Class Action

March 12, 2019

A recent Law 360 story by Andrew Strickler, “Firm Ordered to Drop Arbitration Bid in $2.3M Atty Fee Fight,” reports that the New York federal judge who oversaw the settlement of a case focused on a Citigroup employee retirement plan ordered one of the plaintiff co-counsels to withdraw a request for court-ordered arbitration to resolve a dispute over $2.3 million in legal fees.  U.S. District Judge Sidney Stein's order arrives amid a scrap between the co-leads in the Citigroup case, McTigue Law LLP and Bailey & Glasser LLP, over the split of the January award.

Attorneys at the McTigue firm, a Washington, D.C. pension boutique, had asked the court to reject Bailey & Glasser LLP's call for arbitration as "premature and, arguably, nonsensical," because the dispute has "no legal existence" in terms of a motion pending before the court.  The previous day, Bailey & Glasser had asked the court to compel arbitration of the fee split dispute, saying the co-counsels had agreed to do so in a 2009 agreement.  That deal "was drafted by Mr. McTigue himself," the firm said in a motion.  "As such, any ambiguities in whether and to what extent the arbitration clause governs the dispute should be resolved in favor of Bailey & Glasser."

In January, Judge Stein put his final stamp of approval on a $6.9 million settlement for a class of over 300,000 Citigroup 401(k) plan participants who had argued that the company stacked the plan with Citigroup-affiliated funds in order to boost its own profits, even as other funds charged lower fees.  Judge Stein also signed an order awarding $2.3 million to the plaintiffs' attorneys, $15,000 to each of two class representatives, and putting $374,100 toward case-related expenses.  That left approximately $4.2 million for the class.

Last month, both firms filed letters with the court about a disagreement on the fee allocation.  In his letter, James Moore of McTigue Law accused Bailey & Glasser's Gregory Porter of holding the attorneys' fees hostage as leverage in negotiating for a bigger cut of the $2.3 million by refusing to give consent for any of the money to be distributed.  According to Moore, Porter is contesting an agreed-to allocation, because Bailey & Glasser paid roughly 10 percent more in expenses in the case than was anticipated.

Porter in turn said the McTigue firm breached their deal last spring by failing to pay its share of expert expenses and then refusing to respond to emails "to confer on the management and financing of the case given the McTigue firm's financial condition."  In a second set of tit-for-tat filings, Bailey & Glasser told the court that, after it filed its arbitration motion, the McTigue firm had agreed to proceed to mediation.  The McTigue firm responded with its own filings stating that the Bailey firm's notification was "unilaterally filed" and gives the "misleading impression" of being about a joint agreement of class counsels.

The case is Leber et al. v. The Citigroup 401(k) Plan Investment Committee et al., case number 1:07-cv-09329, in the U.S. District Court for the Southern District of New York

Judge Denies Additional Attorney Fees in Merck Securities MDL

March 7, 2019

A recent New Jersey Law Journal story by Charles Toutant, “Judge Rejects Plaintiff Firms’ Demand for More Fees in Merck Securities MDL,” reports that a federal judge in Newark has dismissed a lawsuit from two law firms claiming they were shortchanged on fees after referring a plaintiff to the Vioxx securities multidistrict litigation that settled for $1.06 billion in 2015.  The Whitehead Law Firm of Lafayette, Louisiana, and Goforth Lewis & Sanford of Houston claimed they had a fee-sharing deal with New York’s Stull, Stull & Brody when the firms teamed up on securities litigation against Merck & Co.  But the court said such an agreement would violate New Jersey ethics rules, and that the plaintiffs failed to show any contract existed.

The Whitehead firm and Goforth Lewis filed suit in the Eastern District of Louisiana on behalf of a Merck & Co. shareholder named Frank Pringle in 2003.  They later teamed up with Jules Brody of the Stull law firm in New York, who filed a similar suit in the same venue.  Their cases were consolidated, and later made part of multidistrict litigation in New Jersey.  Stull, Stull & Brody later was one of four law firms named co-lead counsel in the Vioxx securities MDL.  After the $1.06 billion settlement was reached in 2015, the court awarded $212 million in attorney fees, including $31 million to the Stull law firm.  The Vioxx securities settlement followed a $4.85 billion settlement in 2007 on behalf of users of the drug who claimed they suffered heart damage.

The suit claimed that Merck officials falsely assured the public that Vioxx, a painkiller, was safe when they knew of evidence that long-term users had an increased risk of heart attack or stroke.  Merck’s stock price dropped 27 percent in one day after the company announced Vioxx was being taken off the market in September 2004.  Whitehead was awarded $550,000 in fees and Goforth Lewis $450,000 after the securities litigation was settled.  But the firms claimed they had an agreement granting each of them a referral fee of 14 percent of Stull, Stull & Brody’s gross fee, or $4.3 million each. Whitehead and Goforth Lewis further maintained that if the Stull law firm did not honor that agreement, they were each entitled to 25 percent of the $31 million, or $7.75 million each.

The Whitehead firm; its principal, C. Mark Whitehead III; and Goforth Lewis sued Stull, Stull & Brody in a Louisiana state court in November 2016.  Stull removed the case to federal court in the Eastern District of Louisiana and then had it transferred to the District of New Jersey.  U.S. District Judge Sara Vance, of the Eastern District, ruled that the legal representation at issue occurred primarily in New Jersey and therefore the contract was performed in New Jersey.  U.S. District Judge Stanley Chesler, in Newark, said the alleged fee-splitting agreement was unenforceable because it violated a provision in RPC 1.5(e) that the client must be notified of any fee division and consent to the participation of all the lawyers involved.

There was no indication Pringle was advised of the terms of the alleged fee-splitting deal, Chesler said in granting summary judgment to the Stull law firm.  “This is not surprising inasmuch as Plaintiffs are still asserting inconsistent versions of what the alleged deal was,” he said.  In addition, Chesler said the law firms failed to adequately demonstrate that an enforceable referral fee contract existed.  Whitehead states that his copy of the referral fee agreement was lost during Hurricane Katrina, while Goforth Lewis says a copy of the agreement cannot be found after the death of a partner in the firm who negotiated and kept possession of it.

Texas Law Firm Accused of ‘Gross Fee Churning’

March 4, 2019

A recent Texas Lawyer story by Brenda Sapino Jeffreys“Former Houston Energy Exec Sues Trail Firm AZA Alleging ‘Gross Fee Churning’, reports that Houston trial firm Ahmad Zavitsanos Anaipakos and three of its name partners were sued by a former Houston energy executive who alleges the firm engaged in “gross fee churning” when representing him in an employment dispute.  “The several Houston lawyers breached their agreement with their client by over-charging, padding their bills for services and providing unreasonable and unnecessary charges solely to place their interests ahead of their client’s interest so they could improperly line their pockets at their client’s expense,” Paul A. Bragg, the former chairman and former chief executive officer of Vantage Drilling, alleges in a petition filed in state district court in Houston.

Bragg seeks more than $1 million from the defendants including actual and punitive damages and fee forfeiture.  He brings negligence, breach of duty of fair dealing, breach of fiduciary duty, and fraud causes of action against the defendants, who include the firm partners John Zavitsanos, Demetrios Anaipakos and Joseph Ahmad.  Bragg alleges that AZA’s representation provided him with “no benefit whatsoever,” because he ended up agreeing to a settlement during an arbitration that was essentially the same as what his former employer offered him initially when he was terminated.

In a written statement, the law firm defendants said the allegations don’t deserve to even be characterized as meritless.  “We will defend it, of course, and we will win. There is no payday coming for Mr. Kassab, the lawyer who filed this lawsuit.  We categorically deny his lawsuit’s allegations which we consider pure fiction,” the defendants wrote in the statement.

They wrote that Bragg’s lawsuit is retaliation by his attorney, Lance Kassab, because AZA is working pro bono, defending the estate of a Houston attorney who was sued for barratry by Kassab.  Lance Kassab could not be reached for immediate comment, but his nephew, David Kassab, who works with his uncle at Kassab Law Firm, said he is not surprised the defendants would say that.

“It’s absolutely ludicrous. We are happy to represent Mr. Bragg in his lawsuit against AZA because of the conduct as alleged in the petition,” David Kassab said.  In their statement, the law firm defendants also said that if Michael Cohen, President Trump’s former lawyer, still had a law license, “even he would have refused to take this case.”

‘Questionable’ Billing

As alleged in Bragg v. Zavitsanos, Bragg hired AZA shortly after Vantage Drilling International, a successor to Vantage Drilling, fired him on March 21, 2016, and Anaipakos and Ahmad were the main lawyers at AZA representing him.  “After reviewing the employment agreement, both lawyers told Bragg he had a ‘slam dunk’ case and that Vantage would be held responsible for severance pay, MIP [management incentive plan] awards, legal fees and expenses,” Bragg alleges in the petition.

Bragg alleges Vantage offered him severance, excluding the MIP, when he was terminated, but he declined the offer. He also alleges that on the advice of AZA counsel, he declined a similar offer during mediation in September 2016 and also one just prior to an arbitration in July 2017.  “Importantly, each time the offer was made, AZA counsel reacted with disdain to the offer and held firm that Bragg would prevail on the MIP award,” Bragg alleges in the petition.

Bragg claims that on the third day of the arbitration, his AZA lawyers were “suddenly very negative about the likelihood of prevailing on the MIP award,” and they encouraged him to accept the Vantage offer on the table, to which he “reluctantly agreed.”  Bragg alleged that his employment agreement required Vantage to pay him up to $300,000 in legal fees for any dispute with the company, but it paid only $108,000 because that is all AZA had invoiced prior to the time of settlement.

He alleges as the settlement was finalized, AZA informed him that the fees would total between $400,000 and $500,000, but later revised that to $750,000 and Vantage eventually paid AZA $875,000 in fees and expenses.  He alleges that despite assurance from the firm that it would rebate any excess fee payment from Vantage to him, Bragg said he received no final accounting or rebate from the firm for several months.

Bragg further alleges that AZA encouraged him to continue with the arbitration, “promising” him he would recover his MIP and treble damages, but he ended up with a settlement that was equal to the settlement Vantage offered before Bragg hired AZA.  “He would have received the same result and eliminated 90 percent of the legal fees he incurred at the hands of AZA,” Bragg alleges in the petition.  Bragg further claims that AZA used “block billing”—billing multiple tasks as a single billing entry—which he alleges is a “known tool used to inflate fees.”

Also, Bragg alleges, there were instances of duplicative billing that led to $22,148 in fees,  “questionable and vague billing entries” for communication, preparation and general tasks totaling $148,554, clerical work for $23,475, research services for $5,273, and “undocumented disbursements” totaling $196,160.  Bragg also alleges that Zavitsanos billed nearly $40,000 to depose a witness in Greece to “enjoy an all-expense paid trip to his villa in Greece at the cost of his client.”  “Only after getting caught with his hand in the proverbial ‘cookie jar,’ did AZA refund a portion of these charges,” Bragg alleges.

In addition to the firm’s statement, Zavitsanos, in an interview, disputed allegations related to fees and billing.  He said the litigation settled at Bragg’s insistence and Bragg “did not pay a penny out of his pocket on his fees.”  He also said that because Vantage was paying Bragg’s legal bills, under a provision in his employment contract, AZA provided Vantage with general billings because “we did not want to give them a roadmap” to legal strategy.

FL Lawyer Claims Eight Step Plan to Boost Attorney Fees in BP Oil Spill

February 25, 2019

A recent Law.com story by Amanda Bronstad, “Fla. Lawyer Says Lead Plaintiffs Attorney Drafted BP Oil Spill Settlement to Get $3B in Fees,” reports that a Florida attorney has alleged that a lead plaintiffs lawyer in the Deepwater Horizon oil spill litigation colluded with BP in drafting a class action settlement that gave more than $3 billion in legal fees.  Attorney Brian Donovan, of The Donovan Law Group in Tampa, filed the suit Feb. 12 in Florida’s 13th Judicial District in Hillsborough County against Steve Herman, co-lead counsel for the multidistrict litigation against BP over the 2010 spill.  Donovan claims that Herman, of New Orleans-based Herman Herman & Katz, was negligent and breached his duties to class members through an “eight-step plan to maximize his compensation” while reducing BP’s liability over oil spill claims.

Herman, in an email to Law.com, stood by his handling of the Deepwater Horizon case, noting that he had addressed many of Donovan’s concerns about the settlement in emails and in court during the original litigation.  But Donovan called the multidistrict litigation “an example of Louisiana judicial homecookin’ at its very worst” in which both sides put the interests of the blowout’s victims on the back burner.

“Justice for the BP oil well blowout victims was never considered by defendant Herman,” wrote Donovan in a 130-page complaint.  Donovan claimed in the lawsuit that the 19 lawyers on the plaintiffs’ steering committee, including Herman, stood to earn more than $3 billion in fees, including both the common benefit fund and separate contingency fees they had with their clients.  “It is beyond cavil that a reasonable, objective observer would not conclude that this amount is out of proportion to the value of the professional services rendered,” he wrote in the complaint.

Herman questioned the validity of Donovan’s numbers, and said he was apprised of his clients’ full range of options.  In one 2012 email that was referenced in Donovan’s complaint, Herman advised him on available procedures for his clients who opted out of the settlement.  Herman took note of that conversation in an emailed statement to Law.com.  “Seems like that was pretty good advice,” Herman wrote.  “No idea the extent to which he or his clients may or may not have followed it.”

As to the allegations about fees, Herman wrote, “The common benefit fees are a matter of record.  Neither Donovan, nor any of his clients (assuming he has any), nor anyone else objected to them.  Nor did Donovan, nor any of his clients (assuming he has any), nor anyone who settled in the GCCF or the class settlement program ever pay one cent to the PSC or any other common benefit attorneys any common benefit fees.”

The suit is the latest skirmish over fees between leadership attorneys in multidistrict litigation and lawyers representing individual clients.  In November, Philadelphia’s Kline & Specter alleged that lawyers leading lawsuits over pelvic mesh devices had settled cases on the cheap, despite much larger jury verdicts.  A federal judge in West Virginia rejected those allegations and approved $500 million in common benefit fees Jan. 30.

BP initially set up a claims process for individuals and businesses along the Gulf of Mexico who had lost money due to the 2010 spill and were entitled to compensation under the Oil Pollution Act of 1990. Attorney Kenneth Feinberg initially doled out claims, under the Gulf Coast Claims Facility, but plaintiffs lawyers criticized the process for lengthy delays and inconsistencies.  In 2012, BP agreed to settle the class action, estimated to cost $7.8 billion, while a new administrator continued to process claims.

Over the years, BP revised its settlement cost estimate several times and even attacked portions of the deal for contributing to what it called a flood of fraudulent claims.  Last month, BP, which also paid $20 billion to the U.S. Justice Department in 2015, raised its total projected oil spill costs to $65 billion, in large part due to outstanding claims in the class action settlement.

Donovan’s suit alleged that Herman’s “eight steps” involved limiting BP’s liability in the class action settlement by restricting claims based on geography and other factors and, before that, encouraging claimants to drop their lawsuits in favor of quick cash under Feinberg’s Gulf Cost Claims Facility.  Donovan called the leadership lawyers “cooperative dealmakers,” not adversaries to BP, who shut out 220,000 claimants in favor of their own clients.  “This deal was consummated behind closed doors,” he wrote.  “In sum, plaintiff, plaintiff’s clients, and all others similarly situated are being indefinitely held hostage by defendant Herman. Escape is impossible.”

Herman, in his email, defended his advocacy efforts, noting that he challenged the fairness of Feinberg’s claims process in 2011.  Feinberg, of The Law Offices of Kenneth R. Feinberg in Washington, D.C., defended his Gulf Coast Claims Facility as a “great success.”  “The idea that I coerced anybody is preposterous,” he said, noting that in 16 months, he distributed $6.5 billion to about 220,000 individuals and businesses in the Gulf of Mexico.  “Now, years later, a very creative, determined, unenlightened plaintiffs lawyer decides to throw allegations around that are simply rejected by the facts.”

Donovan’s suit estimated that lead lawyers would get $3.035 billion in fees.  In the complaint, he based that figure on an estimated $2.4 billion in contingency fees, $600 million in common benefit fees, and co-counsel and holdback fees assessed on claims prior to the settlement.  He said more than $321 million went to members of the common benefit cost and fee committee and $277 million to other members of the plaintiffs’ steering committee.  “I don’t have any idea what any firm earned in individual client contingency fees,” Herman wrote in his email.

In 2012, U.S. District Judge Carl Barbier of the Eastern District of Louisiana capped contingency fees at 25 percent.  Four years later, the judge appointed special master John Perry of Perry, Balhoff, Mengis & Burns of Baton Rouge, Louisiana, to review the allocation of $600 million in common benefit fees, paid for by BP.

In 2017, the common benefit cost and fee committee submitted a proposed allocation plan for 122 law firms.  Herman and Jim Roy, a partner at Domengeaux Wright Roy & Edwards in Lafayette, Louisiana, who both were co-lead counsel in the multidistrict litigation and co-chairmen of that fee committee, recommended that each of their firms receive more than $87 million.  In 2017, Perry recommended approving the fee request, which grew to $700 million when including settlements with Halliburton and Transocean.  Barbier adopted the special master’s recommendation.  Soon afterward, Donovan filed a motion on behalf of three clients.  The motion sought a public record of all compensation paid to the plaintiffs’ steering committee, legal experts, special masters and the settlement claims administrator.