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Category: Fee Dispute Litigation / ADR

Flint Water Crisis Law Firms Agree to End Fee Dispute

February 13, 2024

A recent Law 360 story by Aaron West, “Flint Water Crisis Firms Agree To End Settlement Fee Dispute”, reports that three law firms that negotiated a $626 million settlement related to the Flint, Michigan, water crisis reached a settlement of their own after McAlpine PC agreed to end claims that Cohen Milstein Sellers & Toll PC and Pitt McGehee Palmer Bonanni & Rivers PC unfairly cut it out of their original co-counsel agreement.

The Michigan-based firms agreed to dismiss the lawsuit without prejudice or costs, according to an order signed by U.S. District Judge Judith E. Levy.  The judge's order follows the defendant firms urging the court in October to dismiss McAlpine's lawsuit against them after it "sat on its hands for years" before bringing a claim over the settlement split, according to court documents.

The dispute, which McAlpine initially filed in state court, claimed that the Auburn Hills-based firm was only paid a paltry sum by its co-counsel for its contributions to the underlying litigation.  McAlpine argued its work was instrumental to the lawsuit, contributing about $16 million worth of labor, or about 24% of the total lodestar figure of $84.5 million.  But Cohen Milstein and Pitt McGehee offered to pay just $500,000, McAlpine said.

"Defendants breached the co-counsel agreement by failing to distribute an attorney fee award reflecting McAlpine's respective lodestar, in favor of distributing a greater share to themselves," the firm alleged in its complaint.  The defendants argued in a subsequent filing that McAlpine was too late in bringing its claims.  "McAlpine had a full and fair opportunity to litigate the amount of any attorneys fee award in the appropriate place to do so — the federal Flint class action," the defendants said.

The class action at the heart of the law firms' dispute was settled in 2021 when Judge Levy gave final approval to a $626 million settlement, a deal expected to provide payments to more than 100,000 people affected by lead-contaminated water.  Government officials were accused of switching the city's water supply to the Flint River despite information cautioning them against doing so, and working to cover up the ensuing public health crisis.

In December, McAlpine said that the court should deny the firms' request to toss the fees case because it wasn't suing for recovery from the common benefit award, as Cohen Milstein and Pitt McGehee argued. Rather, McAlpine's claims were centered on "breaches of obligations" between the firms that were independent of the Court's order, the firm said.  The defendants' reply said what McAlpine was requesting went against their original agreement.

"McAlpine's argument is not supported anywhere," the defendants wrote.  "To the contrary, McAlpine agreed to work under the supervision of Co-Lead Counsel and the Executive Committee, and never challenged Co-Lead Counsel's authority to apportion fees among class counsel based on their respective roles in the litigation and contributions to the settlement until after the common benefit fee was distributed."

Attorney Keeps $1.15M Fee Award Despite Tossing Billing Record

February 9, 2024

A recent Law 360 story by Madison Arnold, “Atlanta Atty Keeps $1.15 Fee Award Despite Tossing Notes”, reports that a Georgia state appellate court has upheld an award of $1.15 million in attorney fees to a solo-practice attorney, saying an Atlanta-based airport travel spa operator he did work for failed to show the trial court was wrong in finding the attorney didn't have to save notes about the legal services he provided.

In its ruling, a three-judge panel upheld the attorney fee award for Gebo Law LLC and its only member, Carl Gebo, who provided five years of legal services for Cordial Endeavor Concessions of Atlanta LLC.  The appellate court didn't buy Cordial's argument that the trial court erred by not giving jury instructions related to the "spoliation of evidence," meaning Gebo's tossing of his notes, among other concerns.  "But the court did not abuse its discretion in refusing to give a spoliation instruction or in refusing to allow an expert to opine on an irrelevant issue, and the jury's award was within the range of damages shown by the evidence.  So we affirm the trial court's judgment," the panel said.

Cordial was hoping to overturn the award for nearly 2,000 hours of work performed by Gebo Law, saying the attorney intentionally destroyed time records and that the award was excessive, according to the appeal Cordial filed in May.  At the heart of Cordial's appeal are the notes Gebo made detailing the date, length of time and the description of legal services he provided to the company, the panel said.  In an affidavit, Gebo said it was his normal practice to create invoices based on notes and then discard the notes afterward.

"A lawyer who fails to secure an engagement agreement, fails to communicate his hourly rate to the client, and then discards his contemporaneous time records when fee litigation is likely does not get to recover unpaid fees at the upper range of what might be considered a reasonable hourly rate," the spa operator said in May.

Gebo added that when he threw away the notes, he believed Cordial would soon be paying for his legal services since the company had confirmed a payment plan, the panel said.  That meant Gebo was not yet thinking about or anticipating any litigation, and he only filed after months of unsuccessful negotiations with the company about receiving payments, the panel said.  That turned out to be central to the panel's ruling.  In its eight-page opinion, the panel said the term "spoliation" is used to refer to the destruction of evidence that is relevant to "contemplated or pending litigation."

"Such conduct may give rise to the rebuttable presumption that the evidence would have been harmful to the spoliator.  However, in order for the injured party to pursue a remedy for spoliation, [including a jury charge on the rebuttable presumption,] the spoliating party must have been under a duty to preserve the evidence at issue," the panel said.

The panel found the trial court was within its bounds to decide that a duty to preserve notes was not triggered at the time Gebo pitched them because he used them to create invoices as part of his normal practice.  "[T]here was evidence that Gebo did not contemplate litigation when following its practice of discarding notes after memorializing them in invoices, the trial court did not abuse its discretion in denying Cordial's spoliation motion," the panel said.

The appellate court separately held that Cordial failed to show the lower court abused its discretion in approving the jury's award of $1.15 million in quantum meruit damages.  "[T]he jury did not understand that Gebo disregarded an important rule of professional responsibility and thus did not understand Gebo should be awarded recovery at the lower range of what otherwise would be a reasonable negotiated fee," Cordial said in May.

That award equals a fee rate of about $630 per hour and that rate is within the range of evidence presented at trial, with expert testimony saying the going rate should be between $500 and $800 per hour.  "[W]e cannot say that the trial court, who saw the witnesses and heard the testimony, abused its discretion in [approving the verdict]," the panel said, quoting a precedential case.

Law Firm Can’t Dismiss Bill Padding Claims in California

February 1, 2024

A recent Law 360 story by Lauren Berg, “O’Melveny Can’t SLAPP Bill-Padding Claims, Calif. Panel Says”, reports that a California appellate panel refused to strike allegations that O'Melveny & Myers LLP padded its legal bills while investigating the alleged mismanagement of funds at an apartment cooperative, saying disputes related to a firm's billing practices don't arise from activity protected by the state's anti-SLAPP statute.

In an opinion, a Second District Court of Appeal panel largely rejected O'Melveny's arguments that a Los Angeles Superior Court judge should have relied on California's anti-SLAPP statute to strike Ocean Towers Housing Corp.'s allegations that the law firm's invoices were excessive, it charged exceptionally high hourly rates and it padded its bills.  Anti-SLAPP, or anti-strategic lawsuits against public participation, laws are intended to prevent litigants from using the courts to intimidate people who are exercising their First Amendment rights.

"But disputes about the validity of an attorney's fees or billing practices do not arise from protected petitioning activity just because 'petitioning activity is part of the evidentiary landscape within which [the allegations] arose,'" the panel said.  "Instead, these allegations arise from an attorney's independent professional duties to ensure that 'fee agreements and billings "[are] fair, reasonable, and fully explained"' and to avoid charging unconscionable fees."

Ocean Towers is a cooperative housing corporation operating a beachside apartment complex in Santa Monica, and every person who buys a residential unit at the property also acquires shares of company stock, according to the opinion.  Shareholders pay monthly fees to the company in proportion to the number of shares they own.  The dispute goes all the way back to 2015, when an Ocean Towers shareholder filed a derivative lawsuit alleging board member John Spahi and others "caused Ocean Towers to incur significant expenses for [Spahi's] personal benefit," the opinion states.

The board in April 2017 put together a committee to investigate the claims, which chose O'Melveny to assist with the investigation, according to the opinion.  Under two contracts — one signed in April 2017 and the other in December 2017 — the committee would be O'Melveny's client, while Ocean Towers agreed to pay the legal bill.  By September 2017, Ocean Towers had paid $1.27 million of O'Melveny's invoices, but in December 2017, CEO Joseph Orlando told the law firm that the company's financial condition had deteriorated to the point that it wouldn't be able to pay any other fees.  O'Melveny, however, continued to perform work for the committee and charge Ocean Towers through June 2019, according to the opinion.

In March 2021, O'Melveny sued Ocean Towers to recover the unpaid balance, which is put at nearly $1.1 million, the opinion states.  Ocean Towers hit back with a cross-complaint in December 2021, alleging the law firm breached the contracts by "unethically billing" the company, charged "exceptionally high hourly rates for tasks that were unnecessarily performed by far more lawyers than were needed" and engaged in "bill padding and duplicative billing."

O'Melveny in March 2022 filed an anti-SLAPP motion to strike the cross-complaint, arguing it attacked the adequacy and scope of an investigation performed by an attorney while representing a client, the expenditure of money to prosecute an action and the circumstances around O'Melveny's retention, which it said are protected by the anti-SLAPP statute.  In June 2022, the trial court sided with Ocean Towers, finding the cross-complaint was "essentially about a fee dispute" and that "resisting what is essentially a collection action is not a SLAPP," the opinion states.

In its opinion, the three-judge appellate panel rejected O'Melveny's argument that because Ocean Towers was not technically the law firm's client — the committee was — the cross-complaint billing allegations fall under the scope of the anti-SLAPP law.  "The gravamen of Ocean Towers's claims against O'Melveny is not the petitioning activity that the firm conducted on its client's behalf; nor is Ocean Towers a third party completely uninvolved in the underlying litigation," the panel said.  "Rather, we are addressing limited allegations about fees and billing practices, made by a payor who is contractually obligated to pay the invoices generated by the law firm."

However, the panel did reverse the trial court's denial of the motion as to the allegations that target the validity of O'Melveny's client, which are based on Ocean Towers' claims that retired Judges Michael Latin and James Steele were wrongly appointed to serve on the committee, the opinion states.  The panel found the law firm has demonstrated that those claims arise from protected activity because the two judges were appointed to the committee through a court order and the Ocean Towers' board's resolution carrying out that order, according to the opinion.

Former CEO Sues Over Legal Fee Advancement

January 19, 2024

A recent Law 360 story by Jeff Montgomery, “Joonko Ex-CEO Sues in Del. for Legal Fees Related to Probe”, reports that the former CEO of AI-powered employee recruitment venture Joonko Diversity Inc. has sued the company for legal fee advancement in Delaware's Court of Chancery, alleging corporate failure to cover attorney expenses that total more than $300,000 and are still rising, related to still-under-wraps investigations.  The suit from former CEO and company founder Ilit Raz accuses the company of refusing to advance the money despite obligations established in its bylaws, an indemnification agreement and Delaware law.

Joonko has been in the news amid reports of alleged misconduct by Raz. A June statement by Joonko's board reported the discovery of "misstatements in financial reporting" and asserted that Raz was "was found to have engaged in egregious, unethical and fraudulent conduct, which caused harm to the company and its shareholders," according to media reports in 2023.

Government documents on the existence, targets or purpose of any investigations are not currently available, and parts of the suit are redacted. But an attorney letter sent Jan. 12 to Chancellor Kathaleen St. J. McCormick, seeking expedited handling of the advancement suit, said Raz continues "to incur attorneys' fees and costs by reason of her position as former chief executive officer of the company in connection with ongoing and active government investigations and proceedings."

An Aug. 31 email from Ilon Band, Joonko's chief operating officer, to Raz's counsel with Norton Rose Fulbright said, "Given the circumstances, we do not believe that under the terms of the indemnification agreement the company is obligated to pay the invoices you forwarded.  Attached for your reference is the company's D&O Insurance (recently expired)."  The email was addressed to Kevin J. Harnisch, head of Norton Rose white-collar practice and co-head of its regulation, investigations, securities and compliance practice.

"You explained that the company is (refusing to pay) because of Ms. Raz's alleged misconduct despite the fact that you are unaware of any precedent supporting the company's position," Harnisch wrote in reply Oct. 20.  "The company's posture leaves us little choice but to file suit to vindicate Ms. Raz's right to advancement."

Joonko, with offices in New York and Tel Aviv, markets itself as the developer of a "transparent diversity recruiting layer" used on top of cloud-based human resources and recruiting software.  The company's website said its system and services enabled recruiters "to passively source top diversity candidates who've been qualified by a two-steps validation process to make sure you receive the best fits for the roles you are looking for."

The company incorporated in Delaware in July 2016 and completed a $17 million equity offering in early 2022, according to SEC records.  A $25 million series B issue was reported the same year, led by Insight Partners.  Target Global, Kapor Capital and Vertex Ventures Israel also were described as supporting.

In the Jan. 12 letter to Chancellor McCormick, M. Paige Valeski of Young Conaway Stargatt & Taylor LLP wrote, "As a result of the company's unjustified delay" on the advancement demand, "Ms. Raz faces imminent, irreparable, and non-monetary injury. In her motion to expedite, Ms. Raz is seeking a final hearing on the merits in February 2024, subject to the court's availability."

Holland & Knight Faces Overbilling Suit

December 13, 2023

A recent Law 360 story, “Holland & Knight Faces Overbilling Suit From Ex-Bank CEO”, reports that Republic First Bancorp's former CEO has accused Holland & Knight LLP of padding its bills as the firm looked to charge him some $7 million for what he said was ultimately "ineffective and unsatisfactory" legal work last year in a dispute over his ouster.

Vernon Hill II said in a complaint filed in Pennsylvania state court that Holland & Knight had engaged in "duplicative … and excessive billing" as it represented him in four separate matters against Republic First last year, including a federal lawsuit alleging that the bank improperly misappropriated the business model and brand equity that Hill had developed during his 13-year tenure.  And despite assigning multiple partners to work on Hill's matters at high hourly rates, the complaint said that the Holland & Knight team repeatedly failed to deliver the kind of results Hill expected.

"What occurred was an unnecessary and inefficient use of a large number of timekeepers, led by a score of partners, who billed Hill excessively and unreasonably, particularly in light of the results they achieved – or, more often, failed to achieve," Hill said in his complaint in the Philadelphia County Court of Common Pleas.  Hill said he formally retained Holland & Knight in March 2022 as he looked to press back on what he said was an "improper corporate coup" by a faction of Republic First board members aimed at ousting him as CEO and board president.

According to court records, Hill was ultimately booted from his position with Republic First in July 2022.  As part of his engagement letter with Holland & Knight, Hill said that the firm promised to keep its bills as low as possible by assigning "lawyers having the lowest hourly rates consistent with the skills, time demands, and other factors … involved in each matter."

By the time Hill eventually terminated his relationship with the firm in July 2023, however, he said that Holland & Knight had charged him some $7 million in fees, about $4.1 million of which he had paid.  When Holland & Knight sent him a demand letter seeking the remaining $2.8 million, Hill said he refused to pay and instead pointed out what he claimed was "the wasteful, inefficient, and unreasonable nature of H&K's bills and billing practices."  Hill said he later offered to try and resolve the fee dispute, but that when Holland & Knight failed to respond, he opted to file the lawsuit in Philadelphia.

In support of his claims, Hill pointed to Holland & Knight's work over the first half of last year to stop the First Republic board faction's efforts to remove him.  That work, Hill said, went on to involve 68 different timekeepers, 19 of whom were firm partners who billed at higher rates.  "Despite deploying a literal phalanx of timekeepers led by a bloated cadre of 19 partners, H&K failed to stop the … faction from driving Hill from the chairmanship of RFB," Hill said.