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Category: Fee Dispute Litigation / ADR

Update: Kasowitz Wins in Fee Dispute Matter

February 8, 2018

A recent New York Law Journal story by Christine Simmons, “Law Firm Legal Battles That Slipped from the Headlines in 2017,” reports on an update of the Kasowitz Benson Torres unpaid legal fees case.  The story reads:

While law firms have a mixed record of beating back legal malpractice and discrimination cases, they often are successful in obtaining judgments against ex-clients for unpaid legal fees on a quantum meruit basis.  For instance, Kasowitz Benson Torres, which has a history of going to court to get such fees, sued Patriot National Inc. in late May 2017 in Manhattan Supreme Court, seeking $1.097 million in legal fees.

The company, which provided back-office functions to insurance companies, then filed suit against the firm the Florida state court, alleging it engaged in fraudulent billing, malpractice and other misconduct that cost the company millions of dollars. The former CEO of Patriot also sued Kasowitz as well as Simpson Thacher & Bartlett in Florida state court.

Despite the malpractice litigation in Florida, Kasowitz prevailed in its New York collection fee suit: it obtained a $1.185 million judgment against Patriot National in December 2017, after a ruling from Manhattan Supreme Court Justice Gerald Lebovits.

Yet any immediate opportunity to collect the judgment is in doubt. Patriot National filed for Chapter 11 bankruptcy papers in late January in Delaware.

Kathryn Coleman, a partner at Hughes Hubbard & Reed representing Patriot in its bankruptcy, did not return a call for comment, neither did Kasowitz’s attorney in the collection matter, partner Joshua Siegel.

Fee Dispute Litigation Moves Forward with Firm that Skipped Retainer, Invoices

February 7, 2018

A recent New York Law Journal story by Jason Grant, “Client Fee Suit Continues Against Nassau County Law Firm That Skipped Retainer Invoices,” reports that a Nassau County law firm that failed to provide its client with a written retainer agreement or an accounting of time spent working on his case will continue to face a lawsuit alleging that the firm owes him thousands of dollars in never-earned fees.

An Appellate Division, First Department, panel ruled that the lawsuit, claiming breach of an oral agreement, launched by physician Alan Dubrow against his former lawyers at Herman & Beinin must go forward and not be dismissed.

Dubrow has sued the boutique firm for what he calls the “unearned portion” of a $176,500 retainer he paid to the firm near the start of his employment discrimination action, according to the panel. The exact amount of money he wants returned was not specified by the court.

“In context of an attorney-client relationship, the attorney bears the burden of showing that the parties’ fee agreement was fair, reasonable, and fully known and understood by plaintiff,” the unanimous panel wrote.

The panel simultaneously dispensed with Herman & Beinin’s argument that Dubrow’s breach claim was barred by the “voluntary payment doctrine.” The court wrote that, “while defendants assert that plaintiff voluntarily made payments to compensate them for their services, they have not established that plaintiff had full knowledge of the relevant facts, such as the number of hours spent by defendants in connection with their representation of him. Nor did they submit any evidence to show that the amount of plaintiff’s payments was fair and reasonably related to the value of services rendered.”

On Tuesday, Herman & Beinin’s Mark Herman, who described himself as having more than 35 years of litigation experience, said that while he “respects” the First Department’s decision, he believes the panel “failed to appreciate the fact that Dubrow didn’t want a retainer.”

“There was never a retainer because he didn’t want a retainer. We’d be happy to give him a retainer,” Herman said by phone, adding that “every quarter [we took in payments from Dubrow] was earned.”

“I’m not in the business of taking money and not doing services for it. That’s wrong,” Herman said. He added that as the case progresses, his firm intends to provide an itemization of the time it billed when representing Dubrow in what he said was an age discrimination lawsuit lodged by the nephrologist after being dismissed by Beth Israel Medical Center.

But the panel, composed of Justices Sallie Manzanet-Daniels, Judith Gische, Peter Tom, Ellen Gesmer and Anil Singh, wrote in the Jan. 25 decision that Herman & Beinin had “not conclusively refute[d] plaintiff’s allegations,” and therefore its motion to dismiss had been properly denied by Manhattan Supreme Court Justice Ellen Coin.

The justices also took the Bellmore, Long Island, law firm to task for not providing Dubrow with more information about the lawyer-client relationship, and the billing and services performed. “It is undisputed that defendants never provided plaintiff with a written agreement, as required under 22 NYCRR 1215.1, and failed to provide plaintiff with written billing statements, as required by 22 NYCRR 1210.1(4),” the panel wrote in Dubrow v. Herman & Beinin, 651605/16.

“Nor does defendants’ contention that plaintiff never questioned their legal fees until the underlying matter was dismissed on summary judgment warrant dismissal,” the court continued. “Plaintiff alleges that defendants promised to return any balance at the resolution of the underlying action, and his attempts to obtain an accounting after dismissal of the action are in line with this alleged understanding.”

Jonathan Strauss, the lawyer for Dubrow, said that while it has been hard to pin down the exact amount of money owed to his client, because he “still doesn’t have a breakdown” of the services rendered by Herman & Beinin, “it’s nowhere near 176,500.”

“It’s much more of a nominal amount,” he said, while contending that Dubrow had paid Herman & Beinin the large retainer in advance of a trial or appeal, but that his discrimination action never went to trial because it was dismissed.

Strauss, a solo practitioner in Manhattan, also said that he has asked for punitive damages against the law firm, “because I think a New York County jury may look at this and find outrageous conduct in it.”

“If jurors believe the worse [about Herman & Beinin and the firm’s motives], they could decide to send the bar a message” by awarding high punitive damages, he said. Then, after pausing, he said of the entire episode and lawsuit, “It’s disturbing that it has had to come to this.”

Judge: Reed Smith Can’t Sue for Share of Attorney Fees in Class Action

November 21, 2017

A recent New York Law Journal story by Christine Simmons, “Judge Says Reed Smith Can’t Sue for $7M Slice of SAC Capital Fees,reports that a Manhattan federal judge ruled that Reed Smith can't sue former co-counsel Wohl & Fruchter in state court for a chunk of class action attorney fees.  A federal judge has shot down Reed Smith’s attempt to sue its former co-counsel law firm Wohl & Fruchter, in state court for its share of fees from a class action against SAC Capital Advisors, finding Reed Smith was “seeking a mulligan.”

U.S. District Judge Naomi Reice Buchwald of the Southern District of New York ruled that she had misgivings about Wohl’s conduct—including its settling a case amid the expulsion of Reed Smith from the plaintiffs’ counsel group—but said Reed Smith, which had served as class co-counsel for a brief period in September 2016, missed an opportunity to seek its fees in the right venue.

“The sequence of events surrounding Reed Smith’s retention and subsequent termination certainly raises questions regarding Wohl and [Wohl & Fruchter's] motivations.  But Reed Smith was given an opportunity to fully raise those questions, and it failed to do so,” Buchwald said, enjoining Reed Smith’s lawsuit in New York state court against the Wohl firm.

In the underlying class action case against hedge fund SAC Capital and other defendants alleging insider trading of securities, plaintiffs attorneys in May were awarded $27 million in attorney fees after obtaining a $135 million settlement.  About a month after the fee award, Reed Smith, which submitted no fee application in federal court, sued attorney Ethan Wohl and his four-attorney law firm in New York state court arguing it was entitled to fees for its work under tortious interference and unjust enrichment claims.  The firm was seeking at least $6.75 million.

Reed Smith claimed that Wohl & Fruchter, when looking for co-counsel, realized that it was a small firm “overmatched by the resources available to the SAC defendants,” represented by Paul, Weiss, Rifkind, Wharton & Garrison, Willkie Farr & Gallagher, Goodwin Procter and Bracewell.  After Reed Smith was retained, the firm said, it immediately committed significant resources to the SAC action.  And soon after Reed Smith filed notices of appearance in the case, the SAC defendants reached out to Wohl for settlement discussions, Reed Smith said.  “Reed Smith’s appearance was the obvious catalyst for the settlement discussions, which proved to be successful,” the firm claims.

But Reed Smith asserts that when counsel for the SAC defendants at Paul Weiss mused about a possible conflict involving Reed Smith before Southern District Judge John Koeltl, the Wohl firm saw an opportunity to eliminate Reed Smith and “intentionally exploited Paul Weiss’ statements.” Reed Smith formally withdrew from the SAC case in December 2016.

In her Nov. 16 ruling, Buchwald rejected Reed Smith’s jurisdictional arguments.  “We have jurisdiction over the fee dispute between Reed Smith on the one hand and Wohl and [Wohl & Fruchter] on the other, and our jurisdiction is exclusive,” Buchwald said, adding that Reed Smith’s presentation of a tort-based theory of recovery “does not change the reality that some quantum of attorneys’ fees is the ultimate recovery sought.”

Buchwald also considered collateral estoppel issues. “The amount of fees to which [Wohl & Fruchter] was entitled was an issue that was litigated, and Judge Koeltl determined that a $27 million award was ‘fair and reasonable,’” she said.  Analyzing the case broadly, Buchwald said she found “little about either side’s conduct that is sympathetic.”

“The rapid succession of events—Reed Smith’s entry into the case, the settlement, and Reed Smith’s dismissal—naturally raises questions as to Wohl and [Wohl & Fruchter's] actions and motivations, and these questions are amplified when the weakness of [Wohl & Fruchter's] conflicts arguments are considered,” she said.  “The record is hardly inconsistent with Reed Smith’s theory that it was terminated by [Wohl & Fruchter's] so that [Wohl & Fruchter] could obtain a larger share of attorneys’ fees.”

However, Reed Smith missed an opportunity to submit an application for fees, she noted.  “We find little equity in allowing Reed Smith to take a mulligan, through duplicative litigation, on an issue that had been squarely teed up,” Buchwald said.

Reed Smith’s explanation for why it failed to do so—that it did not want to interfere with approval of the settlement—“holds little water,” Buchwald said, noting that Reed Smith’s declaration supporting its withdrawal from the federal case detailed its grievances with Wohl and raised questions about the propriety of the settlement.

While the judge said she was enjoining Reed Smith from prosecuting the state court lawsuit “and the implicit application for fees contained therein,” she denied Wohl’s request to reject Reed Smith’s application for attorney fees in federal court.  “Reed Smith has never made a direct application for attorneys’ fees in this court, and there accordingly exists no such application for us to deny,” Buchwald said.

NJ Appeal Panel: Prior Fee Suit Bars Malpractice Claims

October 20, 2017

A recent Law 360 story by Jeannie O’Sullivan, “Prior Fee Suit Bars Malpractice Claims, NJ Panel Says,” reports that Borrus Goldin Foley Vignuolo Hyman & Stahl dodged a legal malpractice complaint over its representation of a client suing a business partner over allegedly diverted funds, as a New Jersey appeals court affirmed the claims should have been lodged in a prior fee-collection dispute.

The two-judge Appellate Division panel’s decision dealt a blow to Evangelos and Matilde Dimitrakopoulos, agreeing with a trial court’s determination that the couple’s claims against the North Brunswick, New Jersey-based firm over alleged discovery, expert witness and billing gaffes were barred by the entire controversy doctrine.  The doctrine aims to prevent claims arising from the same set of facts from being relitigated.

The panel acknowledged that legal malpractice claims are exempt from the preclusive effect of the entire controversy doctrine, in that they needn’t be asserted in the underlying action that gives rise to the claim.  But the Dimitrakopouloses mistakenly applied the doctrine to the collection action, when the underlying action was actually the couple’s dispute with a former business partner, according to the appeals judges.

By the time the collection action was filed, the couple knew or should have known that their alleged damages were attributable to Borrus Goldin’s alleged professional negligence and could have filed their malpractice claims then, the opinion said.

“Instead, plaintiffs delayed three more years before filing their malpractice complaint.  Our consideration of the facts and equitable factors leads us to conclude that the motion judge correctly determined that the entire controversy doctrine applied here and barred plaintiffs' malpractice complaint,” the opinion said.

The Dimitrakopouloses retained Borrus Goldin in 2009 to assert claims that their business partner in a construction enterprise improperly diverted funds, according to the opinion.  The dispute went to arbitration in December 2010, and Borrus Goldin withdrew as counsel.  The issue was settled in September 2011 after the couple had retained new representation.

Meanwhile, Borrus Goldin had filed a collection action against the Dimitrakopouloses in March 2011 to collect its unpaid legal fees for services rendered in the underlying business dispute, the opinion said.  The court awarded a $121,947.99 judgment in favor of the firm.

The couple filed their malpractice action in September 2015, alleging the firm failed to properly plead claims and obtain consent before agreeing to arbitration, didn’t properly perform discovery and secure expert rebuttal reports, and billed for excessive amounts, the opinion said.  A Middlesex County Superior Court judge dismissed the claims, agreeing with the firm’s argument that the claims were barred by the entire controversy doctrine.

The case is Evangelos Dimitrakopoulos and Matilde Dimitrakopoulos v. Borrus Goldin Foley Vignuolo Hyman & Stahl PC et. al., case no. A-0880-16T3, in the Superior Court of New Jersey, Appellate Division.

Investor Seeks Attorney Fees in Compensation Savings Matter

September 26, 2017

A recent Law 360 story by Vince Sullivan, “Puma Investor Seeks Fees for $20M in Director-Pay Savings,” reports that a shareholder of Puma Biotechnology Inc. filed suit in Delaware seeking the payment of attorneys’ fees and expenses for his efforts in pursuing changes to the compensation packages of non-employee directors, which he says ultimately saved the company more than $20 million.  In a complaint, shareholder Paul Alan Leafstedt said Puma made changes to its director compensation plans that saved the company millions after he sent a demand letter to the board in February, but the sides could not work out a deal on compensation for attorneys he brought on in the effort.

As a result of Leafstedt’s demand letter, the company engaged an independent compensation consultant and amended its director packages to reduce awards to non-employee directors significantly.  The demand letter was spurred by the board awarding itself what Leafstedt described as “grossly excessive levels” of compensation that were allegedly nine times greater than what was appropriate.

Puma also capped director stock award and allowed shareholders to provide input on compensation procedures at annual meetings.  The company also added information about the program into its proxy statement, which were reviewed by Leafstedt’s attorneys before filing, and instituted additional corporate governance reforms relating to pay practices.

“Plaintiff’s efforts directly conferred a substantial and quantifiable benefit to Puma and its stockholders — with the compensation reductions and limits alone amounting to a savings of up to $20 million over the next five years,” the complaint said.  Leafstedt cites Delaware law that allows for fee awards where a corporate benefit results from a meritorious demand on the board in asking for attorneys’ fee and expenses related to the effort.

The compensation packages for non-employee directors of the company resulted in average annual awards in the amount of more than $1.4 million each, with each director receiving a $50,000 cash retainer and options to purchase 10,000 shares of Puma stock.  Directors who sat on a committee of the board were granted an additional option for 10,000 shares, while committee chairs could buy up to 20,000 shares.  Each newly appointed director would also receive a one-time option to buy 30,000 shares.

“The demand letter asserted that the compensation program constituted a waste of corporate assets, a breach of fiduciary duty and an unjust enrichment for the non-employee directors who agreed to accept the excessive levels of compensation they granted themselves,” the complaint said.

Puma made changes to the program that cap the annual compensation for non-employee directors at $1 million and shifted the stock option award metrics from a specific number of shares to a dollar amount.  So directors still receive a $50,000 cash retainer each year, but the annual stock option award is capped at $300,000, and committee service retainers have been switched to cash amounts ranging from $20,000 to $5,000.  Newly appointed directors will have the option to purchase stock up to an amount of $700,000.

These changes resulted from negotiations between the company and Leafstedt’s attorneys and were accomplished in May without the need to file a lawsuit.  Leafstedt filed the current complaint because the parties could not come to an agreement on reasonable attorneys’ fees for achieving the benefit that will save Puma more than $20 million over the next five years.

“Plaintiff’s counsel has expended considerable time and expense, completely at risk of loss and without remuneration, in pursuit of making the demand and subsequent negotiations, the resolution of which conferred substantial benefits to Puma and its stockholders,” the complaint said.  Leafstedt is asking for an equitable apportionment of attorneys’ fees and payment of legal expenses incurred in the pursuit of the demand and the negotiations, as well as the costs of bringing the current action.

The case is Leafstedt v. Puma Biotechnology Inc., case number 2017-0659, in the Court of Chancery for the State of Delaware.