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Category: Fee Dispute Litigation / ADR

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.

Law Firm Settles $20M Fee Dispute in Antitrust Case

September 14, 2017

A recent Law 360 story by Dan Packel, “Ballard Spahr Settles $20M Antitrust Fee Suit With Symphony,” reports that Ballard Spahr has settled a Pennsylvania state court lawsuit aimed at recouping $20 million in fees the firm said it was owed by Symphony Health Solutions Corp. for work on a now-settled antitrust case against IMS Health Inc., according to a court filing.

The terms of the settlement are confidential, according to a Ballard Spahr attorney.  The Philadelphia-based firm sued Symphony in June 2016, alleging it was owed money pursuant to a fee agreement entitling the firm to a share of any recovery from the antitrust case, which accused IMS of illegally dominating the market for pharmaceutical and health care industry data.

Symphony filed the underlying suit in Pennsylvania federal court in July 2013 accusing IMS of preventing would-be competitors from accessing drug and health care data by entering into exclusive long-term agreements with pharmacies and providers.  A month before the antitrust suit was filed, the complaint said, Ballard Spahr and Symphony reached an agreement to substantially reduce month-to-month charges in return for a share in any recovery.

Symphony agreed to pay a monthly fee of 65 percent of fees incurred by Ballard Spahr attorneys capped at $125,000, with any excess carried over to the following month.  The complaint said Ballard Spahr was then entitled to 25 percent of any recovery below $25 million, and 15 percent of any recovery above $25 million.  The firm said its attorneys spent 53,000 hours on the case over two years.  Though Ballard Spahr blacked out the amount it believes it was owed in its complaint, Symphony said in preliminary objections in July 2016 that the law firm is seeking $19.9 million for a contingency fee payment.

The settlement inked in November 2015 to end the underlying case included the sale of AlphaImpactRx, a business spun off from Symphony, to IMS, according to the complaint.  The closing of that transaction was announced in February 2016.

However, Symphony argued in the preliminary objections that Ballard Spahr was not entitled to any money from the AlphaImpactRx sale because the company and stakeholders that made the sale to IMS were not the firm’s clients and not a party to any engagement letter.

Ruling on the preliminary objections in October 2016, Judge Patricia McInerney in the Philadelphia County Court of Common Pleas agreed to dismiss claims against certain Symphony shareholders after concluding Ballard didn't say it had provided legal services for them directly.  But she left the core of the suit intact, saying it was unclear precisely who had been a party to the fee agreement.

The case is Ballard Spahr LLP v. Symphony Health Solutions Corp. et al., case number 160501565, in the Court of Common Pleas of Philadelphia County.

Fee Allocation Dispute in MDL Moves to Texas Court

July 24, 2017

A recent Law 360 story by Michelle Casady, “RI Atty Must Face Fee Dispute Suit in Texas, Court Affirms,” reports that Texas' Fifth Court of Appeals affirmed a trial court's ruling in a fight between two plaintiffs firms, holding a Rhode Island-based attorney and his firm will have to face litigation in Texas stemming from a fee-sharing agreement with a Texas attorney and his firm.

John E. Deaton and Deaton Law Firm LLC had argued the trial court wrongly refused to dismiss him and his firm from the dispute with Texas attorney Steven M. Johnson and his firm, Steven M. Johnson PC.  Deaton, who served as local counsel for Johnson's firm in multidistrict litigation over alleged injuries from hernia mesh made by C.D. Bard Inc. subsidiary Davol Inc., argued he shouldn't have to litigate the fee dispute in Texas.

Johnson — who negotiated a global settlement for nearly 200 mesh cases the lawyers had worked on together — had argued that when Deaton signed a stipulation of nondisclosure related to the settlement amounts for Johnson's clients, Deaton became bound by the terms of the underlying attorney representation agreements Johnson signed with his clients, which stated disputes would be arbitrated in Texas.  That includes the agreement with Louisiana resident Rickie Patton, he argued.

Deaton, who argued his role in the case is defined by his fee-sharing agreements with Johnson that contain no arbitration clause, has claimed Johnson failed to pay him 5 to 10 percent of fees earned as part of the global settlement Johnson negotiated.

The Fifth Court of Appeals held that all of the Johnson law firm attorney representation agreements, including the one with Patton, contained clauses that disputes would be arbitrated in Texas.  The court rejected Deaton's argument that he wasn't a signatory to Patton's attorney representation agreement.

“We conclude that, by undertaking to represent Patton as 'associate counsel' under the attorney representation agreement and reaffirming his status by signing the stipulation as to nondisclosure, Deaton consented to personal jurisdiction in Texas under the terms of the attorney representation agreement,” the court wrote.

Deaton served as local counsel on 174 hernia mesh cases for Johnson in Rhode Island state court over a period of eight to 10 years, and worked on one case, Patton's, in federal court.  That case was initially filed in the Southern District of Texas but was transferred to Rhode Island District Court for pretrial proceedings.  Deaton hired a Texas expert witness for the Patton case, which would have been tried in Texas had it not been for the global settlement.

In oral arguments before the appellate court in May, an attorney for Deaton said while he had recommended the expert, it was Johnson who hired and paid the witness and Deaton never visited Texas during that time.

But Johnson's attorney told the panel Deaton spent eight years working on a Texas federal case, establishing jurisdiction in Texas for the fee dispute.  Although the Patton case's original pretrial proceedings were in Rhode Island, Deaton's pretrial work was all aimed at a trial in Texas, and he had availed himself of the protections of the state.

NALFA’s Fee Dispute Mediation Program Achieves 86% Success Rate

July 19, 2017

NALFA’s Fee Dispute Mediation Program is the nation’s only program devoted exclusively to resolving attorney-client fee disputes.  NALFA’s Fee Dispute Mediation Program recently reached an achievement:  Since the program began, NALFA’s Fee Dispute Mediation Program has achieved an 86% success rate—parties who mediate in a session are resolved six out of every seven times.  This rate is significantly higher than most bar-administered fee dispute programs.  NALFA has settled over $5 million in disputed attorney fees between parties in over 40 cases.  The cases were brought by corporate clients and law firms ranging from fee disputes of $32,000 to $975,000 from across the U.S.  One fee dispute case was from the UK.

Attorney fee disputes are the result of a breakdown in the attorney-client relationship.  This breakdown may be a misunderstanding in the fee agreement or confusion over the law firm billing records.  Whatever the cause, mediation is the quickest, simplest, and most cost-effective way to resolve these attorney fee disputes.  NALFA fee dispute program is a private mediation service specifically designed to resolve attorney fee disputes of all types and sizes.

NALFA's fee dispute mediators are uniquely qualified to resolve fee disputes between parties in a cost effective and confidential manner.  These fee dispute mediators are trained neutrals who understand the underlying issues in fee and billing dispute matters.  Our fee dispute mediators are highly knowledgeable on reasonable attorney fees and proper legal billing practices.  They understand the array of issues in fee dispute cases such as fee agreements, hourly rates, billing practices and attorney fee ethics.

Unburden by bar association rules, NALFA provides parties with a mediation process that is flexibility, responsive and cost-effective.  Parties control when and where the mediation will occur, who will serve as the mediator, and whether they will accept a settlement offer.  Unlike most bar-administered programs, NALFA stays with the fee dispute case as long as necessary to bring it to a resolution.

"Our 86% success rate belongs to the outstanding work of our members, some of the nation's top rated fee dispute mediators," said Terry Jesse, Executive Director of NALFA.  "Their understanding of fee issues and their mediation skills are the reason we're celebrating this achievement," Jesse concluded.

Texas High Court to Hear $7.2M Fee Dispute

June 26, 2017

A recent Texas Lawyer story by John Council, “Texas High Court Picks Up Oil Family’s $7.2M Attorney Fee Fight,” reports that one of Dallas' wealthiest families has frustrated federal courts with their bitter trust fund dispute for nearly a decade.  Now the Texas Supreme Court wants to jump in with a $7.2 million attorney fee dispute.

Hunt v. Hill involves a fight between the heirs of the Hunt family's oil fortune.  The case was settled in a U.S. District Court in Dallas in 2010 but continues to live on in numerous federal appeals over the distribution of trust funds and fee disputes among family members and their attorneys.  The Texas high court recently decided to hear one such fee dispute, Albert G. Hill Jr. v. Shamoun & Norman.

In this case, Dallas' Shamoun & Norman sued former client Albert G. Hill Jr. in state court alleging he owed them a multimillion-dollar "performance incentive bonus" for helping settle Hunt v. Hill.  But Hill countered he never signed a contract agreeing to pay that attorney fee.

A Dallas jury later awarded Shamoun & Norman $7.2 million in attorney fees under the theory of quantum meruit for the reasonable value of the services it rendered to settle those suits.  But the trial court set aside the jury's verdict and rendered a take-nothing judgment in Hill's favor — a decision the Fifth Court of Appeals reversed.

Hill appealed the verdict arguing he shouldn't have to pay for a bonus that was never put in writing.  The Texas Supreme Court agreed June 16 to hear the case to determine whether attorneys can recover fees under the theory of quantum meruit if their oral contract is unenforceable.

The opposing parties will bring two of the biggest guns in Texas appellate law with them to the high court's oral arguments.  Shamoun & Norman is represented by former Texas Supreme Court Justice Wallace Jefferson, who is now a partner in Austin's Alexander Dubose Jefferson & Townsend.

Hill is represented by James Ho, a former Texas solicitor general and partner in the Dallas office of Gibson Dunn & Crutcher, who's mentioned as a potential candidate for the U.S. Court of Appeals for the Fifth Circuit.

"This lawsuit exemplifies why so many Texans have such disdain for lawyers.  Texas law prevents attorney fraud and abuse by requiring lawyers to reduce contingency fee agreements to writing," said Ho, who has lined up considerable amici support for Hill's position.  "It is a simple requirement, and we agree with the district judge, the solicitor general, and the business community that it should be enforced, not nullified by lawsuits like this."