Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Billing Practices

Nine Rules for Billing Ethically and Getting Paid on Time

May 27, 2019

An article on the ABA website by Todd C. Scott, “Nine Rules for Billing Ethically and Getting Paid on Time,” reports on the ethical rules on legal billing.  This article was posted with permission.  The article reads:

Henry Ferro (an Ocala, Florida, attorney) was very frustrated with his client, Ron Butler, for refusing to pay his legal fees from a criminal matter where Ferro represented Butler’s son Nick. But all chances of Ferro recovering the $14,000 he says Butler owes him were probably lost for good when Ferro ran into his client at a Lowe’s checkout line and, according to a complaint filed against him, the attorney began yelling that Butler was “a deadbeat who does not want to pay his debts.”

As a result, Ferro became the subject of a harassment complaint by his client Butler, and Butler’s new lawyer argued that not only does his client not owe the fee (because there was no written fee agreement) but also that any amount in excess of the $3,500 Butler already paid to Ferro for his son’s burglary matter would be excessive and unreasonable.

Ferro’s personal attempt to recover his unpaid fee at a Lowe’s store were not any more successful than his other attempts, which are also coming back to haunt him. According to the complaint, when Ferro’s phone calls to the client to inquire about the fees were unsuccessful, he attempted to discuss the fee issue with his client’s sister-in-law after phoning her about the matter. Butler’s harassment claim sought a temporary restraining order enjoining the lawyer from having any further contact with Butler or any member of his family about the fee matter.

Nothing is more frustrating for a lawyer who has worked diligently on legal matters than the realization that clients do not intend to pay their bills. Complicating matters is the fact that, given current economic difficulties, unpaid legal fees are on the rise, and lawyers are looking for ways to recover lost fees more than ever before.

From a malpractice carrier’s point of view, suing your client for unpaid legal fees rarely results in a good outcome. Savvy clients who know that the legal fee is owed will often turn the tables on a lawyer, filing a counterclaim alleging that the fee the lawyer seeks to collect is unreasonable or cannot be justified because the lawyer did substandard work. The client’s counterclaim may be a simple tactic to leverage a bill, but because it is a suit against a lawyer, it must be reported to the lawyer’s malpractice carrier, creating an added headache for a lawyer who just wants to be paid.

So what should a lawyer do to recover a legal fee in a matter that he or she is rightfully owed? Most practice management experts agree that the key to successfully recovering the firm’s net receivables is to take certain steps up front, at the start of the attorney-client relationship, that will put the lawyer in control of the matter if the client falls behind in paying. Also, what you do after the first time a client falls behind with a payment can determine whether you will ever recover anything for your legal services.

ABA Model Rule 1.5, Fees, is the primary regulatory guideline outlining proper fee arrangements and billing practices. The rule addresses several aspects of fee setting, including contingency fees, prohibited fee arrangements, fee sharing, and whether a fee is reasonable. Many states are now considering changes to Rule 1.5 to reflect some of the changing ways lawyers and clients are contracting for legal services. Changes to the rule include provisions on flat fees, availability fees, nonrefundable fees, and unearned fees. In Minnesota, changes to Model Rule 1.5 were adopted by the Supreme Court in late 2010 and became effective on July, 1, 2011.

Throughout Rule 1.5, a few themes are prevalent. Legal fees, whether they are fixed, contingent, or shared with lawyers outside the firm, need to be reasonable. Changes in the rule addressing availability fees and nonrefundable fees are also based on what’s considered to be reasonable billing practices. Although determining whether a bill is reasonable can sometimes be difficult, the rule does provide some factors to be considered when determining the reasonableness of a fee including: the difficulty of the matter, the fee that is customarily charged, whether the work precluded you from working on other legal matters, the results obtained, and the experience of the lawyer performing the service.

Another theme throughout Rule 1.5 centers on consumer protection and has to do with putting the fee agreement in writing. Although the rule stops just short of requiring that a fixed fee agreement be in writing, the authors of the rule state that the “preferable” method for communicating a fee arrangement to a client is in writing, and a written fee agreement is required for legal services involving contingent fees, nonrefundable fees, flat fees, and fee sharing.

So why do some clients choose to not pay their legal bills? When asked, most clients involved in legal fee disputes will tell you the primary motivator for not paying their lawyer was their sense that the amount they were being billed was unfair. Even one small item that affects the client’s sense of fairness in an otherwise large legal bill can sometimes be enough to delay payment and jeopardize the good will that the lawyer previously established. By closely following the tenants of 1.5, lawyers stand a better chance of having clients who understand the billing process and pay the legal bill on time.

The following nine rules for billing and collecting fees from clients that will help you stay on firm ethical grounds, and avoid spending a lot of time on legal work for which you will never be compensated.

1. Communicate the fee arrangement before you start the case.

Getting your client to pay your bill starts with making sure he or she fully understands what you will charge for your services. It may not be a requirement in your jurisdiction, but putting the fee agreement in writing is a good idea, and it allows both you and the client to refer to the document if there are ever any misunderstandings about the bill. Any lawyer that works for several hours on a legal matter and then discusses with the client the fee arrangement risks losing the billable time already devoted to the matter. Clients may not like what they are being charged, but if they feel they understand why they have received the charge and it conforms to what they previously agreed to, they are more likely to pay their legal bill in full.

2. Your fee better be reasonable.

The factors for determining reasonableness of a legal fee in Rule 1.5 are a good guideline for fee setting, and they should be considered on the whole. For example, your hourly fee may be appropriate for the type of work that you are doing, but if your lack of legal experience requires you to spend an inordinate amount of time performing a routine legal task, the amount you bill might be out of line with what’s considered to be reasonable. It is a good idea to take a close look at the factors for determining whether a legal fee is reasonable because they are likely to be referred to by both the lawyer and the client when parties find themselves arbitrating a legal fee dispute.

3. “Nonrefundable” does not mean that you can be paid for doing nothing.

Nonrefundable retainer agreements have caused an increase in attorney-client fee disputes; especially when a lawyer accepts a large retainer fee at the outset of a matter and the matter is soon settled or the lawyer is discharged after having done little or no work. The sense of “reasonableness” that permeates the rules on legal fees extends to nonrefundable fee arrangements, so even if your state has not yet adopted changes prohibiting nonrefundable fee arrangements, you should be ready to refund any unearned portion of your fee unless you can show the amount retained is not disproportionate to the amount of work you committed to the legal matter.

4. Verbal flat fee arrangements are as good as the paper they’re written on.

Some states have adopted changes to the professional fee rules to reflect the growing trend towards flat fee arrangements. A flat fee represents a complete payment for specified legal services and is typically paid in full in advance of the lawyer providing the services. Unless both the lawyer and the client have a clear understanding what the client will be receiving in exchange for the fee, flat fee arrangements can be fraught with misunderstandings and disappointed parties. Therefore, make sure your flat fee agreement is in writing, signed by the client, and notifies the client with specificity the nature and scope of the services to be provided, the total amount of the fee and other terms of payment, that the fee will not be held in trust until it is earned, and that the client has the right to terminate the lawyer-client relationship.

5. Availability fees are separate and distinct from legal services fee.

An availability fee is a charge that ensures the lawyer may be available to the client during a specified period of time or on a specified matter. Because the fee is only for reserving your time that could be used working on other legal matters, your writing to the client should state the fee is for availability only and that fees for legal services will be charged separately.

6. If the fee is shared with someone outside the firm, the client should know exactly where it is going.

It is never a good idea to surprise a client at the end of a legal matter by revealing to them in a remittance statement that an attorney who is not a member of the firm will be sharing in some of the fee. Clients will sometimes assume that if an outside legal expert was involved, then the lawyer they’ve been talking to all along didn’t really do anything to earn the portion of the fee that is going to them. Fee sharing between lawyers of different firms is permitted under Rule 1.5 so long as the division is in proportion to the services performed by each lawyer, the client agrees to the arrangement in writing (including the share each lawyer will receive), and the total fee is reasonable.

7. Three keys for effective invoicing: detail, detail, detail.

Clients may not always like getting a legal bill from you, but if they have sufficient information in the invoice about the legal services you performed, they are more likely to consider the bill to be reasonable and compensate you for your work. The description area for each time entry in the invoice is a prime spot to inform the client with specificity what tasks the lawyer or the staff has performed on their behalf. Even if you’ve handled tasks for which you have no intention of charging the client, let the client know about the work, how much time you spent on the task, and the fact they are getting the service for no charge.

8. When the payment is late, be direct. Clients like direct.

For individual clients that are on a tight budget, when deciding whether to pay the lawyer’s bill or the bill of the person who may have just completed shingling their garage, they think that the lawyer is sufficiently wealthy and won’t mind accepting a late payment. Maybe you don’t mind, but if you do, contact the client after the first missed payment and be direct about your expectations. Often, if you let them know that it is important, they will pay you on time. They may need to be reminded to adhere to the payment schedule in order to continue receiving legal services.

9. Foonberg’s rule: If you’re going to get burned, get burned cheap.

It is much easier to resolve fee problems with clients early on in the legal matter then later when there may be much more at stake. One question lawyers often reflect on when fee disputes arise is, “Why did I let the bill get so high?” If you have to part ways with a client who won’t pay, it is a lot easier to do if they don’t already owe you a lot of money. Jay Foonberg, author of the best selling ABA publication “How to Start and Build a Law Practice,” sums up his advice for lawyers in these situations: if you’re going to get burned, get burned cheap.

Todd C. Scott is VP of Risk Management at Minnesota Lawyers Mutual and specializes in helping lawyers understand legal ethics, risk management techniques, and legal technology systems. Todd blogs at www.attorneysatrisk.com and can be reached at tscott@mlmins.com.

How Rohrmoos Ruling Could Change Attorney Fees in Texas

May 16, 2019

A recent Law 360 story by Michelle Cassady, “4 Ways Rohrmoos Could Change Fee Fights in Texas,” reports that the Texas Supreme Court's recent opinion laying out what evidence is needed to prove up attorney fees already is being called by some practitioners the seminal case on the topic and one that could have a major impact on fee fights in the state.

In its Rohrmoos Venture v. UTSW DVA Healthcare LLP ruling, issued, the court sought to dispel what it said was confusion on the part of lawyers and courts about two methods of calculating fees: the Arthur Andersen eight-factor test and the lodestar method.  It said the lodestar method — determining fees by multiplying the number of hours spent working on the case by a reasonable hourly rate — should be the starting point for calculating fees.

The state's high court intended the 56-page opinion to be a "big black-letter case," said Jadd Masso of Clark Hill Strasburger PLC, characterizing it as "the conclusion of an evolution on the part of the court" that encompasses its 2012 opinion in El Apple I Ltd. v. Olivas and its 2013 opinion in City of Laredo v. Montano.  Masso said the lengthy opinion amounts to a "treatise on attorneys fees in Texas."  "It is the way, the truth and the life, and the only way to get fees is through the lodestar method," he said.  The El Apple decision was a signal from the court it wanted to encourage the use of lodestar, Masso said.  And with Rohrmoos, there's no more question about whether there's more than one way to prove up fees, he said.

Here are four ways that the ruling could change fee fights in Texas.

Detailed Billing Records Will Become the Norm

The Rohrmoos opinion didn't mandate real-time billing records to prove up attorney fees, but the court said they are "strongly encouraged to prove the reasonableness and necessity of requested fees when those elements are contested."  While most defense attorneys already do keep such records, the ruling will likely have a bigger impact on plaintiffs attorneys and others who work on a contingent fee or flat fee basis, said Frank Carroll of Roberts Markel Weinberg Butler Hailey.

"I think they have put the final nail in the coffin that anything short of contemporaneous billing records is sufficient," he said.  "People need to avoid the idea that 'this doesn't apply to me.'"  Carrol said lawyers doing simple, flat-rate cases for small amounts of money may not need to worry about keeping those records.  "But for everyone else: Proceed at your own peril if you don't follow the mandate of El Apple, City of Laredo, and this case."

Some defense lawyers, like Michelle Hartmann of Baker McKenzie, already are being pushed by clients into alternative fee arrangements rather than the hourly rate model.  "But we still enter all of the hours that go toward the case.  Not because we're going to bill the client for them, but to double check profitability and see if that was a good fit for both the client and the firm," she said.  "I think most defense attorneys do it now, even with flat-fee arrangements.  But this is a reminder you still need to keep good billing records."

Lawyers Could Face Lengthy Cross-Examinations on Fees

The attorney who represented UTSW in the Rohrmoos case, Wade Howard of Liskow & Lewis, said he tried at oral arguments before the high court to stress that putting hundreds of pages of detailed billing records before the jury would "do nothing" to help them determine what costs are actually reasonable and necessary.  Other practitioners have said that while the jury panel might not be going through those documents page by page, it does provide the other side "better ammunition to cross examine a lawyer," said Kelli Hinson of Carrington Coleman Sloman & Blumenthal LLP.

"They can then ask the tough questions, like, 'Why did you spend 50 hours on a motion for summary judgment that never got filed?' or 'Why were three attorneys doing this when one would have been sufficient?'" she said.  "So the jury gets the advantage of that even if they themselves don't pore through the record."  The Texas Supreme Court seemed to understand that the new guidance could have unintended consequences and warned in its Rohrmoos ruling that it was not "endorsing satellite litigation as to attorney's fees."

But courtroom opponents could easily use the records "as an opportunity to try and make the burden that the claimant has to meet even harder than this decision intended it to be," Hartman said.  And finding that sweet spot could be a years-long process, Hinson said.

"They said we don't want attorneys on the stand for days going through the bills bit by bit," she said.  "I think that's going to be where we struggle over the next few years — trying to find that fine line between what's enough and what's too much."

Outside Experts Could Be Used to Back Up Fee Requests

The ruling could also mean that attorney fees — which in many cases are the largest element of damages — will stop being treated like the "stepchild" of litigation, said John W. Bridger of Strong Pipkin Bissell & Ledyard LLP.  Bridger said that for years he's been advising other attorneys on the value of having an outside expert testify to the reasonableness of requested fees rather than the attorney on the case taking the stand.

For one, it can keep defense lawyers out of the sometimes awkward position of attacking the plaintiffs' attorney fees in front of a jury, and secondly, he said, it would encourage attorneys to spend more time developing the evidence to prove fees.  "This case only pushes us more and more toward outside experts, particularly where the attorneys' fees are larger than the amount in controversy," he said.

And the increasing amount of fees being sought is another reason calling in an outside expert could be worthwhile, said Kurt Kuhn of Kuhn Hobbs PLLC.  "It's inevitable that you're going to see people develop that evidence more. It clearly can't be an afterthought," he said.  "To get an outside expert is going to give you, in front of a jury, a little more credibility."

Counsel-to-Counsel Fee Agreements Could Proliferate

Hinson also speculated that the guidance could cause an uptick in attorneys agreeing to their respective fees ahead of time, keeping that issue out of litigation entirely.  "I do think it will be interesting to see if attorneys veer more that way so at least they know they won't get overturned for not having enough evidence," she said.

In the Rohrmoos opinion, the court "hints at" and "suggests" that stipulating to fees before trial in an agreement with opposing counsel could be a way to avoid contentious fee fights, Masso said.  Because the ruling could be interpreted as requiring "more work" on the part of attorneys trying to prove up fees, Masso said it's possible you'll see more negotiation and agreement on fees.  "This opinion makes the litigation of attorneys' fees a little more complex than it was before," he said.  "And there's no way that it doesn't result in that litigation getting a little more complex, and a little more involved and lengthy."

The cases is Rohrmoos Venture et al. v. UTSW DVA Healthcare LLP, case number 16-0006, in the Supreme Court of Texas.

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.

Judge May Get Involved in Pelvic Mesh Fee Allocation Dispute

April 23, 2019

A recent Law.com by Max Mitchell, “Pelvic Mesh Judge Isn't Obligated to Probe Allegations of 'Self-Dealing' in Fee Fight--But He Might Dive In,” reports that although allegations of fee-padding and self-dealing have roiled the pelvic mesh multidistrict litigation, the judge overseeing the consolidated lawsuits is under no obligation to investigate those claims.  But that does not necessarily mean U.S. District Judge Joseph Goodwin of the Southern District of West Virginia will turn a blind eye either.

According to court watchers, allegations that arose recently in the contentious fee dispute should give any judge pause, and may lead Goodwin, who is overseeing the vast litigation, to call for further investigation of the claims before he allocates an estimated $550 million in disputed fees.  “It seems to me the court more or less has to look into these allegations in deciding the fee dispute, and the fact that the court itself appointed this committee sounds like a further reason why the court should be interested in whether they’re behaving properly,” Rutgers University professor John Leubsdorf said.

Infighting Over Fees

The allegations arose in court filings late last month—about two weeks after the fee and compensation committee and Daniel Stack, a retired Illinois state court judge appointed to review the fee allocation process, issued their final recommendations on how to allocate the fees among 94 firms each claiming they did work for the “common benefit” of the MDL.

Specifically, Roseland, New Jersey, attorney Adam Slater of Mazie Slater Katz & Freeman wrote in a March 26 objection that plaintiffs attorney Bryan Aylstock pressured the chairman of the fee and compensation committee, Henry Garrard, to boost the amount of attorney fees to Aylstock’s Pensacola, Florida-based firm, Aylstock, Witkin, Kreis & Overholtz, which ultimately got $10 million more.  According to the objection, Aylstock threatened that his colleague, D. Renée Baggett, a member of the fee and compensation committee, would not sign off on its preliminary written recommendation if Garrard, of Blasingame, Burch, Garrard & Ashley in Athens, GA, refused to increase the fees for Aylstock’s firm.

Slater and fellow Mazie Slater partner David Mazie filed separate declarations insisting that Stack had relayed the information at a Jan. 3 meeting with them.  “Judge Stack stated that he ‘was sickened’ and ‘angered’ by this conduct, which he described as Mr. Aylstock pressuring the FCC chairman when he was particularly vulnerable,” Slater wrote in his firm’s objection.  “Judge Stack explained that he could not recommend the far lower amount he believed Aylstock deserved since he was, as he termed it, ‘put in a box’ since the agreement with the Aylstock firm included assurance that Judge Stack would not reduce the agreed-upon award.”

The objection also accused Motley Rice of padding its bills in the mesh litigation.  “Similarly, Judge Stack stated that he believed that Motley Rice (like some others in the litigation) had inflated its contributions and had ‘padded’ its time with thousands of phantom hours,” Slater wrote.  Stack told him that Motley Rice did that “in every litigation,” according to the objection.  Shanin Specter, of Kline & Specter, also filed a March 26 objection that raised similar concerns, contending that Stack “simply rubberstamped” the FCC’s recommendations.

When reached for comment, Specter said the filings raise serious allegations, and that attorneys should have a right to appeal decisions regarding the fee dispute—an issue that is currently being disputed before the U.S. Court of Appeals for the Fourth Circuit.  “As we said in our filing, firms, especially Mazie Slater, have raised troubling concerns about what’s occurred in relation to the attorney fee issue,” he said.  “Good lawyers are going to be deterred from getting involved in MDLs if they think that the rules can be changed in the middle of proceedings and there’s no right of appeal.”

Slater and Rice declined to comment about the dispute, and Aylstock did not return a message for comment.  Garrard said he could not comment beyond the FCC’s court filings.  The FCC, however, has made counterclaims against the objecting firms, accusing them of collectively making false attacks and submitting bills “riddled with excessive entries, duplicative billing” and other problems.  Garrard also specifically called Slater’s account of Alystock’s fee request false, stating that he “has never felt taken advantage of by this firm.”

“The FCC evaluated the Aylstock firm’s submission by the same criteria as every other firm, which included the opportunity to provide and receive feedback and to be heard,” Garrard wrote.  The use of such “caustic rhetoric” was “unfortunate,” he added.  “It serves no legitimate purpose for these objectors to air personal grievances or what they apparently believe to be ‘dirty laundry’ regarding alleged conversations with FCC members or with the external review specialist save perhaps to embarrass or insult,” he wrote.

But it is unlikely that response will be the end of the dispute.  Objecting attorneys have since filed replies, contesting the FCC’s accounts.  And, although the court has shot down previous requests for discovery regarding the fee allocations, attorney Benjamin H. Anderson of Anderson Law Offices in Cleveland filed a motion requesting a hearing.  “The eight members’ claims of having actually performed the work needed to justify their recovery of two-thirds of the common benefit fund are simply implausible and cannot withstand scrutiny,” Anderson said.

Where Can Courts Go From Here?

Several attorneys said that, although contentious fee disputes are commonplace in big cases, the allegations raised in pelvic mesh are outside the norm, and could lead to a variety of actions by the court depending on what allegations may get substantiated and what allegations might be shown to be false.  Court watchers noted that, unlike in class action litigations, there are no codified duties for judges presiding over MDLs to delve into the particulars of a fee dispute, and often courts simply follow the recommendations of the special master tasked with reviewing the dispute.

However, at least one attorney said there is some case law that might fall in favor of transparency, most recently a decision by U.S. District Judge Robert Kugler in In re Benicar Products Liability Litigation, which, earlier this month, issued an order saying, among other things, that all firms involved in the litigation will be given access to submissions made to the common benefit committee.

The statute governing MDLs is “barebones,” according to Penn Law professor Stephen Burbank, so disputes often arise about exactly what powers a court can exercise.  Courts are also generally reluctant to redo the work performed by special masters who oversee fee disputes, but still, Burbank said, courts generally want to review fee submissions thoroughly.  “The incentives for passing and for unfair allocation on the basis of what I’ll call politics rather than effort are pretty high, and most judges know this,” Burbank said.  “It would be very, very surprising if a judge in any context just accepted what a lawyer is proposing.”

Despite the lack of specific rules, courts generally seek to exercise broad discretion when it comes to fee disputes, Burbank said, and so a credible allegation of impropriety could set the whole fee allocation process back numerous steps.  “That might make me think, well maybe my assumption about the total amount is wrong,” Burbank said.

Among other things, judges facing serious allegations in fee disputes can hold hearings regarding the disputed hours and the rates, attorneys said.  Courts can also call for further evidence and depositions, and, depending on the findings, there could even be disciplinary implications.

Ethics attorney Thomas G. Wilkinson Jr. of Cozen O’Connor said there is little oversight regarding what exactly a “reasonable fee” should be, but, knowingly making false statements can run afoul of ethics laws regarding candor to the court.  “Any kind of knowingly false statement to the court could have disciplinary consequences,” Wilkinson said.

Federal courts are somewhat limited in what they can do if a violation has been found to have occurred, and generally their options are imposing monetary sanctions, or revoking an attorney’s pro hac vice admission.  Any proceedings regarding an attorney’s law license would have to first be initiated by the disciplinary body of the attorney’s home state.  Wilkinson said state disciplinary boards “most always will investigate further” if an issue has been brought to them via a judge’s opinion.

However, he noted that, without a request from attorneys, courts have no duty to sanction lawyers found to have run afoul of the ethics rules.  “There’s no duty on the part of a judge to send an issue to the disciplinary body,” Wilkinson said.  “Even if the judge concludes there was a violation.”

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 17, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees.  While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case.  Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong.  The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher.  After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.”  Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict.  Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order.  Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request.  That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed.  The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.”  Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute.  There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs.  Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety.  The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either.  Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition.  And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation.  The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses.  On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.  In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant.  But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure.  Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice.  The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.”  Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case.  Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed.  So, why do these cases—and understanding how they were decided and why—matter to me?  There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees.  Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded.  This is equally true before the trial court in the first instance and on appellate review.  Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment.  It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court.  On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost.  From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows.  As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions.  The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy.  And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources.  In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions).  By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group.  He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.