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Category: Billing Practices

$88M Cut From $157M Fee Request in Namenda Class Settlement

June 15, 2020

A recent Law 360 story by Pete Brush, “$88M Cut From Requested $157.5M Atty Fee in Namenda Deal” reports that a Manhattan federal judge slashed nearly $88 million from a $157.5 million fee award requested by Garwin Gerstein & Fisher LLP and five other firms for guiding wholesalers of the Alzheimer's drug Namenda to a $750 million antitrust settlement with a unit of Allergan PLC.

After hinting she would reduce the payout, U.S. District Judge Colleen McMahon held Monday that six law firms that alleged Forest Laboratories Inc., a unit of Ireland-based Allergan, thwarted generic competition through unlawful "pay-for-delay" tactics are entitled to $69.538 million.  "It is still a handsome payday for counsel," Judge McMahon wrote, after cutting the request for about 21% of the settlement proceeds for plaintiffs' counsel down to about 9.3%.

The judge approved the lawyers' request for $5.8 million of expenses in the nearly five-year-old litigation, but slashed proposed $150,000 payouts for the two Namenda wholesalers that represented the class — Smith Drug Co. and Rochester Drug Co-Operative Inc. — by 50% to $75,000 each.  "Frankly, this was attorney-driven litigation.  All the class representatives really did was sit for a deposition," she wrote, calling the class reps' contributions "minimal."

Reasoning why she slashed the award, Judge McMahon said that the firms engaged in "duplicative work" — "or, in some cases triplicative or quadruplicative work" — and "inflated" their total number of hours worked.  "Class counsel's time sheets lack sufficient granularity to separate the productive hours from the wasted ones," she wrote.

The wholesalers had claimed Forest deployed a two-pronged strategy for keeping generic rivals to Namenda off the market, including unlawful "pay-for-delay" arrangements and "product-hopping" tactics that shielded its profits long after generic rivals should have developed robust sales.  A not-uncommon effort to settle ahead of trial led to the uncommonly large payout — one of the largest in the history of Hatch-Waxman Act generic-drug approval cases. Allergan admitted no wrongdoing in the deal.

"I fully understand why Forest settled this case for a large number.  Its downside was huge; this was a 'bet the company' case," Judge McMahon observed — awarding the plaintiffs' firms "twice the lodestar" but not "anything like the 4.5 times lodestar requested."

Judge McMahon also didn't like what she characterized as a suggestion that the six plaintiffs' firms should get an outsized payday to make up for the times they don't win.  "I am absolutely unmoved — indeed, I am offended — by the argument that class counsel deserves a humongous fee award in this case because 'the winning cases must help pay for the losing ones,'" she wrote.

Article: Five Tips for Drafting Effective Legal Billing Guidelines

June 11, 2020

A recent Law 360 article by Chris Seezen, “5 Tips for Drafting Effective Legal Billing Guidelines” reports on tips for drafting effective legal billing guidelines.  This article was posted with permission.  The article reads:

Relationships with outside counsel have taken on increased scrutiny as companies become more focused on the administrative processes of their legal departments and the work they do.  As a result, legal departments are looking more closely at the law firms they hire, what they pay those firms and the outcomes of the cases they've handled.

To properly manage outside counsel, it's imperative to implement and maintain effective legal billing guidelines.  These rules serve as a working guide to determine expectations and processes, allowing a legal department to decide with their law firms what they will and won't pay for, to set processes for staffing cases and requesting rate increases, and to lay out how matters will be handled.  This can include whether a company has a specific budget on a given matter and when it should be submitted, how budget revisions should be handled, or what to do when a matter goes over budget.  It's all about setting the table with the necessary information before the work begins.

Drafting legal billing guidelines requires a legal department to actively assess its case management practices, evaluate its law firm relationships and monitor ongoing guideline compliance — all of which are beneficial to keep track of. While some vendors or partners might not need much beyond a simple contract — such as an IT team, for example — when working with a more complex and costly service such as a law firm, having legal billing guidelines in place is a wise step for the investment and relationship.

To draft effective and enforceable legal billing guidelines, legal departments should consider the following:

Include all pertinent information in an easy-to-read format.

Including a process for law firms to get authorization for new timekeepers or rate increases, or determining a specific person in the department these requests should be sent to are examples of the kind of information that should be ironed out before a new law firm relationship begins.  Depending on the size of the firm, invoicing may be handled primarily by a billing department that doesn't have direct involvement in the matter, so providing all necessary details will improve compliance.

Additionally, most companies prefer to be billed monthly, but some may only want to be billed once services reach a certain amount and may request for the firm to hold the bill until the next pay cycle.  This is another matter that should be determined before work rolls out.  Although the latter option is a convenient way to cut down on administrative costs, monthly bills are still recommended as they keep information flow consistent and recent legal tasks top of mind.

Similar to other business documents, billing guidelines should be organized and presented in an easy-to-review format.  This may include using bullet points and lists instead of long sentences or paragraphs.  Additionally, similar items should be positioned together or organized in categories to keep the guidelines as straightforward as possible, such as travel bills/logistics, noncompensable administrative processes, etc.

Providing a brief overview that highlights the takeaways or expectations in bite-sized format, in addition to a more in-depth document, will also help to present the guidelines in a digestible way that supports compliance.

Identify the purpose of the guidelines.

Many legal departments use these guidelines to better control outside counsel costs.  In this case, they should outline all areas considered noncompensable (such as office overhead, scheduling or review of local rules) or that will have a cap.  The guidelines may also include protocol on matter management practices such as status update requirements or case staffing limitations.  Including this information, as well as requirements for any possible exceptions, will inform outside counsel how to approach similar matters upfront.

Draft a living document and reevaluate the guidelines as needed.

Although important to determine at the outset of the relationship, billing guidelines for outside counsel should not be set in stone.  While what's initially decided and drafted may seem appropriate, needs may change once set into practice and as time goes on.  Some requirements may prove too burdensome on outside counsel while other areas may be too lenient.  Additionally, there will always be that one matter that's the exception to the rule and the guidelines should cover those outlier cases.  Implementing an annual review of the billing guidelines will allow general counsel to revise and incorporate new procedures that best fit the company's needs.

Failing to review the guidelines regularly can cause legal departments to miss accommodations such as new travel time billing (for a case in a city with heavy traffic, for example) or important regulatory changes that may surface.  Therefore, even though a good rule of thumb is to review and update the general guidelines annually, the above situations and others like them should be updated in real time.  It's important to maintain a process that supports the company's evolving requirements.

Additionally, many billing guidelines include hiring protocol to cover what kind of attorney a company wants working on their claims, who will be carrying out tasks that vary in complexity, and what the rate will be for each.  When reviewing bills more closely to ensure they adhere to preexisting guidelines, companies are more likely to catch discrepancies in these agreements (such as an attorney billing time for work that a paralegal should be doing) and can call attention to the matter, lower their rate, or revise the guidelines to reflect the request.

Anticipate and prepare for resistance.

No one likes someone looking over their shoulder or second-guessing their work.  Outside counsel provides a valuable service to legal departments and should be properly compensated for it.  However, some law firms may be resistant to the implementation of billing guidelines, viewing them as intrusive or in place only to cut their bills.  Billing guidelines are becoming standard practice for legal departments, and almost every law firm has a client with billing requirements.  Informing outside counsel of the guideline implementation, as well as the purposes behind it, will help to alleviate any misunderstanding or animosity.

Stand by the guidelines.

The most important piece to consider when implementing billing guidelines is enforcement.  Many legal departments have them in place, but don't have the internal resources to ensure outside counsel is complying.  Failing to enforce the guidelines not only makes the time and effort to draft them a waste, but it can also undermine a company's position with its outside counsel.  In a newer relationship, enforcing the guidelines sets an important precedence.

To ensure all expectations are fairly treated in the event of a billing discrepancy, companies can ask to adjust the current bill down or request a current or future discount.  Referring to the guidelines will serve as leverage for this request.  For law firms that continue to violate agreements, companies have every right to discontinue their work with them.

The purpose of this method is to more clearly show rates that are being paid for the work that's being done.  Fostering a fair and transparent process is the ultimate goal.

Drafting, implementing and enforcing legal billing guidelines for outside counsel allows legal departments to be stewards of their company resources while maintaining control over case management.  For cost savings, streamlined administrative processes and deeper insight into their billing procedures, companies must invest the adequate time and effort into their initial and evolving guidelines — the foundation of a productive relationship with outside counsel.

Miami Attorney Wins Major Fee Dispute Against Big Tobacco

May 29, 2020

A recent Daily Business Review story by Raychel Lean, “In Rare News for Plaintiffs Lawyers, Miami Attorney Stages Fee Fight Against Big Tobacco – And Wins $2.4 Million” reports that the first court order sanctioning a Florida Engle progeny defendant with attorney fees has landed, and it’s causing a stir.  Four years after R.J. Reynolds refused a $250,000 settlement offer, Coral Gables attorney Richard J. Diaz secured a $2.4 million fee award for his client — more than double the $1 million in compensation jurors awarded at trial.

Miami-Dade Circuit Judge Alan Fine awarded the fees, along with $117,500 in costs, after a Zoom bench trial.  It’s an outcome that Diaz says shows just how stubborn tobacco giants can be in defending themselves from lawsuits over smoking-related illnesses and could even signal a new era of reckoning for the industry.

Of the roughly 150 Engle plaintiffs who could have fought for fees thus far, 145 of them settled, according to Diaz, who said that’s often because plaintiffs lawyers don’t keep time records the way defense firms do.  But that could change, as Diaz says he’s received an influx of calls from plaintiffs attorneys now inspired to push harder for fees.

“I think this now has motivated a lot of plaintiffs lawyers to stop settling these fee claims and start fighting them because they’re realizing that they’re leaving half a million to a million dollars on the table every time,” Diaz said.  “Then the counter effect, I think, will be that they [tobacco defendants] will be more reasonable and, ultimately, we’ll be able to settle more of these claims.  But sometimes they’ve got to get hit too many times to realize they’re getting hit, and then they’ll back down.”

This case revolved around Stefanny Sommers, who sued in 2008 on behalf of her husband Bert Sommers, a wealthy lawyer and real estate developer.  He died in 2007 after smoking for decades and suffered from multiple smoking-related diseases.  The case meandered through the courts and changed hands with various lawyers before Diaz came aboard in 2014.  He almost went straight to trial, but litigation stalled after jurors were blocked from considering punitive damages.  After about three years, Sommers opted to try the case while the appeal continued to play out.

It was a “royal nightmare” figuring out how many hours had been spent on the case, according to Diaz, as plaintiffs lawyers don’t normally keep meticulous records.  It meant opening every email and attachment, combing through phone records and filings, and being deposed.  One lawyer even shut down his practice for two weeks to reconstruct his bills, but Diaz said it was worth the effort.

“Out of those 150 opportunities to get huge fee awards from the defendants, only about five times have lawyers challenged it because it is so labor intensive,” Diaz said.  ”The tradition has been to kind of just take whatever you think you can get and the numbers are what they are, but I made a decision a year ago that I was going to take them on, fight them and see what I could do.”

Diaz said he now requires his team to use billing software, having estimated that they missed out on at least 10% of their fees because of a lack of meticulous business records.  “It taught us a lesson.  This will not happen again,” Diaz said.  “They won’t have the ability to attack whether the records were sufficiently accurate, contemporaneous and complete."

Article: How to Avoid Attorney Fees Disputes in California

May 25, 2020

A recent Daily Journal article by Heather L. Rosing and David M. Majchrzak, “The Evolution of Fee Disputes: How To Protect Yourself in a New Day & Age” reports on avoiding attorney fee disputes in California.  This article was posted with permission.  The article reads:

While attorneys and clients have always disputed over fees, the number and severity of clashes appear to have risen in recent years, with notable consequences.  We are a service industry, and what we are selling is our skill and our time, with only so many hours in the day.  If an attorney is not paid, especially if that person is in a small firm or in solo practice, the situation can have a significant impact on the ability to continue operations and meet expenses.  It is therefore critical for every practitioner to carefully examine ways of avoiding these disputes, which can also sometimes lead to counterclaims for legal malpractice.

The #1 best way for an attorney to achieve protection is to pay close attention in the case intake process.  Many attorneys embroiled in fee disputes have bemoaned accepting the client in the first place.  “Why didn’t I see the red flags?  If I did anything wrong, it was accepting this client despite my gut feeling that it was a bad idea!”

When considering accepting a new client, the attorney should ask why the client needs legal services and what the goal is.  Understanding what your client hopes to get out of the representation will allow you to assess what it will cost to provide the services.  In turn, this allows you to formulate a rough budget, and discuss with the potential client whether that person has ability to fund the representation.  A large number of fee disputes occur simply because the client is surprised by the cost of legal services and is not financially prepared for the situation.

Another critical inquiry is whether the client has had other attorneys assist with the same matter.  Who came before you?  Were they terminated?  Does the client owe them money?  Maybe there were several attorneys before you.  What does this mean?  Is it a red flag?  If the potential client’s history of representation makes you uncomfortable, this may not be the right client for you.

Once you have decided to accept the representation, it is time to fashion the fee agreement, which requires a careful examination of Business and Professions Code Section 6147 for contingency fee matters and Business and Professions Code Section 6148 for hourly matters. Among other requirements, these statutes mandate that fee agreements must be signed by both the attorney and the client.  The client must be provided with a copy.  Critically, the failure to ensure that your fee agreement conforms to the statutory requirements of the Business and Professions Code could give the client having the option of voiding your fee agreement, leaving you with a quantum meruit claim, which is less preferable than a fee claim based on a contract.

But complying with the Business and Professions Code is not enough.  The agreement should clearly state the scope of the representation, and, in certain circumstances, discuss what is not included.  If neither you nor the client are clear on exactly what you are doing for the client, a fee dispute may ensue.  The 1993 case of Nichols v. Keller, 15 Cal. App. 4th 1672, further describes the potential malpractice-related consequences of failing to clarify the scope of engagement and make referrals on issues related to your representation.

For hourly engagements, it is also important to determine whether an advance retainer is necessary and whether the client has the ability to make that payment.  If, for example, you are going to represent someone in a business litigation matter, and you request a $10,000 retainer, and they balk, this is a good indicator that they will not be able to sustain your fees.  Prudent practitioners often times require that the retainer be regularly replenished and that the client provide a special pretrial retainer in an amount necessary to try the case 60-90 days before trial.

While a properly drafted contingency fee agreement provides the attorney with a lien on the recovery, hourly arrangements do not automatically include a lien.  If an hourly attorney is interested in securing a lien through the initial fee agreement, Rule of Professional Conduct 1.8.1 (Business Transactions with a Client and Pecuniary Interests Averse to the Client) and the 2004 case of Fletcher v. Davis, 33 Cal. 4th 61 should be studied.  It is possible to obtain a valid charging lien in an hourly case with the proper documentation, and it is oftentimes prudent to get one if there is an expected recovery from a third party.

Another consideration is whether your arrangement is for a flat fee.  Rule of Professional Conduct 1.5 not only discusses the concept of an unconscionable or illegal fee, but also, in subsection (e), sets forth the circumstances in which a flat fee is allowable.  This must be read in conjunction with Rule of Professional Conduct 1.15(b), which describes the special language that must be included in the fee agreement in order to place a flat fee in your operating account.  It is also important for an attorney to clearly differentiate between an advance retainer and a flat fee for the client, as unsophisticated consumers of legal services may not readily understand the difference.

The fee agreement should also discuss the issue of fee disputes up front.  For example, you can include language that says that the client should bring any problems with any bill to your attention within 30 days of receipt, so that you can proactively address them.  The agreement can also let the client know that, in the event of a fee dispute, the client has the option of participating in mandatory fee arbitration through the local bar association, pursuant to Business and Professions Code Section 6200 et seq.  In the event that the dispute cannot be resolved through Bar Association arbitration, the fee agreement can mandate private arbitration, if that is your preference.

There are many resources for crafting the best fee agreement.  The State Bar of California has form fee agreements at www.calbar.org, and some legal malpractice insurers provide sample language. It is important, though, to take the time to customize every fee agreement to the specific situation, so both the attorney and the client are clear on the terms of engagement from the outset.

The next step in avoiding fee disputes is to do upfront budgeting combined with the issuance of regular bills.  There is no downside to letting the client know early and often what the matter will cost. In litigation, because the cost can vary significantly based on how the dispute evolves, it may be necessary to update the budget at regular intervals.  Disputes are far less likely if the client is not surprised by a bill.

Business and Professions Code Section 6148 discusses certain requirements for billing fees: “All bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”  For costs, the statute requires that “[b]ills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  There also certain requirements about responding to a client request for a bill.

The State Bar of California also provides use full guidance to attorneys in the form of fee arbitration advisories, which can be found at http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-AdvisoriesThese advisories deal with a variety of common issues, such as bill padding, nonrefundable retainer provisions, determination of a reasonable fee, the form of proper billing, and much more.  Knowing upfront what can cause a fee dispute puts you way ahead of the game.

Another key to avoiding fee disputes is clear communication.  The Rules of Professional Conduct require that attorneys keep clients updated on significant developments.  The proactive practitioner, however, will go far beyond this, frequently talking and emailing with the client about case status, strategy, goals, and budgeting.

Sometimes, however, despite clear and frequent communication about the matter and regular bills, the client simply lacks the cash flow to fund the continued representation.  In that instance, the attorney should have a candid conversation with the client as soon as possible.  It may be that the client is desirous of settlement in light of the situation.  The client may choose to liquidate investments or seek the help of friends and family members to fund the representation.  It may be that a payment plan is appropriate.  It may be that the attorney is comfortable continuing with representation because the attorney has a valid lien that complies with the Rules of Professional Conduct.  A failure to proactively address nonpayment, however, exacerbates the situation and increases the likelihood of a disintegration of the attorney-client relationship.

The consequences of allowing a full-blown fee dispute to emerge can be severe.  Not only can the fee dispute affect the ability of the attorney to run his or her law firm, but fee disputes can lead to counter allegations of malpractice, true or not.  It is well-known that lawsuits for fees invite cross-claims for malpractice.  Then, the attorney has to fund an insurance deductible and faces the prospect of increased premiums (and potentially insurability issues) in the future.  If the attorney is uninsured, this means that he or she must raise or reserve a substantial sum for the defense of the claim.  Litigation over the malpractice issues also interrupts the attorney’s normal operations and can cause high levels of stress and anxiety.  Finally, even an attorney goes through the whole process to secure a judgment for his or her fees, there may be issues with collectibility and bankruptcy.  Most fee awards are dischargeable in a Chapter 7 proceeding.

The solution is straightforward and commonsensical — a thoughtful case intake procedure, a tightly crafted fee agreement, proactive budgeting, and regular billing and communications.  These four steps will help you maximize your revenues, best serve the clients, and avoid unpleasant proceedings with client you once served.

Heather L. Rosing and David M. Majchrzak practice in the areas of legal ethics, risk management, and litigation of professional liability claims at Klinedinst PC in San Diego.

Associate Hourly Rates Inch Over $1K in Big Bankruptcy

May 22, 2020

A recent American Lawyer story by Samantha Stokes, “Associate Hourly Billing Rates Surge Past $1K as Firms Snap Up Bankruptcy Work” reports that the coronavirus pandemic quickly upended the economy and sent already struggling companies into free-fall, with retailers such as J.Crew, Neiman Marcus and J.C. Penney among those filing for Chapter 11 protection in recent weeks.  Recent court filings highlight the avalanche of fees these new cases are already generating for Big Law restructuring practices.

Take J.Crew, which was the first major retailer to succumb during the pandemic.  In the 90 days leading up to the company’s Chapter 11 petition May 4, it paid or advanced its lawyers at Weil, Gotshal & Manges close to $12 million, according to court papers filed this week seeking formally to hire the firm as debtor’s counsel.  The Weil team is led by New York partner and restructuring practice co-chair Ray Schrock.

The fees were bolstered by the firm having just recently increased its hourly rate for lawyers and paraprofessionals alike.  Signaling a new era, some Weil associates are now billing more than $1,000 per hour—a milestone that was surpassed only about a decade ago at the level of Big Law partners—making it one of the first firms to break that pricey barrier.

Weil said in the J.Crew filing that it had increased its standard billing rates in October 2019.  Members and counsel are now billing from $1,100 to $1,695 at the firm; associates are billing $595 to $1,050; and paraprofessionals are billing between $250 and $435 per hour.  Previously, the firm’s rates topped out at $1,600 for partners and $995 for associates, according to the filing.

While the partner and associate rates stand out, the paraprofessional fees can add up too.  Last November, when the firm billed $10 million for one month of work on the Sears bankruptcy, a single paralegal’s billings added up to 431 hours at $405 per hour—more than 14 hours for every day of the month.

Weil isn’t the first firm whose associate rates have topped $1,000 per hour, and its rates aren’t even the highest.  When Kirkland & Ellis signed on to represent Barney’s New York—one of last pre-pandemic retail bankruptcies—it said in a filing that associates’ rates reached $1,125 per hour.  At Skadden, Arps, Slate, Meagher & Flom, at least two associates working on the McClatchy newspaper company bankruptcy have also billed over $1,000 per hour.

Efforts to reign in ballooning law firm fees have received little traction in recent years, though creditors, shareholders and employees occasionally raise alarms.  A group of small Sears creditors awaiting payment filed an objection to Weil’s fees in that company’s Chapter 11 late last year.  Weil, which did not respond to a request for comment, is just one of a growing gaggle of fee-earning firms in the new retail bankruptcies filed so far in May.  Neiman Marcus and J.C. Penney both turned to Kirkland & Ellis in those cases, though the firm has yet to disclose pre-petition fees.