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Category: Challenging Fees

Hourly Rates and Billing Practices Questioned in Ditech Bankruptcy

December 13, 2019

A recent American Lawyer story by Samantha Stokes, “Weil Facing Sharp Fee Objections in Ditech Bankruptcy,” reports that a U.S. trustee is asking a New York bankruptcy judge to slash fees of Weil, Gotshal & Manges and other law firms, criticizing their billing tactics and invoices in the ongoing reorganization of a mortgage origination and servicing business.  The fee applications in the Chapter 11 case of Ditech Holding Corp. “reflect numerous instances of questionable billing judgment and overstaffing,” said the U.S. Trustee’s Office in New York in court documents.   In all, professionals in the Ditech bankruptcy in the Southern District of New York billed $49.46 million for several months of work in 2019—including nearly $26 million by six law firms.

William Harrington, the Region 2 U.S. trustee, had sharp objections to fees and expenses from Weil, debtor’s counsel, as well as Pachulski Stang Ziehl & Jones, counsel to the committee of unsecured creditors.  The trustee sought to cut $451,081 from Weil’s bill and $82,779 from Pachulski Stang’s.  For its part, Weil billed $17.85 million in fees and about $443,800 in expenses for work done from Feb. 11 to Sept. 30 of this year, according to the filing.  But the trustee found the firm’s partners charged Ditech an average of $116 an hour more than it charges non-bankruptcy clients and that associates also billed higher rates than they do in other cases.

Bankruptcy rates “must be held commensurate with those charged by other practice areas” and Weil “failed to meet” the burden to demonstrate these higher fees were reasonable, the trustee said.  “Absent a sufficient justification for the discrepancy … the requested fees should not be approved.”  In specific fee objections, the trustee sought to cut $65,082 reduction for block billing, in which the firm lumped together two or more tasks without specifying the total time spent on each task; $374,824 reduction for vague billing entries; and $11,175 for excessive conference staffing.

The trustee, finding instances where Weil professionals billed for meals and local travel on days when they billed for fewer than four hours, also requested a $25,000 reduction in expenses.  California-based restructuring boutique Pachulski Stang also overbilled, according to the trustee.  The trustee sought reductions of $53,653.25 for vague billing entries; $23,446.50 for transitory professionals, who bill small amounts in a case and might provide questionable benefit, as well as “grazing,” or billing nonproductive hours such as attending meetings or reviewing correspondence; and $5,697.50 for unexplained duplicate fee entries.  The trustee sought an expense reduction of $2,001.26 for local travel, airfare and meals exceeding limits.

From Feb. 26 to Sept. 30 of this year, Pachulski Stang has billed about $2.1 million in fees and $41,074 in expenses.  Two law firms—Bradley Arant Boult Cummings, as special counsel to debtors, and Rich Michaelson Magaliff, as special industry counsel to committee of unsecured creditors—agreed to reduce fees and expenses after the trustee raised concerns, according to court papers.  Bradley Arant, which billed just over $2 million in fees and $13,329.14 in expenses from Feb. 11 to Sept. 30, reduced expenses so no meal was billed at more than $20, the maximum allowed by the Southern District of New York.

Rich Michaelson had significant time billed under “case administration,” according to the trustee, and after a discussion, it agreed to a $10,000 fee reduction for this work. In all, the firm billed $365,880 in fees and $7,803.15 in expenses from Feb. 26 to Sept. 30.  Other law firms involved in the case include Orrick, Herrington & Sutcliffe, serving as special securitization counsel for debtors and billing nearly $1 million in fees and $3,476.45 in expenses from April 1 to Sept. 30; and Quinn Emanuel Urquhart & Sullivan, which is counsel to the official committee of consumer creditors and which billed about $2.49 million and $87,092 in expenses from May 6 to Sept. 30.  The trustee did not request any reductions from either firms’ applications.

DOJ Asks Federal Circuit to Toss $7M Fee Award

December 5, 2019

A recent Law 360 story by Tiffany Hu, “DOJ Asks Fed. Circ. To Scrap Dentons’ $7M Fee Award,” reports that the U.S. Department of Justice is asking the Federal Circuit to wipe out $7.4 million in attorney fees secured by Dentons in a lawsuit accusing the Navy of infringing a company’s patents in a combat ship, saying the lower court went “too far” in its analysis.  In an opening brief, the DOJ said that the U.S. Court of Federal Claims in July incorrectly awarded attorney fees to Dentons for its work on behalf of FastShip LLC, which claimed that some of the Navy’s combat ships infringed two of its patents.

Among other things, Judge Charles F. Lettow had found that the federal government’s opposition to FastShip’s lawsuit was not “substantially justified” under a federal provision governing the amount that can be recovered in a lawsuit against the government.  That provision says a patent owner can get reasonable compensation in a suit against the government unless the government's position was substantially justified.

The DOJ argued that Judge Lettow erred in considering the government’s conduct before litigation, as the provision in question restricts the patent owners’ compensation to costs incurred “in pursuing the action,” the department said in its brief.  But even if pre-litigation conduct could be considered, the DOJ said, the judge went “too far” when he relied on certain allegations that either had nothing to do with the present lawsuit or the claimed use of the invention.

“This construct is unduly broad even if some pre-litigation conduct could be considered,” the DOJ wrote.  “The CFC’s definition goes well beyond the ‘claim’ — i.e., the facts necessary to establish infringement — and into some ill-defined totality of facts that include the procurement actions of contractors in which the government was not involved.”  The department urged the Federal Circuit to toss the lower court’s award of fees and costs and to send the case back to the court to reconsider whether the government’s position in the present action was “substantially justified.”

Judge Lettow ruled partly in favor of FastShip in 2017, finding that one ship, LCS-1, had infringed, but that a second, LCS-3, and any that followed in the class had not because they were still being manufactured when the patents expired.  The Federal Circuit in June 2018 upheld Judge Lettow’s ruling and raised the damages award slightly to $7.1 million. FastShip ultimately recovered $12.36 million for the infringement, including delay damages, Judge Lettow wrote in his July order.

Judge Lettow’s July ruling said that the “conduct of the government, both before and throughout this litigation, belies its argument that it was ‘substantially justified.’”  The judge said that among his reasons for awarding the fees and costs was that FastShip met with Lockheed during the procurement process and shared its patent technology, but that FastShip was ultimately not included as a part of the team.

“Lockheed Martin would go on to manufacture the Freedom class of ships for the government, with a completion and infringement date for LCS-1, of September 26, 2006,” Judge Lettow wrote.  The judge also questioned if the government had done a proper investigation after FastShip filed an administrative claim with the Navy in 2008.  The Navy said it did a “thorough analysis” and found no infringement after the claim was filed, although it did not share the analysis with FastShip when it wrote the company a letter after it “sat” on the claim for two years, he wrote.

“At best, this was a perfunctory response to the concerns of FastShip that ultimately proved legitimate.  At worst, it may have delayed FastShip’s filing of its claim in this court by two years,” Judge Lettow wrote.  The judge made partial adjustments to the $8.72 million of fees and costs requested by FastShip, ultimately awarding more than $7.4 million, including over $6.17 million in attorney fees and related expenses, and over $1.2 million in costs.

Second Circuit Upholds $300M Fee Award in Forex MDL

November 1, 2019

A recent Law 360 story by Anne Cullen, “2nd Circ. Upholds $300M Atty Fees in Forex Rigging Case,” reports that the Second Circuit downed an objector's efforts to lop more than a third off a $300 million fee award for the firms that scored an investor class billions of dollars in settlements from banks accused of rigging interest rates in the foreign exchange markets.  In a short, unpublished decision, a three-judge panel backed the fee award to lead counsel Scott & Scott Attorneys at Law LLP, Hausfeld LLP and other firms, rejecting arguments from sole objector Keith Kornell, who had insisted the attorneys' cut should have been closer to $190 million.

While Kornell had argued that any risk the firms faced taking on the case disappeared just over a year into the litigation when the investors cut the first deal, the Second Circuit found his theory runs counter to well-settled case law that states "litigation risk must be measured as of when the case is filed."  In addition, the panel said, "this contention ignores that claims against the other defendants remained unresolved."

Kornell had also argued that the lower court made a mistake when it relied on total hours in calculating the lodestar, rather than a breakdown of hours by time, task and defendant.  But the panel rejected that argument as well.  The panel said the Second Circuit previously held that "when a court relies on the lodestar 'as a mere cross-check, the hours documented by counsel need not be exhaustively scrutinized by the district court."'

The litigation kicked off in 2013, when investors accused 16 major banks — including Bank of America, Citigroup and Morgan Stanley — of manipulating the benchmark rates used in forex transactions involving millions of dollars' worth of their assets.  Five years later, after settlements totaling $2.3 billion had been reached with all but one of the banks, a New York federal judge ruled that the investor class' counsel could walk away with 13% of the pot.

The fee award was lower than the $381.4 million the firms had wanted, but Kornell indicated in a December appeal notice that he still believed the award was too high, although investors have expressed doubt about Kornell's motive or actual involvement in the case.

$62.5M in Fees in $250M Alibaba Securities Class Action Settlement

October 18, 2019

A recent Law 360 story by Dean Seal, “Rosen Law Gets $62.5M Award as Alibaba Deal Gets Final OK,” reports that a New York federal judge granted final approval to a $250 million settlement that resolves securities claims against Alibaba Group Holding Ltd. and provides class counsel, The Rosen Law Firm PA, with $62.5 million in fees.  U.S. District Judge Colleen McMahon found that a 25% cut of the settlement was reasonable for the firm that spent years representing investors who claimed Alibaba misled them ahead of its $25 billion initial public offering, noting that the firm "undertook a complex, expensive and likely lengthy litigation with no guarantee of compensation."

"Plaintiffs' counsel received no compensation for more than four years of litigation and advanced nearly $4 million in expenses that might never have been recovered," Judge McMahon said.  "The court finds that the contingency risk in this case supports the requested award."

The judge also granted the class attorneys' request for almost $4 million in expenses and $12,500 for each of the five class representatives.  The order closes the book on a securities class action that claimed Alibaba concealed a July 2014 closed-door meeting with China's commerce regulator, the State Administration of Industry and Commerce, or SAIC, during which the agency allegedly ordered the Chinese e-commerce giant to stop illegal business practices, including the sale of counterfeit goods.

A separate objection to the 25% fee award sought by the class counsel was based on a "benchmark" theory that would provide class counsel with "an improper windfall," Judge McMahon said, calling the objection "flatly wrong."  "The 25% fee was deemed reasonable upon 'scrutiny of the unique circumstances of [this] case,'" she said.

Calling the settlement the "largest ever against a Chinese company" that represents between 17% and 20% of the maximum recoverable damages in the case, Judge McMahon praised the quality of representation for both the investors and Alibaba in handling a case of "unquestionable" magnitude.  Considering the roughly 164,000 claims forms submitted thus far, relatively few opt-outs and only one objector who has not established his membership in the class, the reaction of the class strongly supports approval of the settlement, the judge concluded.

$22M Fee Request Draws Grousing in $47M Class Action Settlement

October 15, 2019

A recent Law 360 story by Rose Krebs, “Abrams, Olshan Draw Guff for $22M Fee Bid on $47M Deal,” reports that Abrams & Bayliss and Olshan Frome Wolosky faced pushback on a $22 million fee bid for brokering a potential $47 million deal on behalf of a putative class of investors challenging Medley Capital Corp.'s proposed tie-up with Sierra Income Corp., as the defendants cast doubt that the deal is worth that much.  MCC, Sierra and other Medley entities and certain directors named as defendants in the class suit filed briefs asking the Delaware Chancery Court to either deny or delay deciding co-lead counsel Abrams & Bayliss LLP and Olshan Frome Wolosky LLP's request, saying there is still too much uncertainty around deal terms and the settlement amount.

They also claim the settlement to be considered later this month is actually less beneficial to stockholders than an earlier merger proposal.  "To the extent the court awards a fee now, any fee should be reduced to account for the fact that plaintiffs conferred no benefit on the MCC stockholders through the revised merger plan," Sierra said in its brief.

The Medley entities and certain directors filed a brief asking the court to flat out reject the fee request, calling it "excessive" and "disproportionate to the litigation efforts involved in a case that took less than four weeks from complaint to trial."  The fee amount is "untethered to the benefits actually achieved for the class," the Medley entities and directors said.  They contend an award of no more than $3.1 million is "fair and reasonable."  "To award plaintiffs' counsel anything close to the $22 million they seek would only harm the class that plaintiffs' counsel is bound to represent, and which this court must safeguard," the Medley entities assert.

The opposing parties took issue with various details of the settlement and fee request, including provisions that tie the amount of recovery for shareholders to whatever fee award amount ends up being granted.  They were also critical of Abrams & Bayliss and Olshan Frome basing their fee request on what the co-lead counsel contends will be an up to $47 million cash and stock deal, calling into question if that amount will actually ever be realized.

"Plaintiffs seek a fee award of $22 million, roughly 80% of which is based on their suggestion that they created a 'settlement fund' ... Not so," Sierra asserted in its brief.  "That settlement fund is nothing more than a contingent, contractual commitment to pay additional cash and stock to MCC stockholders if the revised merger plan closes.  No settlement fund exists today, and the potential benefits may never be paid."  Sierra also flagged the amount of the fee request as being "equivalent to more than 15% of the total market capitalization of Medley Capital Corporation's common stock based on yesterday's closing price."  The opposing parties also said the fee request is way too high because co-lead counsel have not shown they secured a benefit for shareholders.

In April, the proposed deal was announced by which the stockholder suit would be dropped in return for the $17 million in cash and an estimated $30 million of common stock in the combined company, which is set to be distributed to the class upon closing of the proposed transactions.  The attorney fees and expenses would not be taken from the settlement fund, but rather "will be paid separately by Medley Capital or its successor," co-lead counsel claimed in court filings.  The exact value of the combined company and stock would not be determined until the merger is finalized and the related transactions will require regulatory and stockholder approval.

The suit stems from a deal announced last year through which MCC is to merge into Sierra.  The transaction was initially to be contingent on Sierra also acquiring the asset management business Medley Management Inc. to form a combined business development company of all three entities with roughly $5 billion in total assets under management, the companies said in a news release at the time.

Late last month, Abrams & Bayliss and Olshan Frome Wolosky told the court in a filing that the fee request is "reasonable compensation for the significant results achieved in this case."  The fee award is justified given they took on a "small army of attorneys from leading national and Delaware firms," that "spared no expense and waged a vigorous defense" and were still able to achieve substantial benefits for the proposed class, the firms assert.

Another stockholder, Stephen Altman, made similar claims as FrontFour in a suit he filed, and the cases were consolidated, with Abrams & Bayliss and Olshan Frome receiving the Chancery Court's nod to co-lead the proposed class.  Altman told the court on that his counsel, Kessler Topaz Meltzer & Check LLP and Prickett Jones and Elliott PA, are entitled to about $440,000 in fees and expenses for their work on the case, and also flagged co-lead counsel's $22 million request as being based on "questionable assumptions and calculations."