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Category: Contingency Fees / POF

Judge Wants Detailed Billing Records in Anthem Data Breach Class Action

June 15, 2018

A recent The Recorder story by Ross Todd, “Judge Again Says She’s ‘Disappointed’ in Plaintffs Lawyers in Anthem Data Breach Case ,” reports that the federal judge overseeing litigation targeting Anthem Inc. with data breach claims on continued her grilling of plaintiffs lawyers who represent the health insurer’s customers about the number of firms who worked on the case.

U.S. District Judge Lucy Koh asked lead plaintiffs counsel, Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll, a string of detailed questions about which lawyers submitted bills on work settling the litigation, who defended depositions of name plaintiffs and who handled basic discovery tasks.  Koh previously grilled the lead plaintiffs for having 49 other firms beyond those on the four-firm plaintiff steering committee she appointed.

After Cervantez said that 27 firms had worked on the “crisis” of getting through millions of pages of discovery, Koh stopped the plaintiffs lawyer.  “Is that how you run most of your cases?  You have 27 firms doing document review?” the judge said.

Cervantez said it didn’t matter who did the work or the firm where they practiced, but “were the hours expended reasonable.”  “How is that consistent with the conversation that I had with you and Mr. Friedman at the selection of counsel hearing?” asked Koh, who initially trimmed the lead plaintiffs proposed six-member steering committee to two firms.

Plaintiffs struck a $115 million settlement deal with Anthem last June, which included a proposed $38 million in attorney fees, or 33 percent of the total settlement.  The deal provided two years of credit monitoring and identity protection services to Anthem customers whose personal data was compromised in the 2015 breach, and creates a $15 million fund to reimburse customers for things such as falsified tax returns.

The Competitive Enterprise Institute’s Center for Class Action Fairness filed an objection last year on behalf of Adam Schulman, an attorney at the Washington, D.C., organization, partially because of the fee request.  Schulman claimed fees should be closer to $13.8 million and questioned why 49 other firms not appointed by the court stood to earn a total of $13.6 million in fees as part of the settlement.

Koh told plaintiffs counsel that she was “deeply disappointed” about the number of firms brought on to handle the case at a hearing in February.  At Schulman’s request, she appointed a special master, retired Santa Clara County Superior Court Judge James Kleinberg, to comb over the fee request.

Kleinberg, who is now a mediator and arbitrator at JAMS, pointed to duplicate efforts and excessive billing rates for contract lawyers in suggesting in April that the fee award be trimmed to $28.59 million. 

Koh didn’t tip her hand on where she will ultimately come out on the fee request, but she did indicate that she’ll rule on final approval of the deal by late July.  She asked the plaintiffs to hand over detailed records about document review, depositions and post-settlement work.

“I would like to be able to see who did what work when at what hourly rate and for how many hours,” she said.  “I think I’ve already indicated that I’m disappointed, but it is what it is.”

Attorneys Defend $16M Fee Request in Securities Class Action

June 12, 2018

A recent Law 360 story by Bonnie Eslinger, “Attys Defend $16M LendingClub Fee Bid That ‘Shocked’ Judge,” reports that attorneys seeking $16 million for representing LendingClub Corp. investors in securities class actions against the peer-to-peer lending company defended their fee bid to a California federal judge who previously said the amount “shocked” him, saying their work produced an “outstanding result under any measure.”

The 28-page motion filed by attorneys for Robbins Geller Rudman & Dowd LLP, lead counsel for the lead plaintiff, argues that the requested 13.1 percent cut of the $125 million settlement is reasonable in light of the results achieved, the risks of the litigation, the skill required to tackle the case, the financial burden carried by counsel in the contingency matter, the work performed in a related state action, the positive support of the class and the hours spent prosecuting the litigation.

“An undeniable reality of the legal industry’s evolution (or regression) is that few legal teams pose a credible threat to take large complex cases to trial on a contingent basis — and win.  The prosecution team for lead counsel Robbins Geller Rudman & Dowd LLP demonstrated that it was one of these few,” the attorneys state at the top of their motion.  “Defendants’ counsel are experienced enough to recognize when an adversary is preparing a case for trial, and that is what Robbins Geller was doing when this case settled.”  According to the law firm, it had obtained crucial documents, “secured the right to argue an inference that rendered summary judgment for the underwriter defendants almost impossible,” and was set to depose key LendingClub former executives.

As a percentage of reasonably recoverable damages, the settlement is several times greater than the average recovery in other cases under the Private Securities Litigation Reform Act, Robbins Geller argues, but the 13.1 percent fee is far below the average award.  The settlement ends class action claims in California federal and state court that allege the peer-to-peer lending company misled investors in the run-up to its $1 billion initial public offering in 2014.

But while the deal was preliminarily approved by U.S. District Judge William Alsup on March 16, at a hearing held one week prior the judge expressed skepticism over the proposed $16 million attorneys' fees award.  "I'm not sure you did enough to justify $16 million,” Judge Alsup said.  “To me that's too much money.  I'm shocked at that amount.  Maybe you can convince me."

At that hearing, an attorney for the class, Jason Forge of Robbins Geller, said his clients had negotiated the percentage cut of the net settlement before they signed a retainer agreement.  But Judge Alsup said he wasn’t beholden by that contract, adding, "I still, at the end of the case, have to do what’s right for the class, and you may be being greedy."

In its motion for attorneys' fees, Robbins Geller argues that basing the award on a percentage of a settlement is a “well tested and accepted” method throughout the country.  The requested fee is also significantly less than the Ninth Circuit’s 25 percent benchmark for similar cases, the law firm notes.

The results achieved in the litigation also lean toward the fee award, the firm said.  According to a study conducted by NERA Economic Consulting, the LendingClub settlement lands in the middle of 2017’s top 10 securities class action recoveries, "yet the requested fee percentage here is below the fee percentages awarded in all those cases,” Robbins Geller notes.

The top settlement, according to the study, was a $210 million deal to end a proposed class action by Salix Pharmaceuticals Ltd. shareholders, which yielded a $44.6 million, 21 percent fee cut.  A $100 million settlement between Halliburton Co. and disgruntled investors came with a $33 million class counsel award, or 33 percent.  A Dole Food Co. $74 million settlement in a Delaware federal securities suit included an $18.5 million fee award, or 25 percent.

Lead counsel’s prosecution of this case yielded a number of achievements in the litigation, the firm added, including defeating defendants’ motions to dismiss as to all claims and most allegations; moving to strike the majority of the defendants’ affirmative defenses, which led to them withdrawing 115 of 154 of their affirmative defenses and amending the remaining defenses; and obtaining class certification in the case.

But there were certainly risks to the case, the law firm said.  “Defendants had already staked out, and were actively developing, the argument that LendingClub’s admitted material weakness in internal control did not exist at the time of the IPO,” Robbins Geller states in its motion, adding that it was also “impossible to predict how a jury would assess a complex trial involving issues of specific intent or how an appellate court would view the myriad issues that arise in lengthy litigations.”

The reaction of the class also supports approval of the attorneys' fees, the motion states.  To date, over 104,600 notices have been sent out about the settlement and only one class member has objected.

Finally, Robbins Geller tells the court that 24,260.25 hours of attorney and paraprofessional time was spent prosecuting the action on behalf of the class.  Based on those professionals' rates, the resulting $13,152,167 lodestar would only be subject to a reasonable multiplier of 1.24 for the $16,384,087 requested fee, the firm states.

“Lead counsel’s efforts on behalf of the class resulted in an outstanding result under any measure,” Robbins Geller states.  The fee bid is the latest legal turn in the winding litigation, which stretches back to May 2016, when LendingClub shareholders began suing the company in federal court, claiming that before it went public, the company misled investors about its compliance practices, especially the adequacy of its internal controls to ensure its loans conformed to customers' criteria.  The parties announced a tentative $125 million settlement and filed a motion for preliminary approval in February.

The cases are In re: LendingClub Securities Litigation, case number 3:16-cv-02627, in the U.S. District Court for the Northern District of California, and In re: LendingClub Corp. Shareholder Litigation, case number CIV537300, in the Superior Court of the State of California, County of San Mateo.

Minnesota Supreme Court Sets Attorney Fee Award Factors

June 11, 2018

A recent Minnesota Lawyer story by Barbara L. Jones, “Supreme Court Sets Fee Award Factors,” reports on the recent Minnesota Supreme Court decision in Faricy Law Firm v. API Inc. Asbestos Settlement Trust.  The story reads:

When a contingent-fee client fires a law firm shortly before settlement, the court should consider not only the contingent fee agreement but also other factors including the timing of the termination and the contributions of others when making a quantum meruit fee award.

That’s the ruling of the Supreme Court in Faricy Law Firm v. API Inc. Asbestos Settlement Trust, decided June 6 by a 4-2 court. Chief Justice Lorie Gildea dissented, joined by Justice G. Barry Anderson, and Justice Paul Thissen did not participate.

The court remanded the matter to the District Court for determination of an appropriate quantum meruit award.

“The set of factors that we adopt today should guide district courts faced with the task of balancing the equities in determining the quantum meruit value of the services of a discharged contingent-fee attorney,” wrote Justice Margaret Chutich for the court.

Evidence to calculate fee award

For 10 years, the plaintiff Faricy represented API Trust and its predecessor, API in connection with indemnification claims for asbestos-related verdicts and settlements. This case concerns work performed in a case with Home Liquidator under a 33 1/3 percent contingent fee after January 2009. While Faricy represented API Trust, Home Liquidator offered $11 million to settle the case. Shortly thereafter, API fired Faricy. About two months later, the case settled for $21.5 million.

API had acknowledged that Faricy was entitled to a fee but later refused to pay the contingent fee or any fee at all. Faricy filed a lien seeking the entire one-third fee.

However, the District Court evaluated the case under quantum meruit. It said that Faricy’s work product, advice and recommended negotiation strategy led to the settlement in significant part. But it also said that Faricy, because it was sticking to its claim for one-third of the settlement, failed to provide significant evidence to calculate a fee award.

“Although the district court ‘implored Faricy’ to provide more evidence of the value that its legal work conferred on API Trust, the lack of evidence of the hours that Faricy had worked stymied the district court’s efforts,” Chutich wrote.

The Court of Appeals said it was error to award nothing and remanded for a quantum meruit analysis. Both sides sought review. The court granted both petitions — how to calculate a quantum meruit award in contingent-fee cases and whether the remand was appropriate in light of the evidence submitted to show the value of the legal services provided by Faricy. It did not rule on the second issue.

Walking away empty-handed

A discharged attorney may not sue for breach of contract because the client always has the right to terminate the relationship. For similar reasons, an attorney may not sue for the contingent fee but “should not necessarily walk away empty-handed,” Chutich wrote. Instead, the attorney is entitled to pursue a quantum meruit recovery, which is an equitable remedy. The discharged attorney must prove the value of the attorney services.

The question thus becomes how to value the services and whether to consider the contingent-fee agreement. The Court of Appeals has provided various factors but never explicitly designated the contingent fee award as one of them.

The court delineated eight factors (see sidebar) including the contingency fee, and added two that have not been announced previously—the contributions of others and the timing of the termination. “We have chosen these factors because they combine considerations that we have previously applied to determine the value of an attorney’s services in other contexts with concerns that are specific to the context of a discharged contingent-fee attorney,” explained Chutich.

The first six factors derive from the considerations for determining the reasonable value of legal services owed in the condemnation context and under the lodestar method.

But those factors do not suffice to determine the value conferred upon the client, the court continued, particularly where representation is terminated after a firm has substantially contributed to a successful end.

“These factors allow the court to measure the value of the services depending on how the timing of the termination related to the ultimate result and whether the discharged attorney added value compared to other contributors in the case. … Considering the timing of the termination is especially crucial to prevent a client from avoiding a contingent fee when it becomes apparent that the client will recover or reach a successful result,” Chutich wrote.

They are also consistent with principles of equity, which requires a balance of equities and not a bright line rule, the court continued.

Accordingly the court remanded the case for consideration of all the factors, including the contingent fee. The court went on to explain that it was not holding that Faricy was “automatically” entitled to its full contingent fee, but it also held that evidence of hours worked was not the only measure of value. The court has the discretion to open the record on remand.

Dissent: Absence of proof

The dissent was dissatisfied with the majority opinion because Faricy provided no evidence that could be used to compute fees. The District Court was correct when it refused to compute fees. “Even if the equities weighed in favor of Faricy, there is still an absence of proof on the fundamental element of the claim—reasonable value of services provided,” Gildea wrote. The firm should not get a second bite at the apple via a reopened record on remand, she added.

Quantum meruit factors

(1) Time and labor required;

(2) Nature and difficulty of the responsibility assumed;

(3) Amount involved and the results obtained;

(4) Fees customarily charged for similar legal services;

(5) Experience, reputation, and ability of counsel;

(6) Fee arrangement existing between counsel and the client;

(7) Contributions of others; and

(8) Timing of the termination.

Opinion: The Trouble with Lodestar Fee Awards

May 30, 2018

A recent Reuters editorial by Alison Frankel, “The Trouble with Lodestar Fee Awards, Anthem Class Action Edition,” opines on the recent fee request in the Anthem data breach class action.  The editorial reads:

A special master appointed by U.S. District Judge Lucy Koh of San Jose to recommend a fair fee for class counsel in the $115 million Anthem data breach settlement succeeded in pleasing no one with a vested interest in the outcome, based on filings by lawyers for the class and the objector who first pushed for scrutiny of class counsel’s request for nearly $40 million in fees and expenses.

I’ll explain why both sides believe the special master, retired Santa Clara Superior Court Judge James Kleinberg, made critical mistakes in recommending a fee award of $28.6 million, based on a 10 percent chop off the top of class counsel’s adjusted hourly billings in the case.  But more fundamentally, I was struck as I read both sides’ objections to his recommendation that lodestar fee awards are a quagmire for judges.

As you know, most federal judges calculate class action fees as a percentage of the recovery lawyers obtain for the class, sometimes applying multipliers to reward plaintiffs’ lawyers for taking on particularly risky or strenuous cases.  Percentage-based fee awards have the advantage of incentivizing efficiency and aligning the interests of lawyers and their clients.  They predominate, although many judges also look at lodestar billings as a check on percentage-based fees.

But as I told you last year, there’s been a bit of a recent boom in California federal court for awarding fees based on class counsel’s hourly billings, mostly in mega-cases in which judges were worried that a percentage-based fee award, even of 10 or 15 percent, would be an unseemly windfall for plaintiffs’ lawyers.  Judge Koh, who is overseeing the Anthem case, has used lodestar billings to calculate fee awards in big anti-poaching class actions, 2015’s In re High-Tech Employee Antitrust Litigation and 2017’s Nitsch v. Deamworks Animation.  In both cases, lodestar billings resulted in a smaller award to class counsel than they would have received as a percentage of the recovery for class members.

The Anthem case is different.  The hourly fees class counsel said they generated far exceeded the percentage-based fees they could have expected, given that courts typically award fees of less than 20 percent in cases with recoveries of more than $100 million.  Plaintiffs’ lawyers said their lodestar fees and costs were nearly $40 million.  They requested fees of about $38 million, or 33 percent of the $115 million class recovery.  That was an ambitious request.  California’s benchmark is 25 percent, $28.8 million in the Anthem case, and judges seldom award even that high a percentage in megacases.

After plaintiffs’ lawyers submitted their fee request, a class member represented by the Competitive Enterprise Institute objected, contending (among other things) that class counsel overcharged for the services of contract lawyers and otherwise overbilled their clients for nearly $9 million in unnecessary or duplicative work.  In her order appointing a special master, Judge Koh said she was concerned that the sheer number of lawyers and law firms that billed time in the case – 331 billers across 53 plaintiffs’ firms – meant the class was overcharged “by virtue of the fact that so many billers needed to familiarize themselves with the case and keep abreast of case developments.”

Judge Koh ordered the special master to review the billing records of plaintiffs’ lawyers.  Judge Kleinberg said in his April 24 report that he did, along with explanations of the records from class counsel at Altshuler Berzon and Cohen Milstein Sellers & Toll.  But he also said he did not review every line item in the records because his goal was “a rough cross check, not auditing perfection.”

The special master decided class counsel had billed the time of contract lawyers at way too high an average rate.  He recommended slashing fees for their work from the $6 million lodestar class counsel claimed to $3 million, taking into account his conclusion that contract lawyers should be billed out at a paralegal rate of $156 per hour.  Judge Kleinberg said plaintiffs lawyers’ blended rate of $455 per hour was reasonable.  But he said class lawyers devoted an apparently unreasonable number of hours to deposition preparation, class certification briefing and settlement negotiations.  He blamed the “virtual army” of lawyers on the case.

“How could lead counsel possibly conduct effective oversight of this very large team of lawyers?” Kleinberg wrote.  “The special master is not accusing plaintiffs’ counsel of deliberate overbilling.  However, every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues and facts being litigated.  Thus, the inevitable result of the 53 billing participants presents at least a strong probability of duplication and unreasonable hours.”

He offered three alternatives for determining fees: applying the 25 percent benchmark percentage (and subtracting certain costs) to award $26.75 million; awarding $33.9 million in lodestar fees after adjusting the lodestar for contract lawyers and shifting expenses from the class to their counsel; or lodestar fees of $28.6 million, reflecting Judge Kleinberg’s recommendation of a 10 percent trim for potential overbilling.  The special master said that was the maximum haircut he could apply, short discounting specific overcharges, under the 9th U.S. Circuit Court of Appeals’ ruling in 2008’s Moreno v. City of Sacramento.  Kleinberg recommended that Judge Koh pick the discounted lodestar option.

In their response to the special master’s recommendation, class counsel protested his recommended 10 percent haircut as unjustified.  Kleinberg himself said their blended rate was fair, plaintiffs lawyers said, which implicitly means class counsel did not overstaff the case with high-cost partners.  “Because the blended hourly rate is the total lodestar divided by the total number of hours expended, it reflects the cost of the average hour in the case and captures the extent to which the work was distributed among higher- and lower-cost professionals,” their filing said.  “When, as here, the blended hourly rate is well below the median, it shows that counsel distributed work among partners, associates, contract attorneys, and paralegals in an even more cost-effective manner than has been found reasonable in past cases in this district.”

They also repeated previous explanations for why they had to involve so many lawyers from different firms to maximize efficiency in a compressed time frame.  (The explanations included an accounting of the hours spent on depositions, class certification and settlement negotiation.)  Class counsel instructed other firms not to bill for acquainting themselves with the case and reviewed other firms’ time sheets, cutting hours that seemed duplicative or inefficient.  ‘The requested lodestar should be reduced only if the use of multiple firms actually resulted in duplication or inefficiency.  That did not occur here,” the filing said.  “The key assumption underlying the (special master’s) contrary conclusion is that ‘every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues, and facts being litigated.’  This was incorrect.”

Forced Sale of Client’s Lamborghini Not a Proper Legal Fee

May 7, 2018

A recent Bloomberg Big Law Business story by Mindy L. Rattan, “Forced Sale of Client’s Lamborghini Not a Proper Legal Fee,” reports that the Florida Supreme Court on May 3 suspended a lawyer for three years for taking an interest in a client’s Lamborghini as a fee and for taking financial interests in his client’s litigation and doing business with a client.  Lawyer Jon Douglas Parrish made a deal to get paid after selling his client’s 1989 Lamborghini sports car.  He also loaned money to property owners his client was suing and had his client subordinate his interests in that property to mortgages Parrish took out to secure his loan. 

This case provides examples of deals with a client that a lawyer should never make.  Parrish represented Spruce River Ventures, LLC and its principal, Benjamin Bergaoui in several matters.  Parrish and Bergaoui signed an agreement giving Parrish a $30,000 security interest in Bergaoui’s Lamborghini, the court said, citing the referee’s findings for all facts.  Bergaoui had 90 days to sell the car to pay Parrish $30,000 in fees.  If he didn’t sell it in that time, Parrish could sell it and either give Bergaoui “a credit for current and future legal fees in the amount of the sale or in the amount of $80,000, at the firm’s discretion,” the court said.  The referee’s report said that Bergaoui sold the car within 90 days and Parrish accepted $42,000 to settle the balance of $54,000 in fees owed.

Parrish also loaned $150,000 to defendants in a dispute over real property he pursued on behalf of Spruce River, the court said.  The defendants were delinquent in paying taxes on parcels of land they purchased, and Parrish testified the entire case could be dismissed if the parcels were subject to forfeiture, the court said.

Parrish was trying to “preserve his client’s claim and protect his interest in his fee, which was now a contingency fee.”  He got the defendants to give him a security interest in the property that Bergaoui was pursuing, and convinced Bergaoui to subordinate his interests in the property to Parrish’s.  Parrish asked a colleague, John White, to prepare the mortgage, the subordination agreement, and the promissory note for the loan, the court said.

Parrish also attempted to enter into a settlement agreement that created a new company owned by Parrish’s firm, his client, and a few of the defendants, the court said.  The new company would join the litigation in the place of its defendant owners.  Parrish and Bergaoui would have equal decision-making authority, the court said.

One of the other defendants moved to disqualify Parrish, who then prepared an affidavit for Bergaoui to sign saying he declined to seek independent counsel, the court said.  Bergaoui wouldn’t sign it so Parrish then claimed White was independent counsel for Spruce River.  Bergaoui then got independent counsel, Brad Bryant, who told Parrish that Bergaoui didn’t want to be business partners with him, the court said.

No Car for Fees

The court agreed with the referee that Parrish violated Rule Regulating the Florida Bar 4-1.8(a), which prohibits transactions with clients unless the terms are fair and reasonable and fully disclosed to the client, the client is advised to seek independent counsel, and the client gives written informed consent.  The court said the comment to the rule explains that this rule doesn’t apply to an “ordinary fee arrangement,” which is covered by Rule 4-1.5. Rule 4-1.5 says all fees must be reasonable and not excessive.

The Lamborghini agreement clearly pertained to legal fees and wasn’t ordinary, the court said.  The referee focused on the forced sale provision and found it didn’t satisfy the requirements of Rule 4-1.8(a).  The agreement gave Parrish an opportunity to collect an indeterminate amount of funds from the sale of his client’s Lamborghini, which “would constitute an excessive fee,” the court said.

The court agreed with the referee that Parrish violated rules 4-1.5(a), 4-1.8(a) and 3-4.3 (“commission by a lawyer of any act that is unlawful or contrary to honesty and justice may constitute a cause for discipline”).

No Loans, No Financial Help

The court agreed with the referee that Parrish violated Rule 4-1.2, which says a lawyer must “abide by a client’s decisions concerning the objectives of representation” and “reasonably consult with the client as to the means by which they are to be pursued.”  Parrish having “co-equal decision-making authority with his client in directing litigation strategy,” violated the rule.

And Parrish again failed to meet the requirements of Rule 4-1.8(a) for entering into the subordination agreement with his client, the court said.  The court deferred to the referee’s determination that Parrish’s and White’s testimony about White being independent counsel for Bergaoui wasn’t credible.

The court also agreed with the referee that Parrish violated Rule 4-1.8(e), which prohibits a lawyer from providing “financial assistance” to a client.  Parrish’s loan to the defendants was a form of financial assistance for the benefit of his client, the court said.

The court agreed that Parrish violated 4-1.8(i), which prohibits a lawyer from acquiring a proprietary interest in a litigation.  The court rejected Parrish’s argument that the mortgage wasn’t a “proprietary interest.”  It also found that he failed to act diligently and competently in another matter.

But the court determined that the referee’s recommendation of a one year suspension wasn’t supported by a “reasonable basis in the case law.”  The court said the other conflict of interest cases the referee relied upon were factually distinguishable.  Unlike in several of those cases, Parrish “engaged in multiple instances of unethical conduct,” that resulted in several rule violations.  Another case the referee cited was over 15 years old and the court has since imposed more severe discipline than in the past, it said.