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Category: Contingency Fees / POF

Jenner Wins Fees in Contingency Agreement

May 23, 2017

A recent the NLJ story by Marcia Coyle, “Skadden Loses a Tax Dispute, and Jenner Wins Fee Fight,” reports that Jenner & Block won fees in a case, Parallel Networks v. Jenner & Block, that stemmed from a 2007 contingency fee arrangement in which Jenner agreed to represent Parallel Networks in two patent cases.

The fee arrangement contained a provision that allowed the law firm to withdraw from the representation and still get fees whenever it “determine[d] at any time that it is not in its economic interest to continue the representation.”  If the firm withdrew, Parallel Networks was to pay “an appropriate and fair portion of the Contingent Fee Award” at “the conclusion of any” patent lawsuit.  The agreement also called for arbitration of any disputes.

Jenner & Block did withdraw.  New counsel entered and settled the two patent cases.  In 2011, Jenner submitted a $10 million fee request that Parallel Networks would challenge.  The dispute went to arbitration and Jenner was awarded $3 million and a 16 percent future contingent stake.  On appeal, Parallel Networks argued the withdraw-and-still-pay provision was prohibited under Texas law.  Texas state courts upheld the award.

In the high court, Parallel Networks, represented by Daniel Geyser of Stris & Maher, argued the circuit courts were divided over whether public policy challenges are viable under the Federal Arbitration Act and also are confused about the permissible grounds for vacating arbitration awards following the Supreme Court’s 2008 decision in Hall Street Associates v. Mattel.  “There is simply no indication that Congress intended to intrude on the power of state courts, acting under settled state law, to resist arbitration awards that violate core state public policies,” Geyser wrote.

Jenner & Block waived its right to respond to Parallel Network’s petition.  In earlier litigation, the law firm had argued that it had invested 24,000 hours in the patent litigation, which formed the basis for the later successful outcome.  The firm said it had reason to withdraw because Parallel Networks was habitually late reimbursing litigation expenses.

“We’re obviously disappointed,” Geyser said.  “There was an acknowledged conflict on an important issue that has caused substantial confusion in the lower courts.  This case was an appropriate vehicle, and we wish the court had decided to take it up.”

Firms Fight over Jurisdiction in Fee Allocation Dispute in MDL

May 22, 2017

A recent the Law 360 story by Jess Krochtengel, “Plaintiffs Firms Duel Over Texas Jurisdiction in Fee Fight,” reports that a Rhode Island attorney who served as local counsel for a Texas firm in multidistrict litigation over hernia mesh made by C.D. Bard Inc. subsidiary Davol Inc. told a Texas appellate court he shouldn’t have to litigate a fee dispute in Texas.

Attorney John E. Deaton and his Deaton Law Firm LLC, both based in Rhode Island, say a Dallas trial judge wrongly refused to dismiss them from a dispute over a fee-sharing agreement with Texas attorney Steven M. Johnson and his firm, Steven M. Johnson PC.  Deaton has claimed Johnson failed to pay him 5 to 10 percent of fees earned as part of a global settlement Johnson negotiated for nearly 200 mesh cases the lawyers had worked on together.

Johnson argues that when Deaton signed a stipulation of nondisclosure related to the settlement amounts for his clients, Deaton became bound by the terms of underlying attorney representation agreements Johnson signed with his clients, including their provision disputes, would be arbitrated in Texas.  Deaton argues his role in the case is defined by his fee-sharing agreements with Johnson, which don’t have an arbitration clause.  The case has “far-reaching implications for any local counsel hired by a Texas lawyer,” Deaton attorney Brian H. Fant of Law Offices of Brian H. Fant PC said during oral argument before the Fifth Court of Appeals.

Fant said Deaton served as local counsel on 174 hernia mesh cases for Johnson in Rhode Island state court over a period of eight to 10 years, and worked on one case in federal court.  That case, involving Louisiana resident Rickie Patton, was initially filed in the Southern District of Texas, but transferred to Rhode Island District Court for pretrial proceedings.

The panel pressed Fant on what Johnson has argued are Deaton’s ties to Texas. Justice Elizabeth Lang-Miers said 13 of the 174 clients were Texas plaintiffs, and asked whether Deaton had developed relationships with those clients over the years.  Justice David Evans pointed out Deaton had recommended the Patton case be tried in Texas and that Deaton be the lawyer to try it.  And Justice David Bridges questioned the weight of the fact Deaton hired a Texas expert witness for the Patton case, which would have been tried in Texas had it not been for the global settlement.

Fant said Deaton had recommended the expert, but it was Johnson who actually hired and paid the expert witness, and said Deaton never visited Texas during that time.  And he said the expert witness’ Texas residency isn’t relevant to jurisdiction over Deaton.

Arguing for Johnson, Thomas R. Needham of The Law Offices of Thomas R. Needham said Deaton spent eight years working on a Texas federal case, establishing jurisdiction in Texas for the fee dispute.  Although the Patton case’s pretrial proceedings were in Rhode Island, Deaton’s pretrial work was all aimed at a trial in Texas, and he had availed himself of the protections of the state.

And Needham said Deaton waived his right to contest jurisdiction in Texas when he signed the nondisclosure stipulation referencing Johnson’s attorney representation agreements.  Johnson’s position is that Deaton is equitably estopped from denying the applicability of the ARA’s arbitration clause because he’s claiming benefits under the ARAs in the form of legal fees.

The case is Deaton et al. v. Johnson et al., case number 05-16-01221-CV, in the Texas Court of Appeals for the Fifth District.

Oklahoma Accidentally Abolishes the American Rule for Attorney Fees

May 17, 2017

A recent the Above the Law story by Joe Patrice, “State Accidentally Abolishes ‘American Rule’ for Attorney Fees,” reports that Oklahoma has mistakenly abolished the "American Rule" in attorney fees.  The story reads:

The so-called “American Rule” always kicks off a lively if obnoxiously hypothetical gunnerstorm in Torts.   One gunner will ask, “Why doesn’t the loser pay — why should access to justice come with a price tag?”  Then another will point out that the alternative would actually chill claims because victims would always fear being left holding the bag.  Another will talk about the relative virtue and vice of contingency fees, and before you know it, the whole class has whisked by and the only substantive lessons you managed to glean from the last hour and a half are that (a) America generally makes both sides pay their own fees, (b) none of this will be on the exam, and, (c) you hate everyone in your section.

Because no one seriously expects the American Rule to go away any time soon.  Unless, of course, you live in a state that populates its state legislature with stuffed shirts whose policy curiosity runs as deep as drive-time talk radio.  Those states might just overturn a foundational aspect of American civil litigation by accident.

How is that even possible?

Well, Oklahoma managed to dig deep and pull off the impressive feat in a bill signed into law by Governor Mary Fallin last week.  This is the sort of thing that happens when there are only five lawyers in the entire state legislature…and one of them decides to blow up the landscape of civil litigation.

It all began with a bill expanding rights for child victims of sexual abuse, which is the sort of wildly popular measure that mischievous bulls**t always gets attached to because no one wants to go back to Bumbledydick County and face a campaign about how they voted against abused kids.

Now one might think that an error like this is surely the fault of Byzantine overlapping statutes and vestigial clauses that only a seasoned expert could have noticed.  But you’d be wrong.

The law in question set limitations periods for all “Civil actions other than for the recovery of real property” and enumerates contract actions, trespass, a variety of personal property torts, libel, slander, assault, etc. and then concludes with:

In any action brought pursuant to the provisions of subsection A of this section, the court shall award court costs and reasonable attorney fees to the prevailing party.

Oklahoma lawyers are understandably shocked by this turn of events.  From NonDoc:

“It’s called the American Rule for a reason.  To my knowledge, there’s not a single jurisdiction in the United States that awards fees to the prevailing party in all civil cases,” said one Oklahoma attorney asked about the situation.  “This would change the way that law is practiced in such a fundamental way that I don’t think anyone in this market can really predict its consequences.”

Senator Anthony Sykes, a graduate of the University of Oklahoma College of Law, who uses this legal acumen to pass obviously unenforceable abortion bans and restrictions on the non-existent threat of Sharia law, authored the bill and apparently thinks most “tort reform” efforts just don’t go far enough.  It’s hard to imagine the rest of the legislature even understood what was going on.

According to NonDoc, legislators are slowly starting to figure out what happened:

Shortly thereafter, attorneys around the state began to realize the American Rule had been terminated, thus forcing the losing party in civil cases to pay the legal fees of the prevailing party.  Functionally, that would disincentivize citizens — especially low-income ones — from filing lawsuits in Oklahoma courts.

The saga could dramatically change the Oklahoma legal arena if lawmakers — now aware of what they really voted on — fail to repeal 28 words of new law that they appear to have misunderstood initially.

At this point, Oklahoma should just close up shop and turn everything over to a rooster that can play bingo.  Admittedly the rooster is softer on Medicare expansion efforts than most Oklahoma voters would like, but even he understands the dynamics of personal injury.  It’s why he’s never crossed the road.

On the plus side, law professors out there may finally get a chance to throw this into an issue-spotter on top of some choice-of-law questions next year.  That’ll make the gunners happy.

Question: When Is a $3 Million Attorney Fee Award Painful?

April 19, 2017

Answer:  When your fee request was $25 million higher.

And so it was in In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, pending in federal court in San Francisco.  The case arose, in the court’s words, from VW’s “deliberate use of a defeat device – software designed to cheat emissions tests and deceive federal and state regulators – in nearly 600,000 Volkswagens- and Audi-branded turbocharged direct injection diesel engine vehicles sold in the United States.” 

Here’s how the software worked, per the court:  the “defeat device” would sense when the vehicles were being tested and would then produce regulation-compliant results.  But when the vehicles were driven under normal circumstances, they’d use a less effective emissions control system.  “Only by installing the defeat device on its vehicles was Volkswagen able to obtain” the requisite governmental approvals “for its 2.0- and 3.0-liter diesel engine vehicles,” even though those vehicles actually emitted “nitrogen oxides at a factor of up to 40 times over the permitted limit.”

Franchise dealers of VW-branded vehicles sued VW, claiming they were damaged by this “emissions scandal.”  Class certification was sought, and a settlement was reached, encompassing a nationwide class consisting of “all authorized Volkswagen dealers in the United States who, on September 18, 2015, operated a Volkswagen branded dealership pursuant to a valid Volkswagen Dealer Agreement.”  Under the settlement, VW was required to pay $1.19 billion in cash and provide various non-cash benefits to the class.

All told, a good deal for the class.  As the court noted, the settlement “had multiple cash and non-cash components, and … ultimately will provide franchise dealer class members with a recovery of nearly all of their losses attributable to Volkswagen’s disclosure of its use of a defeat device.” 

High fives in plaintiffs’ camp!  Crack open the Veuve Clicquot! 

Class counsel then moved for attorneys’ fees, stating in their motion that their “intense negotiations with Volkswagen led to the second largest class action settlement in automotive case history … and likely one of the top 20 largest class settlements in history in any arena.  In fact, the over $2.1 million average payment to Franchise Dealer Class Members may be the highest average payment to members of a class in any class action settlement.” 

They asked the court to award them “$28.56 million in attorneys’ fees, inclusive of costs.”  And they described their request – which represented, they said, “a fee of 2.0% of the constructive settlement fund of $1.39 billion” – as a “historically miniscule fee” which was “unquestionably fair, reasonable and appropriate compensation in relation to the exceptional results achieved for the” class.  “This remarkably small request,” they declared, “is likely the second-smallest fee amount ever requested in a large common fund case.”

So why did the district court cut their requested fee by nearly ninety percent? 

Because it found that under “the unique circumstances leading to the Settlement,” the “lodestar method, as opposed to the percentage method, is the appropriate method for determining fees,” and the lodestar amount was far lower than the amount they’d requested in their fee application. 

Under the “lodestar method,” fees are calculated by multiplying the number of hours reasonably expended by reasonable hourly rates.  Computing fees by this method tends to yield lower fee awards than does the percentage method, especially in cases like this one where the settlement fund is large.

The court found that using the percentage method in this case “would overcompensate” class counsel “for its work.”  Class counsel, it reasoned, “did not expend significant additional time procuring the Settlement, nor did it undertake significant additional risk, given Volkswagen’s incentive to settle quickly.”

What does that mean, “significant additional time” and “significant additional risk?”  And why did VW have an “incentive to settle quickly?”

Well, as it happens, before settling the franchise dealer case, VW had settled another emissions-related case; that one between VW, on one hand, and consumers, dealers, securities plaintiffs and government agencies, on the other.  That case settled for $10.033 billion, and class counsel in that one were awarded $167 million in fees. 

That case, in other words, was the main event.  Given that the franchise dealer settlement followed on the heels of that larger settlement, the court reasoned that the former “flowed naturally and necessarily” from the latter.  It calculated class counsels’ lodestar sum in the franchise dealer case as being “only $1.48 million,” meaning that their requested $28.56 million fee “would be a 19x lodestar multiple.”  That didn’t fly.  But a 2x multiplier did, given the risks class counsel assumed in the litigation, and so class counsel were awarded $2,954,455 in fees for work performed relating to that settlement, plus $87,538 in costs. 

And so class counsels’ fee request was mightily reduced by the court.  But they could still take solace in the praise their efforts elicited from the court.  Class counsel “achieved a great result for the franchise dealer class members, even in the face of uncertain risk and litigation length.” “The result” they “achieved is excellent.”  Words like those endure long after the fees have evaporated.

Wouldn’t you say?

The case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, United States District Court, Northern District of California, MDL No. 2672 CRB (JSC), and the decision was rendered on April 12, 2017.

This article, “Question: When Is a $3 Million Attorney Fee Award Painful?”, was written by Jeremy Gilman, a partner at Benesch based in Cleveland.  He has been litigating complex business cases for both plaintiffs and defendants nationwide for the past 34 years.  He is a prolific writer on legal topics, and his fiction has been nominated for a national literary prize.  He is also a musician whose first album is due out this summer.  This article was posted with permission.

Five Fundamentals of Collecting Attorney Fees

April 3, 2017

A recent Daily Report article by Randy Evans and Shari Klevens, “5 Fundamentals of Collecting Fees,” addresses attorney fee collection.  This article was posted with permission.  The article reads:

It pays to implement an effective billing system—literally.  On the front end, having a system in place increases realization rates because it gets money in the door.  On the back end, fee disputes and related malpractice claims can be minimized, if not avoided altogether.  Knowing the fundamentals of billing and collections can make the world of difference for any law practice from both a financial and risk management perspective.  Here are five steps worth considering when implementing or revising your billing and collections processes.

Determine Fee Arrangement Before Attorney-Client Relationship Begins

Subject to market conditions and the simple economics of supply and demand, lawyers typically enjoy the ability to negotiate fees with a prospective client.  The best way to minimize problems down the road is to finalize the negotiations before the attorney-client relationship commences.  In negotiating a fee arrangement, the most significant requirement under the ethical rules is that the fee must be reasonable.  In addition, fee agreements cannot penalize a client who decides to terminate an attorney at any time.  (Notably, requiring a client to pay an attorney for the time spent on the representation prior to termination is generally not an unreasonable term.)

If the fee arrangement is not finalized until after the representation begins, the attorney and client may already be in a fiduciary relationship at that point.  Attorneys have to take care not to use information learned in the course of the attorney-client relationship to the attorney's advantage and to the client's detriment in negotiating the fee.  If a client challenges the fee later, courts and bars will look to whether the attorney took advantage of the client's need for continued representation.

That is not to say that mid-representation fee changes are impermissible.  In fact, they happen frequently, such as when an attorney's hourly rate changes due to market conditions.  This is fairly routine.  For a major fee change mid-representation, however, the attorney could recommend that the client consult with independent legal counsel regarding the amended fee arrangement.  Attorneys who advise clients on new fee arrangements during the representation that seriously alter the previous terms may be subject to heightened scrutiny.

Set Expectations

If the attorney or law practice expects to get paid on a monthly or quarterly basis, that is something that can be discussed with the client at the outset of the representation.  Similarly, if the fees are expected to be paid directly from settlement proceeds or at closing, tell the client.

Avoiding surprises is the most important risk prevention technique.  When both attorney and client have set their respective expectations (and adjusted them as appropriate), then the attorney-client relationship begins and proceeds on the same page.

Memorialize the Fee Arrangement

There has been considerable commentary regarding the implications of a "fee agreement," particularly whether written agreements extend the statute of limitations for legal malpractice claims.  However, the risks of failing to document a fee arrangement far exceed the risks of an extended statute of limitations.

A great majority of fee disputes involve the amount of the fee itself.  The simplest and most effective method for avoiding this type of dispute is simply to agree in writing to the terms of the fee arrangement and to have the client sign the document confirming the fee arrangement.

Bill Regularly

Sending out bills on a regular basis helps show the client—in close to real time—what tasks are being completed and what charges are being incurred.  Then, if the client objects to the services or has a problem with the charges, such issues can be addressed quickly.  If the attorney is not sending bills on a regular basis, however, the client may later object to the fees (even if the client would have paid the same aggregate amounts if invoiced at regular intervals).

Most attorneys will recommend informing the client what the fees are or will be well in advance of the request for payment.  For the hourly fee attorney, this means sending out bills regularly so that the client gets a sense of what the fees and costs are.  What constitutes "regular" billing will obviously differ based on the circumstances of each representation.

If there is little activity while a motion or appeal is pending, then bills might not be sent for a few months.  On the other hand, if there is significant activity, then bills might be sent on a monthly basis.

For transactional representations, providing a pre-closing preview of the closing statement with the fees is helpful.  For contingency fees, pre-settlement previews of the amount of the fees is appropriate.  If the representation involves significant out-of-pocket expenses for which the client is responsible, consider interim bills.  The key is to make sure the client understands (and accepts) what the projected fees are before they are locked in by a closing or settlement to avoid a fee dispute.

Timely Address Unpaid Bills

Unpaid bills are problems waiting to happen.  The sooner those problems are identified and resolved, the better.  While many attorneys do a good job at documenting the fee and sending the bills, they may do a poor job on the follow-up.  Rather than leave the follow-up to chance, the better approach is to set an internal deadline for following-up on outstanding bills.  This contact enables the attorney to determine if the client has any issues with the bill or whether the failure to pay is a simple oversight or intended delay.

If there are concerns or issues about the bills, then the attorney should address them.  If nonpayment is an oversight, then the contact will serve as a friendly reminder.  If it is intended delay, then the attorney and client can discuss what the limitations are and how they might be addressed.

There is no magic time for following up.  Instead, it will depend on the contours of the relationship with the client.

For attorneys and law practices that follow the steps discussed above, fee collections can be a little less daunting.  For attorneys and law practices who do not, it is never too late to put the systems in place or revise existing ones.  Your balance sheet and law license will thank you.

Randolph Evans is a partner at Dentons US in Atlanta.  He handles complex litigation matters in state and federal courts for large companies and is a frequent lecturer and author on the subjects of insurance, professional liability and ethics.  Shari L. Klevens is a partner and deputy general counsel at Dentons US in Washington and Atlanta.  She is co-chair of the global insurance sector team, a member of the firm's leadership team and is active in its women's initiative.