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Category: Contingency Fees / POF

Litigation Funder Seeks Share of Attorney Fees

February 16, 2021

A recent Law 360 story by Carolina Bolado, “Litigation Funder Wants Cut of $350M Shire Deal,” reports that law firm lender Counsel Financial Services asked a Florida federal judge for permission to intervene in a dispute over divvying up attorney fees from a $350 million whistleblower settlement with biotech company Shire, alleging the law firm Barry A. Cohen PA should be forced to direct any fees it receives to pay back a $43.8 million line of credit.

Counsel Financial says it loaned money to the Cohen firm in February 2009 in exchange for a secured interest in the firm's assets, which includes legal fee proceeds.  In January 2019, the company obtained a $43,778,684 judgment against the Cohen firm, which previously represented whistleblower Brian Vinca in his suit against Shire.

"Counsel Financial thus has an interest in the legal fees that will be awarded to [the Cohen firm] in this action," the company said in the motion.  "Consequently, Counsel Financial seeks to intervene to ensure that its interest in the legal fees obtained by [the Cohen firm] in connection with this matter are rightfully directed by this Court to Counsel Financial directly from the court registry."

The motion is the latest development in a fight over fees from the $350 million settlement, which was announced in August 2016 and resolved claims stemming from Shire's sales and marketing practices around Dermagraft, a skin substitute the company picked up when it acquired Advanced BioHealing Inc. — now known as Shire Regenerative Medicine Inc. — as part of a $750 million deal in 2011.  Vinca and co-plaintiff Jennifer Sweeney filed the first of the six False Claims Act suits against Shire that led to the settlement.

Kevin J. Darken, who represents Vinca's former counsel, says Vinca's current attorneys, Noel McDonell of Macfarlane Ferguson & McMullen and Bryen Hill of Mahany Law, have tried to cut him and the Cohen firm out of a fee award.  Darken has asked the court to disqualify McDonell and Hill for allegedly using stolen confidential emails to challenge the charging lien filed by Darken, Cohen and Saady & Saxe PA for a cut of the attorney fees.

McDonell and Hill have accused Darken and Kevin M. Cohen, the representative for Barry Cohen's estate, of conspiring to a fee-splitting scheme of the proceeds.  Vinca, who fired his attorneys in March 2018, is suing Darken, the Cohen firm and Saady & Saxe for malpractice, claiming they cost him the full whistleblower's cut of the Shire settlement.  Vinca claims his former counsel's failures forced him to share the whistleblower award of the Shire settlement with the five other relators who filed FCA suits after he did.

Generally, the first whistleblower to file gets about 20% of the government's recovery, and any subsequent whistleblowers do not receive a cut. But in this case, U.S. District Judge James Moody Jr. decided to divvy up the proceeds, in part because of deficiencies in the initial eight-page complaint from Vinca and Sweeney, according to McDonell.  Vinca and Sweeney shared more than $50 million from the settlement, while the other whistleblowers shared approximately $30 million.

The six whistleblower lawsuits that led to the settlement all alleged misconduct by Shire from 2007 through the beginning of 2014, including that it paid illegal kickbacks to get health care providers to use or overuse Dermagraft, marketed Dermagraft for uses not approved by the U.S. Food and Drug Administration, inflated the price of the drug and spurred the coding of Dermagraft-related reimbursement claims for payouts higher than what was appropriate.

McDonell told Law360 that Counsel Financial's claim has no bearing on this lawsuit because Vinca was not a party to the financing contract between Counsel Financial and the Cohen firm.  "As Magistrate Judge Porcelli noted in June of 2019, the matter at issue is the merits of a charging lien filed against relator Brian Vinca by former counsel, and to what extent compensation is appropriate," McDonell said.  "Accordingly, on behalf of Brian Vinca, we are confident that CFS has, as Judge Porcelli so aptly put it, 'no dog in this fight.'"

Delaware Supreme Court to Decide on ‘Mootness Fee’

February 15, 2021

A recent Law 360 story by Jeff Montgomery, “Del. Justices Unsure $12M Deal ‘Mootness Fee’ Is Off-Base”, reports that a Delaware Supreme Court justice questioned calls for the reversal of a supposedly unsupported, $12 million Chancery Court "mootness fee" to stockholder attorneys whose successful challenge to a Versum Materials Inc. merger poison pill begat a deal that was $1.2 billion higher.

During arguments on an appeal filed by Versum and its directors, Justice Karen L. Valihura told the company's counsel William Lafferty of Morris Nichols Arsht & Tunnell LLP that Vice Chancellor J. Travis Laster acknowledged concerns about both the size of the fee — amounting to about $10,700 per hour for a mooted claim — and the semiconductor industry supplier's call to pay either nothing or $680,000 based on standard rates.  "So he said you started out with a non-starter, extreme position" on the fee, "but you didn't engage with the evidence and the precedents meaningfully" to back up the position, Justice Valihura said.  "What are we supposed to do with that?" she asked Lafferty during arguments before the full five-member court.

And earlier Justice Valihura had asked Lafferty, "Isn't part of the problem here, clearly, that the vice chancellor had some misgivings about the [fee] number," but also that, if he had "meaningful help from the defendant in engaging on the matter, he might have reached a different conclusion?"  The fee approved by the Chancery Court followed relatively brief stockholder litigation in early 2019 over Versum's consideration of a $3.8 billion all-stock merger with Entegris Inc. worth about $43 per share, and the adoption of a poison pill shield for the deal after Merck KGaA offered $48 per share.

The "pill" would have given all shareholders the right to buy additional, potentially deal-blocking shares at a steep discount if another party or potential buyer acquired 12.5% or more of the company's equity.  Days after the stockholders sued, Versum dropped what the vice chancellor described as a related, "truly expansive" provision that would trigger the poison pill if individual stockholders were deemed to be "acting in concert" in discussions about the deal, regardless of their intent.  Soon afterward, the poison pill itself was withdrawn, with Merck soon winning the deal with a higher, $53 per share offer.

In approving the fee last year, the vice chancellor noted it would have been reasonably conceivable in a motion to dismiss proceeding to conclude Versum fielded the deal protections "to block a high-value cash deal and protect its merger of equals" with Entegris.  Lafferty said the vice chancellor erred by conflating the better, company-secured price with the "monetary, corporate, therapeutic benefit" resulting from removal of the pill and acting-in-concert provisions.

"Plaintiff played no role in the bidding dynamic and bidding process that led to the increased merger consideration," Lafferty said, adding that the vice chancellor's fee award "effectively rewards counsel as if they had created a monetary fund" and benefit, "which they didn't."

Michael Hanrahan of Prickett Jones & Elliott PA, counsel to the stockholders, told the justices that Lafferty was asking the court to second-guess the vice chancellor's factual findings, and said that the award amounted to about 1% of the benefit.  "The defendant basically just disagreed with the court of chancery's finding of a causal connection between the litigation and the increased merger price," Hanrahan said.  "They said no fee at all should be awarded, because the litigation did not cause Merck's offer.  The question is, what the board did" on the issues.  "They didn't put in any evidence on that."

Hanrahan said that Versum conceded on appeal that the litigation caused the removal of the acting-in-concert provision.  "That's fatal to their causation argument," he said. "The vice chancellor found those were obstacles to the Merck offer, and the removal of those obstacles caused the success of the Merck offer."  Lafferty said Versum's decision to accept Merck's offer came weeks after the stockholder suit had been mooted, while the court's fee decision was made without an assessment of the stockholder suit's likelihood of success or merit when it was filed.

"So what you're suggesting is, the process the Court of Chancery should have followed here, if your standard is likelihood of success, do they have to relitigate this case as part of the fee application?"  Chief Justice Collins J. Seitz Jr. asked. "I think what you're advocating has practical consequences for the court."  Lafferty said the case implicated important public policy considerations regarding the institutional role of shareholder suits, and the fact that past court cases have found that "generosity plays no role" in determining benefit amounts.

"If the court below wanted to exercise its discretion, if it thought there was a strong correlation between pulling the pill and the outcome, it could have awarded a multiple of plaintiff's attorney fees, not 17 times, but something reasonable," Lafferty said.  "The bottom line here is, the court of chancery had a duty to use its discretion to set a reasonable fee, and it didn't do that, we believe."

Article: Five Lessons for Recovering Attorney Fees in Texas

February 13, 2021

A recent article by Amanda G. Taylor, “Recovering Attorney’s Fees in Texas: Five Lessons” in BizLit News Blog reports on recovering attorney fees in Texas.  This article was posted with permission.  The article reads:

Obtaining an award of attorneys’ fees might be the final step in a long-waged litigation battle but to do so successfully requires careful planning and diligence from the outset of a case.  The Texas Supreme Court recently clarified the evidence required to obtain and affirm such an award.  Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469 (Tex. 2019).  The Texas Supreme Court also recently confirmed that these evidentiary standards apply equally when fees are sought to be recovered as a sanction.  Nath v. Texas Children’s Hosp., 576 S.W.3d 707, 710 (Tex. 2019).  To best serve a client’s interests of recovering attorneys’ fees in Texas, whether as a prevailing party or as a sanction, lawyers should adhere to five lessons from Rohrmoos.

Lesson One:  Confirm a legal entitlement to recover fees.  “In Texas, as in the federal courts, each party must pay its own way in attorney’s fees … unless a statute or contract provides otherwise.”  Rohrmoos Venture, 578 S.W.3d at 484.  Certain claims, such as a breach of contract claim brought under Chapter 38 of the Texas Civil Practices and Remedies Code, entitle a prevailing party to recover attorneys’ fees.  Other claims, such as a common law fraud claim, do not afford such a remedy.  In establishing your initial case strategy, it is important to consider which claims will and will not allow for recovery of fees, and advise your client about the pros and cons of pursuing each claim accordingly.  Also, be aware of fee-shifting procedural tools (such a motion to dismiss under the Texas Citizens Participation Act) and various Texas statutes and rules that allow for recovery of fees as a sanction (such as Civil Practice and Remedies Code Chapters 9-10, and Texas Rule of Civil Procedure 215).

Lesson Two: Keep accurate, contemporaneous billing records.  Although billing records are not absolutely required to prove the amount of reasonable and necessary fees, it is “strongly encouraged” to submit such proof in support of attorneys’ fees.  Rohrmoos Venture, 578 S.W.3d at 502.  It is much easier to review, summarize, and testify about the work performed (often years later) if you have been diligent in your billing practices throughout.  Time should be kept in a manner that demonstrates the “(1) particular services performed, (2) who performed those services, (3) approximately when those services were performed, (4) the reasonable amount of time required to perform the services, and (5) the reasonable hourly rate for each person performing the services.”  Id.  It is also advisable to keep time in a manner that is specific enough to cover the topic but without legalese and without so much detail that heavy redactions become necessary.  Fact finders prefer to read invoices in plain English without the interruption of hidden text.

Lesson Three:  Your fee agreement does not control the amount awarded.  “[A] client’s agreement to a certain fee arrangement or obligation to pay a particular amount does not necessarily establish that fee as reasonable or necessary.”  Id. at 488.  Translation: even if you have agreed to handle the matter for a flat fee or contingency fee, you still must demonstrate that the amount of fees sought for recovery are reasonable and necessary based on the work performed and the time incurred.  Regardless of the fee arrangement with your client, keeping accurate and contemporaneous billing records is important.

Lesson Four: Remember to timely designate fee experts.   “Historically, claimants have proven reasonableness and necessity of attorney’s fees through an expert’s testimony—often the very attorney seeking the award.”  Id. at 490.  “[C]onclusory testimony devoid of any real substance will not support a fee award.”  Id. at 501.  Because expert testimony will be required, the attorney must remember to designate herself and any other attorney who will offer an opinion about the reasonableness and necessity of the fee amount(s) as an expert witness in compliance with the scheduling order or discovery control plan governing the case.

Lesson Five: Understand the “Texas two-step” calculation method.  At step one, calculate the “base” or “lodestar” amount by multiplying the “reasonable hours worked” by a “reasonable hourly rate.”  Id. at 498.  This is an “objective calculation” that yields a “presumptively reasonable” amount.  Id. at 497-98, 502.  The determination of what is a reasonable market rate and what is a reasonable amount of time will typically include consideration of the following factors: (1) the time and labor required, (2) the novelty and difficulty of the questions involved, (3) the skill required to perform the legal service properly, (4) the fee customarily charged in the locality for similar legal services, (5) the amount involved, (6) the experience, reputation, and ability of the lawyer or lawyers performing the services, (7) whether the fee is fixed or contingent and the uncertainty of collection, and (8) the results obtained.  Id. at 500.  At step two, “adjust[] the base calculation up or down based on relevant considerations … [that were not] subsumed in the first step.”  Id.  “If a fee claimant seeks an enhancement, it must produce specific evidence showing that a higher amount is necessary to achieve a reasonable fee award.”  Id. at 501. Remember that only “rare circumstances” justify such an adjustment.  Id. at 502.

Following these five lessons from the outset of a case will be beneficial to the expert testifying about the amount of fees at the end of a case.  More importantly, it will benefit your client’s best interest in obtaining a monetary award and being able to have that award affirmed on appeal.

Amanda G. Taylor serves as Practice Group Leader of Butler Snow LLP’s Appellate Group and practices from the firm’s Austin, TX office. As a Board-Certified Civil Appellate specialist, Amanda helps to shape successful case strategy from the outset of litigation through the end of an appeal.  Amanda is a detail-oriented lawyer who represents her clients with passion, stays current on emerging trends and issues, and brings a practical perspective to problem solving.  She has a broad range of experience handling complex civil disputes regarding contracts, fraud, tax, insurance, products, employment, real property, and trust and estates.  Amanda is also committed to community service through a number of positions in her State and Local Bar Associations.

Class Counsel Earn $24M in Fees for Clean Coal Investors

February 11, 2021

A recent Law 360 story by Morgan Conley, “Attys for Southern Co. ‘Clean Coal’ Investors Get $24M”, reports that a Georgia federal judge approved just over $24 million in fees to attorneys for a class of Southern Co. investors accusing the company of misleading them about a botched plan to build a "clean coal" plant in Mississippi, trimming the initial request by about $2.1 million.

In an order granting the attorney fees, U.S. District Judge William M. Ray said the unusually good recovery in the settlement warrants a greater than average take-home for lead counsel from Robbins Geller Rudman & Dowd LLP.  But, the court declined to grant class counsel's full request for a 30% share of the $87.5 million settlement fund because, while the recovery for the class is "commendable," the litigation was settled early enough that class counsel didn't stomach "the riskier stages of litigation."

"Being able to achieve such a favorable recovery so early in the litigation suggests that a continued successful pursuit of the litigation could have yielded an even more favorable result for plaintiffs," Judge Ray said.  "That favorable result would then necessarily lead to an increase in the percentage of attorneys' fees.  The court, based upon the totality of the factors, is thus satisfied that 27.5% adequately reflects the impressive results of this case."

According to the court, reasonable attorney fees are usually pegged at around 20% to a quarter of the settlement fund, which the court preliminarily approved in October.  The court said that although class counsel said a study of attorney fee awards in the Eleventh Circuit put the median amount at 33%, that figure factors in a wide range of settlement sizes and a "closer inspection of the study reveals a more nuanced result."

"Because class action attorney fee percentages vary widely based upon the size of the settlement, it would be more insightful to look at settlements with a larger fund," the judge said.  "The same study points out that the average fee percentage is 22.3% when considering only cases with a settlement fund greater than $67.5 million."  Judge Ray said he is confident awarding the attorneys slightly above that average will continue to "incentivize high-caliber and vigorous representation" without awarding attorneys with an unnecessarily large payday.

Southern Co. agreed in September to pay $87.5 million to settle claims it misled shareholders about bungled plans to build a "clean coal" power plant in Kemper County, Mississippi — a project the company eventually admitted would cost almost three times more than originally budgeted and would never actually operate as a "clean coal" plant.

The settlement agreement makes up about 16% to 28% of what the class stood to receive in a best-case scenario if litigation continued to play out, according to the opinion.  Judge Ray said his rationale for not granting counsel's full 30% fee request is partially based on the risks of further litigation not being fully realized.

One potential threat surfaced when Southern Co. appealed the class' certification to the Eleventh Circuit.  But when the settlement deal was reached, no briefs had been filed in the appeal, which was stayed during the negotiations.  Class counsel argued the certification challenge posed significant risks to the litigation and supported a higher fee award.

Judge Ray disagreed, saying it might be a different story if the circuit court appeal had gone active and class counsel had overcome the appeal.  Or, if the class had defeated a summary judgment bid, the heightened stakes would have been fodder for a high fee award argument, the court said.  But since the litigation never reached such a stage, the upper end of the counsel's fee request isn't justifiable, Judge Ray said.

Second Circuit: No Second Shot for Milberg in $12M Fee Dispute

February 9, 2021

A recent Law 360 story by Justin Wise, “2nd Circ. Says No 2nd Shot For Milberg in $12M Fee Dispute”, reports that the Second Circuit upheld a lower court's dismissal of Milberg Coleman Bryson Phillips Grossman PLLC predecessor Milberg LLP's pursuit of nearly $12 million in contingency fees from former clients, saying its petition failed to comply with a timing provision of federal arbitration law.  The decision came down in a long-running dispute between Milberg LLP, which has since merged with multiple firms, and clients it represented in Germany and Luxembourg in their suit for recovery on defaulted Argentine bonds.

The firm in 2019 sued in the Southern District of New York seeking to vacate an arbitration award that said it was entitled to only a fraction of a $11.9 million fee it claimed it earned for its work on the case.  However, the court dismissed the firm's effort over failing to adequately plead diversity of parties and for not serving proper notice of the petition within the three-month statute of limitations.  While a three-judge panel differed with the lower court on the subject of diversity, "nevertheless, we hold that Milberg failed to comply with the timing provisions of the Federal Arbitration Act."

An attorney for Milberg had previously argued in court that Hague Convention protocol made it impossible to serve notice to overseas adversaries within 90 days.  But the appeals court was not convinced, saying the firm did not "demonstrate diligence" when it came to the three-month deadline to warrant a "possible equitable extension."

"Milberg did not even notify opposing counsel of its petition to vacate the arbitral award until [the] three-month window closed, and only after opposing counsel stated it was not authorized to accept service did Milberg set the wheels in motion for service overseas," the panel wrote, citing the firm's after-hours attempt to serve notice on the day the statute of limitations expired.

Milberg had represented 10 Luxembourg and German retirement funds and two German individuals as they sought to enforce payment on defaulted Argentine bonds.  The clients stopped working with Milberg in 2016 and hired another firm before settling the dispute with Argentina for $162.3 million.  Court documents show that the settlement was similar to the terms Milberg had obtained before being discharged.

Milberg initiated arbitration seeking contingency fees in 2017, but a panel on Feb. 5, 2019, declined to award the firm what it sought. Milberg filed suit in court on May 6, 2019, and late that evening — the last day it could serve a notice for its motion — emailed counsel for their former clients asking whether it could accept service on their behalf.  The clients' counsel said it was not authorized to accept service, court documents show.