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Category: Contingency Fees / POF

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.

NALFA Hosts CLE Program with Sitting Federal Judges

March 24, 2017

Today, NALFA hosted the CLE program “View From the Bench: Awarding Attorney Fees in Federal Litigation”.  This program featured a panel of sitting federal judges.  This is the third CLE program NALFA has hosted with an all-judicial panel of sitting federal judges. 

The U.S. District Court Judges, the Honorable Frederic Block, Senior Judge from the U.S. District Court for the Eastern District of New York and the Honorable David R. Herndon, District Judge from the U.S. District Court for the Southern District of Illinois, discussed a range of attorney fee and legal billing issues in federal litigation.  The panel addressed fee shifting cases, prevailing party issues, and fee calculation methods. The panel also took questions from the audience.

This live and remote CLE program was approved for CLE credit hours in California, Florida, Illinois, and Texas.  CLE credit hours are still pending in Ohio and Pennsylvania.  Over 75 attorneys from across the U.S. registered for this multi-state CLE program.  This 120-minute CLE program was recorded and is available for purchase on-demand.

$175M in Attorney Fees in $10B VW Settlement

March 22, 2017

A recent Courthouse News Services story by Nicholas Iovino, “Lawyers Share $175M Payday in VW Settlement,” reports that a federal judge awarded $175 million in attorneys’ fees and costs to lawyers that helped secure a $10 billion settlement in the Volkswagen diesel-gate scandal.

U.S. District Judge Charles Breyer approved the $10 billion package in October 2016 as part of a larger $15 billion deal, which included $4.7 billion in air quality improvement programs to mitigate the impact of cars that violated emissions standards.

The $15 billion deal was the most costly settlement Volkswagen has paid thus far for its use of emissions-cheating software in some 11 million cars worldwide.  The German automaker has paid more than $20 billion in U.S. civil settlements and criminal fines, and U.S. prosecutors have charged six of its executives over their roles in the scandal.

As part of the $15 billion deal approved last year, Volkswagen agreed to spend up to $10 billion buying back or modifying nearly 600,000 2-liter diesel engine vehicles tainted by defeat devices.  Defeat devices allowed the cars to mask emissions during tests while spewing up to 40 times more nitrogen oxide on the road than allowed under federal law.

Breyer found $167 million in attorneys’ fees and $8 million in costs requested by the plaintiff class lawyers was “reasonable and fair” given the “extraordinary result” achieved for the class.  The judge said the settlement put owners of affected vehicles back into the same position they were in before the scandal was made public in September 2015.  Volkswagen offered to buy back cars based on their pre-public scandal value or to repair them with EPA-approved emissions-reducing modifications.

Awarded attorneys’ fees make up 1.7 percent of the $10 billion settlement package.  The award will be shared among 21 law firms that made up the plaintiff class steering committee, headed by lead counsel Elizabeth Cabraser of Lief Cabraser Heimann & Bernstein.

The lawyers and their staff worked 98,000 hours litigating the case and negotiating the settlement.  They expect to spend an additional 21,00 hours processing claims over the next 26 months, according to Breyer’s March 17 ruling.

The average hourly rate for class attorneys’ work was $529, amounting to a $63.5 million lodestar, or total cost of litigation hours.  Breyer found applying a 2.63 multiplier to the lodestar was justified given “the complexities of this case and the extraordinary result achieved for the class.”

Lead attorney Elizabeth Cabraser said in an emailed statement, “The award will be allocated by lead counsel among firms who performed authorized common benefit work, based upon relative value of contributions to the case and time that was reported and complied with guidelines set forth by the Court.  These fees will not be deducted from any class member’s recovery amount.”

Judge Reduces Fee Request in Rita’s Water Ice Class Action

March 21, 2017

A recent Legal Intelligencer story by P.J. D’Annunzio, “Lawyers Want $1M Fee, Get $651K in Rita’s Class Action,” reports that the attorneys handling the Rita's Water Ice class action over the company sending unsolicited text messages asked for $1 million in fees, but a federal judge said that price is too steep.

On March 16, U.S. District Judge Timothy J. Savage of the Eastern District of Pennsylvania granted class counsel's request for $40,000 in expenses and $10,000 in incentive awards, but denied their request for $1 million in legal fees, instead awarding them $651,000.  That reduced fee represents roughly 22 percent of the litigation's settlement fund.

According to Savage's opinion, more than 110,300 people are eligible for a piece of the $3 million settlement fund, and of those noticed, roughly 25,500 filed valid claims.  "The amount each class-member claimant will receive is not significant, but rather modest," Savage said, and because there were more claimants than class counsel had anticipated, each would get less than previously thought.

"Counsel claim that they extracted the largest settlement possible for the class in light of Rita's ability to pay," Savage said.  "Yet, rather than adjust the attorney fees to increase the amount available to the class, counsel propose a lesser recovery for the class members."

The class action was filed in 2015 by Sherry Brown and Ericka Newby.  The two claimed that Rita's sent them "Cool Alerts" text messages announcing when certain water ice flavors and other products were available at local stores.  They alleged that the lists were generated using a database of telephone numbers that the owners did not provide to Rita's.  They also claimed that they kept receiving messages after texting "STOP" in response to the texts' instructions to stop receiving future notifications.

A settlement agreement was reached between the parties in March 2016 and was approved by the judge shortly thereafter. Brown and Newby received $5,000 each as class representatives.