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Category: Coverage of Fees / Duty to Defend

Article: The Need For Attorney Fee Expertise

February 20, 2020

A recent AI article by John D. O’Connor, “The Need For Attorney Fee Expertise (pdf),” reports on the need for attorney fee expertise to prove reasonable attorney fees and proper billing practices in underlying litigation.  This article was posted with permission.  The article reads:

Most corporate clients today have access to excellent litigation counsel in each particular area of concern.  However, as attorney fee disputes are increasingly becoming a by-product of the main litigation event, few clients and few otherwise excellent litigators truly understand when and how to use attorney fee experts.

Although the “American Rule” provides that each litigating party bears its own fees, there are exceptions to this rule.  Successful class actions; employment and governmental discrimination cases; eminent domain suits; RICO claims; and other cases result in legally-sanctioned attorney fees claims.  Promissory notes, guarantees, real estate purchase agreements, and corporate acquisition contracts often contain attorney fee clauses.  High-stakes insurance coverage litigation usually features a battle over fees incurred in the underlying case(s).  It is common for a case with a small monetary award to result in an extremely high request for fees.

Typically in fees proceedings, the party with a claim to fees files a motion detailing the amount it requests, accompanied at a minimum by a Declaration of the main litigating attorney attaching a statement of his billings, detailing hours and rates for which payment is sought.  The main billing attorney will normally justify the requested billing rate, which can be his actual rate or a rate claimed to be prevailing in the community for one of similar skill and experience. The motion, usually accompanied by a brief summarizing the law of fees in that type of case, includes the statutory or contractual authority for same.

When the responding party files its submission, the contours of the ultimate dispute take shape.  It is common for the respondent to challenge the billing rates as unduly high; the number of lawyers assigned as excessive; the hours spent as inefficient; the number and length of conferences and meetings as unnecessary; the billing form as improperly “blocked” and “vague” in description; many of the tasks billed as being unwisely or improvidently chosen; certain work as not related to prevailing claims; and generally excessive fees for the type of litigation involved.  Often this opposition is accompanied by a request for limited discovery regarding fees.

As objections are detailed in various cases, the challenging lawyer is usually able to write an impressive brief in support.  These objections can be made without an expert witness, except as to prevailing billing rates, which the responding lawyer is qualified to opine.  The responding party will have made a serious mistake, however, if it did not bolster its objections with a detailed opinion of an experienced fee expert.  Often, the reviewing Court has witnessed the work of the petitioning lawyers and formed a positive opinion of them. Indeed, the reviewing Court in the underlying case would often have ruled in favor of the petitioner and against the respondent.  Even if not, the respondent must labor against the human assumption that established, competent lawyers have billed in accordance with community standards.

However, surprisingly, it is common for responding parties to put forth objections without an expert.  We have seen cases where fees sought into eight figures, where no expert has been retained, with unenviable results. Most experts have the capability of presenting a computer analysis isolating hours and tasks, which can claim to isolate amounts of “block” entries, incompensable “clerical” time, and other practices.  Such a presentation, though, is often superficial, and may not impress a reviewing Court seeking a principled basis upon which to reduce fees for the prevailing party.

Whatever the case, any attack on the requested fees should call for a rebuttal by a qualified attorney fee expert on behalf of the petitioner.  However, this guideline is frequently observed in the breach.  Even if the Court had been inclined to a favorable opinion of the petitioning firm, even a superficial attack on the petitioning lawyers’ fees can be facially effective, and thus the petitioner would need to blunt effectively any such attack.

A qualified expert can help by suggesting needed discovery from the responding party of information regarding that party’s billings which supports the petitioner’s request.  More importantly, an expert employed correctly will go beyond the glittering generalities put forth in these disputes.  They would show why a particular billing rate is justified with specific reference to specific firms doing nearly identical work or why a particular task was necessarily and properly time-consuming.

Most reviewing Courts are experienced at resolving factual disputes based on a presentation of specific compelling facts.  A wise litigation party, in short, should employ an expert to do just that. 

John D. O’Connor is a NALFA member and the Principal of O’Connor & Associates in San Francisco.  For more on John D. O’Connor, visit www.joclaw.com.

FL Law Firm: Insurer Must Cover $14M in Defense Fees

February 17, 2020

A recent Law 360 story by Hailey Konnath, “Fla. Law Firm Says Insurer Must Cover Defense of $14M Suit,” reports that a Florida law firm and its shareholders said that they're owed damages from an insurance company that refused to cover their defense in a $14 million suit over a loan transaction, urging the Eleventh Circuit to overturn a lower court's finding that they lacked sufficient evidence of lost profits.  Kluger Kaplan Silverman Katzen & Levine PL and shareholders Abbey Kaplan and Steve Silverman say that Nautilus Insurance Co. has wrongly refused to cover their defense costs in a 2011 suit brought by a trust that claimed it lost $14 million in a loan transaction with the attorneys' former client.

In 2017, an arbitration panel found that the insurance company indeed breached its duty to defend them and awarded contractual damages, but the panel didn't consider or award extracontractual damages the attorneys and firm said they were also owed, according to the attorneys and firm.  The attorneys and Kluger Kaplan then sued Nautilus in an attempt to recover those additional damages.  But a Florida federal judge sided with the insurance company in November, ruling that the plaintiffs were attempting to relitigate issues that had been decided and lacked sufficient evidence to prove the extracontractual damages.

Silverman, Kaplan and the firm argued that the issues at the heart of their suit "have never been litigated, much less to judgment."  The arbitration panel had addressed Kaplan and Silverman's contractual damages, which included reasonable attorney fees, but that determination doesn't prevent them from seeking to hold Nautilus liable for other damages, the attorneys and firm said.

And the evidence they'd presented to the district court is "more than sufficient" to show lost profit damages when taken in the light most favorable to Kaplan, Silverman and the firm, they argued.  That evidence includes Kaplan's and Silverman's investing track records, as well as the firm's historical data showing it lost profits because it was unable to realize revenue from paying clients while fighting the suit, they said.

"Not even Nautilus disputes that Kaplan, Silverman, and KKSKL had to shift resources that could have been deployed to profit-making activities because they were in the fight of their lives with Cordell after Nautilus abandoned them," they said, referring to the trust.  "If affirmed, the lower court's order will create an impossible bar for businesses to recover lost profits under the bad faith statute's tort-like causation standard," they added.

According to the brief, Kaplan and Silverman — at the time working for Kluger Peretz Kaplan & Berlin — represented businessman Edward Okun and his affiliated entities from 2006 to 2007.  In 2009, Okun's companies filed for bankruptcy after he was indicted for operating a Ponzi scheme, the attorneys said.  In 2011, KPKB and its former attorneys were sued over $14 million that a trust purportedly lost in a loan transaction with Okun that occurred while the firm was representing him, per the brief.  Kaplan and Silverman then requested a defense and indemnification under an insurance policy issued by Nautilus, but Nautilus denied them coverage, they said.

Kaplan and Silverman personally spent $2 million in legal fees and costs defending themselves in the suit.  Amid that litigation, the trust asked for leave to file an amended complaint that also named their new firm, Kluger Kaplan, as a defendant.  Ultimately, Kluger Kaplan was never made a party to the action, but the firm spent more than $134,000 defending itself and $475,000 assisting with Kaplan and Silverman's defense, it said in the brief.  In the end, the attorneys and KPKB won the case, according to court filings.

The attorneys and Kluger Kaplan took their coverage dispute with Nautilus to arbitration.  In March 2017, an arbitration panel found that the insurance company breached its duty to defend them under the policy and owed them a reimbursement for "reasonable defense costs," according to the brief.  But the panel awarded the attorneys and Kluger Kaplan less than they were after, an award that "did not make Kaplan, Silverman or KKSKL whole," they said.

Silverman, Kaplan and the firm then lodged the present action in late 2017 in Florida federal court.  According to the brief, they're after damages, including unrecovered fees, defense costs and lost profits that Kluger Kaplan sustained as a result of time spent on the case — none of which was awarded in arbitration.  Late last year, the Florida district court granted Nautilus' summary judgment motion, ruling that Silverman, Kaplan and the firm were collaterally estopped from seeking the unrecovered amounts they paid or incurred in defending themselves.  The court also held that the attorneys and firm had failed to present sufficient evidence that would prove that the damages were caused by Nautilus' lack of good faith, according to a November order.

Technology Alone is Not the Answer to Outside Fee Guidelines

February 14, 2020

A recent American Lawyer story by Dan Packel, “‘Technology Alone Is Not the Answer’ Wilmer Revisits Outside Counsel Guidelines,” reports that the number of outside counsel guidelines that attorneys and administrators at Wilmer Cutler Pickering Hale and Dorr have to juggle is striking.  In total, the firm is sitting on approximately 1,000 documents, after receiving, in 2019 alone, roughly 260 new retainer agreements or updates to existing guidelines that stipulate what clients expect from the attorneys they are hiring. 

Wilmer isn’t the only law firm dealing with heightened standards from corporate clients about what they’ll pay for and what they won’t.  A recent study from timekeeping technology company Bellefield and the Association of Legal Administrators estimated the cost of compliance with these guidelines at nearly $4 million annually for some firms.  “There are a lot of process failures out there,” said Kyle Liepelt, who was named Wilmer’s first dedicated outside counsel guidelines administrator in February 2018.  “Technology alone is not the answer.”

When Wilmer began the process of reevaluating how it dealt with these guidelines in 2017, leaders found that—unlike the majority of the firms responding to the Bellefield and ALA survey—it was over-complying with guidelines.  Instead of losing money through rejected bills, convoluted appeals and write-downs, attorneys were being overly cautious in their billing.

“We couldn’t arm our partners to the nuances of these client differences,” said Steve Smith, the firm’s director of matter management services, describing a problem of “excessive diligence.”  “That impact, both in time and money, to communicate the complexity around outside counsel guidelines, that’s time that we should have been spending adding real value to our clients,” he continued. 

Following an initial workshop, one of Wilmer’s first steps was to create the centralized administrator position held by Liepelt, who spent the previous five years as a conflicts specialist in the firm’s new business department.  Each set of new guidelines goes directly to him, and he’s responsible for reviewing their terms, looping in the relationship partner and the billing partners on a given matter.

Room For Negotiations

These conversations aren’t just to circulate the substance of what clients are demanding.  Wilmer is not afraid to push back on terms that the firm would prefer not to agree to.  Liepelt said that his conversations within the industry showed that’s not always the case elsewhere.  “A lot of firms often receive them and that’s it, there’s no real discussion about them.  They may post them, so people can see them, but there’s no discussion on substance,” he said. 

According to the Bellefield and ALA survey, 23% of firms make no effort to share guidelines with attorneys, while 24% simply post them on the firm’s intranet.  While 52% share guidelines via email, the survey did not capture whether this is the prelude to a wider discussion, let alone to a response to the client.  But Liepelt said that the reaction is generally positive. At the very least, clients appreciate that the firm is carefully considering the guidelines.

“When it comes to the recommendations that we give, it’s a mixed bag.  Some say, ‘This is what it is, and we want you to follow it,’” he said “Other times there’s a negotiation back and forth and we arrive somewhere in the middle.”  Liepelt will often handle these conversations with the client, particularly if the attorneys don’t want to get involved.  “Discussion can be a burden on attorneys,” he said.  “I try to relieve them of any potential conflict.”

Into The Database

If these conversations illustrate the human side of the process, the technical side takes the forefront once any negotiations are finished.  The Wilmer team looked to a database to help solve the problem of scale, teaming with a vendor that had its own outside counsel guidelines solution and using the underlying workflow and source code to built their own unique design.  Each client’s guidelines are broken down into a data record with component terms highlighted, and attorneys and staff can search for terms and easily access the source documents.

Smith gave the example of different clients specifying what personnel can and can’t be used.  Some bar paralegals, others rule out first-year associates, still others place caps on each category for a given matter.  “We can surface those,” he said.  “We have a standardized process to review them very quickly.”

When updated versions of guidelines roll in, Liepelt can turn to the database to identify what’s changed, then rapidly point out the differences to the partners involved.  When looking at intranet profiles for the firm’s attorneys, he and others can follow links to see what outside counsel guidelines apply to each matter they’re working on, guiding conversations about matter efficiency.  And, in the unlikely event of a data breach, the firm can quickly pull up the list of clients that need to be notified within 24 hours.

A Bellwether for the Relationship

One year into the new system, the feedback, from both inside and outside the firm, has been overwhelmingly positive, according to Smith and Liepelt.  Partners appreciate having an internal point person to whom they can direct their inquiries and concerns, while staff have the information at their disposal to do pre-bill auditing.  Turnaround time with clients has decreased by 25%.

“The delays are less on our side and more on their side,” Leipelt said. “We’re much more responsive than we were, and that leads to better relationships.”  Beyond that, the new system offers a selling point when it comes to marketing the firm.  “There’s not an RFP that we see these days that doesn’t specifically ask us what are the firm’s capabilities in innovation and improving processes,” Smith said. “How we handle outside counsel guidelines is a bellwether for our stewardship of their financial resources.”

Insurer Aims to Undo Fee Ruling in School IP Case

February 13, 2020

A recent Law 360 story by Bill Wichert, “Insurer Aims to Undo McCarter Fee Ruling in School IP Fight,” reports that a school’s insurer claimed a New Jersey state judge relied on an inapplicable standard in urging him to undo a ruling that the business must cover attorney fees charged by McCarter & English LLP for trademark litigation work performed before the institution notified the insurance company about the case.  In The Lewis School of Princeton's suit against the business, Philadelphia Indemnity Insurance Co. moved for reconsideration of that opinion, saying Superior Court Judge Robert T. Lougy improperly found that the business must demonstrate “appreciable prejudice” from the school’s conduct to avoid such coverage and failed to do so.

McCarter & English billed The Lewis School for about $147,000 in fees — a fraction of which the insurer has already covered — but the amount of damages owed by Philadelphia Indemnity are to be determined at trial, the opinion said. The school has settled related malpractice claims against McCarter & English.  Philadelphia Indemnity argued that its duty to defend was not triggered until the school notified it about the underlying litigation on May 9, 2018, thus the company is not responsible for any fees incurred beforehand.  The company said it did not have to show appreciable prejudice in denying that pre-notice coverage.

The appreciable prejudice standard only applies under state law in matters “where there is a denial of coverage and forfeiture of coverage based on late notice,” Philadelphia Indemnity said in its brief.  That’s not the case here since the business ultimately appointed counsel to defend The Lewis School and agreed to cover post-notice fees, the company said.  “The court has erroneously conflated the law regarding when the insurer’s duty to defend begins (i.e., upon presentation of the claim) and the entirely separate case law regarding the standards applicable when the insurer denies coverage based on late notice,” the brief states.

The business relied in part on the New Jersey Supreme Court’s 1992 SL Industries v. American Motorists Insurance Co. opinion, saying it set forth that insurers were not on the hook for pre-notice defense costs.  The opinion “did not carve out any exceptions whatsoever — including whether or not the insurer could show appreciable prejudice,” Philadelphia Indemnity said.  “SL Industries demonstrates that an insurer is not required under New Jersey law to reimburse the insured’s pre-tender defense costs, irrespective of any considerations regarding prejudice,” according to the company’s brief.

Philadelphia Indemnity asserted that Judge Lougy mistakenly found in his opinion that SL Industries is not relevant since it “‘does not address the appreciable prejudice standard.’”  SL Industries doesn’t address the standard “because, just as in the instant case, the insurer did not disclaim or argue forfeiture of coverage based on late notice,” the company said.

The business also has said the appreciable prejudice standard didn’t apply in the case because, in denying pre-notice coverage, it relied on how The Lewis School ran afoul of a voluntary payment provision of its policy.  That provision states, “No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.”

Judge Lougy, however, concluded that the standard applied to such a provision, citing the state Appellate Division’s 1987 Solvents Recovery Service v. Midland Insurance Co. opinion.  In that decision, the court “considered whether coverage was defeated by the insured’s failure to comply with a provision substantially similar to the provision at issue here, which prohibited the insured from ‘voluntarily mak[ing] any payment, assum[ing] any obligation or incur[ring] any expense,’” the judge said.

Philadelphia Indemnity countered that Solvents Recovery applied the standard to a different provision at issue in that case.  Even if the standard is applicable to the pre-notice fees in question, the insurer said the judge should have denied summary judgment to The Lewis School on the issue of the company’s liability in order for the parties to conduct discovery regarding whether Philadelphia Indemnity suffered appreciable prejudice as a result of the school’s conduct.

Philadelphia Indemnity has paid the school for about $13,000 in post-notice fees but refused to cover the balance of such costs because the insurer said it never consented to retaining McCarter & English and since the firm’s hourly rate is unreasonable, court documents state.

FL Legislation Would Cut Attorney Fees, Aid Insurers

January 28, 2020

A recent Daily Business Review story by Raychel Lean, “Proposed Florida Law Would Cut Attorney Fees, Aid Insurance Companies,” reports that a bill working its way through the Florida Legislature would curb the use of attorney-fee multipliers—bad news for plaintiffs counsel who represent clients on a contingency basis, but a boon for the insurance industry, which claims attorneys often charge three times their hourly rate for routine property cases.

Senate Bill 914 has jumped its first hurdle, gaining approval from the Florida Senate Committee on Banking and Insurance.  It reflects a conflict between attorneys—who say the proposed law would prevent homeowners from suing insurers—and insurers, who say some lawyers take advantage by tripling their fees for routine cases.  Fee multipliers are meant to protect homeowners who can’t afford to bring suit unless attorneys agree to take on difficult and high-risk litigation on a contingency basis.  Lawyers bear the cost of the litigation, but if they win, their clients could apply a contingency risk multiplier.

The proposed law would prevent this.  The bill by Republican Sen. Jeff Brandes would cap attorney fees for plaintiffs.  It would award fees through the lodestar method, which multiplies a reasonable hourly rate by the number of hours attorneys worked.  Tallahassee attorney Michael Carlson agrees it should be more difficult for plaintiff counsel to seek fee multipliers.  “It is too common now, throughout Florida, for courts to award a fee multiplier on what we would call a relatively simple case,” said Carlson, who represents insurance companies and is president and CEO of the Personal Insurance Federation of Florida.

Critics suggest fee multipliers were meant to have a narrow scope.  They say the measure was introduced decades ago to encourage attorneys to take on complex or controversial federal civil rights and environmental torts cases because potential clients were struggling to find representation. The U.S. Supreme Court eventually limited its use, they argue.  And in the 1992 case City of Burlington v. Dague, former Justice Antonin Scalia wrote a majority opinion rejecting the contingency fee model.

Carlson claims multipliers are no longer necessary for property insurance cases in Florida, because there’s no shortage of competent counsel.  “If you have a tree fall on your roof, and you have a dispute with your insurance company over that tree having fallen on your roof and you need to hire a lawyer anywhere in Florida, you will not have a problem,” he said.

‘Army’ of lobbyists?

Plaintiffs attorney William F. “Chip” Merlin of the Merlin Law Group in Tampa argued against the bill at a hearing, claiming that although it was “well-intentioned,” it will hurt some policyholders who won’t be able to find competent lawyers to handle declined insurance claims.  “The insurance companies do not ever want to be held accountable for wrongfully denied claims and claims that they are slow to be paid, and certainly do not like to be sued at all, even if their competitors are committing illegal actions,” Merlin said.  “So there is always an army of insurance lobbyists claiming that a new crisis exists to reduce policyholder rights or make it easier to skirt consumer protection laws and regulations.”

Merlin notes that while insurance companies have teams of lobbyists, policyholders “have jobs and are working on their own life, and simply do not show up in Tallahassee.”  “People do not buy insurance to have their claims turn into lawsuits,” Merlin said.  “They just want to be paid fairly.”

In most instances, Merlin claims policyholder’s attorneys don’t get a multiplier but says in certain small cases where upfront costs outweight the amount in controversy there’s no other incentive for attorneys to take them.  William Large of the Florida Justice Reform Institute stressed the personal injury field has survived without fee multipliers, and claims there’s already “an extraordinary advantage” under Florida’s one-way attorney fee statute, allowing recovery for plaintiffs who prevail against their insurer.

“That is fair,” Large said. “That’s a real incentive for insurance companies to make sure they’re settling cases appropriately for insureds. But then to get a multiple on top of that isn’t fair, so we’re trying to make sure that the multiplier is not used except in the most extraordinary and exceptional circumstances.”  However, a 2019 law has already restricted the use of assignment-of-benefit agreements, which allow policyholders to sign over their insurance rights to contractors — some of whom claim would give homeowners “the monumentally short end of the stick.”

Carlson said he sees this bill as restoring the law to its original purpose, and claims its passage could reduce insurance rates for consumers.  “The lawyers are making their hourly rate, they’re getting paid for representing their client when they win,” Carlson said.  “What’s become much more commonplace in the 2017 period forward is lawyers in these same cases, when they win and they’re having their lodestar amount calculated, they ask for a separate amount as well.”  He points to a 2017 Florida Supreme Court case, Joyce v. Federated National Insurance Co., which made it easier to obtain fee multipliers.  In it, Justice Charles Canady wrote a dissent that said the court had overreached, because the fee multiplier should only be used in rare circumstances. 

But as Merlin sees it, the focus should be on the fact that policyholders are having to sue their insurers in the first place.  “The insurance lobby points to a few cases about how much the winning policyholder attorney made, rather than talk about why the claim should never have been denied in the first place, and that the insurance companies’ attorneys fought and fought the payment to the policyholder because that is the only way a case can generate large fees,” Merlin said.  “Instead, they fight with their own attorneys whom are paid on an hourly basis, win or lose, often to wear down the policyholder.”