Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Coverage of Fees / Duty to Defend

When Someone Else Pays the Legal Bills

March 7, 2017

A recent CEBblog article by Julie Brook, “When Someone Else Is Paying Your Fees,” writes about when a third party pays some of all of your legal fees in California.  This article was posted with permission. The article reads:

When, in a noncontingent matter, a third party is paying all or some of the attorney fees for your client, do you know how to deal with the issues that can arise?  Short answer: Address them upfront in your fee agreement.  Here are sample provisions to get you started.

You should be aware that Cal Rules of Prof Cond 3-310(F) requires informed written consent of your client when someone else is paying for his or her attorney fees.  In explaining this requirement to your client, advise him or her of the potential problems that might arise with this arrangement.

Here are two alternative sample provisions you can use in your fee agreement, depending on whether the third person will be a party to the agreement:

[Alternative 1: If the person/entity responsible for payment of fees and costs isn’t a party to the fee agreement]

Another person or entity may agree to pay some or all of Client’s attorney fees and costs.  Any such agreement will not affect Client’s obligation to pay attorney fees and costs under this agreement, nor will Attorney be obligated under this agreement to enforce such agreement.  Any such amounts actually received by Attorney, however, will be credited against the attorney fees set out in this agreement [or delivered to Client if there is no balance due Attorney].  The issue raised by having a third party pay the fees is the potential or perceived potential that the third party may try to influence the prosecution of the case to minimize costs or to achieve other goals.  However, the fact that another [person/entity] may agree to pay some or all of Client’s attorney fees will not make that [person/entity] a client of Attorney and that [person/entity] will have no right to instruct Attorney in matters pertaining to the services Attorney renders to Client.  Unless Client gives written permission to discuss all or a portion of Client’s matters with [the person/the entity] paying all or a portion of the attorney fees, Attorney will not disclose any confidential information to [him/her/it].  By signing this agreement, Client consents to this arrangement and acknowledges that Attorney has advised Client of the advantages and disadvantages of this arrangement.

[Alternative 2: If the person/entity responsible for payment of fees and costs will be a party to the fee agreement]

[Name] agrees to pay attorney fees for services performed and costs incurred in the representation of Client under this agreement.  [Name] acknowledges that [his/her/its] agreement to pay attorney fees and costs does not make [him/her/it] a client of Attorney.  Unless Client gives written permission to discuss all or a portion of Client’s matters with [name], Attorney will not disclose any confidential information to [him/her/it].

Alternative 1 avoids potential ethical issues posed by such arrangements by making it clear that the party paying the bills isn’t the client and isn’t party to the confidential attorney-client relationship.

But if you want a remedy against the third party if he or she stops paying, you must have an agreement with that individual or entity.  One way to do that, illustrated in Alternative 2, is to make the payor a party to the fee agreement.  It’s best, however, to have a separate written agreement with the payor rather than having him or her sign the same engagement letter as the client; this will preserve the attorney-client privilege of the fee agreement with the client.

Also, consider doing the following when a third party is paying the bills:

  • Give notice of fee dispute arbitration.  Even though the party assuming responsibility for payment doesn’t become your client in the sense of directing the representation or becoming privy to confidential information, you should send notice of the right to compel arbitration of a fee dispute to this individual or entity as well as to the client. Wager v Mirzayance (1998) 67 CA4th 1187.
  • Refund advanced fees at end of case.  To the extent funds advanced by a third party remain after the case is concluded, you should refund the balance to the payor, not the client.  See California State Bar Formal Opinion No. 2013-187.

Insurer Fights Fee Discovery in Texas

February 22, 2017

A recent Law 360 story by Michelle Casady, “Texas High Court Told to Nix Attys’ Fee Discovery Ruling,” reports that National Lloyd's Insurance Co. urged the Texas Supreme Court to upend a lower court ruling compelling discovery of its attorneys’ fee information in litigation with property owners who allege the insurer underpaid their damage claims, contending that information is privileged.

The justices heard arguments on whether National should be able to keep that fee information under wraps — a fight that stems from four property insurance cases in which the property owners argued they had been shortchanged on claims following two hailstorms in Hidalgo County, Texas, in March and April 2012.

Scot Doyen, arguing on behalf of the insurer, told the court that siding with the property owners would “add layers of complexity to an area of the law that is otherwise clear and workable,” that the information sought is privileged and that the “relational nature” of fee consideration renders its fees irrelevant.  Such fees hinge on "the relationship between the party and the lawyer, not the relationship between the party and the other party,” he told the court.  “It is relational to that specific lawyer to client relationship," Doyen said.

Arguing on behalf of the insured property owners, Jennifer Bruch Hogan rejected the notion that an opposing counsel's fee information, including hourly rates and total hours billed, is “patently irrelevant,” though she said the tasks themselves may be privileged information subject to redaction.

“The second point I want to make is that the defendants have voluntarily designated their lead trial lawyer as a testifying expert, and not as a testifying expert on their own attorneys' fees, but as a testifying expert who can challenge the plaintiffs' attorneys' fees as unreasonable and unnecessary,” she also told the court, adding that the arrangement had put the case in "an unusual posture." 

In its petition for writ of mandamus filed with the state high court in August 2015, National argued that a defendant's fees are irrelevant, and that there are other methods in place — including the lodestar method and Arthur Andersen factors — that can be used without compelling a party to turn over rate and fee information it argues is privileged.

National's petition said the Thirteenth Court of Appeals decision caused a split among state appellate courts over whether a plaintiff can discover a defendant's attorneys' fee information, which it said is reflective of a split in other state and federal courts as well.  It said that the state high court has never adjudicated the issue and the Thirteenth Court erroneously relied on Chief Justice Nathan Hecht's concurring opinion in the 2012 case El Apple I v. Olivas in justifying its holding that the fee information is both relevant and discoverable.

As part of the underlying legal battle, the property owners were seeking damages and attorneys' fees on their breach of contract and Texas Insurance Code claims, according to court documents.  The cases were consolidated with thousands of others in a multidistrict litigation in Texas, and special master Roberto Ramirez was appointed to resolve any disputes.  In March 2015, according to the petition, the property owners in this case moved for additional discovery on attorneys’ fee information, including rates, invoices, payments and audits.  The insurers objected.

In April 2015, the special master permitted the additional discovery, which resulted in requests for the information being served to National Lloyds, Wardlaw Claims Service Inc. and Ideal Adjusting Inc., which objected to the requests.  After a hearing, the special master overruled each objection, according to the petition, and an appeal to the Thirteenth Court of Appeals followed.

The case is In re: National Lloyds Insurance Co et al., case number 15-0591, in the Supreme Court of the State of Texas.

What are Best Practice in Legal Fee Analysis?

February 20, 2017

Legal fee analysis is the comprehensive review and analysis of attorney fees and costs in an outside legal matter.  Professionals who perform outside legal fee analysis include attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors.

The following best practices measures were developed over several years with input and consensus from thought leaders from across the legal fee analysis community.  These best practice measures promote values such as ethics, independence, and professional development.  These peer review driven standards help strengthen the legal fee analysis field by ensuring integrity in the process and and reliability in the results. 

This professional code of conduct is considered the professional mainstream of legal fee analysis.  All our members (i.e. fully qualified attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors) have pledged to follow Best Practices in Legal Fee Analysis:

  1. Adhere to the proper standard of reasonableness.
  2. Observe a consistent and reliable methodology.
  3. Keep updated on the latest jurisprudence of reasonable attorney fees and expenses.
  4. Keep updated on the latest scholarship on reasonable attorney fees and expenses (i.e. empirical papers, studies, surveys, and reports).
  5. Participate in professional development and CLE programs on attorney fees and legal billing topics.
  6. Do not advertise false or intentionally misleading information or offer any guarantee of outcome.
  7. Do not charge on a contingency basis (i.e. based on the results obtained).
  8. Do not accept a case or client where there is an inherent conflict of interest.
  9. Keep all fee, billing, and work product information in strict confidence.
  10. Utilize technology where possible.

Please note: You don't need to be a NALFA member to follow Best Practices in Legal Fee Analysis.

Oregon Supreme Court Clarifies Rules for Attorney Fees in Insurance Coverage Actions

February 14, 2017

A recent Law 360 story by Kat Sieniuc, “Ore. Justices Clarify Requirements for Attorney Fees in Coverage Battle,” reports that the Oregon Supreme Court tackled the state’s requirements for an individual to recover attorneys' fees from their insurer in a coverage suit, ruling that a homeowner with a leaky sink could be awarded such fees without a formal judgment.

In an order rejecting prior case law requiring an insured to obtain a formal judgment to qualify for an award of attorneys' fees and sending the case back to a lower court to award said fees, the state Supreme Court decided that a “judgment” memorializing Farmers Insurance Company of Oregon’s voluntary payments to plaintiff Cary Long isn't required for the law dealing with recovering attorneys fees to apply.

“The statute ensures that, when insureds file suit to obtain what is due to them under their policies, they do not win the battle but lose the war by expending much or all of what they obtained in the litigation on attorney fees,” the Supreme Court said, clarifying that “when an insured files an action against an insurer to recover sums owing on an insurance policy and the insurer subsequently pays the insured more than the amount of any tender made within six months from the insured’s proof of loss, the insured obtains a 'recovery' that entitles the insured to an award of reasonable attorney fees.”

The case at the center of the order dates back to 2012, when Farmers voluntarily paid plaintiff Cary Long $3,300 for damage caused from a leak under her sink.  Shortly after, Long handed Farmers new estimates of her mitigation costs and the actual cash value of her losses that far exceeded the sum that Farmers had paid her.  Long then brought a suit after a year of her claims going unresolved, after which Farmers made two additional voluntary payments of $2,467.09 and $4,766.80.  The case eventually went to trial, however, where Long did not end up recovering an amount greater than what Farmers had paid before the trial had begun.

Long eventually filed a petition for attorney fees under ORS 742.061, arguing that since Farmers paid her out at a greater amount than it had tendered within the six months after she submitted her initial proof of loss, the requirements for recovering attorneys' fees under the statute had been satisfied.  Those voluntary payments that Farmers had made after Long filed her action constituted a “recovery” under the recovery law, Long said.

The trial court, however, denied her petition and agreed with Farmers that an insured must obtain a judgment that exceeds a timely tender to constitute a “recovery.”  Long appealed that decision to the Court of Appeals and lost.

Oregon’s Supreme Court disagreed, and remanded those decisions.  The Supreme Court noted that ORS 742.061 is supposed to discourage expensive and lengthy litigation, saying that “requiring the insurer to pay the insured’s attorney fees if and only if the insured obtains more in the litigation than was timely tendered advances that purpose insofar as it encourages insurers to make reasonable and timely offers of settlement and also encourages insureds to accept reasonable offers and forego litigation.”

The case is Cary Long v Farmers Insurance Company of Oregon, case number SC S063701, in the Supreme Court of the State of Oregon.

Eleventh Circuit: Attorney Fees Not Covered by Liability Insurance in Infringement Case

January 11, 2017

A recent Daily Business Review story, “Court: Infringement Case Fees Not Covered by Insurance,” reports that liability insurance won't cover a West Palm Beach-based company's legal fees for the year and a half it waited to tell its insurer it had been sued, the U.S. Court of Appeals for the Eleventh Circuit ruled.

EmbroidMe.com Inc. racked up more than $400,000 in legal fees defending itself against a copyright infringement lawsuit in the Southern District of Florida, all before telling its insurer about the litigation.  The defense work in that case was done by McHale & Slavin in Palm Beach Gardens.

The custom embroidery company sued its insurer, Travelers Property Casualty Co. of America, after it declined to cover the fees incurred before it was notified of the lawsuit.  The appellate court ruled that the lawsuit should be tossed, affirming U.S. District Judge Kenneth Marra's decision to grant summary judgment in Travelers' favor.

EmbroidMe argued the insurance company did not tell its policyholder that it planned to use a coverage defense within the 30 days required by law.  But the appellate panel found the law did not apply because Travelers didn't use a coverage defense when it declined to reimburse EmbroidMe.  Instead, it relied on an exclusion, telling its policyholder the insurance contract expressly excluded pre-tender legal expenses.

Circuit Judge Julie Carnes authored the opinion, with Circuit Judge Adalberto Jordan and U.S. Court of International Trade Judge Richard Goldberg concurring.