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Category: Ethics & Professional Responsibility

Law Firm Seeks Defense Fee ‘Advance’ from Trustee

October 19, 2020

A recent Law 360 story by Andrew Strickler, “Brown Rudnick Seeks Defense Bill ‘Advance’ From Trustee,” reports that facing a $300 million malpractice suit over its work for a bankrupt chemical company, Brown Rudnick LLP told a New York federal judge it is "unmistakably" entitled to having its legal bills covered by the trustee now suing the firm and a trust director.  Rather than pursue "immunity" from the massive potential liability, Brown Rudnick told the court it only seeks an "advance" on its mounting bills under the terms of a trust agreement at issue in the case, which it said provides for the payment of legal costs for any agent sued over work for the trust.

Brown Rudnick also argued that if it ultimately loses the case, it would be required to return the money to the trustee.  Therefore, the payment would not violate ethics rules or case law disfavoring lawyers securing blanket protections from a client's legal malpractice claims.  "[T]here is no public policy concern with advancement of fees where a party commits to returning the fees if ultimately adjudicated to have committed malpractice for which it cannot receive indemnity," the firm said.

Brown's unusual stance in the case stems from work commenced nearly a decade ago for a litigation trust formed in the bankruptcy of Lyondell Chemical Company, of which a Brown Rudnick partner was the original trustee.  After the bankruptcy declaration, trustee Edward Weisfelner of Brown Rudnick filed numerous claims against investor Leonard Blavatnik's company, Access Industries Holdings Inc.  He also lost a trial three years ago in which he tried to recoup some $300 million in credit line repayments made by AIH.

A replacement trustee, Mark E. Holliday, then sued Brown Rudnick, saying the firm committed malpractice by failing to establish at trial that Lyondell had been insolvent, a finding that would have made the money available for clawback as avoidable preference payments.  Brown has denied botching the trial, and insisted that a trust advisory board refused to give Weisfelner authority to settle before it decided to "roll the dice" at trial.

In counterclaims brought in August, Brown pointed the finger at a trust advisory board member, Paul Silverstein, as personally responsible for not settling, and for going after Brown Rudnick in court.  As part of that personal liability claim, the firm accused Silverstein of breaching his duty regarding the "advance fee" portion of the trust agreement, and the board generally of "depleting whatever negligible [trust] funds remained" through their salaries and legal bills.

In the motion, which answers Holliday's own bid for a dismissal, the firm did not put a number on its legal expenses thus far.  But the firm did say that, as of March of last year, the trust had a cash balance of $1.96 million, which it called insufficient to cover its bills.  And at a September hearing, Judge Engelmayer encouraged the parties to reach a settlement, and suggested that a discovery "autopsy" on the bankruptcy court trial would be costly.  He also noted that experts alone could cost the parties $1 million.

Silverstein "committed gross negligence by, among other things, directing the assertion of this malpractice suit against Brown Rudnick despite the fact that the Trust lacked adequate funds to pursue its claims and advance Brown Rudnick's defense costs," the firm said.  The personal liability and counterclaims "clearly arise out of the same transaction/series of transactions, i.e., authorizing suit against Brown Rudnick without advancing funds, or having sufficient funds to advance, to Brown Rudnick for its defense," according to the filing.

Law Firms Tussle Over Share of $8.3M in Attorney Fees

October 12, 2020

A recent Law 360 story by Emillie Ruscoe, “Fee Bid is ‘Unseemly Mudslinging.’ ICO Suit Co-Counsel Says,” reports that part of a co-lead counsel team accused their counterparts of "unseemly mudslinging" in a dispute over distribution of the $8.3 million counsel fee they earned in a settlement of allegations that Swiss blockchain company Tezos Stiftung's 2017 initial coin offering violated federal securities laws.

Lawyers from Block & Leviton LLP and Hagens Berman Sobol Shapiro LLP told U.S. Magistrate Judge Joseph C. Spero to deny a September motion for counsel fees filed by attorneys from Hung G. Ta Esq. PLLC, LTL Attorneys LLP, the Restis Law Firm PC and Lite DePalma Greenberg LLC, telling the magistrate judge that the fee request "is devoted to unseemly mudslinging, inaccurate accusations of deceit, and unfounded claims of violations of the rules of professional conduct."

The Hung G. Ta Esq. PLLC-helmed attorney group filed their counsel fee request in September, asking U.S. District Judge Richard Seeborg to order Block & Leviton to put funds back into the escrow account holding $8.3 million that the plaintiffs' counsel team was awarded for its work on the case.  In a memo accompanying the counsel fee motion, the HGT Law group told Judge Seeborg that "Block & Leviton has proceeded, without HGT Law's authority, to distribute attorneys' fees to itself and several other firms with which it is aligned," asking the judge not to permit "such brazen misconduct."

HGT Law said the Block group had "proceeded to unilaterally distribute fees" so that Block & Leviton and Hagens Berman received 25% of the total fee, and 50% of the fee went to Robbins Geller, which is not docketed in the matter but was also involved in the case, according to the co-lead counsel team.  "This proposal is irrational and unreasonable," the HGT group contended, suggesting that Block & Leviton was trying to "maintain good relations with Robbins Geller and ensure favorable treatment from Robbins Geller in other cases."

Two days after the counsel fee motion was filed, court records show, Judge Seeborg referred the case to Judge Spero for resolution of the attorney fees dispute.  "This development is unwelcome, and its disposition ought not involve the intervention of this court," Judge Seeborg said in the same order vacating the Oct. 29 hearing on the motion that HGT had requested.

The Block group apologized to the court "that counsel were unable to work things out among themselves" and promised to work with the magistrate judge to resolve the issue in good faith.  "The court should not have to deal with this dispute.  It is always unseemly for lawyers to be squabbling over a multimillion-dollar award of attorneys' fees," the Block group said.

The Block group contended that HGT Law knew since December 2019 that it could expect to receive a quarter of the counsel fee.  "The [HGT Law group] never proposed a different fee allocation until after fees were awarded and sat on its hands until B&L sought to distribute the money consistent with [co-lead plaintiff] Trigon's allocation," the Block group claimed.

The Block group also said that "The Ta Group's wild accusation that 'Block & Leviton (and the other firms in the Block group) have attempted to deceive HGT Law, and have violated numerous ethical duties and guidelines of this district' is absolutely false."  The Block group also said that it "reiterates its willingness — if the Ta Group would like to withdraw its motion without prejudice — to resolve this dispute either through further informal discussions or through more formal [alternative dispute resolution] mechanisms."

Records show the parties to the case reached a $25 million cash settlement agreement in March, ending claims that the Tezos defendants held an unregistered securities offering in July 2017.  The $8.3 million counsel fee comprised a third of the settlement fund, and the attorneys who worked on the case on behalf of the proposed investor class would also get $300,000 to cover their litigation costs, according to the settlement terms.

Billing Rates at Issue in Bankruptcy Matter

September 17, 2020

A recent Daily Business Review story by Michael Mora, “Carlton Fields Billing Rates in Spotlight as Firm Battle for About $80,000 in Attorney Fees” reports that Carlton Fields is demanding tens of thousands in fees to prepare several partners for a series of depositions.  The problem?  The other side argues the lawyers are merely fact witnesses, entitled under federal rules only to a maximum $40 daily witness fee for depositions.  It’s the latest issue in a malpractice suit that has dogged the firm, and garnered widespread attention.

Jan L. Jacobowitz, the director of the professional responsibility and ethics program at the University of Miami Law School, said the fee determination is complicated, because it is a bankruptcy case with a creditor trustee adversely pleading against the debtor’s former counsel.

The dispute is between Carlton Fields and Dan Stermer, the court-appointed creditor trustee pursuing claims against people or entities responsible for ATIF’s demise. The litigation is pending in the U.S. Bankruptcy Court for the Middle District of Florida.

Carlton Fields attorneys and former ATIF counsel mentioned in the litigation include Steven Dupré, Nathaniel l. Doliner and William G. Giltinan, shareholders in the Tampa office, as well as Marty J. Solomon, who is now a partner at Awerbach | Cohn in Clearwater.

Dupré, a whose professional biography describes him as a seasoned business trial lawyer and Carlton Fields shareholder with more than four decades of experience, billed about $73,000 for nearly 88 hours at his standard hourly billing rate of $830.  Doliner — who specializes in mergers and acquisitions, corporate law, corporate governance and joint ventures — sought compensation for five hours at $820 an hour.  Solomon sought 3.5 hours at $735 an hour. And Giltinan, who chairs the firm’s intellectual property practice, sought about two hours’ pay at $620 an hour.

In total, Carlton Fields billed the ATIF bankruptcy estate around $80,700.  Bob Jarvis, a professor of law at Nova Southeastern University, said based upon his review of the motion, the argument made by Carlton Fields is overreaching, and the court will likely reject it.

However, Dennis P. Waggoner, a partner at Hill Ward Henderson and outside counsel for Carlton Fields, justified the deposition fees, citing the Federal Rules of Civil Procedure, which governs discovery from a non-party.  “It specifically authorizes the court to impose as a sanction lost earnings or reasonable attorney fees against the subpoenaing party, who does not take reasonable steps to avoid imposing an undue burden for the party being subpoenaed here,” Waggoner said.  Now, it will be up to U.S. Bankruptcy Court Chief Judge Caryl E. Delano to decide whether to award those fees to Carlton Fields.

Thomas M. Messana, a partner at Messana P.A. in Fort Lauderdale who is representing the creditor trustee, said the relief the Carlton Fields lawyers have sought should not be granted for three reasons.  Messana argued that when Carlton Fields received the Rule 30(b)(6) subpoena, the law firm had an obligation to choose a person with sufficient knowledge about the topics listed.  Instead of doing that, Messana claimed the representative the firm selected required nearly 90 hours to educate himself, and then later wrongly required the party seeking testimony to pay for it, which is contrary to the Federal Rules of Civil Procedure.

The trustee’s counsel also argued the U.S. Code fixes witness fees for a fact witness to attend a deposition at $40 per day.  And since the plaintiff called for fact witnesses, not court-appointed experts, it should not cover the difference between the hourly rate and the amount designated by the U.S. Code.

Plus, according to the creditor trustee, Carlton Fields’ actions resulted in the plaintiff having to incur the cost and expense of taking four depositions, instead of one Rule 30(b)(6) deposition. Messana said Carlton Fields’ request to have the plaintiff cover those fees are invalid.

Jarvis believes the trustee’s objection is well-founded.  “Clearly, there is a difference between a fact witness and an expert witness,” Jarvis said.  “And just because the fact witness is a lawyer does not mean that the witness is entitled to his or her normal billing rate.”

Law Firm Sued Over ‘Needless’ $2.8M Discovery Bill

September 16, 2020

A recent Law 360 story by Alyssa Aquino, “Eckert Seamans Sued Over ‘Needless’ $2.8M Discovery Bill,” reports that Eckert Seamans Cherin & Mellott LLC racked up $2.8 million in "needless" discovery charges while steering an immigration services company through breach of contract claims and several government investigations, according to a complaint filed in Virginia federal court.  Georgia-based Nexus Services Inc., which provides immigrant bail securitization services, is accusing Eckert Seamans attorneys of performing thousands of hours of surplus document review and then covering up the surcharges with vague billing statements.

"Eckert violated the rules of professional conduct and thereby breaches its contract with Nexus in that Eckert billed for legal services which were unnecessary and served no particular purpose or benefit to Nexus," the company said.  The suit was initially filed in a Virginia state court on July 31, but Eckert Seamans removed the case to federal court, saying that the companies weren't residents of the same state.

According to Nexus' complaint, Eckert Seamans represented the company between October 2018 and April 2020 in a dispute with a bond surety company over a contract breach.  A previous law firm had already handled all of the original preliminary injunction work and constructed Nexus' defense by the time Eckert Seamans arrived on the scene, the complaint said.  "The prior law firm's work should have considerably lightened Eckert's efforts regarding framing the issues and the initial work of the litigation defense," Nexus said.

Nexus pulled Eckert Seamans off the case right before the litigation advanced to pretrial cross motions for summary judgment.  However, the firm racked up 6,500 hours of billable hours, amounting to over $1.89 million in legal fees, despite only performing work "between major pre-trial motions," Nexus alleged.

According to Nexus, Eckert Seamans' attorneys billed for 4,300 hours of document review work and then enlisted outside reviewers who charged for an extra 1,400 hours.  The work was of the "basic, low-level assembly-line" variety, Nexus argued, and would have only required the cheaper, outside reviewers.  Nexus attributed the inefficiency to firm mismanagement: "poorly-trained" junior associates reviewing documents without sufficient supervision and senior attorneys being allowed to perform excessive document review work that served "no particular purpose."

The company further accused Eckert Seamans of overcharging for its work on three different government investigations, saying it received a $1 million legal bill even though the bulk of Eckert Seamans work was on "unreasonably excessive" document review.  The complaint lacked further details on Eckert Seamans' government investigations work.  According to Nexus, Eckert Seamans attempted to cover up the specifics of its charges by submitting bills in a "block style" that broadly described what the firm was charging for.

Harold Balk, chief development officer at Eckert Seamans, said in a statement to Law360 that the firm completed "substantial legal work" for Nexus, all of which was necessary and authorized by the company, outside general counsel and internal management.  Balk added that Nexus has yet to fully pay its legal bills, leaving a $1.4 million outstanding balance.

"Nexus never claimed any 'overbilling' by Eckert Seamans until the firm sought to resolve — without filing suit — the accounts receivable," Balk said.  "Nexus chose to litigate rather than negotiate in good faith. … We regret that Nexis has opted to make these false and baseless accusations in a public forum."

Federal Circuit Grants Attorney Fees in ‘Demeaning’ Goat IP Case

September 10, 2020

A recent Law 360 story by Tiffany Hu, “Fed. Circ. Grants Atty Fees in ‘Demeaning’ Goat IP Case, reports that the Federal Circuit ordered a New York attorney to pay legal fees after the U.S. Supreme Court refused to take up his challenge to a restaurant's registered trade dress that he personally found "demeaning" to goats.  In a nonprecedential order, a three-judge panel found that Queens-based attorney Todd M. Bank owes $28,523 in attorney fees to Al Johnson's Swedish Restaurant & Butik in his attempt to invalidate the restaurant's trade dress for goats on a grass-covered roof.

The fee order comes after the high court in June denied a certiorari petition filed by Bank, in which he argued that the Federal Circuit incorrectly found that his personal concern that the mark was "demeaning" to goats did not give him standing to challenge the trade dress.  "What can I say when the same judges who wrongly sanctioned me proceed to ignore all of the arguments that I made in response to the defense counsel's fee application, and instead abuse their power by ruling by fiat?"  Bank, who represented himself, told Law360 in an email.

Katrina G. Hull of Markery Law LLC, an attorney for the restaurant, said in an email that she and her client were "pleased with the court's order."  Al Johnson's Swedish Restaurant, which is based in Sister Bay, Wisconsin, was issued a registration in 1996 for a trade dress that "consists of goats on grass roofs," according to filings.

In 2011 and 2012, Bank petitioned to cancel the registration on behalf of a previous client, a photographer named Robert Doyle.  The Trademark Trial and Appeal Board found both times that Doyle failed to establish standing, saying in 2012 that the photographer's alleged interest in "dining and shopping in such other restaurants and gift shops with goats on their roofs" was insufficient.

Bank filed the third and latest petition "as attorney and client" last October, the restaurant said.  In asking to cancel the mark, Bank argued that the mark was offensive for being "demeaning" to goats and that the registration harms the "respect, dignity and worth of animals."

But siding with the TTAB, a Federal Circuit panel in December ruled that Bank's concern for the animals did not give him standing because he had no other interest in the trade dress.  Bank was ordered to pay the restaurant's legal fees for filing a "frivolous" appeal, with the panel noting that the TTAB has thrice dismissed his petitions to cancel the trade dress for the same reason.