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Category: Ethics & Professional Responsibility

ABA Adopts Best Practices for Third-Party Litigation Finance

August 4, 2020

A recent American Lawyer story by Dan Packel, “ABA Adopts Best Practices for Third-Party Litigation Finance” reports that the American Bar Association’s House of Delegates overwhelmingly voted to approve a new set of best practices for litigation funding arrangements, updating their guidance on the increasingly popular tool for the first time since 2012.  The report, which outlines a list of issues lawyers should consider before entering into agreements with outside funders, cleared the body by a vote of 366 to 10.

While the document avoids taking a position on the use of outside funding, it recommends that lawyers detail all arrangements in writing, while making clear the non-recourse nature of the investment.  Lawyers are also advised to ensure that the client retains control of the matter.  “The litigation should be managed and controlled by the party and the party’s counsel,” the report asserts.  “Limitations on a third-party funder’s involvement in, or direct or indirect control of or input into (or receipt of notice of), either day-to-day or broader litigation management and on all key issues (such as strategy and settlement) should be addressed in the funding agreement.”

The report also cautions attorneys against providing advice to funders about the merits of any given case, warning that this could raise concerns about the waiver of attorney-client privilege and also expose lawyers to claims that they have an obligation to update this guidance as the litigation develops.

Zachary Krug, a former Quinn Emanuel Urquhart & Sullivan litigator who now works as a senior investment adviser with Woodsford Litigation funding, suggested this concern was misguided.  “Courts have been fairly consistent in protecting such communications under the work product doctrine,” he said in an email.

He also cautioned that the guidance could backfire in an environment where critics of litigation funding are already arguing that the availability of outside capital may lead to an increase in unmeritorious lawsuits.  “If our concern is making sure good cases get funded—and bad ones don’t—this seems like a problematic and short-sighted approach,” he said.

The report aims to stay neutral on a number of other contested issues surrounding the practice of litigation funding. In a controversial 2018 ethics opinion, the New York City Bar Association warned that paying funders through attorney fees could violate ethics rules over fee splitting.  “Positions on fee splitting, however, are far from unanimous; the New York City Bar Opinion is not the ‘law of the land’ outside of its reach, nor are opinions or approaches that contradict the New York City Bar Opinion,” the report said.

Likewise, opponents of the practice, namely business groups led by the U.S. Chamber of Commerce, have pushed for rules requiring mandatory disclosure of funding arrangements during litigation.  The report does not take a stance on whether disclosures to judges or adversaries should be obligatory.  But in a footnote, it urges lawyers to be prepared for the prospect of arrangements being scrutinized.

“A careful lawyer will assure that the written undertakings accurately reflect that the client retains control of the litigation, that disclosures to the funder are limited so as not to create risks of waiver of attorney-client privilege or work product, and that the attorney retains and protects his or her ability to exercise independent professional judgment,” it said.

DC Bar Approves Cryptocurrency to Pay Legal Fees

June 30, 2020

A recent Law 360 story by Mike LaSusa, “DC Bar Oks Cryptocurrency Payments for Legal Fees” reports that the District of Columbia Bar has given lawyers the green light to accept cryptocurrencies in exchange for legal services, although the body's ethics opinion said attorneys should take care to ensure the arrangements are fair and that the payments are secure.  The D.C. Bar said in its undated June opinion that it didn't see a reason to treat cryptocurrencies as "a uniquely unethical form of payment" despite some of their potentially troublesome aspects.

"The nature of digital currency — as a new technology, a volatile alternative currency or asset, or client property — raises ethical challenges for lawyers that simply do not exist with fiat currency," the bar said.  "But lawyers cannot hold back the tides of change even if they would like to, and cryptocurrency is increasingly accepted as a payment method by vendors and service providers, including lawyers."

The bar pointed out that cryptocurrencies can fluctuate widely in value, possibly complicating an assessment of whether a particular fee arrangement is fair, especially when a client pays for services in advance.  "The reasonableness of a fee agreement involving cryptocurrency will depend not only on the terms of the fee agreement itself and whether or not payment is for services rendered or in advance, but also on whether and how well the lawyer explains the nature of a client's particularized financial risks, in light of both the agreed fee structure and the inherent volatility of cryptocurrency," the bar said.

Moreover, lawyers need to make sure they keep the payments safe from loss, scammers and thieves, the bar said.  "Because blockchain transactions are unregulated, uninsured, anonymous, and irreversible, cryptocurrency is regularly targeted for digital fraud and theft," the bar said.

John Reed Stark, the president of John Reed Stark Consulting LLC, a data breach response and digital compliance firm, told Law360 that the D.C. Bar's decision was "disappointing."  "Crypto's liquidity risk; price volatility; cybersecurity vulnerabilities; commission fees; AML implications; OFAC concerns; ethical dilemmas; tax burdens; entanglement mishaps and the rest, create a situation that could be unmanageable or even untenable for a law firm's shareholders or partners," Stark said.  "Not to mention that for the most part, the entire crypto system resides amid an unregulated, mysterious and arguably sinister environment — certainly a poor choice of virtual venue."

A growing number of lawyers have been making the jump into virtual currency and accepting client fees in the form of cryptocurrencies like bitcoin in recent years.  And the trend has started to make its way into the world of BigLaw.  In November, Quinn Emanuel Urquhart & Sullivan LLP announced it had started receiving fee payments from clients in bitcoins.  With that decision, Quinn Emanuel followed in the footsteps of other large firms that have started taking bitcoin fee payments, including Perkins Coie LLP and Steptoe & Johnson LLP.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Fox Rothschild LLP
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
Los Angeles, CA
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Earn a Certificate in Ethical Billing & Reasonable Fees

June 17, 2020

NALFA hosts CLE and professional development programs on attorney fee and legal billing issues.  We are the nation’s leading CLE provider of programs on attorney fee and legal billing matters.  All our programs are free for our members, faculty, and fellows.  Since 2008, NALFA has hosted over 45 different programs and events covering a range of attorney fee and legal billing topics.  Hundreds of litigators and other professionals from across the U.S. and around the globe have registered and participated in these programs.  Our faculty has included 18 sitting federal judges.

NALFA is now offering a Certificate in Ethical Billing & Reasonable Fees.  This is the nation’s first and only certificate of its kind.  Litigators who register for 4 or more CLE programs (live or on-demand) will earn NALFA’s Certificate in Ethical Billing & Reasonable Fees.  This certificate is also open to UK cost lawyers, in-house counsel, and insurance claims professionals.  Upon earning this certificate recipients will qualify for NALFA fellowship.  Law firm certification and fellowship is also available firm-wide to qualifying law firms.

“We're building a worldwide network of attorney fee expertise.  Attorney fee issues have become a substantive area of law,” said Terry Jesse, Executive Director at NALFA.  “We’re excited about this new certification program.  Earning this designation will show that recipients have completed a curriculum on ethical legal billing practices and reasonable attorney fees,” Jesse said.

Client’s Acknowledgement of Fee Splitting is Not ‘Consent’ in CA

June 9, 2020

A recent Metropolitan News story, “Client’s Acknowledgement of Fee-Splitting is Not ‘Consent’” reports that a lawyer cannot collect an agreed-upon referral fee from another attorney where the client merely acknowledged receipt of a letter telling him of the arrangement and affirming that he understood, but without his expressing explicit consent, the Third District Court of Appeal held.

The client’s subsequent testimony that his acknowledgement indicated his approval of the fee was ineffective, Justice Louis Mauro wrote.  At the time of the arrangement, Rules of Professional Conduct, rule 2-200 was in effect.  It read: “(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless: (1) The client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division….”

To like effect is the current rule 1.5.1, which declares: “(a) Lawyers who are not in the same law firm shall not divide a fee for legal services unless: (1) the lawyers enter into a written agreement to divide the fee; (2) the client has consented in writing, either at the time the lawyers enter into the agreement to divide the fee or as soon thereafter as reasonably practicable, after a full written disclosure to the client of: (i) the fact that a division of fees will be made; (ii) the identity of the lawyers or law firms that are parties to the division; and (iii) the terms of the division….”

The opinion reverses a San Joaquin Superior Court judgment in favor of the referring attorney, Robert K. Reeve of Valley Springs (in Calaveras County), and against Stockton attorney Kenneth N. Meleyco.

A jury awarded Reeve $78,750, based on both his causes of action for breach of contract and under a quantum meruit theory, and San Joaquin Superior Court Judge Barbara A. Kronlund added an award of $49,364.35 in prejudgment interest.  Explaining the reversal as to contract damages, Mauro said: “We conclude the client’s written acknowledgement that he received and understood the letter did not constitute written consent to the referral fee agreement under former rule 2-200, and the client’s subsequent testimony did not remedy the deficiency.  The referral fee agreement is unenforceable as against public policy and Reeve cannot recover for breach of contract.”

The client signed and returned a copy of the letter from Meleyco apprising him of the arrangement with Reeve, with his signature appearing under the words, “I, JAMES G. LUOMA, acknowledge receipt of this letter and understand the contents.”

Mauro set forth: “Consent is different from disclosure or receipt, and it is also different from understanding….Written consent requires written words expressing agreement or acquiescence, not just words expressing receipt or understanding.  Luoma’s acknowledgement was deficient in this regard.

“We understand Reeve to suggest that Luoma’s acquiescence can be inferred from his receipt of the letter, his understanding of the letter, and his lack of objection to the referral fee.  But because consent must be expressed in writing, silence cannot convey written consent.”

The testimony by Luoma that he intended his signing of the letter to indicate assent was ineffective because there was no ambiguity to be resolved in light of the meaning of the language being clear.  Mauro also said Reeve cannot recover under a quantum meruit theory because the last of his services in the case occurred more than three years before he filed his complaint and the statute of limitations in two years.