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Category: Ethics & Professional Responsibility

Over $5M in Disputed Legal Fees Resolved in NALFA’s Mediation Program

May 1, 2017

NALFA’s Fee Dispute Mediation Program is the nation’s only program devoted exclusively to resolving attorney-client fee disputes.  NALFA’s Fee Dispute Mediation Program reached a milestone recently: Over $5 million in disputed legal fees resolved between parties.  Since its inception, NALFA’s Fee Dispute Mediation Program has settled over $5 million in disputed attorney fees and expenses between parties in over 35 cases.  The over 35 cases were brought by both law firms and clients ranging from fee dispute matters of $37,000 to $975,000 from across the U.S.  One fee dispute case was from the UK.

Attorney fee disputes are the result of a breakdown in the attorney-client relationship.  This breakdown may be a misunderstanding in the fee agreement or confusion over the law firm billing records.  Whatever the cause, mediation is the quickest, simplest, and most cost-effective way to resolve these attorney fee disputes.  NALFA offers a private mediation service specifically designed to resolve attorney fee disputes of all types and sizes.

NALFA's fee dispute mediators are uniquely qualified to resolve fee disputes between parties in a cost effective and confidential manner.  These fee dispute mediators are trained neutrals who understand the underlying issues in fee and billing dispute matters.  Their fee dispute mediators include former judges, seasoned litigators, and in-house counsel. 

NALFA's fee dispute mediators are highly knowledgeable on reasonable attorney fees and proper legal billing practices.  They understand the array of issues in fee dispute cases such as fee agreements, hourly rates, tasked performed, fee entitlement, attorney fee ethics, and fee award factors.  These mediators can often provide each side with an unbiased assessment of the strengths and weaknesses of their case.  They can also discuss with the parties what might happen if the fee dispute does not settle. 

Since the program began, NALFA’s Fee Dispute Mediation Program has achieved a 86% success rate—parties who mediate in a session are resolved six out of every seven times.  This rate is significantly higher than most bar-administered fee dispute programs.

NALFA is dedicated to providing parties a mediation process that offers flexibility, a level playing field, and time and cost savings.  Parties control when and where the mediation will occur, who will serve as the mediator, and whether they will accept a settlement offer.  Unlike most bar-administered programs, NALFA stays with the fee dispute matter as long as necessary to bring it to a resolution.

"This achievement belongs to the outstanding work of our members, the nation's best fee dispute mediators," said Terry Jesse, Executive Director of NALFA.  "Their understanding of fee issues and their mediation skills are the reason we're celebrating this milestone," Jesse concluded.

Judge Denies Fee Requests in VW Diesel Emission Litigation

April 25, 2017

A recent the Recorder story by Amanda Bronstad, “Breyer Denies Fee Motion in VW Diesel Fraud Case, But Opens Door for Lawyer to Seek Payment From Client,” reports that the federal judge in the Volkswagen diesel emissions litigation has denied 244 motions for attorney fees but lifted an earlier injunction which had prevented law firms from suing their own clients for payment.

The order was an unusual twist in the class actions that Volkswagen settled last year for $14.7 billion to resolve claims by consumers of 475,000 "clean diesel" vehicles that cheated emissions tests.  In a separate arrangement, Volkswagen agreed to pay an additional $175 million in attorney fees and costs to 22 law firms that were appointed to the plaintiffs steering committee heading up more than 1,200 class actions.

Seeking a portion of that award, nearly 60 law firms not on the committee sought fees and costs, many citing work they did on behalf of 3,642 class members.  In rejecting the fees, U.S. District Judge Charles Breyer of the Northern District of California concluded the firms did work for their clients, but not for the class.

"Because Volkswagen did not agree to pay these fees and costs as part of the settlement, and because non-class counsel have not offered evidence that their services benefited the class, as opposed to their individual clients, the court denies the motions," Breyer wrote.  He also said their work had not been authorized by the plaintiffs steering committee, unlike nearly 100 other firms that were granted fees as part of the $175 million award.

Among the firms requesting fees were Nagel Rice in Roseland, New Jersey; Davis Law Firm in San Antonio; Locks Law Firm in New York; Robbins Ross Alloy Belinfante Littlefield in Atlanta; and Conrad & Scherer in Fort Lauderdale.  Many of the firms claimed their liens had been left out of the emissions settlement intentionally in a rush to reach a deal in which lawyers could assure class members would not see their awards reduced to pay attorney fees.

The order, Breyer lifted an earlier order which had alarmed many attorneys because it barred them from submitting liens against their clients' awards.  That order had required Volkswagen to pay class members their full awards regardless of liens and invoked the federal All Writs Act to enjoin all state court proceedings involving attorney liens.

Acknowledging this time that the fee disputes were "a matter of contract law, subject to the codes of professional conduct," Breyer vacated the order, allowing law firms to enforce their client agreements by suing in state courts.  Volkswagen had opposed the fee requests, which ranged from a few thousand dollars to hundreds of thousands of dollars, noting that $175 million "more than generously compensates" plaintiffs lawyers in the litigation.

Earlier this month, in another fee request opposed by Volkswagen, Breyer slashed by nearly 90 percent a fee request made by Seattle's Hagens Berman Sobol Shapiro in a separate $1.2 billion settlement involving Volkswagen's franchise dealerships.

Five Tips for Fee Agreement ADR Clauses

April 4, 2017

A recent The Recorder article by Randy Evans and Shari Klevens, “5 Tips for Fee Agreement ADR Clauses,” address ADR clauses in fee agreements.  This article was posted with permission.  The article reads:

Attorneys and law firms have been experimenting with strategies to collect unpaid client fees while limiting the risk of malpractice claims.  One approach that is gaining traction involves the use of alternative dispute resolution (ADR) provisions, including mandatory arbitration clauses, in retainer agreements and engagement letters to address the status of unpaid fees.

ADR has several advantages over litigation.  Most obviously, arbitration or mediation of a fee dispute is often less expensive than litigation.  Additionally, arbitration and mediation proceedings are confidential and do not become matters of public record.  Thus, a client’s assertion of a malpractice counterclaim in an ADR proceeding as justification for his or her failure to pay the fees at issue may stay out of the public realm.  Attorneys should be aware, however, that their professional malpractice insurance will likely require them to report such a potential claim as a condition of coverage (regardless of whether it is confidential).

The American Bar Association (ABA) has provided ethical guidance when using mandatory arbitration clauses in retainer agreements.  In a 2002 Formal Opinion, the ABA advised: “It is ethically permissible to include in a retainer agreement with a client a provision that requires the binding arbitration of fee disputes and malpractice claims provided that (1) the client has been fully apprised of the advantages and disadvantages of arbitration and has been given sufficient information to permit her to make an informed decision about whether to agree to the inclusion of the arbitration provision in the retainer agreement, and (2) the arbitration provision does not insulate the lawyer from liability or limit the liability to which she would otherwise be exposed under common and/or statutory law.”

California attorneys and clients may enter into valid and enforceable agreements requiring binding arbitration of both legal malpractice and fee dispute claims at the initiation of their relationship.  Powers v. Dickson, Carlson & Campillo, 54 Cal.App.4th 1102 (1997).  But these agreements do not extinguish a client’s right to nonbinding mandatory fee arbitration (MFA) under Business & Professions Code §6200.  Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40, 53 (2011).  MFA arbitration is mandatory for the lawyer if the client requests arbitration.

Here are five things to keep in mind when including or enforcing an ADR provision in a fee agreement.

Use a proven arbitration clause

There is no need to reinvent the wheel or to take risk testing the general enforceability of an arbitration provision.  The safer option is to use a boilerplate provision or judicially tested language for a binding arbitration clause.  In addition, in the event the attorney-client agreement is treated like other commercial transactions, a generally accepted and commercially enforceable arbitration clause will be a significant asset.

Include the bar association disclosure

Although generally not controlling, ABA Formal Opinion 02-425 certainly is persuasive precedent regarding how a client can be apprised of the significance of the terms of the agreement.  Specifically, in California, an attorney must serve, either personally or by first class mail to the client, the California State Bar’s “Notice of Client’s Right to Arbitrate” form prior to or at the time of serving a summons or claim in an action or other proceeding against the client for recovery of fees that are subject to mandatory arbitration.  If an attorney fails to give the notice, the failure is a ground for dismissal of the action. Bus. & Prof. Code §6201(a).

Most attorneys dealing with this issue, therefore, will ensure that the client has been apprised fully and in writing of the advantages and disadvantages of arbitration and has been given sufficient information to permit an informed decision about whether to agree to the inclusion of the arbitration provision in the agreement.

Advise client of right to independent counsel

California attorneys are required to advise the client of the right to seek independent counsel when there is a malpractice claim and the attorney is seeking to settle the claim with the client.  Specifically, California Rules of Professional Conduct Rule 3-400 provides that a lawyer shall not “settle a claim or potential claim for the member’s liability to the client for the member’s professional malpractice, unless the client is informed in writing that the client may seek the advice of an independent lawyer of the client’s choice regarding the settlement and is given a reasonable opportunity to seek that advice.”

Separate fee disputes from other disputes

The ABA Formal Opinion raises serious questions regarding the enforceability of a mandatory arbitration provision that limits the attorney’s substantive liability.  Rather than risk both binding arbitration for fee disputes and binding arbitration of claims arising out of the representation by combining them, some firms will segregate the two into separate mandatory arbitration provisions.

By doing this, attorneys and law firms can save one, even if the other is lost.  In California, a properly worded provision requiring binding arbitration of legal malpractice claims is not ethically improper, and these provisions are generally enforceable.  See Powers v. Dickson, Carlson & Campillo, 54 Cal. 4th 1102 (1997).  The attorneys just must take care not to prospectively contract with their client in a way that limits the attorneys’ liability to the client for malpractice. Rule 3-400.

Include a severability clause

Like any successful contractual arrangement, a valid and enforceable retainer agreement or fee contract containing a mandatory arbitration clause also typically includes a severability clause.  That way, if a particular state or jurisdiction finds the binding arbitration agreement unenforceable, other protections in the agreement still may remain in effect.

By considering these issues, attorneys can take steps to reach an agreement with their clients that helps protect both sides and reflects the requirements of the bar rules.

Randy Evans is a partner and Shari Klevens is a partner and deputy general counsel at Dentons, which has six offices throughout California.  The authors represent attorneys and law firms and regularly speak and write on issues regarding the practice of law, including “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance” (ALM 2013) and “California Legal Malpractice Law” (ALM 2014).

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.

Judge Highlights Excessive Billing in Sprint Litigation

March 15, 2017

A recent Wall Street Journal story by Joe Palazzolo and Sara Randazzo, “One Lawyer, 6,905 Hours Leads to $1.5 Million Bill in Sprint Suit,” reports that, Alexander Silow, a contract lawyer for a Pennsylvania plaintiffs’ firm, clocked 6,905 hours of work on a shareholder lawsuit against former executives and directors of Sprint Corp. related to its 2005 merger with Nextel.  Averaging about 13 hours a day, Mr. Silow reviewed 48,443 documents and alone accounted for $1.5 million, more than a quarter of the requested legal fees, according to court documents.

“Unbelievable!” is how Judge James Vano in Kansas described the billing records.  And he meant it.  “It seems that the vast amount of work performed on this case was illusory, perhaps done for the purpose of inflating billable hours,” Judge Vano, who sits in Olathe, Kan., wrote in a Nov. 22 opinion.

Courts often slash what they see as excessive billing in securities and other litigation, but rarely are they so scathing, legal experts said.  Judge Vano’s ruling might have gone unnoticed but for a recent disclosure about Mr. Silow by the law firm where he worked: He was disbarred in 1987 and practiced law illegally for decades.

The revelation, contained in a February letter to Judge Vano, could ​rupture​ a settlement in the Sprint case, and provide grist for corporate groups and others that have highlighted alleged abuses in the civil-justice system, fueling current momentum for legislative change.

A Republican bill passed by the House of Representatives would make it harder to file class actions, curtailing lawyer-driven litigation that provides little benefit to shareholders and consumers, its supporters say.  Plaintiffs’ lawyers and consumer-rights advocates say the legislation would reduce access to the courts and blunt litigation that has improved corporate governance and forced companies to pull unsafe drugs and faulty products from shelves.

Courts regularly bless multimillion-dollar fee awards in recognition of the risk plaintiffs’ firms take by fronting the costs for litigation.  But fee experts said bill-padding is pervasive in class actions and shareholder suits because billing records aren’t reviewed by clients and are scrutinized only when a judge needs to approve a settlement or award fees after trial.

William G. Ross, a law professor at Samford University in Alabama who has written two books on attorney billing, said his most recent survey of lawyers showed that two-thirds were personally aware of bill-padding and more than half admitted they sometimes performed work they otherwise wouldn’t have done had they been charging a flat fee.

Mr. Silow had been working as a contract attorney for at least eight years when staffing agency Abelson Legal Search placed him at the Weiser Law Firm PC in Berwyn, Pa., in 2008, according to a Feb. 3 letter from the firm to Judge Vano.  The law firm was contacted last month by a third party it declined to name and learned that no one with Mr. Silow’s name was listed in a state database of licensed lawyers, Robert B. Weiser, co-founder of the firm, said in the letter.

Mr. Weiser said Mr. Silow presented himself to the firm as Alexander J. Silow, but “was in actuality named Jeffrey M. Silow” and confessed he had been disbarred when the firm confronted him, the letter said.  The firm has since ended its relationship with Mr. Silow and alerted authorities, it said.

Pennsylvania’s attorney discipline office confirmed Mr. Silow was disbarred in 1987 but could provide no additional information.  Mr. Silow didn’t respond to emails and calls seeking comment.  Abelson Legal Search didn’t respond to requests for comment.

Mr. Weiser said in the letter that his firm stands by the accuracy of Mr. Silow’s billing records in the Sprint lawsuit, which alleged the company directors and officers concealed problems created by the merger with Nextel.  The company posted a nearly $30 billion loss as a result of the deal.

The lawsuit sought to claw back profits from former Sprint directors and officers, who it accused of incompetence and self-dealing.  But a settlement reached last year was more modest.  Sprint agreed to changes to its corporate governance and the composition of its board of directors.

Judge Vano approved the deal in his November ruling but slashed the proposed legal fees for plaintiffs’ attorneys from $4.25 million to $450,000.  “The focus appears to have been upon an easy, cheap settlement in the first instance,” Judge Vano wrote.

The plaintiffs’ lawyers—Mr. Weiser’s firm, Florida lawyers Alison Leffew and Bruce G. Murphy and the Kansas City firm Dollar Burns & Becker LC—have appealed Judge Vano’s ruling on the fees.  They argued the results of the settlement, rather than the hours billed, justified the amount sought.

In court documents, Mr. Weiser and the other plaintiffs’ lawyers representing a Sprint shareholder said Mr. Silow’s “extensive document review” enabled them to make “well-informed decisions.”

Michael Hartleib, a Sprint shareholder who objected to the settlement, asked the Kansas appeals court last month to return the case to Judge Vano’s court so he can reconsider the deal in light of the new evidence showing Mr. Silow had no license to practice law.

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...

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