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Category: Fee Agreement

NJ Ethics Board: Referral Fees Only for In-State Attorneys

March 15, 2024

A recent Law 360 story by Emily Sawicki, “NJ Ethics Board Says Referral Fees Only For In-State Attys”, reports that new guidance provided by the New Jersey Supreme Court's Advisory Committee on Professional Ethics recommends against the payment of referral fees for out-of-state lawyers, reasoning that such fees, considered payment for legal services, can only be provided to attorneys licensed to practice law in the state.

The opinion on referral fees, Opinion 745, came as a response to inquiries regarding attorneys from outside New Jersey requesting referral fees, the advisory committee said, including instances in which in-state attorneys who spend their winters in Florida "present local lawyers with legal issues that involve New Jersey law," and attorneys from neighboring states represent New Jersey clients. Opinion 745 was issued March 7 and made available.

In both of these instances, it is generally not appropriate to pay out-of-state lawyers referral fees, the opinion stated, unless the attorney is eligible and licensed to practice law in New Jersey.  The opinion also detailed limitations on who should pay such fees.  "Only New Jersey lawyers who are certified trial lawyers … may pay a referral fee," according to the opinion, which clarified that the state's professional conduct rules "prohibit other New Jersey lawyers from paying referral fees."

New Jersey's Rules of Professional Conduct also detail the limited scope under which referral fees should be paid, pointing out such fees are only appropriate for attorneys who are not part of the same law firm.  Clients must consent to each of the lawyers involved and be notified of the fee division, and the fee must be "reasonable," the ethics rules dictate.  "The division is in proportion to the services performed by each lawyer, or, by written agreement with the client, each lawyer assumes joint responsibility for the representation," according to the professional conduct rules.

The ethics committee clarified that the fee is "considered payment for legal services rendered in the case," but is not payment "in proportion to actual services rendered."  Because of this distinction, only New Jersey lawyers are eligible to collect such fees.  "People who are not permitted to practice law in New Jersey may not receive fees for legal services rendered," the opinion said.

The referral fee guidance also notes that it is not appropriate to pay a referral fee to a lawyer who is unable to take up a case or must bow out of a case due to a conflict of interest.  However, if a certified New Jersey lawyer must exit because an "unforeseen conflict arises in the midst of litigation and was not foreseeable," it is appropriate to pay the lawyer for legal services rendered, the opinion stated.

"Certified lawyers may pay referral fees to lawyers who were in good standing and eligible to practice law at the time of the referral but who later were suspended or disbarred at the time the case was concluded and the referral fee was payable," the opinion stated, citing precedent set in 2008 in the New Jersey Appellate Division case Eichen Levinson & Crutchlow LLP v. Weiner.

In that case, the opinion said, "the court reasoned that the referring lawyer was not required to have performed any legal work on the referred cases to obtain the referral fee and, at the time of the referral, the lawyer was eligible to practice."

The payment and acceptance of referral fees are dictated by individual state ethics rules and, therefore, there may be instances in which a New Jersey lawyer may accept a referral fee when doing work in other states.  It is up to the lawyer to ensure such fees are permitted, and that services fit the "specific needs of the client."

Eleventh Circuit: No Fees After Voluntary Dismissal in Copyright Case

March 8, 2024

A recent Law 360 story by Carolina Bolado, “11th Circ. Says Broker Can’t Collect Fees in Copyright Case”, reports that the Eleventh Circuit has ruled that a Florida real estate broker cannot collect attorney fees incurred for defending himself from a copyright infringement suit by an aerial photography company because the broker was not a prevailing party once the photography company voluntarily dismissed the case.

In an opinion issued Feb. 28, the appeals court affirmed a district court decision denying a request by real estate broker John Abdelsayed and his company Trends Realty USA Corp. for an award of their attorney fees and costs from Affordable Aerial Photography Inc.  That company had sued over the use of a copyrighted photograph on Trends Realty's website.

Abdelsayed and Trends Realty argued that they are entitled to fees under Federal Rule of Civil Procedure 68, which mandates a fee award if an offer to settle is not accepted and ends up being more favorable than the judgment obtained, and under the Copyright Act's cost-shifting provision.

But the Eleventh Circuit said they are not entitled to fees under Rule 68 because it only applies when a plaintiff has obtained a judgment for an amount less favorable than the defendant's settlement offer.  It does not apply in cases where the defendant wins a judgment, the appeals court said.  And because Abdelsayed and Trends Realty did not obtain a judgment, they are not prevailing parties in the suit and are therefore not eligible for a fee award under the Copyright Act, according to the Eleventh Circuit.

"The order of dismissal does not prevent AAP from refiling its claims," the appeals court said.  "And even assuming future action by AAP may be unlikely or now barred by the statute of limitations, those facts are irrelevant because the court did not rebuff or reject AAP's claims on any grounds."

Abdelsayed, who operates in the Palm Beach County market, was sued in August 2021 in the Southern District of Florida by Affordable Aerial Photography for using a copyrighted photograph on Trends Realty's site.  AAP moved to voluntarily dismiss the suit without prejudice a year later.

After briefing and a hearing, the district court granted the motion and dismissed the case without prejudice. The court ruled that if AAP were to refile its case, it would have to pay the defendants' reasonable attorney fees incurred in defending this case.  Two months later, Abdelsayed and Trends Realty asked the court to reconsider that order, claiming they were entitled to immediate recovery of their fees under Rule 68 and the Copyright Act. But the court denied the request.

On appeal, the defendants argued to the Eleventh Circuit that allowing this would create an incentive for a plaintiff to drop a case just before an expected adverse ruling, but the appeals court pointed out that the plaintiff can't do this unilaterally and that a dismissal must be approved by the court.  In this case, the district court held a hearing and found that the defendants would not suffer legal prejudice because their counsel was pro bono or on a contingency agreement, according to the appeals court.

Duane Morris Legal Bill Called ‘Seriously Inflated’

March 7, 2024

A recent Law.com story by Amanda O’Brien, “’Seriously Inflated’ Duane Morris Bill Highlights Risk When Big Law and Public Clients Lack Alignment”, reports that, as Duane Morris faces scrutiny over publicly obtained emails alleging that the firm delivered “seriously inflated” bills to a suburban Philadelphia school district following its investigation into allegations of rampant bullying against LGBTQ+ students, the dustup underlines how law firms’ work on behalf of public-sector clients demands a heightened level of communication.

The firm landed in the spotlight in the aftermath of a 151-page internal investigation report for the Central Bucks School District put together in April 2023 by a team led by partners Bill McSwain, the former U.S. attorney for the Eastern District of Pennsylvania, and Michael Rinaldi.  The report ultimately refuted allegations made by the American Civil Liberties Union in 2022 claiming that the school district created a hostile environment for queer students.

The investigation leading to the report took approximately six months, with the district bringing on McSwain and the firm in November 2022.  The bills referenced in the memo span from November 2022 to the end of October 2023, and outside reporting by The Philadelphia Inquirer indicates the bills, totaling around $1.1 million, were paid in December 2023. 

“One could spend countless hours picking apart this bill,” the email, authored by Edward Diasio, a partner at Montgomery County-based Wisler Pearlstine, said.  “The bottom line, from my standpoint, is that it is seriously inflated, and should be reduced considerably.”

Among the issues highlighted in the email were complaints of inefficient time management, vague time entries for hundreds of thousands of dollars of work, and an excessive number of attorneys engaged in repetitive tasks.   “The issue is that the Engagement Letter indicated two attorneys would lead the matter, and rely on help (where appropriate) at lower hourly rates,” the email raids.  “This was a good strategy in theory, but it was poorly implemented by Duane Morris.  The District should have benefitted from the efficiencies such a structure should have generated…”

“What happened, though, was that an army of attorneys was brought in and any efficiencies that could have been achieved were dramatically outweighed by the inefficiencies associated with managing such a large team and all of the internal communication and coordination that come along with that,” the memo’s introduction concludes.

Keeping the Client in Mind

According to several consultants, establishing client expectations around billing practices is a weak point, even a “lost opportunity,” for law firms. At the center of the issue, consultants said, is keeping in mind the client’s expertise when it comes to litigation or other legal matters.

“With corporate clients, often the client is an in-house lawyer. With public sector clients, you’re frequently dealing with people who aren’t lawyers,” Mantra Partner founder and CEO Marci Taylor explained.  “It’s more of an incentive to be as descriptive as possible about the nature and complexity of the task.  You’re writing knowing that there’s a high likelihood that your invoices will be made public.”

Law firm consultant Tim Corcoran also acknowledged that billing isn’t a one-size-fits all practice.  “There is quite a bit of forethought that goes into billing strategies because different circumstances call for different approaches,” Corcoran observed, contrasting in-house lawyer clients to government and public sector clients, and these also to third-party bill reviewers used by many corporate clients. 

Corcoran and consultant Stephen Ruben indicated that billing strategies and professional responsibilities change slightly according to the type of client.   “Normally if you’re dealing with a large corporation or corporations that have a lot of legal matters, they’re [used to] dealing with legal matters over time and have a greater ability to manage the relationship … they know what to ask for, they know what to expect,” Ruben explained.  “The firm has a different obligation when a law firm is dealing with people who are less experienced and sophisticated in dealing with lawyers and litigation.  Litigation is messy by nature.  One would think that when you are dealing with people who are not as experienced in litigation, you have a greater obligation to take them through the process step by step.”

And as for third-party billing reviewers, Corcoran noted that some firms take into account that reviewers might shave off some of the bill.  “It’s like the shopping trick.  Some firms will bill accordingly knowing that clients who put them through this review process will shave off some eventually,” Corcoran said.  “They may also take the exact opposite approach by only billing for the specific things enumerated … in the outside counsel guidelines, because they don’t want to risk the relationship knowing anything outside of that scope will have to be justified or defended.”

Setting Expectations Early

Law firms often fail to set client expectations on billing, Corcoran noted.  As a result, Corcoran said, it is often on clients to take the initiative and set expectations on billing for law firms.  And while some corporate clients may have the sophistication and resources to take charge here, public sector clients—with a shorter history in turning to Big Law for complex engagements—don’t have the same knowhow.  That can be a recipe for frustrations, as the Central Bucks School District’s review demonstrates.

“Failure to set or manage client expectations … is probably the greatest missed opportunity [at law firms],” said Corcoran.  “What lawyers believe is that because they cannot predict with absolute certainty how long something will take, the outcome, and what it will cost, they view it as binary, so few will provide a budget or cashflow guidance to help a client squirrel away funds.”

“It’s up to the client then to impose restrictions or guidelines or checkpoints to say ‘you need to let us know what your work in progress is, we need to be ahead of the pace of your billing,’” Corcoran continued.  “As a former CEO myself who’s managed the law department, I cared about the total amount we’ve got to budget for this … [I’d ask to] get me in the ballpark [of how much something would cost], even on a quarterly basis.”

“Few law firms do that because clients don’t ask for it,” Corcoran added.  The risk, of course, of avoiding early billing discussions is an unhappy client when the bill comes due.  “Not giving a heads-up is zero risk unless the client is unhappy … [then] the risk is that [clients] will subject the invoices to deeper scrutiny,” Corcoran said.  “The risk is you will expect one income stream and get something less than that … [and that] repeated behaviors like that can cause clients to go elsewhere.”

“Client defections are based on dissatisfaction not with the legal work but how the client is treated by the firm almost as an afterthought,” Corcoran continued. “They’re missing out on the ability to retain the client.”  Ruben suggested that firms address billing expectations early on in the relationship with a client, noting that “in generally, a good law firm will state expectations.  That’s what the retainer agreement is about.”

“It should include terms about how [the client] is going to be billed, and there should be conversations about that,” Ruben said.  “You’re dealing with people and when people are involved in a transaction, there’s often going to be a miscalculation of expectations on either side … when you have a monthly bill, issues that need to be managed more quickly come to the attention of both parties.”

Law Firm Can’t Collect Fees From Los Angeles County

February 26, 2024

A recent Law 360 story by Craig Clough“Quinn Emanual Can’t Collect On LA County’$280K Legal Bill”, reports that a Los Angeles judge dismissed Quinn Emanuel Urquhart & Sullivan LLP's lawsuit seeking to collect more than $280,000 in legal bills from Los Angeles County, saying the claims should have been filed in a counter-suit after the defendants sued the firm several years ago.

Los Angeles Superior Court Judge Jon R. Takasugi issued a tentative opinion ahead of a morning hearing that outlined a plan to dismiss the suit claiming the county is refusing to pay the firm for defending former Sheriff Alex Villanueva when the Board of Supervisors sued him over the rehiring of a deputy accused of misconduct.

The judge wrote in the tentative opinion that the suit is blocked by California's compulsory counterclaim statute, which "provides that any cause of action 'related' to a complaint must be brought as a cross-complaint or else not brought at all."  After hearing arguments from attorneys from both sides, including on if he should allow leave to amend the suit, the judge sustained the county's demurrer to the complaint without leave to amend by making his tentative opinion final.

"I'm very convinced that the tentative is correct," Judge Takasugi said.  "And I don't think we can get around the leave to amend forever because we're in a finite universe here."  "I don't think giving you leave to amend is going to make any difference because everything is already done," he added.

Quinn Emanuel's August suit against the county, the Los Angeles County Sheriff's Department and Villanueva claims it provided legal services to the former sheriff in a lawsuit over his decision to rehire a deputy.  The law firm claims the county blocked it from receiving a $280,075 payment for the "first few months of legal services."

The dispute stretches back to February 2019, when county counsel informed Villanueva that he would need to select independent counsel to represent him in a lawsuit filed by the Board of Supervisors over his decision to rehire Deputy Caren Carl Mandoyan after he had been fired over alleged personal and professional misconduct, according to the suit.

Villanueva then retained Quinn Emanuel, which drew up a written agreement effective March 4, 2019, the complaint states.  It included anticipated billing rates ranging from $695 per hour to $1,400 per hour, but also acknowledged that the Board of Supervisors had agreed to pay an unspecified amount of the sheriff's and LASD's legal bills, according to the suit.

After the county sought a temporary restraining order, Quinn Emanuel appeared at the hearing on March 6, 2019, on behalf of the sheriff and the LASD, the suit states. While there, none of the county's attorneys objected to Quinn Emanuel's representation, nor did they suggest that a contract between the Board of Supervisors and Quinn Emanuel was required, according to the complaint.

After litigating the case for about a month, county counsel suddenly demanded that Quinn Emanuel enter into a contract with it in order to be paid, the complaint states.  Quinn Emanuel eventually substituted out of the case in January 2020, according to the complaint.  Payment of several invoices for the first few months of legal services was approved internally by the county, but its counsel interceded and blocked payment to Quinn Emanuel, the suit stated.

The suit included claims for breach of contract and services rendered, among others. It sought compensatory damages, interest, attorney fees and litigation costs.

Flint Water Crisis Law Firms Agree to End Fee Dispute

February 13, 2024

A recent Law 360 story by Aaron West, “Flint Water Crisis Firms Agree To End Settlement Fee Dispute”, reports that three law firms that negotiated a $626 million settlement related to the Flint, Michigan, water crisis reached a settlement of their own after McAlpine PC agreed to end claims that Cohen Milstein Sellers & Toll PC and Pitt McGehee Palmer Bonanni & Rivers PC unfairly cut it out of their original co-counsel agreement.

The Michigan-based firms agreed to dismiss the lawsuit without prejudice or costs, according to an order signed by U.S. District Judge Judith E. Levy.  The judge's order follows the defendant firms urging the court in October to dismiss McAlpine's lawsuit against them after it "sat on its hands for years" before bringing a claim over the settlement split, according to court documents.

The dispute, which McAlpine initially filed in state court, claimed that the Auburn Hills-based firm was only paid a paltry sum by its co-counsel for its contributions to the underlying litigation.  McAlpine argued its work was instrumental to the lawsuit, contributing about $16 million worth of labor, or about 24% of the total lodestar figure of $84.5 million.  But Cohen Milstein and Pitt McGehee offered to pay just $500,000, McAlpine said.

"Defendants breached the co-counsel agreement by failing to distribute an attorney fee award reflecting McAlpine's respective lodestar, in favor of distributing a greater share to themselves," the firm alleged in its complaint.  The defendants argued in a subsequent filing that McAlpine was too late in bringing its claims.  "McAlpine had a full and fair opportunity to litigate the amount of any attorneys fee award in the appropriate place to do so — the federal Flint class action," the defendants said.

The class action at the heart of the law firms' dispute was settled in 2021 when Judge Levy gave final approval to a $626 million settlement, a deal expected to provide payments to more than 100,000 people affected by lead-contaminated water.  Government officials were accused of switching the city's water supply to the Flint River despite information cautioning them against doing so, and working to cover up the ensuing public health crisis.

In December, McAlpine said that the court should deny the firms' request to toss the fees case because it wasn't suing for recovery from the common benefit award, as Cohen Milstein and Pitt McGehee argued. Rather, McAlpine's claims were centered on "breaches of obligations" between the firms that were independent of the Court's order, the firm said.  The defendants' reply said what McAlpine was requesting went against their original agreement.

"McAlpine's argument is not supported anywhere," the defendants wrote.  "To the contrary, McAlpine agreed to work under the supervision of Co-Lead Counsel and the Executive Committee, and never challenged Co-Lead Counsel's authority to apportion fees among class counsel based on their respective roles in the litigation and contributions to the settlement until after the common benefit fee was distributed."