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Category: Fee Agreements

NALFA Podcast with Law Professor Charles Silver

March 17, 2017

NALFA hosts a podcast series on attorney fee issues.  We talk with thought leaders, attorney fee experts, and attorney fee newsmakers who’ve helped shape and influence the jurisprudence of reasonable attorney fees.  NALFA interviews members, faculty, judges, law professors, in-house counsel, and others on a range of attorney fee and legal billing issues.

NALFA’s second podcast featured an interview with Charles M. Silver, Professor of Law at the University of Texas at Austin School of Law.  The NALFA podcast with Professor Silver focused on his empirical research on the setting of attorney fees in securities class actions and economic principles at play in civil litigation.  The podcast discussion centered on fee calculation methods, judicial procedure for awarding fees, and private contingency fee agreements. 

Professor Silver also discussed the politics of class actions and the dynamics of the tort reform lobby.  In addition, Professor Silver also offered several recommendations for the class action world, including employing a more real world, market based approach to awarding fees in class actions.

“These podcasts are the perfect broadcast format to discuss attorney fee and legal billing issues,” said Terry Jesse, Executive Director of NALFA.  “In addition to his research, Professor Silver talked about a range of issues including the creation of a data set for judges to draw upon when awarding fees, fee allocation issues in MDLs, and setting attorney fees early in the class action process,” Jesse said.  Click on the link below to listen to the NALFA podcast:

https://soundcloud.com/thenalfa/nalfa-podcast-with-law-professor-charles-m-silver

Is Highland Fee Dispute Arbitable?

March 10, 2017

A recent Law 360 story by Martin O’Sullivan, “Arbitrator to Say If Highland Fee Dispute is Arbitrable,reports that a Delaware Chancery judge has declared that an arbitrator must decide whether a dispute over legal fees between a hedge fund manager and investors can be decided in arbitration, saying the investors and the fund agreed to the arrangement in a prior settlement.

Vice Chancellor Sam Glasscock III said that Highland Capital Management LP, which manages the shuttered Crusader Fund, and a committee of investors must go to arbitration to determine whether or not the issue of the investors’ obligation to advance legal fees for Highland can also be arbitrated, saying the parties agreed to as much in a settlement surrounding the wind-down of the Crusader Fund.

“Because I find the contract generally provides for arbitration of all disputes, this case must be stayed for a determination of arbitrability by the arbitrator,” Vice Chancellor Glasscock said.

In August 2008, Highland announced it was freezing the Crusader’s proceeds, preventing investors from withdrawing their money.  A subsequent settlement with investors to wind-down the fund allowed Highland to continue serving as fund manager and created an investor committee with powers over Highland.

Investors sued Highland in July, seeking to have the fund manager removed from the Crusader Fund.  Highland, which was removed as manager in August, filed counterclaims, seeking indemnification for the suit.  According to Vice Chancellor Glasscock, the wind-down settlement agreement “provides for arbitration of disputes” between the investors and Highland.

“The parties bound themselves to arbitration, broadly, of issues among them,” Vice Chancellor Glasscock said.  “They adopted the [American Arbitration Association] rules which provide that the arbitrator must determine arbitrability.”

The case is Redeemer Committee of the Highland Crusader Fund v. Highland Capital Management, case number 12533-VCG, in the Court of Chancery of the State of Delaware.

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.

Texas High Court to Hear $42M Fee Dispute

March 6, 2017

A recent Law 360 story by Michelle Casady, “Texas High Court to Hear $42M Atty-Client Fee Dispute,” reports that the Texas Supreme Court on granted a request from the owner of a water supply company, who argued a lower court ignored a jury's findings and wrongly granted a new trial to his two former lawyers in a contingency fee dispute lawsuit involving their right to a stake in his company.
 
In October 2013, a jury rejected the claims of solo practitioners Thomas C. Hall and F. Blake Dietzmann that they were entitled to $42 million in damages under a contingency agreement with Dean Davenport, who won full ownership of a water supply company in an underlying suit.  But about 105 days after rendering judgment, the trial court vacated the judgment and granted the attorneys' request for a new trial.  After an appellate court directed the trial court to provide specific reasons for granting a new trial, it did so in March 2015, holding that the agreement unambiguously provided that fees would be paid out of the ownership in any business recovered, and that the jury's findings weren't supported by the evidence, Davenport told the court.  The high court has scheduled oral arguments in the matter for March 23.

In his petition for writ of mandamus, filed in November 2015, Davenport told the high court it should take the case because the dispute raises the important issue of when a trial court should be allowed to grant a new trial.  In this case, Davenport argued, the trial court disregarded a jury's findings, misstated the record, ignored evidence, credited disputed testimony and “substituted its judgment and credibility decisions for the jury's” in granting his former attorneys' request for a new trial. 

Davenport also argued that the court should weigh in on the “narrow circumstances” under which lawyers and clients can become business partners under contingent fee agreements.  Rule 1.08(a) of the Texas Disciplinary Rules of Professional Conduct allows for that only if the transaction is fair, reasonable and fully disclosed; the client is given a chance to seek advice from outside counsel; and the client consents to it in writing. None of those safeguards were met in this case, Davenport told the court.

“Nonetheless, the trial court concluded as a matter of law — eleven months after a jury verdict in favor of the client (and after the trial court determined the fee agreement was ambiguous) — that the fee agreement was unambiguous and supposedly entitled the lawyers to become partners in businesses the client purchased in settling his lawsuit,” Davenport wrote.  “In so doing, the trial court ignored the plain language of the fee agreement at issue and the special rules and ethical principles underlying the interpretation of attorney-client fee agreements and attorney-client business transactions, as set forth in Levine, Anglo-Dutch, and Rule 1.08.”

In a February 2016 response arguing against granting the mandamus petition, Hall and Dietzmann told the court that Davenport wants the court to “greatly expand Texas law in ways that would substantially reduce the significance and reliability of all written contracts.”  Their agreement with Davenport, the attorneys told the court, “expressly contemplates paying fees out of the recovery of a business ownership.”

“The trial court did not clearly abuse its discretion by granting a new trial for the reasons stated. As it relates to the payment of attorneys’ fees out of the recovery of an ownership of a business, the agreement is unambiguous,” the brief reads.  “Furthermore, the trial court did not abuse its discretion in concluding the evidence was insufficient to support findings that Hall and Dietzmann had waived or should be equitably estopped from asserting their right to be paid under their unambiguous fee agreement with Davenport.”

Hall and Dietzmann filed suit in February 2012, claiming that after the settlements because Davenport was “paid” through his former partners' ownership interests in Water Exploration Co Ltd., they were owed a percentage of the company, instead of the about $400,000 in cash he paid them in December 2009.  They sought about $24.6 million in damages, equivalent to what they said would be the current value of their alleged ownership interest in WECO, plus $18 million in punitive damages.

But the jury found Davenport's contingent fee agreement with the two attorneys did not include a potential ownership stake in WECO, and found the attorneys had waived their rights to seek ownership of WECO and were each estopped from trying to claim a stake in the company.  Jurors also found both attorneys complied with their fiduciary duties to Davenport.

The case is In Re Dean Davenport et al., case number 15-0882, in the Supreme Court of Texas.

Read This Before You Go the Contingency Fee Route

March 3, 2017

A recent CEBblog article by Julie Brook, “Read This Before You Go the Contingency Fee Route,” discusses some of the pitfalls of contingency fees in California.  This article was posted with permission.  The article reads:

Among the several alternatives to the traditional hourly fee arrangement, contingency fees have been commonly used for decades.  Under a contingent fee agreement, the attorney and client agree that the attorney will receive a particular percentage of the client’s recovery or of the savings obtained for the client as a fee for legal services, if there is a recovery.  The attorney takes on the risk with the potential for significant reward.  Not surprisingly, there are statutory requirements for these types of agreements—and failing to comply with them is risky, too.

Follow these statutory requirements whenever you enter into a contingent fee agreement:

  1. Put it in writing. Contingent fee agreements must be in writing to be enforceable, except those for the recovery of workers’ compensation benefits or certain merchants’ claims. Bus & P C §§6147-6147.5.
  2. Include certain specific provisions.  In addition to a description of the contingencies entitling the attorney to a fee, the agreement must specify such matters as (Bus & P C §6147(a)):
    • The fee rate agreed on;
    • How the costs of prosecuting and settling the case will affect the fee and the client’s recovery (e.g., in the event of a structured settlement, whether the attorney is paid from first funds);
    • A statement as to what extent the client is required to pay compensation for related matters arising out of his or her relationship with the attorney that aren’t covered by the contingency fee agreement; and
    • A statement that the fee is negotiable.
  3. Follow additional requirements for medical malpractice claims.  If the claim is for medical malpractice and is subject to the maximum fee limits on contingent fees (see Bus & P C §6146), then the fee agreement must include a statement that the rates set out in §6146 are the maximum limits for the contingent fee arrangement and that the attorney and the client may negotiate a lower rate.  Bus & P C §6147(a)(5).  You may want to attach a copy of Bus & P C §6146 to the fee agreement to ensure that the client is informed of its content.
  4. Specify the contingent fee rate.  Contingent fee agreements must specify the contingent fee rate (Bus & P C §6147(a)(1)) and how disbursements and costs in connection with the prosecution or settlement of the claim will affect the contingent fee and the client’s recovery (Bus & P C §6147(a)(2)).  Unless the claim is for medical malpractice and the agreement is thus subject to Bus & P C §6146, the agreement must also include a statement that the fee isn’t set by law but rather is negotiable between the attorney and the client.  Bus & P C §6147(a)(4).
  5. Provide an hourly rate just in case.  The agreement should provide an hourly rate so that the attorney may establish a baseline to recover quantum meruit in the event the attorney is discharged by the client before the completion of the representation.  The hourly rate will also assist the attorney in providing a basis for attorney fee recovery in any potential attorney fee motion.
  6. Anticipate deferred payments or structured settlements.  Whenever payment of the recovery, or any part of it, may be deferred, the fee agreement should specify when the attorney fees must be paid and, when appropriate, how they should be calculated.  Otherwise, the agreement invites dispute and may be subject to being voided by the client for failing to fully comply with Bus & P C §6147.  If the award for future damages in an action for injury or damages against a health care provider is at least $50,000 and either party requests that the award be paid by periodic payments, then the court must order that the future damages be paid, in whole or in part, by periodic payments rather than by a lump-sum payment. CCP §667.7.  In that event, the court must also place a total value on the periodic payments and include that amount in computing the total award from which attorney fees are calculated for purposes of determining the statutory maximum fee. Bus & P C §6146(b).
  7. Provide for noncash awards.  When the award might be partially or entirely in a form other than cash (e.g., reinstatement in a wrongful termination action), the fee agreement should provide for that possibility.  This might be done by providing for a specified hourly fee if the award is not entirely in cash and a contingent fee if it is.  It may also be accomplished by providing for a method for valuing noncash awards.

Failure to include any of the required items makes the agreement voidable at the option of the client (but you would still be entitled to a reasonable fee). Bus & P C §6147(b).  See, e.g., Arnall v Superior Court (2010) 190 CA4th 360, 366 (failure to state in fee agreement that fees were negotiable rendered fee agreement void; fees recoverable by way of quantum meruit).