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Category: Fee Agreements

US Airways Defends $122M Fee Request in Sabre Antitrust Case

April 20, 2017

A recent Law 360 story by Rick Archer, “US Airways Defends $122M Fee Bid in Sabre Antitrust Suit” reports that US Airways defended its request for $122 million in attorneys' fees for its $15 million victory against trip-planning giant Sabre Inc. in a suit over a contract giving booking access to all of the airline's seats, saying the fees are reasonable and in line with Sabre’s own legal costs.

Refuting Sabre’s argument that the fee request should be trimmed by nearly 90 percent because of unnecessary expenses, failure to get the full award sought and the dismissal of three-fourths of its claims, US Airways said the recommendation would make its fee award $40 million less than Sabre’s own reported defense costs.

“Although Sabre begrudgingly concedes that US Airways is entitled to some of what it incurred in this lengthy and aggressively defended case, reading Sabre’s opposition, one would think that Sabre — not US Airways — had won,” US Airways said.

The airline won a $5 million verdict, automatically tripled to $15 million, late last year in its case accusing Sabre — which controls 58 percent of the ticket distribution market — of restraining trade by forcing unfavorable terms on US Airways in a 2011 contract that required the airline to give Sabre access to all of its seats in order to reach the large cadre of travel agents that use the Sabre system.

US Airways has requested $122 million in attorneys’ fees and costs, arguing last month that the lengthy and complex nature of litigation justified fees that are more than eight times the amount of damages.  Sabre had argued US Airways should receive only $13 million in fees, noting three of its four original claims were rejected and the award was less than US Airways had asked for, and claiming a number of specific decisions in the airline’s legal strategy had generated unnecessary fees.

US Airways replied that the claim it ultimately won on was always the focus of their efforts, saying two of the claims were dismissed at the beginning of the case when minimal work had been done and the third had required only a fraction of the work.  “The Clayton Act does not require a plaintiff to prevail on all motions and claims in order to be entitled to a full recovery, particularly where it wins what it set out to achieve,” the airline said.

The airline said the reasonableness of the fees was justified by Sabre’s own $53 million in reported attorneys' fees, and argued this number was deceptively low because defense counsel Bartlit Beck Herman Palenchar & Scott LLP agreed to work at a discount in exchange for a success fee.

“Sabre refused our request to see Bartlit’s success-fee rate, but it appears to be nearly 50 percent based on the bonus Sabre paid for defeating declaratory relief,” it said.  “Even a 30 percent bonus would have increased Sabre’s fees to roughly $70 million had it, not US Airways, won.  That approximates US Airways’ roughly $85 million in attorneys’ fees.”

The case is US Airways Inc. v. Sabre Holdings Corp. et al., case number 1:11-cv-02725, in the U.S. District Court for the Southern District of New York.

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.

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...

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