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Category: Fee Agreements

Law Firm Wins Dispute Over $1.3M Fee Reduction

August 12, 2019

A recent Law 360 story by Kevin Penton, “Law Firm Wins Nix of $1.3M Fee Reduction in Client Dispute,” reports that a New Jersey trial judge jumped the gun when he decided a fee dispute between an Illinois-based law firm and its client by reducing the firm's bill from approximately $1.7 million to $359,000 before either a formal complaint or a petition for fees had been filed, a state appellate court has ruled.

Superior Court Judge Craig L. Wellerson lacked jurisdiction to decide the fee dispute between Susan Lucas and Freeborn & Peters LLP as the disagreement was not part of the underlying legal malpractice case Lucas had filed against another law firm, and neither Freeborn & Peters nor Lucas had formally petitioned the court over the matter, according to the opinion by a three-judge Appellate Division panel.

While Lucas gave her blessing during a December 2016 hearing for the judge to decide the matter, that was insufficient grounds for Judge Wellerson to intercede, according to the Appellate Division opinion, which nullified the fee reduction and instructed Freeborn & Peters to file a separate cause of action in pursuit of the fees it seeks to recover from Lucas.  "The court intruded in this dispute over Freeborn's repeated objections and Lucas' acquiescence, which in no way endowed the court with the subject matter jurisdiction to adjudicate this fee dispute," the opinion reads.

Lucas hired Freeborn & Peters to serve as her counsel in a case in which she asserted, among other things, that Arnold Schancupp & Associates had committed legal malpractice when it represented her in the purchase of a home along the Jersey Shore and failed to disclose that the property was subject to a storm water easement, according to the opinion.  A jury awarded Lucas $980,000 in compensatory damages, with an additional $99,506 in consequential damages awarded by the court, according to Friday's opinion.

While Lucas and Freeborn & Peters had issues at the end of the underlying case over how much she owed the firm, she told the judge during a telephone conference that she intended to separately dispute the reasonableness of the fees, while the law firm stipulated that their retainer agreement designated a court in Illinois as the venue where any disputes between the parties would be resolved, according to the opinion.

Judge Wellerson still proceeded with a hearing to consider the reasonableness of the fees, during which Lucas agreed for the judge to rule on the matter and Freeborn & Peters continued to lodge objections, according to court documents.  "Because the trial court did not have the legal authority to unilaterally assert jurisdiction over this fee dispute, the court's decision to sua sponte adjudicate this dispute was an ultra vires act; any relief awarded by the court in this context is a legal nullity," the opinion reads.

"My clients are relieved that the matter is resolved and that they can proceed to the next stages of recouping their fees," John Hanamirian, an attorney representing the law firm, told Law360.  "They did win this case for their client in a six-week trial, but that victory and their relationship with their client was made adversarial by this process.  That is beyond unfortunate."

Texas Attorney Fee Dispute Heads to Arbitration

July 29, 2019

A recent Law 360 story by Sarah Jarvis, “Texas Attys Must Arbitrate Dispute Over Referral Fees,” reports that a dispute between two Texas attorneys over fees stemming from a referral agreement for asbestos lawsuits will head to arbitration after a state appellate court ruled that the lower court erred when it denied an arbitration motion.  Judge Peter Kelly said Dennis Weitzel’s motion to compel arbitration with Brent Coon’s law firm was allowed under an agreement the two signed in 2010 after Weitzel left Coon’s firm.  The panel remanded the case to trial court with the direction that the court order Weitzel and Brent Coon & Associates to arbitrate.

The case arose from a dispute about a fee agreement between Brent Coon & Associates and a nonparty law firm that Coon alleges was supposed to receive portions of payments for referrals of certain asbestos, mesothelioma and lung cancer clients.  Michael T. Gallagher and The Gallagher Law Firm PLLC sued Coon and his firm in 2018 alleging breach of the referral agreement, and Coon filed a third-party claim against Weitzel, arguing he did not forward portions of payments to Gallagher that he received from Coon’s firm.

Weitzel moved to compel arbitration on the matter, under the 2010 separation agreement, but the trial court denied Weitzel’s motion in December 2018, according to the opinion.  The arbitration clause in that agreement stipulates that Weitzel and Brent Coon & Associates would resolve any disputes that arose under the agreement by arbitration, Judge Kelly said.

The law firm argued that the dispute was not covered by the scope of the 2010 agreement, but by another agreement from 2002 which outlined the percentage of fees Weitzel and Gallagher would receive upon a case’s favorable resolution if they referred certain clients.  The panel sided with Weitzel’s argument that the 2010 agreement applies, and that the 2002 agreement was incorporated into the 2010 agreement by reference.

“Because BCA and Weitzel agreed that the arbitrator would decide these questions, the trial court should have granted this aspect of Weitzel’s motion so that the dispute, including the extent to which the 2002 agreement was incorporated into the 2010 agreement, could be resolved in arbitration,” Judge Kelly said.  “The parties incorporated the AAA Rules into the 2010 agreement and thus agreed that the arbitrator, not the trial court, would decide gateway issues, including whether their dispute falls under the arbitration clause of the 2010 agreement.”

But the panel said Weitzel did not meet his burden to show the trial court abused its discretion by denying his motion to compel arbitration against Coon, because the signatory to the 2002 and 2010 agreements was Coon’s firm and not Coon himself.

Kirkland Leans Into Contingency Fee Litigation

July 17, 2019

A recent American Lawyer story by Jack Newsham, “Kirkland’s Push Into Contingency Fee Litigation Not Threatening, Firm Leaders Say” reports that in the wake of Kirkland & Ellis’ announcement that it is “doubling down” on contingency fee litigation, you might expect lawyers who take on such matters to worry about competing for clients with Big Law’s 600-pound gorilla.  But in interviews, leading litigators at other firms said they’re not sweating the news.  They said there’s enough work for everyone and that Kirkland’s big client base and full-service offering could work against the firm in some ways.

“We don’t view it as threatening in any way,” said Neal Manne, the Houston-based managing partner of Susman Godfrey.  He said Susman Godfrey has a good brand, runs cases efficiently and his firm is already comfortable with alternative fees—less than 20% of its revenue comes from billable hours, he said.  “We don’t view [Kirkland] as a competitor in any way that would affect our business model or our approach,” he said.

Jason Peltz, whose trial-oriented firm Bartlit Beck was started by former Kirkland litigators with a distaste for the billable hour, said Kirkland’s announcement “doesn’t worry me at all.”  He said Kirkland is more associate-heavy than his firm and staffs matters differently.  “I think there are enough cases for the best lawyers out there,” Peltz added.  For some, the Kirkland announcement was seen more as a marketing play rather than a new strategic direction.

“I don’t think this is an event,” John Quinn, the managing partner of Quinn Emanuel Urquhart & Sullivan, said in an email.  “I very much doubt that this means that [Kirkland & Ellis] would now accept a good [contingency fee] case that they wouldn’t have accepted six months ago.”  Trial lawyers contacted for this article said they welcome the competition, but noted that Kirkland—for all its resources—has some disadvantages.  One is the risk of conflicts; Kirkland represents a wide array of the biggest businesses in America on litigation and corporate matters and can’t turn around and sue them.

Also, both Peltz and Manne noted that their own firms benefit from referrals from other law firms that don’t have to worry about losing a client for other legal services.  In other words, firms may be wary of sending a client to a full-service firm like Kirkland for a litigation matter, fearful of losing the entire client relationship.

Eyeing Profitability

Regardless of how the firm’s news was received, it’s now clear that Kirkland—known for mounting huge defense cases for the likes of BP in the aftermath of the Deepwater Horizon disaster and General Motors after its faulty ignition switches led to numerous deaths—wants the market of potential plaintiffs to know that it is open to going to bat for them.  Kirkland’s announcement this month comes less than three years after ALM reported a partner profit reallocation hurt the pay of some Kirkland litigators, as their peers in private equity and M&A contribute a growing share to the firm’s bottom line.

In recent years, there has been an industrywide drop in demand for litigation. It’s not clear how demand for Kirkland’s litigators has fared, but Kent Zimmermann, a law firm consultant with the Zeughauser Group, noted that going after more plaintiffs’ cases could mean more work for the firm’s litigators.  He said taking on more contingency cases was a high-risk, high-reward strategy, but said the firm has probably checked its data and has been satisfied with the results.  “They already have a record of success [with] some big plaintiffs-side wins at their back, and it’s unsurprising that they want more,” he said.

Former Kirkland lawyers said firm leaders have eyed the profitability of plaintiffs’ firms like Quinn Emanuel with some jealousy.  (Quinn Emanuel’s profit margin last year was 61%, compared with Kirkland’s at 58%, according to ALM data.) And the ex-Kirklanders note that the Chicago-founded firm has had great success taking the plaintiffs’ side in the past.

Just take the case of bankrupt chemical company Tronox. Kirkland represented a litigation trust that sued Kerr McGee for dumping its environmental liabilities on Tronox before spinning it off, freeing itself of the toxic burden and setting up its corporate offspring to fail.  The case ended in a $5 billion settlement, and Kirkland got paid $93 million; $70 million of that was a contingency fee.

Reed Oslan, who leads Kirkland’s special fee arrangement committee, said at a conference earlier this year that alternative-fee matters were “the most profitable part of our firm, by a large margin,” although he noted that it was a small portion of the firm’s business.  Kirkland has declined to say how much of its revenue comes from alternative fee arrangements and declined to comment for this article.  The firm was the highest grossing of the entire Am Law 200 last year, generating $3.757 billion.

Still, former Kirkland partners said alternative fees have ebbed and flowed.  They praised Oslan, saying his support for contingency fees, hybrid fees and arrangements blending fees from a portfolio of cases has resulted in major successes.  But only time will tell how far Kirkland pushes the contingency fee practice.  One source said there was a concern among some litigators inside Kirkland that the entire firm was watching a lawyer’s contingency fee matters and a worry that large risk-taking wouldn’t be rewarded.

Texas Law Firm Settles Attorney Fee Dispute with Chevron

July 11, 2019

A recent Texas Lawyer story by Angela Morris, “Austin Appellate Boutique to Settle Fee Dispute with Chevron Phillips Chemical Co.,” reports that there’s a settlement coming in a long-running dispute over whether $494,000 from a sanctions award should pay attorney fees to Austin-based appellate boutique Alexander Dubose & Jefferson, or pay an underlying judgment instead. 

On June 28, at the request of the law firm and defendant Chevron Phillips Chemical Co., the Texas Supreme Court overturned an earlier intermediate appellate court’s opinion in the fee dispute and sent the matter back to the trial court with orders to render a judgment according to the settlement agreement.  Court documents don’t list details about the settlement.

“The terms of the settlement are confidential.  This is a long, ongoing feud.  It’s just a matter of both sides getting together and saying, ‘It’s time to end this,’” said Alexander Dubose founding partner Doug Alexander, who represents his firm in the case.  The firm this year changed its name from Alexander Dubose Jefferson & Townsend to Alexander Dubose & Jefferson, he said.  The background of the dispute is explained in the March 14 overturned opinion by the Ninth Court of Appeals, Alexander Dubose Jefferson & Townsend v. Chevron Phillips Chemical Co.  The underlying lawsuit involved a failed real estate transaction in which Alexander Dubose represented plaintiff Kingwood Crossroads Inc.

Kingwood won attorney fee sanctions against one defendant, Exxon Land Development Inc., for discovery abuses. Alexander Dubose and another of Kingwood’s law firms, Mayer Brown, had an alternate fee agreement with Kingwood that said those sanctions would be split between Kingwood, Mayer Brown and Alexander Dubose.

A 2011 appellate court ruling made the sanctions award final. In 2013, Exxon Land paid $989,000 in sanctions, and Mayer Brown deposited the money in its Interest on Lawyers Trust Account.  Meanwhile, one defendant in the underlying case, Chevron Phillips Chemical, had won $1.2 million in attorney fees for prevailing on a separate breach of contract claim.  Chevron Phillips Chemical sought a turnover of Kingwood’s sanctions funds to pay part of the judgment.

Next, Alexander Dubose intervened and asked for a declaratory judgment to protect its interest in the funds, arguing that the firm had a contingent fee agreement that gave it ownership over some of the money, and that the firm’s contractual claim had priority over Chevron Phillips Chemical’s claim.  The trial court ordered Kingwood to pay half the funds to Chevron Phillips Chemical, and to deposit the other half, $494,000, into the court’s registry.  In the end, the court denied Alexander Dubose’s bid to get the money and ordered it released to Chevron Phillips Chemical.

The appellate court found the trial court abused its discretion by failing to use the right procedure to decide whether Alexander Dubose had a claim to the funds.  The trial court should have conducted separate, initial proceedings to resolve the firm’s claims.  The opinion sent the case back to the trial court to try again.  Now, thanks to the Texas Supreme Court’s June 28 ruling, the trial court has new orders to enforce the parties’ settlement instead.

Attorney Fee Dispute Litigation in Pelvic Mesh Case

July 3, 2019

A recent Law 360 story by Bill Wichert, “NJ, Texas Firms Unlawfully Pocketed Mesh Funds, Suit Says,” reports that law firms including Nagel Rice LLP and Potts Law Firm improperly pocketed attorney fees and expenses from the settlements of roughly 1,450 pelvic mesh cases in New Jersey state court by using invalid retainer agreements or no agreements at all, according to a proposed class action made available.  The lawsuit, filed in Bergen County Superior Court, says the firms unlawfully retained excessive fee percentages, deducted those fees "off the top" of gross settlement amounts, took expenses out of clients' portions of the recovery, and engaged in invalid fee-sharing.

"The defendants were negligent in that their conduct fell below and breached the applicable standard of care, because they failed to ensure that all the cases were retained, filed, litigated, settled and disbursed in accordance with New Jersey law,” according to the complaint filed by Mazie Slater Katz & Freeman LLC.  The alleged misconduct was "reckless and undertaken with willful and wanton disregard" for the rights of plaintiff Debbie Gore and the proposed class members, the complaint said.

In addition to New Jersey-based Nagel Rice and Texas-based Potts Law Firm, the defendants include Texas-based firms Bailey Cowan Heckaman PLLC, Junell & Associates PLLC, Burnett Law Firm and Houston attorney Annie McAdams.  The complaint, which includes legal malpractice, breach of fiduciary duty and other claims, asserts that the defendants should be ordered to disgorge all attorney fees and expenses from the cases and be limited to collecting attorney fees on a quantum meruit basis.

"On information and belief, defendants performed very little, if any, actual legal services of value on behalf of plaintiff and the proposed class members, thus entitling defendants to little or no recovery in quantum meruit," the complaint said.

Gore, a Texas resident, has demanded that the defendants provide "a full accounting" of the retainer agreements in the cases, the settlements, and the attorney fees and expenses deducted from those settlements.  Superior Court Judge Rachelle Lea Harz ordered the defendants to appear in court on July 11 to show cause why the court should not issue an order requiring them to turn over that information.  Gore entered into an invalid retainer agreement with one or more of the defendants in May 2013 that provided for 40% in attorney fees that would be deducted from the gross settlement amount and for expenses to be taken out of her share of the recovery, the complaint says.

Those provisions ran afoul of a New Jersey rule governing contingent fees, the complaint says.  Under that rule, an attorney can collect a fee of 33.33% of the first $750,000 recovered and then smaller percentages for subsequent amounts, and those fees must be based on the "net sum recovered" after deducting expenses.

The retainer agreement also "failed to disclose that some or all of the defendants were sharing the legal fees, and New Jersey law requires that all attorneys sharing in the legal fees — and the fee-sharing arrangement — be disclosed to and approved by the client in writing," the complaint said.  The agreement "allowed for the sharing of legal fees to attorneys who provided no legal services," the complaint said.

Nagel Rice and Potts — even though they were not "retained to act as legal counsel pursuant to a retainer agreement compliant with New Jersey law" — filed a suit on Gore's behalf in July 2014 as part of multicounty litigation against Johnson & Johnson and C.R. Bard Inc., according to the complaint.  Following settlements in the roughly 1,450 cases filed by Nagel Rice and Potts, the defendants improperly retained attorney fees and expenses and took part in the unlawful fee-sharing, the complaint says.