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Category: Fee Agreements

Client Says Law Firm Can’t Collect Attorney Fee ‘Windfall’

March 31, 2020

A recent Law 360 story by Lauraann Wood, “Gaming Co. Says Jackson Lewis Can’t Collect Fee ‘Windfall’,” reports that a now-closed gaming terminal company has said that an Illinois state judge should vacate a $328,000 judgment against it and prevent Jackson Lewis PC from collecting a "windfall" of attorney fees based on a legally unenforceable engagement letter and unsupported charges.

LZ Entertainment LLC said on that the judgment entered against it in an underlying malpractice suit requires it to pay the New York-based firm $134,000 in purportedly unpaid attorney fees and $194,000 in service charges it was never legally entitled to seek or recover.  The entertainment company says the court should vacate the judgment and let it fight the charges, arguing that the order is rooted in a "self-serving" engagement letter it never received and charges the firm can't support with invoice documentation.  LZ Entertainment also claims it didn't know its prior counsel hadn't responded to the underlying summary judgment request that resulted in the judgment's entry.

LZ claims that after Jane McFetridge, now the firm's Chicago office principal, told company manager Stefen Lippitz that Jackson Lewis' work could cost "as much as $80,000," it agreed to let the firm defend it in a June 2014 lawsuit over an employee who worked for a rival.  The company says Jackson Lewis began performing legal work on its behalf that June, but the firm never sent it an engagement letter and didn't send out its first invoice until two months later.

Lippitz received a copy of the engagement letter in December 2014, "well after" the firm's engagement and litigation in the rival's lawsuit had ended, according to the petition.  The firm purportedly sent the letter through physical mail, even though all of the parties' correspondence had been through email, according to the petition.  "Critically and surprisingly," LZ claims, the firm's engagement letter included a provision stating that the firm would assume its terms were acceptable unless the company responded in writing to the contrary.

"Attempting to bind a client to the terms of an engagement letter without the client executing the letter is unusual and problematic, to say the very least," the company said.  LZ also said Jackson Lewis had already billed it for more than $130,000 by the time it received its first invoice in August 2014.  That invoice reflected a purported prior balance of more than $61,000, but "it would make no sense for there to be a prior balance" if that was the firm's first invoice since its June 2014 engagement, LZ said.

Jackson Lewis produced a copy of its July 2014 invoice in February, while responding to an investigation that LZ launched after receiving the firm's citation to discover assets, according to the petition. That invoice reflected a $61,000 balance for attorney fees and disbursements incurred for the month of June 2014, but the firm "could not provide any evidence whatsoever demonstrating that Jackson Lewis ever sent the July 2014 Invoice to LZ," the company claimed.  "Indeed, LZ never received the July 2014 invoice from Jackson Lewis," the company said.

The company said the invoices for its June 2014 and July 2014 fees also "raise more questions about what actual services were performed, as there are multiple entries by the same attorneys for the same days on both invoices."  And because Jackson Lewis never sent LZ its July invoice, the company never got the opportunity to "pump the brakes" on the fees the firm was assessing, the petition argued.

Jackson Lewis sought payment of the fees LZ allegedly owed as a counterclaim in a malpractice suit relating to a revenue share agreement it helped the company enter with its rival, Accel Entertainment Gaming LLC.  The firm didn't attach the July 2014 invoice to a summary judgment bid it renewed on that claim in March 2019, submitting only its August 2014 bill and various other invoices reflecting "service charges," according to the petition.

Law Firms Win Suit Over Pelvic Mesh Attorney Fees

March 27, 2020

A recent Law 360 story by Bill Wichert, “NJ, Texas Law Firms Beat Suit Over Pelvic Mesh Atty Fees,” reports that a New Jersey federal judge nixed a proposed class action against Potts Law Firm, Nagel Rice LLP and other firms over allegedly excessive attorney fees in pelvic mesh litigation against Johnson & Johnson and its Ethicon unit, saying Texas law governed the claims and permitted the fees.  U.S. District Judge Madeline Cox Arleo granted the firms' motions to dismiss an amended suit from plaintiffs Debbie Gore and Doris Lance-Smith over claims their retainer agreements ran afoul of a New Jersey rule capping contingent fees, noting that the fees were paid as part of settlement awards approved by a special master and a state judge in the Lone Star State.

The Garden State rule "does not apply and the fees awarded to defendants were entirely consistent with Texas law," Judge Arleo said in her written opinion.  The fee arrangements allowed the women's lawyers to receive 40% of their settlements, but Texas law has no particular cap on contingent fees, the judge said.  Under the New Jersey 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.

Gore and Lance-Smith cited no authority for extending that rule "to litigation settled in a foreign court by out-of-state lawyers representing out-of-state plaintiffs who sustained injuries outside of New Jersey," according to the judge's opinion.  Nagel Rice, which is based in New Jersey, did not receive any of the fees in question, but Potts and other Texas firms did, the opinion said.

Gore, a Texas resident, and Lance-Smith, an Alabama resident, both retained Texas firms to pursue claims they suffered injuries from allegedly defective pelvic mesh products, the opinion said.  Lance-Smith retained Potts in June 2012 to litigate such claims, the opinion said.  The following May, Gore retained a firm then known as Steelman & McAdams PC and partner Annie McAdams to pursue similar claims, the opinion said.

About two months later, Gore agreed to McAdams working and splitting attorney fees with a firm then known as Bailey Perrin Bailey LLP, the opinion said.  In July 2014, Gore and Lance-Smith each filed a master short-form complaint in New Jersey state court "as part of the New Jersey iteration of the mesh litigation," the opinion said.  Nagel Rice and firm partner Andrew L. O'Connor were listed as the women's attorneys, with Potts and firm partner Derek Potts listed as co-counsel, the opinion said.

Those complaints represent the only connection in the current matter to New Jersey, but beyond them being filed, state dockets indicate that "no litigation activities occurred" and that those matters are now closed, Judge Arleo noted.  The settlements and fee awards at issue stem from a master settlement agreement reached in August 2016 between Potts Law Firm, among other firms, and J&J and Ethicon, the judge said.  That deal was administered through a Texas state court case, the judge said.  Judge Arleo pointed to that Texas link in finding that that state's law governed the proposed class action.

The judge noted that "the complex settlement process, which plaintiffs consented to after ample opportunity for objection, was reached by negotiations between Ethicon and Texas law firms and was administered by the Texas state court and a Texas special master."

"Indeed, no New Jersey law firms or lawyers were even listed as receiving contingency-based attorneys' fees as part of plaintiffs' settlements," the judge said.  "As such, the state with the most-significant relationship to the substantive claims at issue is Texas."

Adam M. Slater of Mazie Slater Katz & Freeman LLC, representing Gore and Lance-Smith, on Wednesday said they would appeal the judge's decision.  "When a case is filed in New Jersey, the New Jersey Court Rules apply, including the contingency fee rule.  According to this decision, the New Jersey contingency fee rule can be easily side stepped, allowing personal injury plaintiffs to be charged 40% contingency fees, in an MDL or any other New Jersey case," Slater told Law360.

Federal Judge: Botched Attorney Fee Requests Will Cost You

March 6, 2020

A recent Law 360 story by Chris Villani, “Labaton Rebuke Sends Message: Botch Fees and Pay a Price,” reports that by slashing $15 million in fees from Labaton Sucharow LLP and Thornton Law Firm LLP for a $300 million State Street Corp. settlement, a federal judge sent a sharp warning to the class action bar to remain vigilant about attorney fee fundamentals, or else risk an embarrassing and possibly expensive fight.

Double checking lodestar calculations before submitting a fee request, signing off on fee declarations, being careful about referrals and erring on the side of disclosure seem like routine activities for class action firms.  But if major players in the field like Labaton and Thornton can get slapped down by a federal judge for falling short on the basics, it should catch the attention of other firms across the bar, experts told Law360.

“It's a very important decision for all class action lawyers to pay close attention to, particularly when submitting lodestar applications, when contract attorneys are involved, when you have rates that you report to the court are your hourly billable rates,” said Lance Harke of Harke Clasby & Bushman LLP.  “There's a number of significant issues for all of us.”

The long-running fight began after Labaton Sucharow, Thornton Law and Lieff Cabraser were awarded a $75 million fee after reaching the nine-figure settlement.  A media report unveiled allegations of double-counting hours, which the firms admitted but asked the court to let slide.  But what the firms called an inadvertent mistake instead led to U.S. District Judge Mark L. Wolf's vacating the fee award and appointing retired U.S. District Judge Gerald Rosen as a special master to investigate.

Rosen suggested chopping up to $10 million from the fee, but Judge Wolf ended up reducing the award by $15 million and sending his order to the Board of Bar Overseers for potential disciplinary action.  “This case demonstrates that not all lawyers can be trusted when they are seeking millions of dollars in attorneys' fees and face no real risk that the usual adversary process will expose misrepresentations that they make,”  Judge Wolf wrote in the 160-page order.

Rosen’s investigation turned up a number of problems, including a false fee declaration signed by Thornton Law’s managing partner, Garrett Bradley, that he called a “stupid mistake” during a subsequent hearing.  Thornton was accused of trying to inflate the firm's lodestar by having lawyers bill at a higher rate than Rosen believed they should.

Drawing perhaps the most scrutiny was a $4 million payment to a Texas lawyer named Damon Chargois.  Chargois did not work on the case, but he did introduce Labaton Sucharow to the lead plaintiff, the Arkansas Teacher Retirement System.  The fee was never disclosed to the class or Judge Wolf.

John Coffee Jr., a professor at Columbia Law School with expertise in class action and securities litigation, was skeptical that the arrangement Labaton Sucharow had with Chargois is unique.  “That suggests that there are major plaintiffs’ law firms, and the Labaton firm is a major plaintiffs’ law firm, that have a business model of effectively buying lead plaintiffs on an open market from these finders,” Coffee said.  “The practices [Rosen] uncovered is like turning over a rock in the field and finding some ugly things crawling around.”

Another retired judge, hired by Labaton Sucharow, found that the Chargois arrangement was an aberration and that in other instances involving referral fees, the lawyers who referred the case did substantial work.  The firms vigorously pushed back against Rosen’s conclusions, and Labaton Sucharow even tried to have Judge Wolf removed from the case.

In a statement Friday, Labaton Sucharow said the Chargois arrangement was a one-off and highlighted the settlement it reached with Rosen in which it agreed to pay $4.8 million and institute new best practices regarding referral fees.  Judge Wolf “chose to ignore” the settlement, the firm said.  “We now identify who will be sharing in any fee the firm is awarded, regardless of whether the jurisdiction requires such disclosure,” Labaton Sucharow said, adding that a payment like the one in the State Street case is legal in Massachusetts.  “We are confident that the concerns raised in this case were an anomaly.”

But even those who support class actions as a valuable legal tool said Rosen’s findings are a black eye for a bar that already faces public criticism over the massive fees doled out to lawyers.  “Lawyers should not behave this way,” said Deborah Hensler, a professor at Stanford Law School.  “This is not the way that this powerful tool is intended to be used.  When leading class action firms appear to have been engaged in self-serving behavior, whether or not it complies with a narrow definition of the rules, it’s highly inappropriate and it weakens the arguments for continuing to use class actions.”

Francis Scarpulla of the Law Offices of Francis O. Scarpulla said the double counting seemed seemed unintentional on the firms' part, rather than Labaton trying to pull a fast one.  He also said the Chargois arrangement should have been disclosed.  The lesson, he said, is to be extra careful with fee declarations.  “Judges have to trust what lawyers tell them, and if they lose that trust, you can forget about that judge believing anything you tell him or her,” Scarpulla said.  “Even if it's the time of the day and you're both looking at the same watch.”  The worst-case scenario for the class action bar would be the U.S. Supreme Court getting involved in a class action fee fight, he added.

Other jurists have taken notice of the State Street case.  A few days after Judge Wolf’s order, another judge sat in a Boston courtroom and warned the class action firms before her about the scrutiny they would face if and when it came time for them to submit fee declarations.  “I don't know how many of you have read Judge Wolf’s order from this week,” U.S. District Judge Indira Talwani told the lawyers at the outset of a hearing over which firm would lead an ERISA suit against General Electric Corp. “If you haven't, you should.”

“If I was a class action lawyer, I would read the entire 160-page order twice, with a highlighter,” said Jan Jacobowitz of the University of Miami School of Law.  “And I would review the billing practices in my firm, which lawyers should do from time to time anyway, and just be especially careful to dot all my I’s and cross my T’s.”  The incentive is strong to follow the rules carefully, Jacobowitz said, because firms “are still going to make a whole lot of money” and can do so without the professional embarrassment of a scandal like this one.

Labaton Sucharow ended up losing more than $10 million in fees from the original amount approved by Judge Wolf to the amount awarded after the investigation.  Thornton Law lost nearly $7 million.  Even Lieff Cabraser, which emerged largely unscathed as Judge Wolf laid the blame on the other firms, had to shell out a portion of the nearly $5 million spent on Rosen’s investigation.

As rough as the lengthy battle was for all of the firms involved, they still each brought in eight-figure fees for their work on the State Street case, with the total fee reduced from 25% to 20% of the amount recovered for the class.  “That does not strike me as a major victory for four years and a special master and a significant amount of alleged misconduct,” said Daniel Klerman of the University of Southern California's Gould School of Law.  “For those lawyers, if I had gone through four years and I had a judge who sounds as hostile as this judge appears, I would be jumping for joy if I only lost 20%.”

Special Fee Master: More Needed in Cisco’s $4M Fee Request

March 5, 2020

A recent Law 360 story by Dani Kass, “Special Master Blasts Cisco’s $4M Fee Bid, Oks Apple’s $2M,” reports that a special master appointed by U.S. District Judge William Alsup lectured Cisco for not backing up its massive $3.8 million attorney fee request with documentation after beating Straight Path IP Group's infringement litigation, but said the more meticulous Apple deserved most its requested $2.4 million.  Despite the upbraiding, BraunHagey & Borden LLP partner Matthew Borden still recommended that Baker Botts LLP- and Desmarais LLP-backed Cisco Systems Inc. get $1.9 million — half of its initial request.  Pending Judge Alsup's approval, Hogan Lovells-backed Apple Inc. would get $2.3 million, with the possibility for more.

Apple and Cisco had won the case accusing them of infringing Straight Path's internet telephone patents on summary judgment.  Judge Alsup declared the case exceptional since Straight Path's infringement claims contradicted a position it had advocated at the Federal Circuit in appealing a Patent Trial and Appeal Board decision.

But he was furious when Apple and Cisco requested a combined $10 million in fees over the summer, accusing them of overstating costs. He appointed Borden to determine a reasonable amount of fees.  The special master said Cisco failed to provide documents requested by the court to support its fee request.  He also said the alternative methods for fees proposed by Cisco didn't provide "a meaningful check against overbilling."

"Apple followed the court's order and therefore provided transparency into what it was billing for, and how much it charged," Borden wrote.  "The two lawsuits involved substantially similar claims and defenses.  The main difference is that plaintiff sought $41 million in hard damages from Cisco, which is less than half of what it sought from Apple.  Yet Cisco has demanded over $1.5 million more in fees than Apple ... Cisco has not carried its burden of proving that it is entitled to the amount it claims."

Overall, the special master said Cisco didn't provide records that described which attorneys were working on the case and what they did, in chronological order.  He also raised questions about when Desmarais took over the case from Baker Botts, as well as how to parse the current litigation from a flat-fee agreement.  Under that agreement, Cisco paid a monthly fee for all dealings between the firm and the company, including inter partes review proceedings that were explicitly excluded from the current fee award, according to the report.  Cisco did provide an estimate of how much of that monthly fee was related to the litigation, but didn't explain how it was decided, Borden said.

The special master noted that there was no precedent to dictate whether alternative fee arrangements like Cisco's are eligible for attorney fees, but recommended that they should be.  Cisco had suggested comparing its fees to those in other patent cases, but Borden said "every case is unique" so it's hard to create such a calculation.  The only true comparison is Apple's case, which asks for far less than Cisco, he said.  "In the absence of better information, an award of 50% of Cisco's documented flat fees is recommended," the report states.

Apple had lowered its original request from $3.9 million to $2.4 million, which Borden suggested be trimmed in areas where there were inconsistencies or less-detailed record-keeping.  But overall, he said Apple's time spent on the case and rates charged were reasonable, and that most of its work stemmed from having to defend against claims that never should have been brought.

"Had plaintiff not elected to pursue its exceptional claims, Apple would not have incurred these fees," the report and recommendation states.  Borden added that the exceptional conduct starts in June 2016, when Straight Path started pursuing the contrary infringement theory.  Apple may also be able to get additional appellate fees, but it first has to get permission from the court to file an untimely application, Borden said.

Article: Some Litigation Too Complex for AI Attorney Fee Predictions

March 2, 2020

A recent Law 360 article by Paul Aloe, “Discrimination Cases Are Too Complex For AI Fee Prediction,” responses to another Law 360 article, “Legal Prediction is Demanding But Not Impossible.”  This article was posted with permission.  The article reads:

A recent Law360 guest article by Joseph Avery criticizing the New Jersey Supreme Court’s opinion in Lisa Balducci v. Brian M. Cige shows a profound misunderstanding of the opinion and the nature of hourly fee retainers.  The article overlooks that even with artificial intelligence, an experienced litigator cannot safely predict the hourly fee of a litigated case.

That is especially so with respect to cases under the New Jersey Law Against Discrimination, or NJLAD, with which Balducci v. Cige dealt.  Those cases are often highly charged and emotional — and the length and work required is very difficult to predict.

Some cases resolve quickly, many after protracted litigation.  The New Jersey Supreme Court was entirely correct that predicting the cost and length of a new case is "a difficult, if not impossible, task" and thus lawyers are not obligated to provide a calculation of the entire fee that will be incurred at the outset of the litigation.

The decision itself recites factors that make that so, including whether the cases is settled or tried, "the nature and length of the discovery process, the number of depositions conducted and expert witnesses retained, the overall complexity of the litigation, and many other factors."

The opinion in Balducci v. Cige makes complete sense in the context of which it was decided.  This was a NJLAD case, and the courts below found that the attorney had assured the client that she would not have to pay the hourly rate, even though the retainer said otherwise.

There is also an indication in the decision that the attorney admitted padding his invoices.  When the client became dissatisfied with the attorney, and exercised her right to terminate the attorney, the attorney then presented her with a bill for $270,791, which she likely had no means to pay.

This of course is not the typical hourly arrangement, where a client receives a regular invoice, calculated on the hours expended, and pays that invoices as the litigation progresses.  In that situation, if the client chooses to terminate the lawyer, the client is free to do so.  In this case, the billing contradicted the oral assurances that the fee would be paid by the client, which undermined her right to change attorneys.

Discrimination cases are very different than the typical hourly fee arrangement.  Discrimination cases are often brought with the expectation that the fee will be paid by the defendants, either as part of a settlement or at trial, which appears to be the situation in this case, even though the actual retainer agreement said otherwise.

Of course, NJLAD cases present special circumstances that do need to be considered.  While it is often the case that the attorney receives his or her fee from the defendants as part of a settlement or judgment, that is not always the case.

The case can be lost at trial, the plaintiff might decide to no longer pursue the case, the court might award some but not all of the fees incurred, the plaintiff might win a judgment that includes fees, but the defendants might go bankrupt or otherwise be unable to pay it.  Although New Jersey Rule of Professional Conduct 1.5(b) only provides "[w]hen the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation," it is entirely appropriate that the retainer agreement in a NJLAD case spell out exactly when and under what circumstances a client may personally have to pay the fees.

Some situations where fees are not recovered may be the fault of neither the lawyer nor the client.  For example, where the defendant goes bankrupt rather than paying a judgment.  Other situations may be more complicated, as when the client loses the ultimate case, which could be the result of the client not being credible, the handling of the case by the attorney, or both.  These situations are not easy to spell out, but it is important at the outset for the lawyer and the client to have an understanding of who is bearing this risk.

Balducci v. Cige, however, presents a particularly important ethical issue, because the client was exercising her right to terminate counsel.  The rules of professional ethics afford clients the unfettered right to discharge counsel, but in this case, it seems the retainer was used in such a fashion as to undermine that right.

Of course, there are situations where a client, just before receiving a settlement, might choose to terminate the attorney.  Another factor is that where the client discharges the attorney, but continues the case, and ultimately receives an attorney fee award, the award would presumably compensate both the old and the new attorney.  A still further situation may be where a client, having commenced a NJLAD case, decides to no longer pursue it.  These types of cases in particular are difficult cases for the plaintiff.

The defense is often able to suggest that the underlying problem was with the plaintiff, not the defendant, and even where that is not the defense, since the NJLAD deals with unlawful discrimination, the pursuit of the case may be very painful for the plaintiff.  Clients of course should be free to discontinue suits, but the discontinuance leaves the attorney without a fee.

Again, if the client were regularly paying an hourly fee that decision would be entirely up to the client.  But where the parties have agreed that the fee will be paid by the defendants, the parties need to consider what occurs if the client decides to discontinue the suit.

All of these are difficult issues.  The New Jersey Supreme Court wisely directed the appointment of an ad hoc committee to address the ethical issues raised in its decision.  In the NJLAD situation, many of those ethical issues are difficult and complex.  Requiring attorneys to use artificial intelligence to make predictions is rightfully not endorsed, and deemed nearly impossible, by the court.

Paul Aloe is a partner at Kudman Trachten Aloe LLP in New York, NY.