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Category: Fee Agreements

Judge Cuts $100M in Fees in $3B Petrobras Securities Settlement

June 27, 2018

A recent Reuters story by Alison Frankel, “Judge in $3B Petrobras Securities Case Cuts Class Lawyers’ Fees by $100M,” reports that on the attorney fee award in the Petrobras securities class action settlement.  The views expressed in this post are not those of NALFA.  The article reads:

Jeremy Lieberman and his partners at the securities class action firm Pomerantz are about $171 million richer, after U.S. District Judge Jed Rakoff of Manhattan issued a decision granting final approval of a $3 billion securities class action settlement against the Brazilian energy company Petrobras and one of its auditors.  Pomerantz, one of three lead firms in the case, did the bulk of the work, so it’s receiving the lion’s share of the total $186.5 million Judge Rakoff awarded class counsel for obtaining an “exceptional” result in a risky case without a foreordained outcome.  You might expect Lieberman to be a very happy man today.  He’s not – and it’s not just because Judge Rakoff awarded Petrobras class counsel nearly $100 million less than the $284.4 million they requested.

Lieberman told me that what bothers him wasn’t so much the result as the process.  I’ll explain below how Judge Rakoff got to $186.5 million, but Lieberman’s complaint is that the judge did not honor Pomerantz’s fee agreement with its U.K. pension fund client, lead shareholder Universities Superannuation Scheme.  When USS retained Pomerantz, the fund rejected Pomerantz’s initial fee suggestion and instead, as class counsel recounted in their memo requesting $284.4 million in fees, brought in former U.S. pension fund official Keith Johnson of Reinhart Boerner Van Dueren to advise the U.K. fund on appropriate fees for its class action lawyers.  Their eventual sliding-scale deal, which granted Pomerantz a declining percentage of the recovery as the size of the settlement fund increased, would have netted lead counsel 9.4 percent of the $3 billion settlement, or $284.5 million.  Judge Rakoff took that pre-negotiated fee deal into account when he appointed USS a lead plaintiff in the Petrobras case.

The judge, as Pomerantz and the other lead counsel acknowledged in their fee petition, was not required to defer to USS’s fee agreement with Pomerantz.  Federal judges, after all, are supposed to look out for the interests of all class members, not just lead plaintiffs.  But Pomerantz and the other firms argued that Judge Rakoff should give considerable weight to the USS fee deal, especially because it was negotiated before the litigation began.

Pomerantz partners relied on the terms of their USS fee deal when they made decisions about how to litigate the case, the fee memo said.  To finance the expensive undertaking, they pledged their personal assets to assume a crushing debt load, “in large part informed by the ex ante fee agreement that was previously reviewed (and commended) by (Judge Rakoff).”

But when it actually came time to award fees, the judge said Pomerantz’s pre-negotiated fee deal was “at best just one factor” to consider in the tapestry of litigation events “that provide a much better indication of what was the value of the attorneys’ work to the class as a whole than any before-the-fact private agreement reached with an individual plaintiff.”

Instead, as I’ll explain, Judge Rakoff based his fee award on class counsel’s lodestar billings, boosted by a multiplier to reflect the excellent result they obtained.  Rakoff used the 1.78 multiplier Pomerantz, Labaton and Motley Rice had originally suggested, when they analyzed lodestar billings as a cross-check on their fee request for the 9.4 percent of the settlement, the percentage Pomerantz had negotiated with lead shareholder USS.

Lieberman told me he’s distressed at the short shrift Judge Rakoff gave to Pomerantz’s fee agreement with its client and believes that, in the long run, disregarding such agreements undermines the legitimacy of class actions.  Federal judges, as the class action bar is all too aware, are pushing for more transparency in these cases, pressing for details on relationships between lead plaintiff candidates and their firms, referral fees paid to firms that don’t have a role in the litigation, and dubious dismissals.  Lieberman said judges should similarly recognize that arms-length fee agreements between institutional investors and their lawyers enhance the professionalism of the class action bar.

“Fee awards can’t be random in high-stakes litigation.  It shows a lack of respect for the process, to just say, ‘Oh, I’ll figure it out afterwards,’” Lieberman said.  “If you want class action work to be taken as a serious industry, you have to have a systematic way to assure in advance how lawyers will be paid.  If we’re trying to clean up the business, let’s clean it up in all ways.  No more randomness at the end.”

Lieberman said he believes Judge Rakoff acted with good intentions.  He also acknowledged the inescapable truth of the judge’s point that he’s awarding a tremendous amount of money to plaintiffs’ firms.  (Rakoff’s exact words: “It is important to also remember that we are dealing here, not just with percentages, billable rates, and multipliers, but with very large amounts of money in absolute terms that plaintiffs’ counsel will be receiving under any analysis.”)

But he said – and this is a legitimate point – that disregarding lead plaintiffs’ pre-negotiated fee agreements can distort the way class counsel litigate a case.  “I was thinking for three years my fee agreement was going to be honored,” he said.  “The future of our firm was on the line.  We did that because we thought our agreement with the client would be honored.”

For a contrary take, I went to the Competitive Enterprise Institute, which filed a thought-provoking objection to the Petrobras settlement, protesting class counsel’s fee request, among other things.  In an email responding to Lieberman’s argument, CEI lawyer Anna St. John said it’s important to remember that USS isn’t the only client in this class action, which is being settled on behalf of all Petrobras shareholders.  USS, St. John wrote, “is just one of more than 1 million potential class members who are the clients that Pomerantz is supposed to represent,” she said in her email.  “That agreement also does not protect those absent class members, who like in this case, are taken advantage of when lawyers seek to recover windfall hourly rates.”

CEI’s objection urged Judge Rakoff not to defer to the USS fee agreement because the class as a whole didn’t negotiate the deal and wasn’t apprised of its terms.  “If it fails to preclude a windfall hourly rate, then it does not satisfactorily protect the class’s interests,” the filing said.  “Class counsel fear that there is no value to ex ante vetting if courts can ‘simply upend (agreements) by the subjective post hoc determinations.’ Not so; a negotiated fee can reasonably serve as a ceiling even if it is inappropriate to employ it as a floor.”

Judge Rakoff’s award of $186.5 million, as I mentioned, was based on lodestar billings by class counsel, but he used a very unusual process to review their bills.  Rather than appoint a special master – presumably at the expense of class members – to comb through the timekeeping records submitted by plaintiffs lawyers, the judge asked defense lawyers for Petrobras and its auditor to do it.  “The court took this step because of defendants’ intimate knowledge of various aspects of the case, and the court’s confidence was rewarded by the highly professional way in which defendants’ counsel undertook their court-directed task,” he wrote.

Defense lawyers found some hinky charges, like the seven days a contract attorney claimed to have spent reviewing the third amended complaint – after the complaint had been filed.  Class counsel voluntarily adjusted their lodestar report to eliminate some of the questionable hours uncovered by the defense firms but protested other supposedly inflated charges.

Judge Rakoff then waded into the time records himself.  He ended up focusing on class counsel’s $28 million in billing for foreign contract lawyers who cannot practice in New York and nearly $100 million in bills for contract lawyers.  He shifted the foreign lawyers’ bills to a reimbursable litigation cost (which means no multiplier) and cut contract lawyers’ fees by 20 percent. He also imposed an additional 50 percent cut on bills by contract lawyers acting as translators.  Those cuts brought the total lodestar down from $159.5 million to $104.8 million.  When the judge applied the 1.78 multiplier, the total came to the aforementioned $186.5 million.

Judge Rakoff said any more would be a “windfall” to plaintiffs lawyers who were already “highly incentivized to heavily litigate this huge case regardless of the expected fee award.”  Jeremy Lieberman begs to differ.

Forced Sale of Client’s Lamborghini Not a Proper Legal Fee

May 7, 2018

A recent Bloomberg Big Law Business story by Mindy L. Rattan, “Forced Sale of Client’s Lamborghini Not a Proper Legal Fee,” reports that the Florida Supreme Court on May 3 suspended a lawyer for three years for taking an interest in a client’s Lamborghini as a fee and for taking financial interests in his client’s litigation and doing business with a client.  Lawyer Jon Douglas Parrish made a deal to get paid after selling his client’s 1989 Lamborghini sports car.  He also loaned money to property owners his client was suing and had his client subordinate his interests in that property to mortgages Parrish took out to secure his loan. 

This case provides examples of deals with a client that a lawyer should never make.  Parrish represented Spruce River Ventures, LLC and its principal, Benjamin Bergaoui in several matters.  Parrish and Bergaoui signed an agreement giving Parrish a $30,000 security interest in Bergaoui’s Lamborghini, the court said, citing the referee’s findings for all facts.  Bergaoui had 90 days to sell the car to pay Parrish $30,000 in fees.  If he didn’t sell it in that time, Parrish could sell it and either give Bergaoui “a credit for current and future legal fees in the amount of the sale or in the amount of $80,000, at the firm’s discretion,” the court said.  The referee’s report said that Bergaoui sold the car within 90 days and Parrish accepted $42,000 to settle the balance of $54,000 in fees owed.

Parrish also loaned $150,000 to defendants in a dispute over real property he pursued on behalf of Spruce River, the court said.  The defendants were delinquent in paying taxes on parcels of land they purchased, and Parrish testified the entire case could be dismissed if the parcels were subject to forfeiture, the court said.

Parrish was trying to “preserve his client’s claim and protect his interest in his fee, which was now a contingency fee.”  He got the defendants to give him a security interest in the property that Bergaoui was pursuing, and convinced Bergaoui to subordinate his interests in the property to Parrish’s.  Parrish asked a colleague, John White, to prepare the mortgage, the subordination agreement, and the promissory note for the loan, the court said.

Parrish also attempted to enter into a settlement agreement that created a new company owned by Parrish’s firm, his client, and a few of the defendants, the court said.  The new company would join the litigation in the place of its defendant owners.  Parrish and Bergaoui would have equal decision-making authority, the court said.

One of the other defendants moved to disqualify Parrish, who then prepared an affidavit for Bergaoui to sign saying he declined to seek independent counsel, the court said.  Bergaoui wouldn’t sign it so Parrish then claimed White was independent counsel for Spruce River.  Bergaoui then got independent counsel, Brad Bryant, who told Parrish that Bergaoui didn’t want to be business partners with him, the court said.

No Car for Fees

The court agreed with the referee that Parrish violated Rule Regulating the Florida Bar 4-1.8(a), which prohibits transactions with clients unless the terms are fair and reasonable and fully disclosed to the client, the client is advised to seek independent counsel, and the client gives written informed consent.  The court said the comment to the rule explains that this rule doesn’t apply to an “ordinary fee arrangement,” which is covered by Rule 4-1.5. Rule 4-1.5 says all fees must be reasonable and not excessive.

The Lamborghini agreement clearly pertained to legal fees and wasn’t ordinary, the court said.  The referee focused on the forced sale provision and found it didn’t satisfy the requirements of Rule 4-1.8(a).  The agreement gave Parrish an opportunity to collect an indeterminate amount of funds from the sale of his client’s Lamborghini, which “would constitute an excessive fee,” the court said.

The court agreed with the referee that Parrish violated rules 4-1.5(a), 4-1.8(a) and 3-4.3 (“commission by a lawyer of any act that is unlawful or contrary to honesty and justice may constitute a cause for discipline”).

No Loans, No Financial Help

The court agreed with the referee that Parrish violated Rule 4-1.2, which says a lawyer must “abide by a client’s decisions concerning the objectives of representation” and “reasonably consult with the client as to the means by which they are to be pursued.”  Parrish having “co-equal decision-making authority with his client in directing litigation strategy,” violated the rule.

And Parrish again failed to meet the requirements of Rule 4-1.8(a) for entering into the subordination agreement with his client, the court said.  The court deferred to the referee’s determination that Parrish’s and White’s testimony about White being independent counsel for Bergaoui wasn’t credible.

The court also agreed with the referee that Parrish violated Rule 4-1.8(e), which prohibits a lawyer from providing “financial assistance” to a client.  Parrish’s loan to the defendants was a form of financial assistance for the benefit of his client, the court said.

The court agreed that Parrish violated 4-1.8(i), which prohibits a lawyer from acquiring a proprietary interest in a litigation.  The court rejected Parrish’s argument that the mortgage wasn’t a “proprietary interest.”  It also found that he failed to act diligently and competently in another matter.

But the court determined that the referee’s recommendation of a one year suspension wasn’t supported by a “reasonable basis in the case law.”  The court said the other conflict of interest cases the referee relied upon were factually distinguishable.  Unlike in several of those cases, Parrish “engaged in multiple instances of unethical conduct,” that resulted in several rule violations.  Another case the referee cited was over 15 years old and the court has since imposed more severe discipline than in the past, it said.

California: Retainer Agreement Applicable to Particular Matter Can Be Orally Modified to Apply to All Cases

May 2, 2018

A recent Metropolitan News story, “Retainer Agreement Applicable to Particular Matter Can Be Orally Modified to Apply to All Cases- C.A.,” reports that an attorney-client agreement, applicable to a particular dispute, can be orally modified to pertain to all future representation, the Court of Appeal for this district held yesterday, affirming the granting of a motion to compel arbitration pursuant to a provision of the agreement.

Justice Anne H. Egerton of Div. Three wrote the opinion, affirming the decisions by Los Angeles Superior Court Judge Terry Green to send the case to arbitration and, following the arbitration, awarding attorney fees to the plaintiff.

The plaintiff in the case is Los Angeles attorney Ronald S. Caswell, a founding partner of Caswell & Cannon. He sued thoroughbred owner Jerry Jamgotchian for $76,346.54 in unpaid fees based on representation in 11 matters.

In moving to compel arbitration, Caswell relied upon a retainer agreement Jamgotchian signed on Dec. 14, 2005, providing:

“[S]hould any fee dispute arise between us, we mutually agree that such dispute will be subjected to binding arbitration in Los Angeles, California, pursuant to the JAMS/Endispute arbitration program, and that the arbitrator may award reasonable attorneys’ fees to the prevailing party in such proceedings. YOU ACKNOWLEDGE THAT YOU ARE AWARE OF THE FACT THAT BY AGREEING TO ARBITRATION, YOU WAIVE ANY RIGHT YOU HAVE TO A COURT OR JURY TRIAL.”

Green found that when a second matter came up, Jamgotchian “refused to sign...the second retainer agreement” and said: “Let’s make the first one be our retainer.” The judge concluded that “all parties then wanted the initial agreement to cover all future litigation that Mr. Jamgotchian brought, as the client, to Mr. Caswell.”

The arbitrator awarded Caswell $78,154.49 in damages, $28,154.15 in prejudgment interest, $126,406.25 in attorney fees he expended in retaining outside counsel, and $36,681.57 in arbitration costs, totaling $269,396.46.

Green confirmed the arbitrator’s award, adding $11,217.60 in prejudgment interest, bringing the total; to $280,614.60. He also awarded $133,362.50 in fees Caswell paid to attorney Kyle P. Kelley in the trial court, plus $3,417.28 in costs.

“On appeal, Jamgotchian does not dispute outright the trial court’s conclusion that he and Caswell orally agreed to modify the original retainer agreement so that its terms, including the arbitration clause, would apply to all subsequent representation by Caswell. Instead, he argues that written agreements to arbitrate may not be orally modified, and recharacterizes the court’s finding as concluding that the arbitration clause, rather than the retainer agreement, was orally modified.”

Rejecting the contention, she said:

“When Jamgotchian and Caswell orally modified the original retainer agreement so that it would apply to all subsequent representation by Caswell, they did not modify the arbitration clause. That clause remained identical in the second retainer agreement that Jamgotchian refused to sign in favor of applying the original retainer agreement to subsequent cases. Caswell and Jamgotchian orally agreed to modify not the arbitration clause, but ‘the overall contract in which that agreement to arbitrate is contained.’…That clause remained identical in the second retainer agreement that Jamgotchian refused to sign in favor of applying the original retainer agreement to subsequent cases. The unmodified written arbitration clause, as part of the retainer agreement, thus applied to ‘any fee dispute’ in subsequent cases.”

There was a remand to Green for a determination of attorney fees in connection with the appeal.  The case is Caswell v. Jamgotchian, B271389.

Texas Attorney Wins Millions in Fees Despite Invalid Fee Agreement

April 17, 2018

A recent Bloomberg Big Law Business story by Bernie Pazanowski, “Attorney May Get Millions Despite Invalid Fee Agreement,” reports that a Texas attorney may be able to recover millions of dollars in unpaid fees even though the oral contingent-fee agreements he entered into with his client are unenforceable under Texas law, the Texas Supreme Court said April 13.

Texas law requires contingent-fee agreements for legal services to be in writing, the opinion by Justice Paul W. Green said.

But when they’re not, the value of the services rendered may still be recoverable thru an equitable remedy known as “quantum meruit.”

Attorney Gregory Shamoun had four separate agreements with Albert G. Hill Jr., to represent Hill in cases in which Hill was involved. But Hill was also involved in a number of other additional, connected cases involving other members of his family, family trusts, and a number of business entities.

Shamoun soon became entangled in the other cases.

Shamoun and Hill never signed a written agreement for the extra services. Instead, they orally discussed Shamoun getting a bonus based on the amount Shamoun saved Hill through a global settlement of the other cases.

While Hill paid Shamoun for his services under the signed agreements, he refused to pay him the $11.25 million he requested for legal services related to the settlement, which was finalized after Shaoun had been terminated.

Shamoun’s firm sued Hill and a jury said Shouman provided $7.25 million in compensable services. The trial court set aside those findings because of the lack of a written fee agreement.

Shamoun’s quantum meruit suit may proceed, the supreme court said. The top court revived the attorney’s chance to collect but said Shamoun must again prove the value of the services he rendered as the jury’s award wasn’t supported.

Gibson Dunn & Crutcher LLP represented Hill. Alexander Dubose Jefferson & Townsend LLP represented Shamoun.

The case is Hill v. Shamoun & Norman LLP, 2018 BL 130514, Tex., No. 16-0107.

Lawmakers Question $125M Fee Request in 3M Case

March 7, 2018

A recent Bloomberg Law story by Stephen Joyce, “Covington’s $125M Fee for 3M Case ‘A Little Steep’: Lawmaker,” reports that Covington & Burling LLP came under fire for a $125 million fee it received to represent the state of Minnesota in its $5 billion environmental lawsuit against 3M Co., which settled Feb. 20 for $850 million.  At a March 5 Minnesota House Ways and Means Committee hearing, state Rep. Sarah Anderson (R) questioned the Big Law firm’s contingency arrangement with the state, reached in 2010.

“I’m just curious as to why we are paying a law firm $125 million for seven years of work,” she said.  Referring to her own math, she said the sum works out to about $48,000 per day.  “That seems a little steep.”  She also said all the legal fees are being shipped outside the state because Covington doesn’t have an office in Minnesota.  Jim Knoblach (R), Minnesota Ways and Means Committee chairman, said additional legislation may be needed to ensure the money could be received and spent appropriately.

The underlying case stems from a lawsuit in 2010, when Minnesota sued 3M, alleging it acted with deliberate disregard by dumping perfluorinated chemicals at four Minnesota sites beginning in the 1950s, largely in unlined pits and trenches, contaminating groundwater.  The complaint alleged the company knew about the risks the chemicals posed but concealed those risks from government regulators for decades.  The March 5 hearing was called to review the settlement deal, particularly its impact on the state’s finances.

Lawyer and state Rep. Debra Hilstrom (D), who said she has followed the case for years, told the hearing the litigation involved more than 27 million pages of documents, more than 200 witness depositions, more than 100 judicial hearings and conferences, and about $10 million in environmental tests, fees, and associated costs.

The agreement the state put in place with Covington was a contingency contract, and such deals can result in legal teams reaping up to 40 percent of any eventual settlement, Ben Wogsland, a spokesman for state Attorney General Lori Swanson (D), told Big Law Business.  Covington’s fee was about 14 percent of the total settlement amount.

A Dec. 22, 2010, agreement between Minnesota and Covington said the state was not liable to pay Covington compensation other than amounts recovered from 3M.  If the final recovery turned out to be less than sufficient to fully reimburse Covington for its costs and expenses, Minnesota would not be responsible to make the law firm whole, the agreement said.  The Minnesota Attorney General’s office didn’t provide Big Law Business with a breakdown of the billable hour fees of Covington lawyers working on the case, which was included in the retainer agreement.

“Covington has represented the State of Minnesota in environmental matters for more than 20 years, including the NRD [3M] litigation that was recently resolved.  Our work on the NRD case involved a contingency fee arrangement, the attendant risk that we might receive no fee whatsoever, and dedicated efforts by our team in hard-fought, complex litigation lasting over seven years,” a Covington spokesman told Big Law Business in an email.  Anderson also questioned why the state didn’t rely on state Attorney General Lori Swanson (D) and her office to litigate the case.

Wogsland said Covington is “a long-time counsel to the state on environmental matters and has represented Minnesota on environmental matters for over 20 years.”  Minnesota state agencies also likely didn’t have the wherewithal to litigate the case, he said.  “To litigate this case you needed the best experts in the world, from geologists to chemists to engineers, and this firm [Covington] put up that money to pay for all of that,” he said.

Two Key Provisions for Your Fee Agreement

February 27, 2018

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Attorneys Want to Depose NFL Fee Expert

December 22, 2017

A recent Legal Intelligencer story, by Max Mitchell, “Lawyers Want to Depose NFL Fee Expert Over Slashed Attorney Fees,” reports that attorneys from five law firms have asked the court presiding...

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