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Category: Fee Allocation / Splitting

Fee Allocation Dispute in Antitrust Case in Seventh Circuit

January 15, 2020

A recent Law 360 story by Celeste Bott, “Attys Spar Over Fees From Antitrust Row at 7th Circ.,” reports that a Seventh Circuit panel took issue with an attorney’s arguments that the allocation of attorney fees from an underlying case should have been settled in arbitration and that Cozen O'Connor wasn’t entitled to its share of a $4 million deal for representing that attorney in the fee dispute.  Judges Amy J. St. Eve, Diane P. Wood and Ilana Rovner said attorney Michael Needle appeared to waive arbitration, noting that he didn’t move to compel it and had previously stated that the district court was the proper forum to resolve all claims in a dispute over a $4.2 million settlement fund.

“How can you come in and argue now there’s no jurisdiction because it should have gone to arbitration, when you argued the opposite in the district court?” Judge St. Eve asked.  The panel heard argument in two related cases, both stemming from a Racketeer Influenced and Corrupt Organizations Act case alleging that International Profit Associates Inc. and its affiliates bilked small businesses into buying expensive but useless consulting.

Needle and Merle L. Royce were co-counsel on a contingent fee basis representing 16 plaintiffs in the RICO case, and in 2013 obtained a $4.2 million settlement, then disagreed over the fees for their work, according to court documents.  Cozen O'Connor represented Needle in the fee dispute and later sought a lien to get paid.

After the settlement, Royce said the fees should be limited to one-third of the settlement proceeds, while Needle sought a much larger sum of $2.5 million, according to briefs in the case.  In 2015, Royce filed an interpleader complaint to determine how the fees should be allocated, and a lower court ruled that the pair were entitled to one-third of the settlement, with 60% to Needle and 40% to Royce.  Needle argued on appeal that the fee dispute should have been decided in arbitration under a binding mediation provision in the fee agreement.  That provision means there’s no jurisdiction to proceed, said Frank C. Fusco, arguing for Needle.

The judges pushed back on that argument and against Needle’s assertion that he was wrongfully sanctioned for asking for an extension that was ultimately granted.  They said he waited “until the last minute” and that the district court had the right to grant him extra time yet still find his actions sanctionable.

Alan R. Borlack of Bailey Borlack Nadelhoffer & Carroll, arguing for Royce, said the sanctions were warranted, noting that even the lower-court judge had said he had “never encountered” anyone so “unrelentingly obstructionist” as Needle in more than six decades of practicing law.  Needle had asked for the added time allegedly because he had failed to file time sheets and was seeking a transcript from a status hearing, Borlack said.

“These were disingenuous reasons for an extension,” Borlack said.  “This case goes to whether a district court can have control of a courtroom so it can administer justice.”  And in the Cozen O'Connor appeal, Fusco told the panel the firm was wrongfully granted a lien because the fee agreement didn’t provide for compensation if the firm withdraws, and that the firm’s work didn’t help Needle recover funds.

Class Counsel Says He Was Cheated Out of $2.6M in Attorney Fees

January 9, 2020

A recent Daily Report story by Greg Land, “Lawyer Booted From Class Action Says He Was Cheated Out of $2.6M in Legal Fees,” reports that a Georgia law firm is accused of scheming to cheat its former co-counsel out of nearly $2.6 million in legal fees, according to a series of court filings related to an $80 million MetLife class action settlement.  The court awarded more than $26 million in attorney fees as part of the July settlement, but M. Scott Barrett of Barrett Wylie in Indiana said his share awarded—more than $134,000—is a fraction of what he really should have gotten.

In a series of filings entered after the settlement was approved, Barrett said he was an integral part of the plaintiffs’ team until the lead lawyer, John Bell Jr. of Augusta’s Bell & Brigham “orchestrated” his removal.  Barrett said Bell—with whom he has a long history of co-counseling on class actions—had insisted that any fees he ultimately received would be totally at Bell’s discretion, “if and when there might be a fee.”

When Barrett protested, Bell purportedly manipulated the lead plaintiff and class representative, Laura Owens—whom Barrett had never met—to terminate his representation, which he was obliged to do.  Barrett argued that, his withdrawal notwithstanding, he should be paid 10% of the fee award, not a figure calculated on the hours he put into the case.

“Between April 24, 2014, and May 8, 2017, Barrett was actively involved in the prosecution of this matter,” said his September motion asking the court to allocate fees.  “During that time, over 140 docket entries were made, including multiple declarations from Barrett. Motions to dismiss and for summary judgment had been filed, responded to, and successfully defeated.  Discovery had been completed and an initial motion to certify the class had been filed.”

The settlement agreement approved by U.S. District Judge Richard Story of Georgia’s Northern District allocated $25 million in fees and $1.6 million in expenses to the plaintiffs’ counsel—nine lawyers, including Barrett.  The others include Bell and his partner, Leroy Brigham; Jason Carter and Michael Terry of Bondurant Mixson & Elmore; Cleveland, Georgia, solo Todd Lord; William Dobson and Michael Lober of Lober & Dobson in LaFayette, Georgia; and Oxendine Law Group principal John Oxendine.

Ruling on a motion by the plaintiffs’ counsel, U.S. District Judge Richard Story of the Georgia’s Northern District used the “lodestar” method to calculate Barrett’s portion of the award based on the hours he reported working on the case, rather than on a percentage basis of the fee award.  In his final order approving the settlement, Story specified that the issue of Barrett’s fees would not delay the settlement of the class’ claims.  In a Dec. 26 order, Story said Barrett’s share came to $134,311.

Barrett’s lawyer, Cochran & Edwards partner R. Randy Edwards, said in a motion to reconsider that the judge should at minimum reopen discovery and allow in evidence “because the court’s quantum meruit analysis is devoid of crucial and necessary findings of fact required under [federal rules] and to make an equitable allocation.  “This lack of findings has led to the anomalous result that Barrett’s allocation should be a scant one half-of one percent of the total attorneys’ fee.  How can this be?” Edwards said.

In response, the remaining plaintiffs lawyers argued that well-settled Georgia law makes clear that an attorney discharged from a case before it is resolved is not entitled to a contingency fee.  Further, they said, Barrett has provided “no evidence of any services he actually rendered for the benefit of Ms. Owens or the class she represents.”  Story has not yet ruled on Edward’s Dec. 31 motion.

Barrett filed another motion on Jan. 7 in opposition to Story’s division of fees after the plaintiffs filed a motion to approve it, arguing that “limited discovery and an evidentiary hearing” will allow the court to determine a proper split.  “Alternatively,” it said, “if the court is not inclined to do this, Barrett asks that he be allocated 10% of the total amount of the fee awarded as a minimum allocation.”

In an interview, Edwards said that—should those efforts prove unavailing—he can “virtually guarantee” that there will be an appeal.  The 10% figure, he said, is based upon Barrett and Bell’s “17-year track record of working together on these types of cases.”  As detailed in Barrett’s September motion for allocation, Bell, Barrett and three other lawyers not involved in the MetLife case began working together on retained asset account class actions several years ago.

They originally had a co-counseling agreement that any fee awards would first split 10% to each firm, with the remainder based on hours billed.  Bell became “dissatisfied” with the original arrangement, and it was reworked so that local counsel and the referring lawyer would each get 10% off the top.  Bell’s firm got 50% of the balance, Barrett’s got 30%, with the by then two remaining members splitting the last 20%.

NCAA Ordered to Pay $33M in Fees and Costs in Antitrust Case

December 25, 2019

A recent Law 360 story by Dave Simpson, “NCAA Owes Student-Athletes’ Attys $33M in Fees and Costs,” reports that a California magistrate judge ordered the NCAA to pay $31.8 million to cover the attorneys who scored an injunction for student-athletes barring the NCAA from restricting their education-related compensation, but declined to provide the attorneys with the full $45 million they requested.  U.S. Magistrate Judge Nathanael Cousins applied minor reductions to the student-athletes’ baseline bid for fees and costs and declined to apply their ask for another $15 million based on a 1.5 multiplier, requested in light of "the exceptional nature of the outcome."

“Representation was of excellent quality on both sides of this litigation, and counsel for both sides expertly handled this exceedingly complex case,” Judge Cousins said.  “But the court finds that this quality and complexity are already reflected in plaintiffs’ counsels’ hourly rates and the number of hours billed.”

Further, he said, while the students’ victory was “historic,” they didn’t get everything they asked for.  “That both parties appealed the final judgment in the case indicates that neither wholly succeeded on their claims,” the magistrate judge said.  Finally, he said, the students’ attorneys have already recovered fees related to a damages portion of the case as a part of a settlement agreement.  In addition to the fees, the magistrate judge awarded the students’ attorneys nearly $1.4 million in costs.

Nearly $26 million of the fees will go to Winston & Strawn LLP, with about $3 million apiece heading to Hagens Berman Sobol Shapiro LLP and Pearson Simon & Warshaw LLP, while Pritzker Levine LLP will rake in $163,000.

The bid for fees and costs follows a landmark 10-day bench trial that kicked off in Oakland in September 2018 over allegations by Division I college football and basketball players that the NCAA's rules illegally restrict what they can receive to play.  The rules had limited athlete benefits to cost-of-attendance scholarships; Student Assistance Funds, which cover certain school-related expenses; some need-based grants, like Pell Grants; and bowl participation awards, which are typically capped around $450.

During the trial, sports economists, former athletes, university officials and NCAA administrators took turns testifying on the impacts of the NCAA's compensation rules.  Three former athletes, who didn't play professionally after college, recalled how they struggled as students to pay for meals, clothes and trips home, while they spent between 40 and 60 hours a week on their sports, which left little time for academics.

Fifth Circuit Revives $10M Fee Allocation Dispute

December 23, 2019

A recent Texas Lawyer story by Angela Morris, “Fifth Circuit Revives Plaintiffs Lawyer’s Claim Over His Share in $10 Fee Fight,” reports that a Houston attorney who couldn’t practice on a class action due to treatment for alcoholism has won a second chance to argue he deserves a larger cut of attorney fees in the case.  The U.S. Court of Appeals for the Fifth Circuit ruled that a district court erred when it split $10 million in attorney fees among a gaggle of lawyers and firms.  The court should have considered and explained all of the factors that case law requires when determining the reasonableness and allocation of fees, the court ruled.

That’s just the outcome that Houston litigator Scott Clearman wanted, said his attorney, DJ Healey, senior principal at Fish & Richardson in Houston.  Healey said she will ask the district court for an evidentiary hearing in the fee allocation dispute.  She said that Clearman went through successful treatment and has been sober ever since.  He’s practicing law “full blast” and went on to make positive contributions to the underlying class action and shouldn’t face a penalty in the form of a lower attorney fee, Healey said.

“A lot of lawyers have suffered from the same illness.  We want lawyers who suffer from the illness to get treatment for it,” said Healey.  “With all the realization going on now that mental health issues and substance abuse issues plague the trial bar, we need to encourage people to get the treatment they need and not penalize them for getting treated.”

The dispute arises from an underlying class action that settled, according to the opinion written by Judge Patrick E. Higginbotham, and joined by Judges Carl Stewart and Kurt Engelhardt.  The district court awarded $10 million in fees to the plaintiffs attorneys, who then went on to litigate how the trial court allocated the fees among them.

The trial court used the “spirit” of unconsummated or outdated contracts among the lawyers to split the fees.  The Fifth Circuit didn’t determine if the split was fair, because it found a problem in how the trial court assessed whether the fees were reasonable.  The ruling vacates the fee allocation and sends the dispute back to the trial court.  Clearman sought half of the $10 million award, but he only got $1.5 million, and he challenged the allocation.

The other attorneys alleged that Clearman’s involvement waned in 2011 because he was struggling with substance abuse and mental health issues.  The other attorneys had to monitor his work product to protect the clients’ interest and reduce the potential for liability, the opinion said.  When Clearman entered treatment for alcoholism, his partner became the attorney-in-charge in 2013.  Their firm wound down, and the three remaining partners started a new law firm.  Another firm was brought in to defend the class certification on appeal.  All the attorneys and firms, but Clearman then signed a new fee allocation agreement.

Fifth Circuit: $10M Fee Allocation Needs More Analysis

December 20, 2019

A recent Law 360 story by Celeste Bott, “5th Circ. Says Judge Botched Divvy of $10M Atty Fee Award,” reports that the Fifth Circuit vacated the allocation of $10 million in attorney fees in a class action against SGE Management over an alleged pyramid scheme to resell electricity, saying the lower court relied on “unconsummated or outdated contracts among the attorneys” and didn’t adequately explain its reasoning.

The panel said the district court must elaborate on its reasoning for allocating a $1.5 million share to attorney Scott Clearman, who brought the appeal because he says he is entitled to half of the award.  The order isn’t supported with written reasons, especially “given the disparate positions taken by the vexed attorneys, the size of the award and the complexities in weighing the attorneys’ various contribution," the court said.

The district court “explicitly disclaimed” in its order the use of 12 factors laid out in the Fifth Circuit’s 1974 Johnson v. Ga. Highway Express case for determining the reasonableness of attorney fees, but another Fifth Circuit case, In re: High Sulfur Content Gasoline Products Liability Litigation, mandates the use of the Johnson framework in fee allocations, the court said.

“We have little choice but to find that the district court abused its discretion in explicitly disclaiming use of the Johnson factors,” the panel said.  “The sole reasoning of record is the recitation that the court, ‘having examined the various agreements, and the spirit behind the documents determine[d] that the last arrangement, even though Scott Clearman did not join in, is fair and equitable.’”  Under the High Sulfur precedent, courts are required to do more, the court said. 

“Although sympathetic to the difficult task the lawyers gave to the district court, we must vacate the award allocating attorney’s fees and remand for proceedings consistent with this opinion and with due consideration of the Johnson factors,” the panel said.  “While nothing forecloses an agreement among all, its absence leaves no choice but to ‘do it by the book.’”

When Clearman initially joined the case, any fee was to be distributed with 75% to Clearman and 25% to attorney Jeffrey Burnett, the first to be retained by two distributors for Stream Energy LLC when they suspected the company’s multi-level marketing program was a pyramid scheme, according to filings in the case.  Clearman later partnered with Matthew Prebeg to form Clearman Prebeg LLP. Burnett and Clearman Prebeg were then joined in the litigation by Andrew Kochanowski and Sommers Schwartz PC.  A new fee agreement was signed that allocated 60% to Clearman Prebeg, split among its partners, 20% to Sommers and 20% to Burnett.

But at this point, the other attorneys dispute Clearman’s involvement, saying though he remained in charge of the case he struggled with severe substance abuse issues and eventually entered inpatient treatment.  When the district court certified the class in 2014, the remaining Clearman Prebeg partners formed a new firm, Prebeg Faucett & Abbott PLLC, and other attorneys on the case retained Goldstein & Russell.  A new fee arrangement was signed off on by everyone except Clearman, giving Goldstein & Russell 16% and Burnett 17%, with the remainder distributed among Sommers, Prebeg Faucett & Abbott and Clearman, who would receive about 17%.

It was that final agreement that the lower court deemed fair and equitable.  Clearman argues he is entitled to $5 million, though the other lawyers on the case contend he failed to keep adequate time sheets and was asking for an exorbitant hourly rate.