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Category: Fee Caps / Fee Limits

Kentucky Legislation Would Limit Attorney Fees to Outside Counsel

March 27, 2018

A recent AP story by Bruce Schreiner, “Bill Advances to Limit Fees to Outside Attorneys,” reports that over objections from Kentucky’s Democratic attorney general, GOP lawmakers took another step Thursday toward limiting how much outside attorneys can earn when hired by the state.

Supporters said the bill aims to maximize the amount from a settlement or judgment that benefits those hurt by a transgressor's actions. Attorney General Andy Beshear's office said the limits could hamper recruiting outside attorneys whose expertise can help win large awards for the state. In those cases, the contingency fees would be a good tradeoff, a top Beshear aide said.

"If we're going big, 75 percent, 80 percent of big is way better than 100 percent of nothing," said Deputy Attorney General J. Michael Brown. "And we need the ability to win these cases."

The measure was advanced by Republicans on the Senate Judiciary Committee. Its chairman, Sen. Whitney Westerfield, lost to Beshear in a close election in 2015. Westerfield, who plans to run again for attorney general next year, said he's comfortable with the measure.

The bill would set limits on contingency fees paid to outside lawyers. Those attorneys don't get paid unless they win the lawsuit. They sign a contract with the Attorney General's office that guarantees them a certain percentage from a settlement or judgment.

The proposal would apply to future contracts. If it becomes law, those fees would be capped at 20 percent of a settlement or judgment up to $10 million. Fee percentages would shrink for amounts above $10 million.

Those cases can yield potentially lucrative judgments, but often pit the state against corporations with vast resources and high-powered legal teams. So attorneys general sometimes hire outside lawyers to help with big cases, as Beshear has done in suing pharmaceutical distributors he accuses of inundating Kentucky with dangerously addictive opioid painkillers.

Beshear's office says the bill would restrict its ability to recruit outside lawyers, pointing to its legal fight with opioid distributors. Nemes dismissed the criticism as "pure demagoguery," noting Beshear's office has received bids from outside lawyers that complied with the bill's terms.

The bill, which already passed the House, would require the attorney general, the governor's office or any another constitutional office to show that hiring outside counsel is needed.

But the focus has been on the attorney general's office, and has been a politically charged issue as Beshear has feuded with Gov. Matt Bevin over the Republican's use of executive authority.

Rep. Jason Nemes said his bill aims to make sure hiring outside counsel is necessary, that the contracts are transparent and injured Kentuckians are the biggest beneficiaries of awards.

"That's what we're trying to do with this bill, get as much money as possible to go to injured citizens," the Louisville Republican said.

In complex cases, Brown said, some wrongdoers aren't exposed until attorneys dig deep into a case. He said fee limits could deter outside lawyers from pursuing all potential defendants.

The Senate panel amended the bill to give the legislature or state Finance Cabinet oversight of contingency fee agreements. Beshear said in a statement that the amendment was "another power grab" and could "hamstring" his efforts to pursuit lawsuits against drug companies.

If the bill passes the Senate with the change, it would go back to the GOP-led House.

The bill also would require all records — including expenses — associated with the hiring of outside lawyers be made public.

The legislation is House Bill 198.

Opinion: Apply NJ Contingency Fee Cap More Broadly

March 8, 2018

A recent New Jersey Law Journal Editorial, “Apply Contingency Fee Cap More Broadly,” speaks to a recent case and rules involving contingency fee caps in New Jersey.  It reads:

The New Jersey Contingency Fee Rule (R. 1:21-7) establishes the outer limits of permissible fees in tort cases. Pursuant to the rule, where the amount recovered is for the benefit of a minor, the fee cannot exceed 25 percent. If attorneys consider a tort fee to be inadequate, they have the right on written notice to the client to apply to the court for a hearing to determine what would be a reasonable fee in light of all the circumstances. Statutorily based discrimination and employment claims are excluded from the rule’s fee limitations.

The rule was promulgated because of the concern that clients could be charged excessive contingency fees in tort matters that had no relationship to the amount and quality of the services provided and the amount of attorney compensation. Discrimination and employment cases are not subject to the rule because their respective statutes provide for a fee shift such that the attorney fee is awarded by a court to the prevailing party, and the fee is paid by the opposing party. As a consequence of the exclusion for statutorily based discrimination and employment claims, the rule as written permits counsel in such cases to settle a matter, not seek a fee shift and charge the client a negotiated contingent fee that exceeds the fee limitations imposed by the rule.

Recently, in A.W. By Her Parent & Guardian ad Litem, B.W. vs. Mt. Holly Board of Education, decided Feb. 1, 2018, the Appellate Division, in a published opinion, addressed a matter where an attorney sought to collect an agreed-upon 45 percent contingent fee from a minor plaintiff in an action brought under the New Jersey Law Against Discrimination and the New Jersey Civil Rights Act. It was contended that the attorney did not need judicial approval of the reasonableness of the fee. In the case, a fifth-grade student was alleged to have been subjected to ongoing harassment, intimidation and bullying by other students on a near daily basis, which resulted in the placement of homebound instruction and the ultimate transfer of the student to a private school.  The claim was for emotional distress, anxiety, depression and post-traumatic stress disorder. The impact to the child and her family was substantial. A lawsuit was filed because of the alleged inadequate response by school administrators. The child and her parents entered into an 18-page retainer agreement where it provided that the lawyer would receive either a 45 percent contingency fee, or, in the alternative, a fee based on the proscribed hours, whichever was greater. The retainer agreement further provided that if the matter proceeded to trial and fees were awarded by the court, then the fee awarded to the law firm would be added to the totality of the child’s recovery for purposes of determining the amount of the 45 percent contingency fee. After routine discovery, the case was settled for $100,000. The settlement precluded the plaintiff from applying for an award of attorney’s fees under the applicable fee-shifting statutes. At the required friendly hearing, counsel sought the 45 percent contingency fee set forth in the agreement plus costs of $4,629.33. The fee agreement itself was not offered into the record. The settlement was approved, but the court was not inclined to grant a fee in excess of 25 percent of the settlement. After briefing and oral argument, the court, recognizing its obligation to scrutinize the settlement and fees for this minor claimant, independently reviewed the reasonableness of the fee. The court observed that no proof was offered at the friendly hearing that either the parents or the minor were aware of the provision in the settlement agreement that had forfeited their right to seek a fee shift. Nor was there any summary or statement put forth as to the attorney’s hours expended. It was determined that the agreement was an unreasonable overreaching and that 25 percent of the recovery was sufficient. The trial court reasoned that although claims with statutory fee shifts are ordinarily excluded from the R. 1:21-7 fee limitations, those fee limitations nevertheless should apply when counsel chooses to forgo an application for a fee shift and instead pursues a negotiated contingent fee percentage.

The Appellate Division affirmed and limited the fee to 25 percent, rejecting the attorney’s contention that the trial court lacked the authority to review the asserted consensual contingent fee arrangement in a statutorily based discrimination action where plaintiffs and plaintiffs’ counsel did not apply for a fee-shifting award against the defendant. Although the Appellate Division did not adopt the trial court’s holding that fee-shifting claims are only excluded from the R. 1:21-7 fee limitations when fee shifting occurs, the court understandably emphasized that reasonableness of attorney fees are always subject to judicial review. Regrettably, the court failed to repeat the trial court’s explicit criticism and condemnation of this fee arrangement.

When the lawyer responded to inquiries of the New Jersey Law Journal, he said that the 45 percent fee had been common practice for his law firm and had been judicially approved in the past in a couple of dozen cases. He stated he will continue to utilize his fee agreement but will be more cognizant about putting the details of his clients’ agreements before the courts.

The cost to hire or engage a lawyer may be burdensome or prohibitive. Contingency fee agreements and fee-shifting statutes make legal services available to people who could not ordinarily afford them. People who are inexperienced and unsophisticated in legal matters usually rely on a lawyer’s advice and counsel as to whether their case has a potential for success and whether the fee agreement is appropriate and reasonable. The majority of attorneys represent their clients fairly. A client may be unaware when a lawyer charges an excessive or unreasonable fee. It cannot be assumed that clients routinely read or review a lengthy retainer agreement or understand the meaning and implications of a complex fee structure.

It is difficult for people without means or power to complain or challenge the amount of fees that they are charged. In 1978, Fee Arbitration Committees were created to resolve disputes when clients filed grievances. The members of the committees universally act in good faith, work hard and are not hesitant to rule in favor of a client. The committees, however, have discretion to decline to hear cases that are complex, raise substantial legal questions, or involve a large amount of money and, especially in those matters, clients may be intimidated in initiating legal proceedings against their attorneys.

The court’s decision in A.W. v Mount Holly Bd. Of Ed. is an important reaffirmation that the bargaining power between lawyer and client, particularly in the context of tort, product liability and discrimination actions, is often uneven, and as a consequence the fee charged is always subject to a review for reasonableness regardless of the terms of the negotiated fee agreement. Although we agree with the decision, we also would like to see the Supreme Court refer the matter to the Civil Practice Committee for consideration of a rule change consistent with the reasoning of the trial court. Specifically, we would support a rule amendment calling for the application of the R. 1:21-7 fee limitations when counsel in a statutory fee-shifting case opts for a negotiated contingent fee in lieu of an application for fees. Excluding fee-shifting cases from the fee limitations in the rule makes sense when a fee shift is ordered, as the fee in that instance is paid by the defendant. But when counsel fees are paid by the client, as was the case in A.W., then there is no reason why the protections afforded by R. 1:21-7 ought not apply.

Law Firm Can’t Avoid Contingency Fee Cap

February 2, 2018

A recent New Jersey Law Journal story by David Gialanella, “Law Firm Can’t Skirt Contingency Fee Cap, Court Rules,” reports that a New Jersey plaintiff firm seeking a 45 percent contingency fee in a student discrimination case—a common arrangement, the firm claims—has twice failed in convincing a court that actions based on statute are not subject to contingency limits set out by court rule.

In a published decision Thursday, the Appellate Division upheld a reduction, from 45 percent to 25 percent, of the contingency fee payable to Costello & Mains, rejecting the Mount Laurel firm’s “contention that the trial court lacked authority to review a consensual contingent fee arrangement in a statutorily based discrimination action in which the plaintiff did not apply for a fee-shifting award against the defendant.”

“It would make little sense to permit unrestricted and unreasonable contingent fees in cases in which a fee-shifting application is not made but limit fee-shifted awards to reasonable amounts,” Judge Richard J. Geiger wrote for the court. “On the contrary, our court rules, rules of professional conduct, fee-shifting discrimination statutes, fee arbitration procedure, and interpretive case law universally require all attorney’s fees to be reasonable.”

Name partner Kevin Costello said the 45 percent fee has been a common practice for the firm, and one that’s been approved in the past.

“In a couple dozen cases prior to this, we had judges approving the fee structure,” Costello told the Law Journal.

“It’s not going to stop us from taking these cases,” he said. “But we are of course going to be much more cognizant of putting before the court all the risks we faced and all the work that was done.”

According to the decision, Costello & Mains was retained to represent a Mount Holly public school student, identified only as A.W., and her mother, B.W., in a suit claiming the student was bullied and harassed during her time at Folwell Elementary School and F.W. Holbein Middle School. The suit, filed in March 2014, alleged violations of the New Jersey Law Against Discrimination and Civil Rights Act, each of which contains fee-shifting provisions for successful litigants.

The retainer agreement executed by Costello & Mains and B.W., the decision notes, provided for a contingent fee of 45 percent, or a fee based on the firm’s hourly rate, whichever was greater, in the event of a recovery, including a recovery by lump-sum settlement. The agreement also provided that, if the case went to trial or arbitration and yielded an award, the firm would be entitled to 45 percent of the total recovery, including any fee award by the court or arbitrator. Finally, the agreement laid out the firm’s right to seek a higher fee “if … the firm has performed work that is in excess and thus disproportionate to the fee that it has earned,” according to the court.

Following discovery, the parties in early 2016 entered a settlement for $100,000, which the Mount Holly Township Board of Education ultimately approved. By the terms of the accord, B.W. agreed to refrain from seeking an award of fees and costs under the statutory fee-shifting provisions. The settlement was the subject of a friendly hearing, in which Costello & Mains sought approval of the 45 percent contingency fee, which would have amounted to $42,888, in addition to $4,692 in costs, according to the decision.

The judge approved the settlement, but ultimately awarded Costello & Mains a fee in the amount of 25 percent of the net recovery, finding the 45 percent fee ”an unconscionable result” and “unreasonable overreaching,” even though the client didn’t dispute the fee arrangement.

The judge is not identified in the Appellate Division’s ruling, but judiciary records indicate it was Burlington County Superior Court Judge Michael J. Hogan.

Hogan, according to an excerpt of his 18-page written decision included in the Appellate Division’s ruling, noted the firm’s “apparent determination not to seek counsel fee-shifting against the defendant in order to expedite a settlement.” He referred to Court Rule 1:21-7(c), which caps contingency fees at 25 percent in cases involving a minor or disabled plaintiffs when a settlement is reached before trial commences.

Excluded from that limit are “statutorily based discrimination and employment claims,” the rule says. But the judge noted “a hidden benefit to counsel by waiving the right to fee-shifting in certain circumstances”: that the attorney could get a larger fee without going through a lodestar analysis, or applying for an enhanced fee as per subsection (f) of Rule 1:21-7. That would mean the fee is shifted not to the defendant but “instead contractually shifted back onto the client—in this case, a fifteen-year-old whom counsel represents,” which could create a conflict between the attorney’s and client’s interests, the judge ruled.

The judge held that, in cases involving a discrimination claim where the plaintiff counsel nevertheless eschews fee-shifting in favor of a contingency agreement, the fee percentage should be capped in accordance with Rule 1:21-7(c).

In setting Costello & Mains’ fee at 25 percent, the judge said no evidence was provided of the 45 percent fee’s reasonableness, and no testimony from B.W. that she understood fee-shifting or the decision to decline a fee application as part of the settlement.

Costello & Mains appealed, contending that the language of Rule 1:21-7(c) excluding “statutorily based discrimination and employment claims” from contingency fee limits means that any fee is permissible if the client agrees to it.

Geiger, a Law Division judge in the Gloucester-Cumberland-Salem vicinage temporarily assigned to the Appellate Division last June, disagreed. He was joined by Appellate Division Judges Carmen Alvarez and William Nugent.

“Ostensibly, appellant argues that, no matter the content, contingent fee arrangements in statutorily based discrimination actions are enforceable as written, provided they are entered into voluntarily and without fraud or overreaching,” Geiger wrote.

By the firm’s interpretation, the court said, “attorneys could enforce any consensual contingent fee arrangement in statutory discrimination actions, no matter how high the percentage contingent fee, without any judicial review of the reasonableness of the fee, whenever the plaintiff does not make a fee-shifting application.”

Costello & Mains did not apply for an enhanced fee or show exceptional circumstances, the panel said, noting that Rule of Professional Conduct 1.5(a) requires that fee agreements must be “reasonable,” even if fee enhancement is allowed.

“More fundamentally, fee shifting awards are payable by the unsuccessful opposing party, not the prevailing plaintiff,” Geiger wrote.

The panel noted the “‘almost unchallenged power over the practice of law in all of its aspects’” since adoption of the 1947 state Constitution, quoting the Supreme Court’s 1981 ruling in In re LiVolsi. It also added that, while attorney-client agreements are contracts, courts still retain authority over terms that affect clients.

Costello & Mains relied in part on the state Supreme Court’s 1995 decision in Szczepanski v. Newcomb Medical Center, where it held that a contingency fee “may bear little relation to the reasonable fee award authorized by statute.” But Geiger rejected that argument, noting that Costello & Mains’ retainer provided for the firm to potentially reap contingency as well as statutory fees.

Costello said cases such as A.W.’s are typically discovery-heavy and, unlike a tort claim against the government, don’t require proof of permanent injury, so damages can be limited. Judges have questioned the 45 percent structure in the past, but have been satisfied with the sort of explanation and briefing provided in this case, he said.

Thought disagreeing with Hogan’s and the appeals court’s holding, the firm will not seek Supreme Court review of the case, Costello said, adding that he thinks the rule needs no amendment.

Neither the plaintiffs nor the Mount Holly Board of Education participated in the appeal, according to the court.

The board of education’s counsel, Richard K. Goldstein of Marshall Dennehey Warner Coleman & Goggin in Mount Laurel, didn’t return a call inviting comment on the plaintiffs’ allegations resolved by the settlement.

Florida Caps Attorney Fees in Water Litigation

January 22, 2018

A recent AP story, “Florida Quietly Worked Out Deal to Cap Fees in Water Wars” reports that Florida has worked out a deal to cap the amount of money that will be paid to law firms hired to help the state in its long-running water war with Georgia.

Some Republican legislators last year complained about the escalating costs — which began to rise sharply after the state took its case to the U.S. Supreme Court — and initially refused to sign off on any additional payments.

And then last fall, the Florida Legislature quietly signed off on a proposal paring back the cost owed to one of the law firms by about $4 million. Their action will bring the total spent since 2014 on fees and expenses to more than $57 million. That includes a final payment for the hearing held earlier this month before Supreme Court justices. The Associated Press started asking about the deal last December.

Scott defended the cost.

"Throughout this fight, Florida has been, and continues to be, absolutely committed to subjecting every expense to strict scrutiny so that we can make certain that tax dollars are being spent appropriately," the Republican governor said in a statement.

"Let me be clear — this continued battle for equity in water use is critically important to so many communities, marine fisheries and families whose livelihoods depend on a fair system that ensures a healthy Apalachicola Bay. We will never stop fighting for Florida and the thousands of jobs and livelihoods at risk in Apalachicola Bay."

House Speaker Richard Corcoran, who said last year that the state was getting "gouged" by the law firms, did not respond to repeated requests for comment made by phone and email to his office.

The legal battle over water in the Apalachicola, Chattahoochee and Flint river basin has been going on for nearly three decades.

Florida finally sued Georgia in the Supreme Court in 2013, blaming farmers and the booming area around Atlanta for low river flows that harmed the environment and fisheries dependent on fresh water entering the area. Florida portrayed the case as its last chance to "stem Georgia's inequitable consumption" of water from the Chattahoochee and Flint rivers in Georgia, leaving too little by the time the rivers come together and pass into Florida.

The AP reported last year that the state had spent $237 million on private lawyers from the time Scott took office in 2011 until early 2017.

Officials with the Florida Department of Environmental Protection have previously said they scrutinized invoices sent to them by the law firms involved in the water-wars litigation and that they had denied more than $3 million in legal expenses and hourly fees.

Lauren Engel, a spokeswoman for the department, said the agency was "proud of the action" taken to slice $4 million off the fee owed to the firm of Latham & Watkins. Latham & Watkins, a prestigious firm with offices around the world, was hired at the urging of Attorney General Pam Bondi to help with the case before the Supreme Court.

Law Firms Question Expert’s Analysis of Attorney Fees

January 4, 2018

A recent Legal Intelligencer story by Max Mitchell, “NFL Concussion Lawyers Questions Expert’s Analysis of Attorney Fees” reports that several leading law firms in the NFL concussion settlement litigation are taking issue with an expert report that suggested slashing attorney fee recoveries.

More than 10 law firms have filed responses to a December expert report that recommended capping attorney fees.  Attorneys questioning the report’s conclusions included both Chris Seeger of Seeger Weiss and Sol Weiss of Anapol Weiss, who are co-lead class counsel in the litigation that came to a $1 billion settlement with the National Football Association in early 2015.  Most responses from the attorneys questioned the assumptions underpinning the report Harvard professor William Rubenstein issued last month, and some said that capping attorney fees could damage some of the former players’ ability to recover under the settlement.

Seeger’s response, specifically took issue with Rubenstein’s determination that, since the litigation settled relatively quickly, it was reasonable to recommend that the court reject a proposed 5 percent set-aside that would go toward a common benefit fund for class counsel attorneys.  “Any suggestion that class counsel did not invest sufficient time in this litigation to warrant the requested $106.8 million in common benefit fees is simply wrong,” Seeger said.  “Although this may not have been a typical MDL involving extensive discovery bellwether trials, and the like, all kinds of labor, resources, and ingenuity went into resolving this litigation.”

Last year, class counsel asked U.S. District Judge Anita Brody of the Eastern District of Pennsylvania, who is overseeing the litigation, to approve $112.5 million for attorney fees and costs stemming from the settlement, which is intended to compensate about 20,000 former players suffering from concussion-related injuries.  The NFL has agreed to pay the money in addition to the money for the class members.

The fee request included a 15.6 percent rate for attorneys representing claimants directly, along with the 5 percent set-aside that would be paid to the common benefit fund either from attorney fees, if the claimant had individual representation, or from the claimants’ recovery if they were unrepresented.  Rubenstein, who Brody asked to review the fee request, issued a 47-page expert report in mid-December recommending a presumptive 15 percent cap on contingency fees and that the court not adopt the 5 percent set-aside.

Responses largely took issue with the class participation rate Rubenstein used, and said the report did not take into account how vigorously the NFL would contest some of the claimant’s petitions.  A filing by X1Law said attorneys also said that cutting the fees could have a chilling effect on attorneys wanting to represent claimants who have difficult cases.

“Capping attorney’s fees at 15 percent would cut the legs out from under independently retained plaintiff’s attorneys (IRPAs) due to the time and risk involved in this complex and contentious claims process, essentially gutting their ability to represent class members by making the representation financially dangerous,” X1Law attorney Patrick Tighe said in the filing.  “Professor Rubenstein’s proposed cap would severely chill access to IRPAs, limiting IRPA advocacy and oversight, resulting in a lack of oversight in any otherwise dangerous claims process for class members.”

When reached for comment, Tighe said a 15 percent cap on fees would specifically impact players whose symptoms do not presently show up on tests, but may manifest in a few years.  “It’s going to eliminate a vast majority of class members from being able to present a claim,” he said.

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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