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Category: Fee Caps / Fee Limits

Judge Erred By Limiting Attorney Fees in Probate Matter in California

September 7, 2018

A recent Metropolitan News story, “Judge Erred By Limiting Fee to 10 Percent of Minors’ Recovery,” reports that the law firm founded by veteran personal injury Ian “Buddy” Herzog was shortchanged by a Los Angeles Superior Court who awarded it only 10 percent of the $18 million settlement it negotiated for its minor clients, despite a contingency fee agreement calling for 40 percent, the Court of Appeal for this district has held.

The unpublished opinion was filed Wednesday.  In it, Presiding Justice Frances Rothschild of Div. One noted that under Probate Code §3600 and §3601, a court, in approving the compromise of a minor’s claim, must determine what are “reasonable” attorney fees, and pointed to California Rules of Court, rule 7.955, which sets forth guidance for trial judges in determining reasonableness.  A 10 percent fee, she said, was unreasonable in light of the contingency fee agreement, the risk the company took in taking the case on a contingency basis, and other factors.

Herzog, Yuhas, Ehrlich & Ardell of Santa Monica represented the wife and four minor children of Rainer Schulz in a wrongful death suit, after the wealthy German businessman crashed his Cessna 750 jet while attempting to land at a small German airport.  The action against various companies was brought on a products liability theory.  Los Angeles Superior Court Judge William F. Fahey apportioned $1 to Schulz’s widow, Silke Schulz, and the remainder of the $18,125,000 to the couple’s four minor sons.

He did not credit the contingency fee agreement which the widow and the chief executive of a company the Schulzes owned negotiated with the Herzog firm.  Under it, the firm was to receive 31 percent of the proceeds if the case were settled at least 30 days before trial and 40 percent after that point.  Although settlement came a few days before trial, the Herzog firm indicated its willingness to accept a 31 percent share.

Fahey said:  “Turning to the issue of attorney’s fees, the Court is not bound by a contingency agreement when considering the best interests of the minors.  Attorney fees must be carefully scrutinized and adjusted if warranted.  Here, the attorneys hired by Silke did a good job in investigating this case.”  He added:“But paying these attorneys their requested $5 million in fees out of the settlement proceeds would be excessive, to the substantial detriment of Rainer’s sons and contrary to this Court’s duty [to] assure that no injustice is done to them.”

Two of the Schulzes’s sons have permanent disabilities as a result of being born prematurely.  Rule 7.955(a)(2) sets forth: “The court must give consideration to the terms of any representation agreement made between the attorney and the representative of the minor.…”

Rule 7.955(b) lists 14 non-exclusive factors for courts to consider when determining what fee will be reasonable, including the amount of the fee in proportion to the value of services, the experience of the attorney and the amount of time and labor involved.

Rothschild declared: “We conclude the trial court gave too little consideration to California Rules of Court, rule 7.955(a)(2).…In addition, the court did not acknowledge the factors listed in California Rules of Court, rule 7.955(b).  Although these factors are not mandatory, they provide a guide to the considerations relevant to determining whether a fee protects the interests of a minor while allowing an attorney to obtain a fair recovery.”

She continued: “All of these factors support a recovery greater than 10 percent.  One of the two attorneys who primarily worked on the case, Ian Herzog, had 47 years of experience in aviation accident cases, and the other, Thomas Yuhas, had 37 years of experience.  Both attorneys also have many years of experience as pilots, which undoubtedly gave them insight as to the causes of the crash.  In this case, both sides agree that the risk of loss was substantial.  When viewed from the perspective of the time it was signed, the representation agreement thus realistically evaluated the high risk that there could be no recovery at all or one substantially lower than was achieved.”

She noted that the firm advanced more than $300,000 in costs.  In determining the potential for a minor being taken advantage of, the rule counsels, the court should look to the “relative sophistication of the attorney and the representative of the minor.  Rothschild said that Silke Schulz is a highly sophisticated executive who took over the company after her husband’s death.  And who made an informed decision to enlist the services of a firm willing to take the case on a contingency basis.

The jurist noted that rule 7.955 had superseded prior local rules setting the baseline contingency award for minor clients, often at 25 percent.  She drew an analogy to class action attorney fee awards, which have a 25 percent starting point in the Ninth U.S. Circuit and some California courts.  She wrote: “We acknowledge that what is reasonable in applying the factors in California Rules of Court, rule 7.955 in any particular case may comprise a range of percentages.  Under the facts of this case, however, 10 percent was not within that reasonable range.  Although the trial court would be acting within its discretion to award less than 31 percent, we note that 31 percent is not out of line with awards in class actions, which, like this case, involve attorney fees to be paid by a protected class and that require court approval.”

The case is Schulz v. Jeppesen Sanderson, Inc., B277493.

Fee Agreement Issues in Opioid Litigation in Some Texas Counties

August 23, 2018

A recent Forbes story by Daniel Fisher, “Lawyers for Texas Counties in Opioid Cases May Not Have Valid Contracts, reports that a number of Texas counties including Montgomery County, a sprawling suburb north of Houston, may have invalid contracts with their outside lawyers because they haven’t been approved by the Texas Comptroller as required under state law.  More than a dozen counties represented by the law firms Haley & Olson and Harrison Davis Steakley Morrison Jones filed suit without first obtaining the Comptroller’s approval for their contingency fee contracts.  Months later, those contracts still haven’t been approved, possibly putting the suits in peril.

In a 2012 decision involving similar litigation by counties over the mortgage crisis, a federal court stated the requirements under Texas law “must be satisfied before a Texas county can retain outside counsel on a contingency fee basis.”  In another decision that year, a Texas state court judge declared the contract between Harris County and its contingency fee lawyers void because it hadn’t been approved.

Texas passed extensive reforms to its rules on hiring outside lawyers starting in 1999, after private attorneys caused a political uproar by collecting $3.3 billion in fees for representing the state in its lawsuit against the tobacco industry.  Former Texas Attorney General Dan Morales ultimately went to prison for illegally attempting to divert $500 million of those fees to a friend.

The new rules in Texas included a maximum contingency fee of 35%, strict requirements for keeping time and expense records, and a hybrid method of calculating fees that includes a “base fee” determined by actual hours worked times a multiplier of up to four to reflect the risk of taking on the case.  The final fee charged to the government must be the lower of the percentage of the award or the base fee and multiplier, and the fee can only reflect work done by partners and employees of the contracting firms.

Texas legislators were concerned about the possibility of excessive fees and political payoffs in the wake of the scandals surrounding the tobacco litigation and Morales’ criminal trial, said Charles Silver, a professor at the University of Texas Law School and prominent legal affairs expert.  Most trial lawyers in Texas are Democrats and the governor at the time was George W. Bush, a Republican.  “The legislature was dominated by Bush and the Republicans, and they just didn’t want to be supporting plaintiff attorneys who were supporting the Democratic party,” Silver said.

Regardless of the motivating factors, comptroller approval and billing records are the law in Texas, and even considered public records.  Montgomery County’s lawyers seem to agree: The contract says they will comply with Section 2254.104(a) of the Texas Government Code, including maintaining “current and complete written time and expense records” that will be available to county or state officials “at any time upon request.”

Despite this requirement, Montgomery County Assistant District Attorney John J. McKinney, in an Aug. 14 letter, said “no documents exist that are responsive” to a request for billing records.  It’s not surprising counties might balk at complying with the recordkeeping requirements of Section 2254, Silver said.  “Lawyers don’t like others knowing how much time and effort they’re expending, whether on the plaintiff or defense side,” he said.

The hours compiled to calculate the base fee could be an issue in opioid litigation, however.  Unlike many lawsuits in which a law firm represents a single government entity suing over a single claim, opioids law firms have bundled large numbers of municipal clients and are working closely with national law firms that control the federal multidistrict litigation in the court of U.S. District Judge Dan Aaron Polster in Ohio.

One sign of the cooperation among law firms is Montgomery County’s lawsuit, filed Dec. 13 in federal court in Houston.  It is an almost word-for-word copy of the lawsuit filed by three different law firms, including Dallas-based Simon Greenstone, on behalf of Bowie County more than two months before.

A close examination of the billing records might reveal how much time Montgomery County’s lawyers spent in the early stages of the litigation, and whether that is justified given evidence they used a borrowed complaint.  The other 12 counties might also want to compare their base fee calculations with each other to make sure their lawyers aren’t double-billing hours across the entire group.

Other Texas counties including Dallas and Harris have obtained Comptroller approval of their contracts.  And an attorney retained by Clay County (another client of Haley & Olson and Harrison Davis Steakley Morrison Jones) said they would submit the contract to the state during a January meeting when Clay County Commissioners Court approved hiring the firms. Clay County’s contract has not yet been approved.

The stakes for the counties could be high if defendant companies challenge the status of their representation.  When private lawyers representing several Texas counties attempted to assemble a statewide class action in litigation against Merscorp, a mortgage registry, the federal judge who examined Texas law said it wasn’t possible because each county needed the Comptroller’s approval before joining the class.  Under the law of the Fifth Circuit, which includes Texas, so-called “opt-in” class actions aren’t allowed under Rule 23 of the Federal Rules of Civil Procedure.

The Texas judge who declared Harris County’s contract with private lawyers void nevertheless allowed the case to proceed because the complaint was also signed by the county attorney’s office. Montgomery County’s complaint is signed only by the private lawyers.

Class Counsel Awarded $22M in Expenses in $2B Forex Deal

August 20, 2018

A recent Law 360 story by Dean Seal, “Class Counsel in $2B Forex Deal Awarded $22M in Expenses,” reports that a New York federal judge awarded nearly $22.5 million to an investor class' counsel for litigation expenses incurred in a $2.3 billion settlement resolving claims that 15 banks colluded to rig benchmark exchange rates in the foreign exchange markets.

U.S. District Judge Lorna G. Schofield said class counsel - Scott & Scott Attorneys at Law LLP and Hausfeld LLP - had burned through more than $17 million on experts and consultants alone in achieving the eye-popping settlement, which received final approval on Aug. 6.  The remainder went toward managing documents, creating and maintain databases, travel and meals, she said.  “Such expenses were necessary and/or fair and reasonable in light of the work performed and results achieved in the settlement agreements,” Judge Schofield said.

The fee award is in keeping with promises from class counsel that it would not seek more than 18 percent of the $22.3 billion settlement for attorneys' fees and expenses, the judge said.  Scrutiny from Judge Schofield and fee objectors had hindered final approval of the settlement, leading the pair of co-lead attorneys to argue in May that the percentage was warranted because their teams engineered a stellar result by leveraging early settlements and finding new claims to add.  An order on the attorneys’ fee award has not yet been filed, according to court records.

Final approval of the settlement earlier this month dispatches the allegations against 15 of 16 banks — which include Bank of America Corp., Barclays Bank PLC, BNO Paribas, Citigroup Inc. and Morgan Stanley, among others — accused by retirement plan participants in a June 2015 proposed class action of manipulating the benchmark rates used in foreign exchange transactions involving millions of dollars' worth of their plan assets.

Most of the settlement comes from a $2 billion deal investors wrangled in December 2015 with nine of the 16 accused banks.  Five more agreed to pay $111.2 million in a settlement that received initial approval in September, the same month that Deutsche Bank AG consented to its own $190 million settlement.  The lone holdout, Credit Suisse, is still battling the investors’ class certification bid.

The massive settlements are rooted in putative investor class actions filed amid investigations into the banks' foreign exchange trading activities, which revealed traders inside the banks had conspired to rig the $6 trillion foreign exchange market from at least 2007 to 2013.  Several of the banks ultimately forked over billions of dollars in fines after pleading guilty to criminal antitrust violations.

The suit is In re Foreign Exchange Benchmark Rates Antitrust Litigation, case number 1:13-cv-07789, in the U.S. District Court for the Southern District of New York.

Law’s $1,000-Plus Hourly Rate Club

July 23, 2018

A recent Wall Street Journal story by Vanessa O’Connell, “Big Law’s $1,000-Plus an Hour Club,” reports that leading attorneys in the U.S. are asking as much as $1,250 an hour, significantly more than in previous years, taking advantage of big clients' willingness to pay top dollar for certain types of services.  A few pioneers had raised their fees to more than $1,000 an hour about five years ago, at the peak of the economic boom.  But after the recession hit, many of the rest of the industry's elite were hesitant, until recently, to charge more than $990 an hour.

While companies have cut legal budgets and continue to push for hourly discounts and capped-fee deals with their law firms, many of them have shown they won't skimp on some kinds of legal advice, especially in high-stakes situations or when they think a star attorney might resolve their problem faster and more efficiently than a lesser-known talent.  Harvey Miller, a bankruptcy partner at New York-based Weil, Gotshal & Manges, said his firm had an "artificial constraint" limiting top partners' hourly fee because "$1,000 an hour is a lot of money."  It got rid of the cap after studying filings that showed other lawyers surpassing that barrier by about $50.

Today Mr. Miller and some other lawyers at Weil Gotshal ask as much as $1,045 an hour.  "The underlying principle is if you can get it, get it," he said.  "Not many attorneys can command four figures hourly, and I do have trouble swallowing that," said Thomas L. Sager, general counsel at chemical maker DuPont Co. Still, he added, DuPont pays more than $1,000 an hour to a "select few," particularly for mergers-and-acquisitions advice.

Janine Dascenzo, associate general counsel of General Electric Co. said that her company is willing to pay what it must when it needs a lawyer with "unique" expertise.  "We'll keep paying them a lot of money, because they're worth that," she added.  Industrywide, attorneys in finance-related practices such as M&A, bankruptcy law and taxes, tend to command a premium to their peers in other specialties.

One of the priciest attorneys over the past year, according to court filings, has been Kirk A. Radke, whose specialty at Kirkland & Ellis LLP in New York is advising clients on leveraged buyouts and forming private-equity funds.  As of early 2010, Mr. Radke, whose clients include private-equity firm Avista Capital Partners, had an hourly fee of $1,250.  Mr. Radke and Kirkland & Ellis declined to comment, as did Avista Capital.

Such rates are contributing to inflation across the $100 billion-a-year global corporate-law industry as the slow economic recovery has left many law firms struggling to finance the hefty pay packages they award their stars.  Since most law partners bill roughly 2,000 hours, those asking $1,100 hourly will bring in $2.2 million, a few million short of the $3 million or $4 million in annual compensation star attorneys get at many big firms.

To help fill the gap, the firms rely on the profit they often reap on the work of junior attorneys, or associates.  Dozens of associates at a time can work on a single case, and some firms bill as much as $700 an hour for their time, according to Valeo Partners, a Washington consulting firm that maintains a database of hourly legal rates in fields such as litigation, corporate law and intellectual property.  That strategy can fuel tensions with clients. "We are much less willing to pay an army of associates at the ever-increasing rate," said GE's Ms. Dascenzo.

"Plenty of clients say to me, 'I don't have any problems with your rate,' " said William F. Nelson, a Washington-based tax partner at Bingham McCutchen, who commands $1,095 an hour, up from $1,065 last year.  "But there is price pressure for associates, especially junior lawyers.  A small but growing number of top lawyers are using other arrangements in place of hourly billing.  David Boies, chairman of Boies, Schiller & Flexner and a prominent trial lawyer, charges $960 an hour, a spokeswoman for the firm said.  But just a third of his time is devoted to matters that are billed hourly.  More often his deals with clients involve alternatives such as pegging fees to his success, she said.

More typically, big law firms' managing partners dictate hourly rates annually, often studying what their rivals charge, according to disclosures in their attorney-fee filings in corporate-bankruptcy cases, which provide a rare public peek at the industry.  Such cases involve more than just bankruptcy lawyers; they frequently draw in a range of attorneys, including specialists in such areas as taxes, product liability and environmental and intellectual-property law.

This year, top litigators at Morgan, Lewis & Bockius LLP, a Philadelphia-based firm, are asking as much as $1,200 an hour.  A spokeswoman for the firm said "less than 1% of our partners are at rates of $1,000 or more."  Gregory B. Craig, a former counsel to the Obama White House who joined Skadden, Arps, Slate, Meagher & Flom LLP a year ago as a Washington-based litigation partner, is asking $1,065 an hour, according to a court filing last month.

M&A lawyer John M. Reiss, from White & Case in New York, started billing $1,100 an hour last year.  "Some clients do focus on the hourly rate, but in the end what really matters is their total cost and whether they got a fair price," said Mr. Reiss.  In recent years, pressure from clients for discounts has made it increasingly difficult for law firms to increase their lawyers' fees across the board.  Hourly rates for partners rose by an average 3% in 2009 and 2010, and 2.3% this year, compared with an 8% increase in 2008, according to Hildebrandt Baker Robbins.  The average law-firm partner now asks $635 an hour and bills $575, the firm said.  But a small group of attorneys in some specialties command significantly more.

Nearly 2.9% of partners at a group of 24 large U.S. and British law firms asked for $1,000 an hour or more in U.S. cases last year, up from 1.5% in 2009, according to Valeo.  London-based lawyers have tended to charge higher per-hour rates than their U.S.-based counterparts.  However, London attorneys typically don't bill as many hours on a case as do U.S. attorneys, some lawyers say.

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.

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...

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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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