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Category: Fee Discovery

Insurer Fights Fee Discovery in Texas

February 22, 2017

A recent Law 360 story by Michelle Casady, “Texas High Court Told to Nix Attys’ Fee Discovery Ruling,” reports that National Lloyd's Insurance Co. urged the Texas Supreme Court to upend a lower court ruling compelling discovery of its attorneys’ fee information in litigation with property owners who allege the insurer underpaid their damage claims, contending that information is privileged.

The justices heard arguments on whether National should be able to keep that fee information under wraps — a fight that stems from four property insurance cases in which the property owners argued they had been shortchanged on claims following two hailstorms in Hidalgo County, Texas, in March and April 2012.

Scot Doyen, arguing on behalf of the insurer, told the court that siding with the property owners would “add layers of complexity to an area of the law that is otherwise clear and workable,” that the information sought is privileged and that the “relational nature” of fee consideration renders its fees irrelevant.  Such fees hinge on "the relationship between the party and the lawyer, not the relationship between the party and the other party,” he told the court.  “It is relational to that specific lawyer to client relationship," Doyen said.

Arguing on behalf of the insured property owners, Jennifer Bruch Hogan rejected the notion that an opposing counsel's fee information, including hourly rates and total hours billed, is “patently irrelevant,” though she said the tasks themselves may be privileged information subject to redaction.

“The second point I want to make is that the defendants have voluntarily designated their lead trial lawyer as a testifying expert, and not as a testifying expert on their own attorneys' fees, but as a testifying expert who can challenge the plaintiffs' attorneys' fees as unreasonable and unnecessary,” she also told the court, adding that the arrangement had put the case in "an unusual posture." 

In its petition for writ of mandamus filed with the state high court in August 2015, National argued that a defendant's fees are irrelevant, and that there are other methods in place — including the lodestar method and Arthur Andersen factors — that can be used without compelling a party to turn over rate and fee information it argues is privileged.

National's petition said the Thirteenth Court of Appeals decision caused a split among state appellate courts over whether a plaintiff can discover a defendant's attorneys' fee information, which it said is reflective of a split in other state and federal courts as well.  It said that the state high court has never adjudicated the issue and the Thirteenth Court erroneously relied on Chief Justice Nathan Hecht's concurring opinion in the 2012 case El Apple I v. Olivas in justifying its holding that the fee information is both relevant and discoverable.

As part of the underlying legal battle, the property owners were seeking damages and attorneys' fees on their breach of contract and Texas Insurance Code claims, according to court documents.  The cases were consolidated with thousands of others in a multidistrict litigation in Texas, and special master Roberto Ramirez was appointed to resolve any disputes.  In March 2015, according to the petition, the property owners in this case moved for additional discovery on attorneys’ fee information, including rates, invoices, payments and audits.  The insurers objected.

In April 2015, the special master permitted the additional discovery, which resulted in requests for the information being served to National Lloyds, Wardlaw Claims Service Inc. and Ideal Adjusting Inc., which objected to the requests.  After a hearing, the special master overruled each objection, according to the petition, and an appeal to the Thirteenth Court of Appeals followed.

The case is In re: National Lloyds Insurance Co et al., case number 15-0591, in the Supreme Court of the State of Texas.

Legal Bills Not Fully Protected by Attorney-Client Privilege in California

January 12, 2017

A recent law.com story, “Decision on Attorney-Client Privilege Spooks Defense Bar,” reports that a closely divided California Supreme Court limited the protection afforded to legal bills under the attorney-client privilege when those bills are sent to government entities and sought under the state’s Public Records Act.

The court ruled 4-3 that a law firm’s invoices to a government agency are exempt from disclosure only when they pertain to active matters.  Just how a big a chink that cuts in the privilege for legal bills generated outside government representation isn’t immediately clear.

“That’s the $1 million question,” said Steven Fleischman, a partner at Horvitz & Levy.  “Are courts going to find this decision only applies to public records cases?  Or are they going to read it as saying attorney bills are no longer privileged once the case ends.  I certainly hope it’s the former.”

In a vigorous dissent, Justice Katheryn Werdegar scolded her colleagues for undermining a “pillar of our jurisprudence” by finding that legal bills aren’t universally shielded by attorney-client privilege and accused the majority of twisting California’s Evidence Code to “discover a heretofore hidden meaning.”  “The majority’s decision … is unsupported by law,” she wrote.

In a somewhat unlikely alliance, the court’s majority opinion was written by Justice Mariano-Florentino Cuéllar and joined by Ming Chin, Goodwin Liu and Leondra Kruger. Cuellar, Liu and Kruger are the court’s three newest justices; all graduated from Yale Law School and were appointed by Gov. Jerry Brown.  Chin, generally seen as a conservative voice on the court, has held his seat for 20 years.  Werdeger’s dissent was joined by Carol Corrigan and Chief Justice Tani Cantil-Sakauye.

Cuéllar acknowledged that the disclosure of a law firm’s billing records in an active case may reveal clues about legal strategy but rejected a categorical protection.  To be privileged, he wrote, a communication must be made for the purpose of legal consultation.

“While invoices may convey some very general information about the process through which a client obtains legal advice, their purpose is to ensure proper payment for services rendered, not to seek or deliver that attorney’s legal advice or representation,” Cuéllar stated.

The ruling in Los Angeles County Board of Supervisors v. ACLU of Southern California reverses a decision by the Court of Appeal finding that invoices sent to the County of Los Angeles by law firms in connection with excessive force suits on behalf of jail inmates are exempt from disclosure.  All the matters have now been resolved.  Among the Southern California law firms that represented Los Angeles County were Hurrell Cantrall; Collinson Law; Collins Collins Muir and Stewart; and Lawrence Beach Allen and Choi.

“We’re pleased that the majority of the court adopted an interpretation that protects the public’s access to information documenting the large amount of money spent by government agencies on outside law firms,” Rochelle Wilcox of Davis Wright Tremaine, an attorney for the ACLU, said in a written statement.

The ACLU filed a petition in 2013 seeking invoices submitted to the county by outside firms based on its assertion that those firms engaged in a “scorched earth” litigation policy, dragging out cases even when a settlement was likely.

The ACLU’s petition was granted in 2014.  The Second District Court of Appeal reversed finding the proper inquiry should not consider whether a communication contained an attorney’s advice, but whether an attorney-client relationship exists and whether the communication was transmitted confidentially.

In its ruling, the Supreme Court’s majority took a middle path, distinguishing between invoices related to pending litigation and those related to closed matters.  The critical factor, Cuellar wrote, “is the link between the content of the communication and the types of communication that the attorney-client privilege was designed to keep confidential.”

The majority took pains to portray its reasoning as consistent with the court’s 2009 decision in Costco Wholesale Corp. v. Superior Court, which said that the retailer did not have to turn over any portion of an advice letter issued by its lawyer that contained both confidential and non-confidential information.

But Werdegar found the exercise unconvincing, saying the majority “strains to distinguish Costco, unconvincingly suggesting that when an attorney bills a client for legal services rendered, he or she steps outside the role of a lawyer and into the role of an accountant.”

Jennifer Henning, who submitted an amicus curiae brief on behalf of the California State Association of Counties and the League of California Cities, said the decision’s basic holding that billing records are not subject to disclosure during pending litigation is largely what her group proposed.  “That’s really helpful because those billing records do reveal a litigation strategy, while private parties don’t have to do that,” she said.

However, Henning said the ruling is not entirely clear in its application to non-litigation circumstances and how the privilege status of a particular item changes over time.

Fleischman, who filed an amicus brief backing the county for the Association of Southern California Defense Counsel, said his group is happy with the core holding that legal bills are shielded from exposure during active litigation.  As for whether the decision will have impact outside public records requests, Fleischman said “I think we just have to wait and see how that plays out.”

Hotel Booking Sites in $43M Fee Dispute with Texas Municipalities

November 11, 2016

A recent Law 360 story, “Travel Sites Say Their Attys Don’t Owe Texas Cities Info,” reports that a group of hotel booking sites fired back at a class of Texas municipalities seeking information from their lawyers in a $43 million fee fight, saying they have no bearing on the struggle over whether the fee request is “reasonable.”

The 10-year fight between online travel companies and Texas municipalities in a suit alleging the companies failed to pay the full amount of hotel occupancy taxes owed to the cities moved on to fees in July, with class counsel asking for $43 million, based on a $10.8 million lodestar.  As part of the dispute over fees, the municipalities asked the companies’ lawyers to pony up information about how much they had charged, but the companies objected.

The response is the latest layer in a procedural battle over subpoenas that were sent to firms representing the defendants, as the companies seek to convince the judge to place an emergency protective motion on the request.  The response said that discovery is not normally allowed in fee disputes, and the information the subpoenas seek is not relevant to resolving the dispute, anyway.

“The non-party law firms are not parties to this litigation, nor do those firms have any appearances on file in this case,” the response said.  “The mere fact that defendants are represented by individual attorneys who are affiliated with some (but not all) of the non-party law firms does not make the non-party law firms parties to this litigation.”

Lead plaintiff San Antonio, which according to the award application contracted to pay lead counsel a 30 percent contingent fee, initially filed the suit in 2006, alleging that online travel companies such as Hotels.com and Expedia Inc. failed to remit the full amount of hotel occupancy taxes owed to the cities under local ordinances.

The requested fee award of more than $43 million is reasonable in light of lead counsel’s 30 percent contingent fee agreement, counsel argued, saying “the simple mathematics of the fee counsel bargained for in light of the now-known magnitude of the recovery demonstrates the severe inadequacy of the base lodestar as a reasonable fee.”

Gary Cruciani, counsel for San Antonio, told Law360 that the procedural nature of the dispute over fees has become “the tail wagging the dog,” as Texas law allowed for them to seek the fee and it was reasonable to seek the amounts charged by the OTCs' attorneys when trying to establish an hourly rate.

U.S. District Judge Orlando L. Garcia entered the amended final judgment in the case in April, a decade after the city of San Antonio originally sued 11 companies.  The booking companies had argued they were essentially a conduit for consumers to compare and book rooms and were required to collect and pay tax only on the rates charged by hotels for the rooms, not the actual rates charged to consumers, according to court filings.

Judge Garcia had ordered the companies to pay $56 million in 2013, and the final judgment reflected further proceedings on the application of the Texas tax laws with respect to a 15 percent penalty for underpaid taxes as well as interest that had accrued in the meantime.  The class of municipalities on May 12 said they will appeal the calculation of penalties and interest to boost the $84 million win.

The case is City of San Antonio, Texas, et al. v. Hotels.com LP, case number 5:06-cv-00381, in the U.S. District Court for the Western District of Texas.

Xerox Attorneys Ordered to Disclose Hourly Rates in Fee Dispute

October 24, 2016

A recent Bloomberg BNA story, “In Attorneys’ Fees Dispute, Xerox Ordered to Disclose What It Pays Attorneys,” reports that a federal judge recently ordered Xerox to tell the court how much it paid its attorneys in a long-running ERISA lawsuit. 

In Frommert v. Conkright, 2016 BL 347641, W.D.N.Y., No. 6:00-cv-06311-DGL-JWF, 10/19/16, Judge David G. Larimer ordered Xerox, in a 16-year-long lawsuit brought by Xerox workers challenging the way Xerox calculated their pension benefits, to disclose in a sealed statement to the court the hourly rates it paid its attorneys.  The judge said this was to help the court determine if the contested amount the plaintiffs requested in fees was reasonable. 

In January, the court ordered Xerox to recalculate the workers’ benefits after a case that went through the district court, Second Circuit Court of Appeals and the U.S. Supreme Court. 

Xerox subsequently objected to the workers’ request for attorneys’ fees based on hourly rates of between $250 and $675, arguing that an hourly rate of more than $300 for partners and $200 for associates would be unreasonable. 

However, Robert W. Rachal, a defense-side ERISA attorney with Proskauer Rose LLP in New Orleans, told Bloomberg BNA Oct. 21, “Defense work is not always a good comparison because of the difference in work involved, e.g., defendants typically have far more burdensome obligations in discovery.” 

The plaintiffs argued that the rates charged by the defense firms that have worked on the case—Nixon Peabody, Littler Mendelson and Covington & Burling—far exceeded the $300 per hour rate that Xerox contended was the proper top rate for plaintiffs’ attorneys. 

Defendants criticized the plaintiffs for using law firms outside of the Rochester, N.Y. area, but the judge said in his order, “It does not appear to be unreasonable for plaintiffs to have used a `national’ firm with particular experience in ERISA litigation, considering the issues involved and the legal expertise arrayed against them on the other side.  Plaintiffs contend that they sought Rochester-area lawyers, and that not one attorney or firm was willing to take their case.” 

In ordering this disclosure, the court said that information regarding attorney's fees and fee arrangements is generally not privileged. 

The court ended its order by saying that if Xerox chooses not to provide this information within the required 15 days, the court may proceed with the evidence that has already been presented, coupled with the court's own understanding of legal billing rates based on its 30 years' experience in dealing with such issues. 

According to the court, the evidence of fees presented to the court includes a report by the National Law Journal concerning fees billed by the largest law firms in the country.  “This is a well-known publication that is recognized throughout the legal profession,” the court said, indicating that it could go by those rates. 

In the article, Littler Mendelson had told the National Law Journal that the average billing rate of its partners was $550 per hour, with some partners charging as much as $615 per hour. In that same article, Covington & Burling stated that its average rate for partners was $780 per hour.

Some Fee Discovery to Remain Public in Fee Dispute Case

September 21, 2016

A recent Legal Intelligencer story, “In Offit Kurman Fee Dispute, Some Discovery to Remain Public,” reports that, in a fee dispute involving a Philadelphia lawyer it dismissed in 2012, Offit Kurman has been allowed to file certain information regarding the firm under seal, but was not granted the blanket seal on discovery materials it sought.  The firm is facing allegations that it failed to comply with its promise to pay origination fees to an attorney after he left the firm.

Attorney Kevon Glickman filed a lawsuit against Offit Kurman earlier this year in the Philadelphia Court of Common Pleas alleging conversion and breach of contract, among other claims.  As the result of an order entered Sept. 14, future filings in the case relating to trade secrets and internal communication at Offit Kurman will be sealed.  But the firm's motion for a protective order was not granted in full.

Glickman, who is representing himself, has said that when he was fired from Offit Kurman in 2012, the firm promised him a 25 percent origination fee on any future revenue the firm received from clients Glickman brought in.  But, his complaint alleges, the firm failed to live up to that agreement by avoiding payment of the fees from client Joan Pendergrass.  Glickman began representing Pendergrass, the widow and estate administrator of deceased R&B singer Teddy Pendergrass, in 2010 in a will contest against Teddy Pendergrass' son.

Offit Kurman has contended that its origination fee agreement with Glickman was not in effect until July 2015.  And since the complaint was filed, Offit Kurman has completed its payment of the full 25 percent fee, the firm said.

Glickman has acknowledged that he received payments from the firm, but said he continues to seek damages based on his claims.  His complaint also alleged that he was underpaid.

According to a memo Glickman filed, he joined Offit Kurman in 2010, and the 25 percent origination fee was included in his incentive package.  According to the filing, when Glickman was fired in October 2012, the firm said in a letter that it would continue to pay Glickman 25 percent of billings on clients he originated, including fees collected after he left the firm.

According to the complaint, managing partner Theodore Offit presented Glickman with an agreement on his last day at the firm, which said Glickman would receive 25 percent billing for clients he originated.  Glickman signed the agreement that day, the complaint said, but did not begin getting payments until nearly three years later.

He pressed the firm a number of times for payment, the complaint alleged.  First, the firm said it would pay him monthly, then it said he would be paid quarterly, the complaint said. Glickman contends Joan Pendergrass was paying Offit Kurman a fixed fee each month after Glickman left the firm, but he received none of that money either monthly or quarterly until late 2015.

In February 2015, the complaint said, the firm told Glickman that they reviewed his file and found he had no right to post-employment fees.  Glickman then threatened to sue, the complaint said, and Offit allegedly said he reviewed the file again and found an agreement to share fees.  After that, the two signed another agreement, which Glickman said was the fourth he signed, and Offit informed Glickman that Pendergrass, as the client, would also have to consent to the agreement in writing, according to court documents.

"In September of 2015, after being forced to incur legal fees as well as enduring embarrassment and humiliation before Pendergrass and [Pendergrass' attorney Helen] McCrary to enforce the agreement, Glickman finally received a payment," the complaint said.

Glickman alleged conversion, breach of fiduciary duty, fraud, misrepresentation and promissory estoppel by Offit Kurman.

In response, the firm filed preliminary objections, calling Glickman's complaint "grossly over-pleaded."  Two counts of the amended complaint were dismissed as a result.

In a memorandum supporting the preliminary objections, the firm said the agreement was not executed until June 2015.  It required the client's consent in order to comply with the fee-sharing agreement, the memo said, and that was not given until July 2015.

"This is a classic example of attempting to transform a breach of contract action into a tort action in an effort to pursue additional damages, such as emotional distress, punitive damages and unspecified sanctions," the memo said.