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Category: Fee Discovery

Wells Fargo Must Face Claim It Inflated Attorney Fee Request

June 19, 2019

A recent Law 360 story by Nathan Hale, “Wells Fargo Must Face Claim it Inflated Atty Fee Request,” reports that a Florida trial court erred in finding that borrowers could not sue Wells Fargo for expenses they allegedly incurred as a direct result of the bank "grossly" inflating its attorney fees claim after suing them for a loan default, a state appeals court said.  In its opinion, the Third District said the lower court's dismissal appeared to be the result of confusion over the issues and that Florida law clearly allows borrower 345 Carnegie Avenue LLC and loan backers Vladimir Galkin and Yakov Baraz to seek damages if the bank made an inaccurate fees claim.

"The hearing transcript reveals that the trial court conflated the issue of whether Wells Fargo was entitled to attorney's fees based on appellants' stipulated default on the loan documents, with the different issue of whether Wells Fargo's estoppel letter was inaccurate causing consequential damages to appellants," the appeals panel said. "It is clear to us that this confusion resulted in the dismissal of a cognizable claim."  The Third District said it was not weighing in on whether the borrowers could prove that Wells Fargo Bank NA breached their loan documents and Florida's covenant of good faith and fair dealing, but it said that at this stage in the litigation, the court must accept their allegations as true.

The dispute stems from a 2007 loan issued to 345 Carnegie by Wells Fargo's predecessor, Wachovia Bank.  The borrowers did not contest Wells Fargo's March 2014 claim that they committed several nonmonetary defaults, but they disputed the bank's claim that they also owed it more than $100,000 in attorney fees in connection with its enforcement and collection of the note, according to the opinion.  The borrowers claimed that amount was grossly inflated and inaccurate, but the bank refused to provide further proof justifying it, citing attorney-client privilege, the opinion said.

The borrowers attempted to pay the roughly $1.2 million amount the bank had demanded aside from the $100,000 in legal fees, but Wells Fargo refused to accept it.  As a result, the borrowers filed suit in May 2014 to try to prevent the bank from collecting on the note and foreclosing on a mortgage on commercial property owned by 345 Carnegie that partially secured the loan.  Wells Fargo filed a counterclaim, the borrowers stipulated to their liability on the loan default, and the trial court entered a partial final judgment in Wells Fargo's favor and released funds it was holding to the bank to cover those claims.  The court said it would rule separately on the reasonableness of the attorney fees claim, the opinion said.

In a second amended complaint, filed in October 2017, 345 Carnegie, Galkin and Baraz claimed that the fees dispute had caused them monetary damages because they were unable to refinance or sell the mortgaged property securing the loan, according to the opinion.  The trial court subsequently granted Wells Fargo's motion to dismiss that claim for failure to state a claim.

But the appeals court said the damages the borrowers claim they suffered as a result of Wells Fargo's deliberately inflating its fees request were separate and distinct from the question of their being required to pay attorney fees to the bank, and there is "little doubt" that Florida law recognizes such a claim.

State law requires a mortgage lender to provide the borrower with a written estoppel letter detailing not only the unpaid balance of the loans secured by the mortgage but also "any other charges properly due under or secured by the mortgage," the court pointed out.  And the legislature "expressly contemplated" a cause of action rising out of that obligation, including a line in the relevant statute that a prevailing party in a civil action arising from that section of law is entitled to attorney fees and cost, the opinion said.

US Trustee: You Can’t Seal Attorney Fees in Chapter 11

April 24, 2019

A recent Law.com by Rose Krebs, “US Trustee Says White Eagle Can’t Keep Fee Bids Sealed,” reports that the Office of the U.S. Trustee told the Delaware bankruptcy court that insurance policy investor White Eagle Asset Portfolio LP should not be allowed to file under seal the fees to be paid to a special litigator the company wants to retain in its Chapter 11 to handle some insurance disputes.  The trustee asserts White Eagle has failed to show that information relating to compensation to proposed special counsel Reed Smith LLP is “protected as confidential commercial information” under bankruptcy code and should not be made public so that "creditors and other parties of interest" can review the fees.

“If such relief is granted, it would effectively mean that almost any objection a creditor or other party in interest may have to Reed Smith’s compensation would have to be made now, as an objection to the retention application, rather than upon review of Reed Smith’s fee applications,” the objection said.  And objecting to the fees is not possible now because the fees are unknown since they were filed under seal, the trustee asserted.  “Retention applications of all kinds, with all sorts of financial arrangements, are routinely filed in bankruptcy cases without any portion of them being sealed.  There is no reason to make an exception in this instance,” the objection said.

Last month, in a motion that was redacted in parts, White Eagle said it wanted to hire Reed Smith as special litigation counsel as the firm represents White Eagle’s nondebtor parent Emergent Capital Inc. in some insurance disputes and “may represent the debtors to the extent they have any claims.”  Compensation information was redacted in the motion, and White Eagle filed a separate motion asking the court to keep under seal terms of Reed Smith’s proposed deal claiming they include “sensitive commercial information” that is protected from having to be released per bankruptcy code.

“In light of the contentious nature of the litigation disputes the firm is handling, it is of critical importance to the debtors that the details of the fee structures set forth in the application be kept confidential so that other parties in the litigation disputes may not use the information contained therein to gain a strategic advantage over the debtors and other parties,” White Eagle asserted.

The trustee countered that White Eagle has not shown that the information should remain under seal.  The trustee cited case law findings that during Chapter 11 proceedings “a debtor’s affairs are an open book and the debtor operates in a fishbowl.”  In an objection filed last month, White Eagle’s lender LNV Corp. and its agent CLMG Corp. argued the proposal to hire Reed Smith as special counsel is an attempt by nondebtor parent Emergent to “transfer obligations from itself to the debtors without any commensurate benefit to the debtors’ estates.”

The case is In re: White Eagle Asset Portfolio LP, case number 1:18-bk-12808, in the U.S. Bankruptcy Court for the District of Delaware.

NCAA Seeks Billing Records in $45M Attorney Fee Dispute

April 22, 2019

A recent Law 360 story by Christopher Cole, “NCAA Demands Billing Records in $45M Atty Fees Fight,” reports that the NCAA is fighting a push for almost $45 million in attorney fees by the legal team that scored a March antitrust victory against the organization in California federal court on behalf of student athletes, saying the players’ lawyers won’t disclose their billing records.  The two sides filed joint legal papers laying out their positions on paying the lawyers after they won a groundbreaking decision that limits the college sports organization from enforcing rules that cap compensation for student athletes.

While the players’ side has asked the court for a baseline figure of $29.9 million to cover their fees, plus a multiplier of 1.5 based on the outcome, the NCAA’s lawyers said there is no way to justify that amount without actually seeing figures on paper as to how much the opposing lawyers worked on the case.  So far, they said, the plaintiffs have been unwilling to share those records.

The damages phase of the litigation has already wrapped up, with attorneys for the student athletes already getting more than $44 million from a settlement, the NCAA said.  Now the organization says it is critical to find out how much time the plaintiffs' lawyers spent on winning the injunction on grant-in-aid rules, as opposed to time spent on the earlier damages part of the lawsuit.  “Ninth Circuit law is clear that the burden is on the prevailing party to support their request for attorneys’ fees with detailed billing records,” the NCAA said.  “Plaintiffs’ failure to provide [them] is grounds to reduce their fee award or dismiss their motion entirely.”

In deciding what to do with the dueling stances on attorney fees, the court will have to figure out how to pin a dollar figure to the key injunction that the student athletes won in March.  U.S. District Judge Claudia Wilken in that 104-page order rejected the NCAA’s arguments that its compensation rules promote the demand for college sports and justify its antitrust violations.  She prohibited the association from enforcing rules that she considered “overly and unnecessarily restrictive.”

Following that major win, the players’ attorneys sought the compensation package of $29.9 million plus the multiplier for what they said was the economic value of the injunction, and submitted an economist’s declaration to bolster their argument.  But the NCAA said that wasn’t enough to show how much of the opposing legal team’s billable hours included in the requested total were actually spent on the injunction phase, and without the records, there is no way to tell for sure.  “Plaintiffs simply ask this court and defendants to take them at their word that all judgment calls have been made correctly, and seek to deny defendants the right to review and, where necessary, challenge the appropriateness of plaintiffs’ counsel’s assessments,” the NCAA said.

The players’ lawyers called the argument about the damages phase a “red herring” by the NCAA because they have already excluded time attributable to the damages portion of the case.  “Defendants never provided any compelling reason why [we] should be forced to turn over these voluminous records, which would require plaintiffs’ counsel to expend significant time and resources reviewing and redacting for attorney-client privilege and work product,” they said.

PA Justices Consider Privilege of Legal Bills in Estate Cases

February 13, 2019

A recent Law 360 story by Matt Fair, “Pa. Justices to Mull Privilege for Atty Bills in Estate Dispute,” reports that the Pennsylvania Supreme Court agreed to wade into a dispute over whether attorney-client privilege barred the release of legal bills from K&L Gates LLP and another firm as part of a case over the management of the estate of a deceased Allegheny County man.  The appeal comes as two beneficiaries of the estate pursue claims that the trustee, William H. McAleer, who is the dead man's son, had spent too much money on legal fees and other administrative costs in connection with management of the estate.

In a one-page order, the justices agreed to consider whether “the attorney-client privilege and work product doctrines protect communications between a trustee and counsel from discovery by beneficiaries when the communications arose in the context of adversarial proceedings between the trustees and beneficiaries.”

According to court records, McAleer has been acting as trustee of an estate established by his father, William K. McAleer, in November 2012.  But after the son filed an accounting of the estate a little less than a year after his father’s May 2013 death, court records say his stepbrothers, Michael and Stephen Lange, filed objections and sought additional information related to two bank accounts.

In response, court records say that McAleer tapped K&L Gates for legal assistance to back up counsel from Julian Gray Associates who was already representing him.  After a second accounting of the estate, court records say the Langes claimed that McAleer had been paying excess trustee and attorney fees in connection with management of the trust.  When the Langes sought billing statements for all attorney fees, however, McAleer turned over redacted copies.

An Allegheny County trial judge eventually ordered McAleer to turn over unredacted copies of the bills, which led to an appeal to the state’s Superior Court.  The Superior Court ultimately quashed the appeal in June after finding that the trial judge’s order compelling discovery could not be challenged independently before the case was resolved in its entirety.  While issues of attorney-client privilege and work product protections are often allowed to be appealed even before a case is resolved, the Superior Court noted that McAleer had only raised questions about privilege during oral argument before a trial judge on whether to compel discovery of the billing records.

“Our review of the record reflects that, prior to the trial court’s order compelling [McAleer] to produce the discovery documents in question, [he] did not provide any facts to support his attempt to invoke the attorney-client privilege and work-product doctrine protections,” the Superior Court said.

The case is In re: the Estate of William K. McAleer, case number 6 WAP 2019, before the Pennsylvania Supreme Court.

Indiana Appeals Court: Attorney Fee Records Not Protected or Confidential

December 26, 2017

A recent TheIndianaLawyer.com, by Olivia Covington, “COA: Attorney Fee Records Not Protected or Confidential” reports that an Indiana trial court did not err by denying a motion to quash a request for the production of attorney fee records because such records are not protected by attorney-client privilege or the Fifth Amendment, the Indiana Court of Appeals ruled.

After Diyee Boulangger allegedly over-reported her hours and hourly rate during her three years of employment with Ohio Valley Eye Institute, P.C., her former employer filed a conversion, theft, theft by false impression, fraud and forgery complaint against Boulangger.  The state also filed criminal charges against Boulangger, but dismissed them without prejudice in February 2016.

The eye institute then moved for summary judgment in June 2015, but Boulangger responded with an affidavit from her attorney, David A. Guerrettaz, claiming the Evansville police Department had continued to investigate her even after the criminal charges were dropped.  Thus, Guerrettaz argued his client could not present facts in response to the summary judgment motion without violating her Fifth Amendment right against self-incrimination.

The Vanderburgh Superior Court eventually granted summary judgment to OVEI and awarded it a nearly $519,000 judgment, plus costs and post-judgment interest.  OVEI then moved for the trial court to order Boulangger to appear in court to testify to any non-exempt property to could be applied toward the judgment.

The eye institute also served Guerrettaz’s law firm with a non-party request for production of documents and subpoena duces tecum, seeking “(c)opies of any and all check and/or wire transfers received…for legal fees paid for (Boulangger’s) representation.”  Boulangger responded with a motion to quash, arguing the requested documents were protected by attorney-client privilege and her Fifth Amendment rights against self-incrimination.

The trial court disagreed and ordered the firm to produce the requested documents, so Boulangger filed an interlocutory appeal in Divee Boulangger v. Ohio Valley Eye Institute, PC.  The Indiana Court of Appeals upheld the trial court’s order, concluding the documents in question were not protected communications. 

Specifically, Judge Rudolph Pyle rejected Boulangger’s request for an “incrimination” exception to the rule that a client’s attorney fees are not protected by attorney-client privilege.  Drawing on precedent from in cases such as Hueck v. State, 590 N.E.2d 581, 584 (Ind. Ct. App. 1992) and Matter of Witnesses Before the Special March 1980 Grand Jury, 729 F.2d 489 (7th Cir. 1984), Pyle wrote the requested information – which included the source and amount of fees Boulangger paid – was neither confidential nor protected by attorney-client privilege.

Similarly, precedent in Fisher v. United States, 425 U.S. 391 (1976), defeated Boulangger’s Fifth Amendment argument because “the Supreme Court held that the Fifth Amendment did not preclude compelled disclosure of information from a third party such as a defendant’s attorney,” Pyle said.

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...

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