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Category: Scholarship on Fees

Know the Statutory Limits on Attorney Fees

October 5, 2017

A recent CEB blog article, “Know the Limits on Attorney Fees” by Julie Brook explores the statutory limits on attorney fees in California and federal statutes.  This article was posted with permission.  The article reads:

Attorneys can’t always get what they want in attorney fees.  There are statutory limitations, fees subject to court approval, and fee agreements that violate public policy.

Statutory Limitations on Fees. In many instances the ability to negotiate attorney fees is prohibited or limited by statute.  For example:

  • Probate proceedings. Attorney fees in a probate proceeding are strictly statutory and don’t arise from contract.  See Prob C §§10800, 10810, 13660.  An attorney can’t charge more than the statutorily-permitted amount, but may agree to charge or receive less than that amount.
  • Indigent defendants. Attorney fees for counsel assigned to represent indigent criminal defendants are set by the trial court (Pen C §987.2) or by the court of appeals in appellate matters (Pen C §1241).
  • Judicial foreclosures. Attorney fees in judicial foreclosure matters are set by the trial court, regardless of any contrary provision in the mortgage or deed of trust. CCP §730.
  • Workers’ compensation. Attorney fees for representation in Workers’ Compensation Appeals Board matters are set by the Appeals Board (Lab C §5801) and by a court or Appeals Board in third-party matters (Lab C §3860(f)).  But fee agreements for a reasonable amount will be enforced if the amount agreed on coincides with the Appeals Board’s determination of a reasonable fee. Lab C §4906.
  • Contingent fees under federal law. An attorney-client agreement with a plaintiff under the Federal Tort Claims Act calling for a contingent fee in excess of 20 percent of any compromise, award, or settlement, or more than 25 percent of any judgment is not only void, but is an offense punishable by a fine of $2000, or 1 year in jail. 28 USC §2678. See also 42 USC §406 (maximum fee for representing plaintiff in Social Security Administration proceedings is 25 percent of past due benefits; attempt to collect fee in excess of maximum is misdemeanor).
  • Contingent fees in medical malpractice cases. Maximum fee limits have been set under Bus & P C §6146.

This is just a sampling—many statutes limit attorney fees.  When you take on a matter in an unfamiliar area of law, investigate possible limitations on the ability to negotiate fees.

Fees Subject to Court Approval. Court approval of fee agreements is required in some instances. For example:

  • fees for the compromise of the claim of a minor or a person with a disability (Prob C §3601(a));
  • fees for representing a special administrator (Prob C §8547); and
  • fee agreement in workers’ compensation third-party actions (Lab C §3860(f)).

Agreements Violating Public Policy or Ethical Standards. Attorney-client fee agreements that are contrary to public policy, even if not explicitly in violation of an ethical canon or rule, won’t be enforced.  Similarly, fee agreements that violate California Rules of Professional Conduct aren’t enforceable.  The Rules include prohibitions against charging an unconscionable fee (Cal Rules of Prof Cond 4–200), agreeing to share fees between an attorney and a nonattorney (Cal Rules of Prof Cond 1–320), and nonrefundable retainer fees that fail to meet the classification of a “true retainer fee which is paid solely for the purpose of ensuring the availability of the [Bar] member for the matter” (Cal Rules of Prof Cond 3–700(D)(2)).

Class Action Fee Awards Shaped by Circuits and Benchmarks

September 12, 2017

A recent NLJ article by Amanda Bronstad, “Class Action Fees Shaped by Circuit, Benchmark,” reports on attorney fee awards in class action litigation.  The article reads:

When it comes to attorney fees in class actions, it pays to be in the U.S. Court of Appeals for the Seventh Circuit — and it's tough to get what you want in the Second and Ninth circuits.  That's according to two leading academic research reports that federal judges increasingly cite in determining how much in fees to award plaintiffs attorneys who work on contingency.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, authored one of the studies.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both reports found that federal judges tend to determine a percentage of the settlement amount, then crosscheck it against the hours that plaintiffs attorneys spent multiplied by a reasonable hourly rate — called the lodestar.  They also found that as the size of the settlement goes up, the percentage of fees that judges award to plaintiffs attorneys goes down.  That's particularly true when it comes to the largest class action settlements.

But a lot depends on what circuit of the U.S. court of appeals the case ends up.  Here are some key points from the studies:

Fee awards aren't evenly spread out: The vast majority of class action fee awards come in the Second, Ninth, First and Seventh circuits, Fitzpatrick said.  He attributed much of that to the larger cities in those circuits — Boston, New York, Chicago, San Francisco and Los Angeles.  "The lawyers are there, the defendants are often there, and I think judges with a lot of experience are often there, so that attracts these cases," he said.

Benchmarks might matter: The Ninth Circuit is one of the few circuits with a benchmark that judges cite in determining fees — 25 percent based on its 2011 holding in In re Bluetooth Headset Products Liability Litigation.  Fitzpatrick said "that really limits the number of times a court would award more than 25 percent.  It's working as a ceiling in the Ninth Circuit." Miller said having a benchmark didn't seem to matter when it comes to lower fee awards — his report found the Ninth Circuit stuck to 25 percent for the most part.

The Second Circuit has experience: The Second Circuit handled nearly a third of all the cases, according to the Eisenberg/Miller report.  Many are securities class actions.  The circuit doesn't have a benchmark, but it did set forth six factors for judges to consider in a 2000 ruling called Goldberger v. Integrated Resources.  It's the circuit in which a judge is most likely to reject the original fee request made by lawyers.  "It's a hard road to convince a district judge in the Second Circuit that your fee request ought to be accepted without question," Miller said.

One of the most generous circuits is the Seventh: That's due in large part to a 2001 decision in In re Synthroid Marketing Litigation, in which the Seventh Circuit downplayed the significance of using the percentage of the settlement fund by directing judges to look at market rates when assessing the lodestar component of an attorney fee request.  "They have said clearly you should not lower the percentage over the entire amount of the settlement," Fitzpatrick said.  "You should do it on a marginal basis.  I see more district courts doing it in the Seventh Circuit than anywhere else because of those admonitions."

National Law Journal Cites NALFA Program

September 11, 2017

A recent NLJ article by Amanda Bronstad, “Judges Look to Profs in Awarding Lower Percentage Fees in Biggest Class Actions,” quotes NALFA’s CLE program, “View From the Bench: Awarding Attorney Fees in Federal Litigation” in an article on class action fee awards.  The full article reads:

After reaching a $101 million class action settlement to resolve lawsuits brought over a chemical spill that contaminated a West Virginia river, the plaintiffs lawyers asked a federal judge to grant them 30 percent of the fund as contingency fees.

The judge praised their work but found that fee request to be just too high.  "Even without accounting for fund size, the empirical literature clearly demonstrates that a 30 percent fee is higher than that awarded in the vast majority of class actions," U.S. District Judge John Copenhaver of the Southern District of West Virginia wrote in a July order.  "Courts have found through empirical analysis that larger common funds typically have smaller percentage fees."

The empirical analysis Copenhaver referred to came from the findings of two leading academic reports — both cited in the opinion — that federal judges across the country have used for the past decade to guide them in decisions about attorney fees in some of the nation's largest class action settlements.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, wrote one of the studies, an updated version of which is set to be published this year.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both studies have provided critical assistance for federal judges, particularly when it comes to class action settlements of $100 million or more.  The concern for those on the bench is how to award plaintiffs lawyers for their work without granting them excessive fees and leaving class members in the lurch.

"Judges do take the role seriously," said William Rubenstein, a professor at Harvard Law School whose highly regarded "Newberg on Class Actions" has cited the Eisenberg/Miller and Fitzpatrick studies in his 11-volume treatise, alongside data he has used from a former publication called Class Action Attorney Fee Digest.  "And they understand they're a bulwark against excessive fees from the class members' money."

How to determine the exact amount has often been more art than science.  In a webinar earlier this year hosted by the National Association of Legal Fee Analysis, U.S. District Judge David Herndon of the Southern District of Illinois, who has handled several of the nation's largest mass torts and class actions, said a lot depends on the amount of recovery to the class.

"It just depends … on the case and what the benefit is that the lawyers have achieved by their work," he said at the webinar, called "View from the Bench: Awarding Attorney Fees in Federal Litigation."  "If it's reasonable, then you can approve the contingency, but if it's pretty far out of whack maybe you've got to have the lawyers justify the difference or perhaps go with the lodestar.  There are a lot of things to look at."

And there are outside concerns as well.  Judges have increasing scrutiny from appeals courts, which often take up the petitions of objectors to class action settlements, Rubenstein said.  "Public policy generally cautions against awarding too high a fee," Copenhaver wrote in the West Virginia water case.  "The court's challenge is to award a fee that both compensates the attorneys with a risk premium on their skill and labor and avoids a windfall."

Last month, plaintiffs lawyers in the case submitted a renewed motion for settlement approval that lowered their fee request to 25 percent — more in line with what Copenhaver had found was reasonable.

Judges often look to previous case decisions, or their own experience, to determine what amount is appropriate to award lawyers in class actions.  They also get a list of cases from the lawyers — but those often come with vested interests.  For a long time, there was limited statistical data on what other judges had done.  That's where Fitzpatrick said he and the Eisenberg-Miller team tried to give judges a starting point.

"We tried to give the judges the full data instead of just leaving them at the whim of the cherry-picked cases the lawyers give them," he said.  "The judges don't have to replicate what other courts have done, but they have the opportunity to stick within the mainstream of what their colleagues have done if they want it now that they have the power of empirical studies."

Miller said he came up with the idea while serving as an expert witness in cases.  When his first report with Eisenberg published in 2004, one year before the U.S. Class Action Fairness Act passed, the political atmosphere was rife with criticism about attorney fees in class actions.  At the time, only one group had looked at the data — but it wasn't really a controlled study.

"On the issue of fees, the data was there but hadn't been developed," he said.  Eisenberg wasn't an expert on class actions, Miller said, "but he was the leading person probably in the world who was doing empirical studies of legal material."  Their report looked at published data of class action settlements from 1993 to 2002.

By the time of their second report in 2009, which expanded the data through 2008, Miller and Eisenberg had some competition.  Fitzpatrick thought that their report, like those before it, relied too much on "ad hoc" data that focused primarily on bigger, published decisions.  "I really endeavored to find every last one to have the complete and representative picture," he said.

He came up with a wider range of class action settlements within a shorter period of time — just 2006 and 2007.  Combined, both reports have been cited by judges more than 100 times, Miller said.  And they often involve the biggest settlements in dollar amount, he said.  "The issue is that there aren't as many cases," he said.  "There's less data. And that puts an additional premium on getting what data there is, so that's one reason judges look to this research in big cases."

Another came in 2012, he said, when U.S. District Judge Lee Rosenthal of the Southern District of Texas, the former chairwoman of the Judicial Conference Committee on Rules of Practice and Procedure, endorsed both studies in a case called In re Heartland Payment Systems Customer Data Security Breach Litigation: "District courts increasingly consider empirical studies analyzing class-action-settlement fee awards to set the appropriate percentage benchmark or to test the reasonableness of a given benchmark," she wrote.  "Using these studies alleviates the concern that the number selected is arbitrary."

Economies of Scale

Both studies have come out with slight differences in their specific findings.  But they came to the same conclusions: The vast majority of judges award fees based on a percentage of the total settlement amount — then cross-check that amount against the total number of hours the lawyers billed multiplied by the hourly rate, referred to as the lodestar.  There's a good reason for that trend.

"It's economies of scale," Miller said.  "Judges understand that to get a $1 billion settlement is not 1,000 times harder for an attorney to get a $1 million settlement.  It's a lot harder, but not 1,000 times harder."

Herndon, in the webinar, said that's just common sense.

"If they got a third of $1 billion, and compared to their lodestar, it would be an astronomical per hour figure," he said.  "There's some common sense in doing something like that, and I don't really have a particular feeling one way or the other, but I think there's certainly authority in the law for doing it."

In fact, many judges who cite the Eisenberg-Miller and Fitzpatrick reports look specifically to the data as it pertains to the size of the settlement in front of them and what the case is about.

But Fitzpatrick questioned whether judges were doing the right thing in lowering the percentages as the settlements get bigger.  "I think the judges are responding to perception when they do that and they're not responding to good economic policy analysis," he said.  "Because why would we want to punish lawyers with lower percentages for getting their clients more money?"

Not all judges agree with the conclusions made by the professors, who sometimes go up against each other as paid experts in individual cases.  In a $415 million settlement of "no poach" claims involving high-tech workers, U.S. District Judge Lucy Koh of the Northern District of California weighed Fitzpatrick's report against the Eisenberg/Miller study in awarding $40 million in fees.  In that case, Fitzpatrick was a paid expert for the lead plaintiffs attorneys, while Rubenstein cited the Eisenberg-Miller report in a declaration filed on behalf of one of the lead firms that had submitted a separate fee request.

"The court finds the Eisenberg & Miller study more persuasive than the Fitzpatrick study," Koh wrote in a 2015 order, concluding that the "length and large sample size of the Eisenberg & Miller study suggest that its results are entitled to greater weight."

Fitzpatrick said he's working on an updated report, likely to be drafted next year.  "Whenever I hear from these judges, they say the same thing: We love your study but we need more recent data," Fitzpatrick said.  "So that's what I'm trying to give them."  But gathering the data takes a lot of time and money, he said.  He's hired research assistants to code all the data.

The latest Eisenberg-Miller report, co-authored with research scholar Roy Germano at NYU's law school, uses data through 2013.  Without Eisenberg, who died in 2014, Miller said he's not certain he'll keep publishing the report.  "I don't think I'll do it anymore," he said. "It is a lot of work."

How to Determine When Litigation Costs Include Attorney Fees

September 7, 2017

A recent Texas Lawyer article by Trey Cox and Jason Dennis, “How to Determine When Litigation Costs Include Attorney Fees,” covers attorney fee recovery in Texas.  This article was posted with permission.  The article reads:

Under the American Rule, a party may only recover attorney fees on certain narrow claims.  When a party has some claims that support the award of attorney fees and some claims that do not, then the party must segregate the recoverable attorney fees from the nonrecoverable attorney fees, as in Tony Gullo Motors I v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006).  The need to segregate fees is a question of law, and the courts of appeals apply a de novo standard of review.

Similarly, when a plaintiff has multiple related claims against multiple defendants, the plaintiff is required to segregate the fees owed by one defendant from any fees incurred while prosecuting the claim against any settling defendants, according to Stewart Title Guaranty v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991).

Generally, where a party has failed to properly segregate their claims, and an award of attorney fees has been erroneously awarded, the case requires remand in order to determine what attorney fees are recoverable.  However, it is important to note that the subsequent decision in Green International v. Solis, 951 S.W.2d 384, 389 (Tex. 1997), did state that a failure to segregate fees "can result in the recovery of zero attorneys' fees."  The court did not explain the circumstances under which an award of zero attorney fees would result from a failure to segregate.  The evidence of unsegregated fees requiring a remand on the issue of attorney fees is more than a scintilla of evidence.

The party seeking fees may only present evidence relating to services that were necessarily rendered in connection with the claims for which attorney fees are recoverable, as in Flint & Associates v. Intercontinental Pipe & Steel, 739 S.W.2d 622, 624 (Tex. App.—Dallas 1987).  If a party tries to present evidence relating to services that were rendered in connection with claims that attorney fees are not recoverable, a party must object.  Failure to object to nonrecoverable attorney fees constitutes waiver (see Green International, at 389).  The issue of failing to segregate is generally preserved "by objecting during testimony offered in support of attorneys' fees or an objection to the jury question on attorneys' fees," as in McCalla v. Ski River Development, 239 S.W.3d 374, 383 (Tex. App.—Waco 2007).

Inexorably Intertwined Damages

In Texas, an exception to segregating evidence of attorney fees developed over the years.  Where the attorney fees rendered were in connection with claims arising out of the same transaction, and were so interrelated that their "prosecution or defense entails proof or denial of essentially the same facts," it was held that the segregation requirement could be avoided (see Stewart Title at 11).  The initial exception was phrased such that if an attorney could claim that the "causes of action in the suit are dependent on the same set of facts or circumstances, and thus are 'intertwined to the point of being inseparable,' the parties suing for attorney fees may recover the entire amount covering all claims."

After the holding in Stewart, which first acknowledged an exception to the requirement of segregating fees for claims that are intertwined, the courts of appeals were flooded with claims that recoverable and unrecoverable attorney fees are so intertwined that they could not be segregated. (See, e.g., Tony Gullo at 312.)  For many years after the recognition of the exception to segregation, parties tried to escape the segregation requirement by generically claiming that they could not segregate the claims.  They relied on the recognized exception to the duty to segregate when the attorney fees rendered were in connection with claims arising out of the same transaction and were so interrelated that their prosecution or defense entailed "proof or denial of essentially the same facts."

The Texas Supreme Court has now reined in this exception, providing that if attorney fees relate solely to a claim for which such fees are not recoverable, a claimant must segregate recoverable from unrecoverable fees, but when discrete legal services advance both a recoverable and unrecoverable claim that they are so intertwined, they need not be segregated.

For example, the court explained that certain legal services such as: "requests for standard disclosures, proof of background facts, depositions of the primary actors, discovery motions and hearings, [and] voir dire of the jury" wouldn't be barred from recovering attorney fees just because they served multiple purposes.  However, the court was careful to point out that the mere presence of intertwined facts will not make tort fees recoverable. The new exception to the necessity of segregating fees is that "only when discrete legal services advance both a recoverable and unrecoverable claim" then they can be considered as being so intertwined as to not need segregation.  The segregation requirement can be met by offering expert opinion as to how much time was spent in relation to the recoverable claims versus the unrecoverable claims.

Defending Against Segregation

Whether supporting or attacking an award of attorney fees, the expert must deal specifically with segregation of fees.  The party must segregate fees incurred in connection with nonrecoverable claims, claims against other parties, or other lawsuits.

Trey Cox is a partner at Lynn Pinker Cox & Hurst.  He has spent nearly 20 years helping clients, from Fortune 500 corporations to entrepreneurs, resolve large, complicated and often high-profile business disputes.  Jason Dennis is a partner at the firm.  He has trial and appellate experience representing a diverse group of clients from Fortune 500 companies, to bankruptcy trustees, to individuals both as plaintiffs and defendants.

In-House Counsel Can and Should Collect Attorney Fees

August 21, 2017

A recent Corporate Counsel article by Daniel K. Wiig, “In-House Counsel Can and Should Collect Attorney Fees,” writes about attorney fee entitlement for in-house counsel work.  This article was posted with permission.  The article reads:

When weighing his post-Senate career options, then-U.S. Sen. Howard "Buck" McKeon rejected an offer from a prominent law firm, opting not to "live his life in six-minute increments."  Indeed, it is with fair certainty to state a top reason lawyers in private practice transition to in-house is to escape the billable hour.  And while the imminent death of the billable hour may have been highly exaggerated (again and again), it remains the predominate metric for private-practice attorneys handling commercial work to track their time and collect fees.

Numerous reports suggest the in-house lawyer is "rising," with companies opting to retain more and more legal work within their law departments, and decreasing the amount of work they disseminate to outside counsel.  Sources cite various reasons from cost to the intimate knowledge in-house lawyers possess regarding their employer vis-à-vis outside counsel.  Whatever the genesis, it reasons that in-house lawyers morphing into the role traditionally held by outside lawyers should assume all such components of the role, which, when possible, can include recovering attorney fees for actual legal work performed, as noted in Video Cinema Films v. Cable News Network, (S.D.N.Y. March 30, 2003), (S.D.N.Y. Feb. 3, 2004), and other federal and state courts.

Recovering attorney fees is that extra win for the victorious litigant, whether provided by statute or governed by contract.  It leaves the client's bank account intact (at least partially) and gives the prevailing attorney additional gloating rights.  For the in-house lawyer, recovering attorney fees can also occasionally turn the legal department from a cost center to a quasi-profit center.  In-house lawyers can and should collect attorney fees.

To be clear, recovering attorney fees is not available for in-house lawyers functioning in the traditional role of overseeing outside counsel's work.  As noted in Kevin RA v. Orange Village, (N.D. Ohio May 4, 2017), a court will not award fees to in-house lawyers that are redundant, i.e., those which reflect work performed by outside counsel.  Indeed, when in-house counsel is the advisee of litigation status rather than drafter of the motion or attends the settlement conference as one with authority to settle rather than to advocate more advantageous settlement terms, she functions as the client rather than lawyer, of which attorney fee are unavailable.

Unlike their counterparts in private practice, in-house counsel do not have set billing rates, although an exception may exist if internal policies permit the legal department to invoice the department that generated the legal matter.  Even in such a situation, as with law firm billing rates, the actual fees/rates are considered by the court but not determinative in awarding fees, as noted in Tallitsch v. Child Support Services, 926 P2d. 143 (Colo. App. 1996).  In determining what constitutes an appropriate and reasonable attorney fee award, courts frequently apply the "reasonably presumptive fee" or the "lodestar" method.  Under the lodestar method, as explained in Earth Flag v. Alamo Flag, 154 F.Supp.2d 663 (S.D.N.Y. 2001), fees are determined by "multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate."

Reasonableness is a question of fact for the trial court.  In determining a reasonable hourly rate, federal courts look to those reflected in the federal district in which they sit, while state courts consider the prevailing rates in their respective city and geographical area.  Courts will also consider other factors such as the complexity of the case, the level of expertise required to litigate the matter, and the fees clients in similar situations would be willing to pay outside counsel in determining the appropriate hourly rate for the in-house lawyer.  Determining whether the tasks performed by the in-house lawyer were reasonable is left to the court's discretion.

Recognizing legal departments do not necessary operate in lockstep fashion as a law firm, courts will consider the "blended" rate in the lodestar calculation.  Here, a court will combine or "blend" the reasonable rates for associates, partners, counsel and paralegals in their locale to devise the appropriate hourly rate for the in-house lawyer.  The premise is in-house lawyers generally take on less defined roles in litigating a matter than their counterparts in private practice, performing a combination of litigation tasks that may be more clearly delineated among law firm staff.

In order to successfully receive an award of attorney fees, the in-house lawyer must maintain a record akin to a law firm's billing sheet of her time spent on the matter, as reflected in Cruz v. Local Union No. 3 of International Brotherhood of Electrical Workers, 34 F.3d 1148 (2d Cir. 1994).  Consequently, an excel spreadsheet, or similar document, enumerating the time and task, with as much detail as possible, is required to sustain a court's scrutiny in looking for tasks that were "excessive, redundant or otherwise unnecessary," as noted in Clayton v. Steinagal, (D. Utah Dec. 19, 2012).  Moreover, the in-house attorneys who worked on the matter must execute affidavits attesting to the accuracy of their time records, and include the same in their moving papers.

As the legal profession changes and corporate legal departments retain more of their work, in-house should take advantage of statutory or contractual attorney fees provisions, notably for the litigation they handle internally.  In so doing, the in-house lawyer may find a number of benefits, such as approval to commence litigation that they may have otherwise shied away from because of the possibility to recoup attorney fees and the benefit of essentially obtaining payment for the legal work performed.

Daniel K. Wiig is in-house counsel to Municipal Credit Union in New York, where he assists in the day-to-day management of the legal affairs of the nearly $3 billion financial institution.  He is also an adjunct law professor at St. John's University School of Law.  Wiig successfully moved for in-house attorney fees in Municipal Credit Union v. Queens Auto Mall, 126 F. Supp. 3d 290 (E.D.N.Y. 2015).

Five Tips for Fee Agreement ADR Clauses

April 4, 2017

A recent The Recorder article by Randy Evans and Shari Klevens, “5 Tips for Fee Agreement ADR Clauses,” address ADR clauses in fee agreements.  This article was posted with permission.  The...

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