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Category: Fee Splitting / Sharing

Litigation Funder Seeks Share of Attorney Fees

February 16, 2021

A recent Law 360 story by Carolina Bolado, “Litigation Funder Wants Cut of $350M Shire Deal,” reports that law firm lender Counsel Financial Services asked a Florida federal judge for permission to intervene in a dispute over divvying up attorney fees from a $350 million whistleblower settlement with biotech company Shire, alleging the law firm Barry A. Cohen PA should be forced to direct any fees it receives to pay back a $43.8 million line of credit.

Counsel Financial says it loaned money to the Cohen firm in February 2009 in exchange for a secured interest in the firm's assets, which includes legal fee proceeds.  In January 2019, the company obtained a $43,778,684 judgment against the Cohen firm, which previously represented whistleblower Brian Vinca in his suit against Shire.

"Counsel Financial thus has an interest in the legal fees that will be awarded to [the Cohen firm] in this action," the company said in the motion.  "Consequently, Counsel Financial seeks to intervene to ensure that its interest in the legal fees obtained by [the Cohen firm] in connection with this matter are rightfully directed by this Court to Counsel Financial directly from the court registry."

The motion is the latest development in a fight over fees from the $350 million settlement, which was announced in August 2016 and resolved claims stemming from Shire's sales and marketing practices around Dermagraft, a skin substitute the company picked up when it acquired Advanced BioHealing Inc. — now known as Shire Regenerative Medicine Inc. — as part of a $750 million deal in 2011.  Vinca and co-plaintiff Jennifer Sweeney filed the first of the six False Claims Act suits against Shire that led to the settlement.

Kevin J. Darken, who represents Vinca's former counsel, says Vinca's current attorneys, Noel McDonell of Macfarlane Ferguson & McMullen and Bryen Hill of Mahany Law, have tried to cut him and the Cohen firm out of a fee award.  Darken has asked the court to disqualify McDonell and Hill for allegedly using stolen confidential emails to challenge the charging lien filed by Darken, Cohen and Saady & Saxe PA for a cut of the attorney fees.

McDonell and Hill have accused Darken and Kevin M. Cohen, the representative for Barry Cohen's estate, of conspiring to a fee-splitting scheme of the proceeds.  Vinca, who fired his attorneys in March 2018, is suing Darken, the Cohen firm and Saady & Saxe for malpractice, claiming they cost him the full whistleblower's cut of the Shire settlement.  Vinca claims his former counsel's failures forced him to share the whistleblower award of the Shire settlement with the five other relators who filed FCA suits after he did.

Generally, the first whistleblower to file gets about 20% of the government's recovery, and any subsequent whistleblowers do not receive a cut. But in this case, U.S. District Judge James Moody Jr. decided to divvy up the proceeds, in part because of deficiencies in the initial eight-page complaint from Vinca and Sweeney, according to McDonell.  Vinca and Sweeney shared more than $50 million from the settlement, while the other whistleblowers shared approximately $30 million.

The six whistleblower lawsuits that led to the settlement all alleged misconduct by Shire from 2007 through the beginning of 2014, including that it paid illegal kickbacks to get health care providers to use or overuse Dermagraft, marketed Dermagraft for uses not approved by the U.S. Food and Drug Administration, inflated the price of the drug and spurred the coding of Dermagraft-related reimbursement claims for payouts higher than what was appropriate.

McDonell told Law360 that Counsel Financial's claim has no bearing on this lawsuit because Vinca was not a party to the financing contract between Counsel Financial and the Cohen firm.  "As Magistrate Judge Porcelli noted in June of 2019, the matter at issue is the merits of a charging lien filed against relator Brian Vinca by former counsel, and to what extent compensation is appropriate," McDonell said.  "Accordingly, on behalf of Brian Vinca, we are confident that CFS has, as Judge Porcelli so aptly put it, 'no dog in this fight.'"

Second Circuit: No Second Shot for Milberg in $12M Fee Dispute

February 9, 2021

A recent Law 360 story by Justin Wise, “2nd Circ. Says No 2nd Shot For Milberg in $12M Fee Dispute”, reports that the Second Circuit upheld a lower court's dismissal of Milberg Coleman Bryson Phillips Grossman PLLC predecessor Milberg LLP's pursuit of nearly $12 million in contingency fees from former clients, saying its petition failed to comply with a timing provision of federal arbitration law.  The decision came down in a long-running dispute between Milberg LLP, which has since merged with multiple firms, and clients it represented in Germany and Luxembourg in their suit for recovery on defaulted Argentine bonds.

The firm in 2019 sued in the Southern District of New York seeking to vacate an arbitration award that said it was entitled to only a fraction of a $11.9 million fee it claimed it earned for its work on the case.  However, the court dismissed the firm's effort over failing to adequately plead diversity of parties and for not serving proper notice of the petition within the three-month statute of limitations.  While a three-judge panel differed with the lower court on the subject of diversity, "nevertheless, we hold that Milberg failed to comply with the timing provisions of the Federal Arbitration Act."

An attorney for Milberg had previously argued in court that Hague Convention protocol made it impossible to serve notice to overseas adversaries within 90 days.  But the appeals court was not convinced, saying the firm did not "demonstrate diligence" when it came to the three-month deadline to warrant a "possible equitable extension."

"Milberg did not even notify opposing counsel of its petition to vacate the arbitral award until [the] three-month window closed, and only after opposing counsel stated it was not authorized to accept service did Milberg set the wheels in motion for service overseas," the panel wrote, citing the firm's after-hours attempt to serve notice on the day the statute of limitations expired.

Milberg had represented 10 Luxembourg and German retirement funds and two German individuals as they sought to enforce payment on defaulted Argentine bonds.  The clients stopped working with Milberg in 2016 and hired another firm before settling the dispute with Argentina for $162.3 million.  Court documents show that the settlement was similar to the terms Milberg had obtained before being discharged.

Milberg initiated arbitration seeking contingency fees in 2017, but a panel on Feb. 5, 2019, declined to award the firm what it sought. Milberg filed suit in court on May 6, 2019, and late that evening — the last day it could serve a notice for its motion — emailed counsel for their former clients asking whether it could accept service on their behalf.  The clients' counsel said it was not authorized to accept service, court documents show.

Attorneys Seek $2.5M in Fees in Legal Malpractice Case

February 1, 2021

A recent Law 360 story by Nathan Hale, “Attys Seek $2.5M Fees For Jay Peak-Linked Malpractice Case”, reports that attorneys who helped investors land an $8 million settlement in a malpractice suit against their former counsel in litigation over the failed Jay Peak EB-5 immigrant investor project have asked a Florida federal court to approve distribution of $2.45 million in attorney fees.

In their motion, the law firms Cheffy Passidomo PA, Hanley Law and the Barr Law Group specified how they would divide the attorneys' fund established in the deal between the 25 investors and lawyers Edward J. Carroll and Mark H. Scribner and their firms, seeking to demonstrate the value of their work and convince U.S. District Judge Darrin P. Gayles to approve the payments.

Judge Gayles last month granted a request for preliminary approval of the settlement filed by Michael I. Goldberg, the court-appointed receiver for about two dozen entities related to the Jay Peak ski resort in Vermont.  In his motion, Goldberg noted that the immigrant investors' action had gone into "meaningful" discovery, and early last year the parties to the private malpractice litigation asked him to get involved to help settle it.  The resulting settlement agreement was reached after a few months of negotiations, he said.

In the motion, the three firms elaborated on their work for the investors.  They said they participated in depositions of all 25 plaintiffs as well as Carroll and Scribner.  They also retained three experts who were deposed by the defendants' counsel.  Additionally, they engaged in written discovery, substantial motion practice and two mediations, they said.

"Attorneys' fees for plaintiffs' counsels' hourly fees to date and the rate of the contingency fee arrangements between plaintiffs and plaintiffs' counsel in this case both exceed the total attorneys' fees fund provided for by the settlement agreement," the firms said.

Following Judge Gayles' preliminary approval of the settlement, the three firms submitted a letter to the receiver's counsel saying they had agreed that the Barr Law Group should be paid $1.47 million, and Cheffy Passidomo and Hanley Law should each be paid $490,000.

The group of investors filed their suit, Cason et al. v. Carroll et al., in Vermont federal court in February 2018, and a slightly different group filed an amended complaint in August 2019, according to the settlement approval motion.  The investors brought claims for legal malpractice, breach of fiduciary duty, breach of contract, and breach of good faith and fair dealing, alleging that Carroll and Scribner mislead them and withheld information and were conflicted because they had represented some of the investors and Jay Peak receivership entities at the same time.

"Defendants were aware, or should have been aware, of information suggesting that Jay Peak was being severely mismanaged, including that investor funds were being misappropriated to backfill shortfalls in the projects," the investors claimed, accusing the Jay Peak-linked attorneys of "designing and executing" the very fraud that injured the investors.

Among the damages the investors sought was disgorgement of the attorney fees they paid to Carroll and Scribner's firm, according to the motion.  After the parties failed to resolve the case in mediation in April 2019, they called upon the receiver to help negotiate a settlement.

In the motion for settlement approval, the receiver told Judge Gayles that the agreement "provides outstanding recoveries for the Cason plaintiffs," noting that after payments to the plaintiffs and attorney fees, the receivership entities would still recover $5.2 million to be distributed to other investors and would obtain a "bar order" barring all nongovernmental claims that could be filed between the receiver and Carroll and Scribner's former firms.

Whistleblower Law Firm Sued Over Fees in GSK Action

October 17, 2020

A recent Law 360 story by Emma Cueto, “Whistleblower Firm Sued Over Fees in GlaxoSmithKline” reports that Whistleblower boutique firm Getnick & Getnick LLP reneged on a fee-sharing agreement in a suit by insurers against pharmaceutical giant GlaxoSmithKline PLC, a now-defunct firm claimed in a suit filed in New York state court.  In the complaint, defunct insurance boutique Kornstein Veisz Wexler & Pollard LLP said that in exchange for a cut of any future winnings, it helped Getnick & Getnick recruit clients for a suit on behalf of health insurance companies, which reportedly settled for hundreds of millions of dollars.

However, after the deal was reached, Getnick & Getnick for the first time claimed that the fee-sharing agreement was unenforceable.  "G&G has breached its written contract with KVWP, a contract that recognized KVWP's indispensable contribution to a litigation that proved extremely lucrative for G&G, and that G&G acknowledged as binding up until the time came for G&G to pay," the complaint said.

The fee dispute arises out of an underlying Racketeer Influenced and Corrupt Organizations lawsuit, which was in turn inspired by a 2010 $750 million settlement in a whistleblower suit against GSK.  This 2010 settlement — $96 million of which was designated for the whistleblower — resolved criminal and civil complaints alleging the company mixed up medications and manufactured defective drugs for years at its now-shuttered Puerto Rico factory.

After the whistleblower suit, in which Getnick & Getnick represented the whistleblower, the firm enlisted KVWP's help in recruiting health insurance companies for a related suit against GSK, including RICO claims, according to the complaint.  Without KVWP's help, the complaint alleged, the suit could not have come together before the statute of limitations expired.

Although KVWP was not co-counsel on the case, Getnick & Getnick agreed in 2011 that KVWP was entitled to 2.5% of the final award, which would be a 25% cut of Getnick & Getnick's own 10% portion, according to the complaint.  However, after the case settled on the eve of trial in 2019 for an undisclosed sum, Getnick & Getnick claimed that the fee-sharing agreement was unenforceable, saying that KVWP had withdrawn as counsel during the suit, the complaint said.

Attorney Fees Under CA Trade Secrets Act Belong to Attorney, Not Client

September 16, 2020

A recent Metropolitan News-Enterprise story, “Attorney Fees Under Trade Secrets Act Belong to Attorney, Not Client—C.A.,” reports that attorney fees awarded to a “prevailing party” under the California Uniform Trade Secrets Act belong to the attorney and not the attorney’s client absent an enforceable agreement providing otherwise, the Third District Court of Appeal held.  The opinion by Acting Presiding Justice Coleman Blease affirms a judgment by Sacramento Superior Court Judge Alan G. Perkins who determined that the law firm of Porter Scott, P.C. was entitled to the attorney fees paid by the opposing party in litigation in which the firm successfully represented defendant Johnson Group Staffing Company.

The amount that was awarded initially, pursuant to Civil Code §3426.4, was $735,781.27; appeals ensued and, when paid, the fees had expanded to $917,811.48; after Perkins deducted sums which the Johnson Group had paid to Porter Scott, the remainder was $827,938.17, to which the judge added 90 percent of the interest that accrued while the money was in a blocked account.  Blease pointed to the California Supreme Court’s 2001 decision in Flannery v. Prentice.  The issue was whether the client or her former lawyers and their firms had entitlement to attorney fees that were awarded under Government Code §12900, a portion of the California Fair Employment and Housing Act.

Then-Justice Kathryn Werdegar (now retired) wrote, over the lone dissent by then-Justice Joyce Kennard (also retired): “[W]e conclude that attorney fees awarded pursuant to section 12965 (exceeding fees already paid) belong, absent an enforceable agreement to the contrary, to the attorneys who labored to earn them.”

Blease declared in yesterday’s opinion: “We thus conclude that attorney fees awarded under section 3426.4 (exceeding fees the client already paid) belong to the attorneys who labored to earn them, absent an enforceable agreement to the contrary.”

He went on to say: “Reading section 3426.4 to vest awarded ‘attorney’s fees’ in counsel would be consistent with the ordinary view that attorney fees compensate attorneys, not litigants… Reading the statute to vest fee awards in litigants, on the other hand, would at times stray from that ordinary understanding of attorney fees.”

The Johnson Group argued that Porter Scott had agreed to forego an award by consenting, in writing, to forfeit its entitlement to the past-due amount of $92,845.86, except for $25,000 of that amount, and to provide pro bono representation.  Blease noted that a footnote in the agreement provides: “Should the Johnson Group or Chris Johnson be awarded fees in the future based on Porter Scott’s underlying representation, all fees shall be reimburseable [sic] at that point and this waiver shall not apply.”

Blease added: “[A]s the Flannery court recognized, even attorneys who perform services pro bono may obtain ‘reasonable’ attorney fees under a fee-shifting statute.”

Five policies discussed by the Flannery court in support of such fees belonging to attorneys and not litigants were: 1) to encourage representation of legitimate FEHA claims and discourage frivolous suits; 2) to avoid unjust enrichment where an attorney had not been paid for services rendered; 3) to ensure fairness that the losing party pays only fees incurred and not a punitive penalty; 4) to avoid attorney fee-splitting; and 5) to avoid wrongly punishing attorneys who fail to secure written fee agreements.