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Category: Hourly Rates

Sixth Circuit Tosses Hourly Rates Citing ‘Community Market Rule’

August 12, 2020

A recent Law 360 story by Emily Field, “6th Circ. Wipes Out Atty Fee Award in Vita-Mix Blender Deal” reports that the Sixth Circuit vacated a nearly $4 million attorney fees award in a class action settlement over plastic flecks in Vita-Mix Corp. blenders, finding that a lower court used the wrong billing rates to determine the award.  The appeals panel said that in its circuit, a "community market rule" is used to calculate a reasonable billing rate.  Under that rule, the billing rate should not be more than what than what competent lawyers in the relevant community charge.  However, the lower court departed from Cincinnati rates, saying that the practice of law is increasingly more national, according to the opinion.

Attorneys have to show why they deserve to recover fees equivalent to those charged by out-of-town specialists, the panel said.  "And here class counsel would be hard-pressed to make such a showing since they are very much in-town attorneys," the panel said.  "Local lawyers litigating a case in a local courthouse should receive local billing rates.  The district court erred when it concluded otherwise."

The rates used by the lower court were based on both local rates and rates requested by the class counsel, attorneys from Markovits Stock DeMarco LLC, Finney Law Firm LLC and Goldenberg Schneider LPA, according to the opinion.  "As a result, a majority of the attorneys received rates of around $500 per hour and the most senior attorneys received rates exceeding $600 per hour," the panel said.

The appeals court also noted that class counsel attorneys with similar experience levels often requested very different billing rates, with some attorneys with less experience reporting significantly higher rates.  "An attorney with twelve years of experience reported a billing rate $450 per hour, while an attorney from the same law firm with nine years of experience reported a billing rate of $530 per hour," the panel said.  "Neither class counsel nor the district court explained these discrepancies — i.e., by unique expertise or the like."  The panel directed the lower court to recalculate the billing rates.

NALFA Releases 3 Models of Growth for Litigation Hourly Rates

August 10, 2020

NALFA conducts custom hourly rate surveys for law firms, corporate legal departments, and government agencies.  Our hourly rate surveys provide our clients with the most current and accurate hourly rates within a given geography and practice area.  Starting this year, 2020, NALFA is conducting hourly rate surveys in 5 key practice areas.  These billing rate surveys show the current average hourly rate range for both plaintiffs' and defense counsel at partner and associate levels.

NALFA has released 3 different models of growth (linear, logarithmic, and logistic) for hourly rate ranges in litigation.  These growth curves are based on the universally accepted principle that hourly rates increase with experience (i.e. partner rates are greater than associate rates).  Linear growth is consistent straight-line growth.  Generally, logarithmic growth rises sharply then levels off.  Generally, logistic (S-shaped) growth starts slowly, rises sharply, then levels off.  We did not use exponential (J-shaped) growth because an ever-increasing, very steep curve does not fit hourly rate billing economics.

“These growth models do not account for the factors that effect hourly rates such as geography, practice area, party to litigation, complexity of case, size of law firm, and economics that our surveys do,” said Terry Jesse, Executive Director of NALFA.  "Those variables were not a part of this purely mathematical exercise," Jesse emphasized.

From these growth curves, we learn 2 key concepts:

1.  Logarithmic growth seems to represent the economics of hourly rates and the career span of litigators the best.  Generally, the growth starts rapidly, then increases slower, then eventually levels off.  Here, the highest rate of billing growth takes place in early-career.

2.  Logistic growth is another model that has some appeal to the economics of hourly rates and the career span of litigators.  Generally, the growth starts slowly, then increases rapidly, then eventually levels off.  Here, the highest rate of billing growth takes place in mid-career.



The parameters of these models include the number of years continuously practicing litigation (12 data points), plotted along the x axis and hourly rate ranges (20 data points) along the y axis.  The litigation experience data sets range (less than 2 Years-35+ years) has a variance of 1 year to 5 years.  The hourly rate ranges (less than $200-over $1,200) include a variance of $50 and $100.

NALFA Quoted in Portland Business Journal

August 5, 2020

NALFA and NALFA member and attorney fee expert John D. O'Connor of O'Connor & Associates in San Francisco were quoted in Portland Business Journal.  The news article, by Elizabeth Hayes, “Former Portland Insurer’s Law Firm Asks for $184M in Legal Fees” reports on Quinn Emanuel’s attorney fee request in the health insurers Obamacare reimbursement case.  Below is a copy of the article:

Health Republic went out of business after it took a $20 million hit when the government didn't pay it in full under the risk corridors program.  In February 2016, when Lake Oswego-based Health Republic Insurance was winding down its operations, it made an audacious move.  The small Consumer Operated and Oriented Plan, which had just 15,000 customers, took on the federal government.

Health Republic filed the first of what would become multiple lawsuits brought by insurers across the U.S. over the federal “risk corridors” program.  The cases sought to require the government’s to make good on its promise to compensate health plans that lost money on Affordable Care Act plans.

The shortchanging cost Health Republic $20 million and dealt a fatal blow to the company and dozens of other insurers.  Portland-based Moda Health took an even bigger hit than Health Republic, at $250 million, and followed Health Republic’s lawsuit with one of its own. Moda's suit worked its way to the U.S. Supreme Court, which in April ruled that the government owed U.S. insurers $12 billion.

Now Health Republic’s law firm, Chicago-based Quinn Emanuel Urquhart & Sullivan LLP, is seeking $184 million in attorney fees for the 183 clients it represented in the two class action suits it filed.  Both are related to the risk corridors but didn’t go to the Supreme Court.  The firm argues, however, that it filed a first-of-its-kind lawsuit. It “did not remain idle" while the other, non-class action cases, moved forward, but submitted multiple amicus briefs focusing on the “negative economic and societal impact that would result if the government failed to honor its commitments.”  Justice Sonia Sotomayor used that reasoning in her majority opinion, saying “the government should honor its obligations.

Quinn Emanuel, which specializes in complex litigation, represented Health Republic and the other insurers in the class actions on a contingency basis, meaning it would receive a fee only if they win the cases.  Quinn Emanuel’s “stellar performance” resulted not only nearly $4 billion for its insurer clients, but 100 percent industrywide recovery, the firm argues in its 40-page motion for attorney’s fees filed last week in the U.S. Court of Federal Claims.

It is asking for 5 percent of the judgments in its two class actions, which it argues would be “one of the lowest percentage rates ever awarded to class counsel, even in cases with multi-billion-dollar recoveries, such as this.”

If approved, the amount would still be one of the largest fee requests for a single law firm in U.S history, according to the National Association of Legal Fee Analysis.  There have been much larger fee awards, including those in the Enron lawsuit, but they are generally split between multiple firms.  John O’Connor, a San Francisco attorney and attorney fee expert, said it’s hard to say if the court will approve Quinn Emanuel’s request.  The percentage is low, but the total amount would represent an unusually high multiple of the firm’s average hourly rate of around $1,000.

The firm put in about 10,000 hours, translating to an hourly average rate of $18,500, if the award is granted.  “You can’t say it’s totally ridiculous,” O’Connor said. “Nor can you say it’s a slam dunk that they should get it. The thing they have going for them is it’s such a small slice of the pie.”  Quinn Emanuel emphasizes in its brief that it and Health Republic took on a “substantial risk” in suing the government.  Stephen Swedlow, a Quinn Emanuel partner, did not respond to a request for comment.

In an ironic twist given the eventual outcome, Moda CEO Robert Gootee apparently agreed.  When former Health Republic CEO Dawn Bonder told Gootee she was going to file the lawsuit, he responded that she was “making a ‘bold’ choice and that he would not even consider doing so on behalf of Moda, as he thought the lawsuit had no chance of success,” according to Quinn Emanuel’s recent brief.

Moda spokesman Jonathan Nicholas declined to comment on the conversation.  “Moda did not have any contingency fee arrangement with our law firm,” he said. “Robert insisted from the very outset that a core, fundamental right was at issue here, and he determined that our company would go all in — and all alone – in an effort to see that our judicial system, at its highest level, could indeed right a wrong!”

Will Hourly Rates for Elite Firms Rise More in 2020?

July 31, 2020

A recent American Lawyer story by Samantha Stokes, “Will Billing Rates for Elite Firms Rise More in 2020?” reports that in the midst of a recession, big restructuring law firms such as Kirkland & Ellis and Weil, Gotshal & Manges continue charging premium billing rates—close to $2,000 per partner—months after the firms’ regular rate increases.  With another rate increase possibly right around the corner this year, some law firm and restructuring observers say they don’t expect many discount pressures or pushback on ballooning rates in bankruptcy court.  But rate hikes in 2020 are not a done deal, they add.

Weil said in court filings that the firm typically raises rates once per year, while Kirkland said it typically increases the hourly rate of its professionals twice a year.  Kirkland, which has earned a significant portion of the work so far in large pandemic-era bankruptcies, raised its hourly billing rates Jan. 1, according to court documents filed in the Neiman Marcus bankruptcy.  Among others, the firm is also advising JCPenney and Chesapeake Energy in their Chapter 11 cases.

From May 7 to Dec. 31 of last year, Kirkland partners were charging $1,025 to $1,795; counsel were charging $595 to $1,705; and associates were charging $595 to $1,105.  Now, both Kirkland partner and counsel rates top out at $1,845—an increase of 2.7% and 5.9%, respectively—while associate hourly rates reach upward of $1,165—a 3.6% increase.  Weil, another bankruptcy powerhouse that is handling the J.Crew and Brooks Brothers bankruptcies, also upped its rates in the last year, according to court documents filed in the J.Crew case.

As of October 2019, partners and counsel are now billing $1,100 to $1,695—the upper rate a 5.9% increase from the previous high of $1,600—while associates are charging $595 to $1,050—the upper rate a 5.5% increase from the previous high of $995 that officially pushed some Weil associates over the $1,000 per hour mark.  For example, in May, partners charged up to $1,695 per hour and associates charged up to $1,050 for work done in the J.Crew bankruptcy, according to the first monthly fee statement.

Akin Gump Strauss Hauer & Feld, another top bankruptcy firm that earned work on the Chesapeake Energy Chapter 11 restructuring, increased some rates in January 2019, according to court documents filed in the ongoing but pre-pandemic Sears bankruptcy.  At the time, the highest partner rates at Akin Gump rose 3.5%, up to $1,755 per hour; highest counsel rates rose 7.2%, up to $1,420 per hour; and highest associate rates rose 5.4%, up to $975 per hour.

According to Akin Gump’s 20th monthly fee statement, filed May 30 this year, in the Sears bankruptcy—where it is representing the committee of unsecured creditors—partner, counsel and associate rates are still on par with what the firm charged a year and a half ago.  Overall, if these big firms raised their hourly rates in 2020 just as much as previous years, the partners could be charging up to $1,895 at Kirkland, $1,795 at Weil and $1,815 per hour at Akin Gump, while associates could bill up to $1,205 at Kirkland, $1,110 at Weil and $1,105 an hour at Akin Gump.

Restructuring and legal market observers have mixed opinions on whether firms will seek further rate increases this year—and by how much—although all agree that top bankruptcy firms will likely end the year with higher fees than any other given year.  Mark Medice, a law firm management consultant at LawVision who focuses on financial performance and data science, said he doesn’t think firms will have an annual adjustment to bankruptcy billing rates in 2020.  Citing the Great Recession as an example, he said he didn’t see many firms increase their rates at the onset of the recession to capitalize on increased demand for bankruptcy services and that billing rates actually dipped in the years following the recession.

“Demand [for bankruptcy practices] tends to go up when there are downturns, but as a general rule, law firms do not adjust their rates upwards during those times,” he said.  In the coming months, he said he believes it’s more likely that firms will see higher realization rates and will reduce write-downs.  Currently, firms like Kirkland, Weil, Akin Gump and others usually ask for 80% of the total fees they bill every month, according to monthly fee statements.

Lynn LoPucki, a restructuring law professor at UCLA Law, also said rate increases every year aren’t a done deal, but if they do occur, there are few stakeholders in bankruptcy court that will keep rate increases in check.  “Nobody’s controlling the fees,” he said.  “If you’re a debtor, you’re not going to control the fees because you’re spending other people’s [the creditors'] money.”

Some creditors, who are last in line to get paid, may begin objecting to large firm fee applications, he said.  A group of vendors, for instance, pushed back in late 2019 on the millions Weil billed in the Sears bankruptcy, but the judge overruled objections.  “There will be creditors that try to push back because the rates are so great, and the response of judges to that is to be to toss them some scraps,” LoPucki said.  In the bankruptcy of aerospace-parts manufacturer Wellman Dynamics Co., for instance, an Iowa bankruptcy judged in 2017 called Weil’s fees "staggering" and cut its multimillion-dollar payment in half, according to the Wall Street Journal.  A U.S. trustee found Weil also overbilled mortgage servicer Ditech last year.

While judges are required to review every fee in a Chapter 11 case, LoPucki said he believes they are not inclined to object to rising rates, even during a recession.  If bankruptcy judges begin to say no to fee increases, “firms will start taking their cases to different courts,” he said, meaning less interesting work for judges as well as fewer filing fee dollars flowing into a jurisdiction.  “Fundamentally, this situation can’t change, because if one judge in one city says no to the fees, the cases just go to a different city,” LoPucki said.  “It’s hard to get across what a totally insane system this is.”

Virgin Urges Ninth Circuit to Vacate Attorney Fees in Wage Case

July 30, 2020

A recent Law 360 story by Linda Chiem, “Virgin Asks 9th Circ. To Ax $6M Atty Fee in Wage Spat” reports that Alaska Airlines and Virgin America asked the Ninth Circuit to vacate nearly $6 million in fees awarded to attorneys for a certified class of flight attendants who won $77 million in a long-running dispute over pay and rest breaks.  Virgin America Inc., which merged with Alaska Airlines Inc., filed an opening brief with the Ninth Circuit claiming that U.S. District Judge Jon S. Tigar in January signed off on $5.7 million in fees for the plaintiffs' attorneys without digging into whether their hours and calculations were properly justified.

The attorneys, who initially requested $13.2 million, but were awarded less than half that, are representing named plaintiff Julia Bernstein and flight attendants alleging Virgin America flouted California labor laws by not paying them for all hours worked, including overtime, and denying them state-mandated meal and rest breaks.  Judge Tigar had acknowledged that the attorney fee application was too vague, saying "the level of specificity at which plaintiffs have documented their time makes it difficult or impossible for Virgin to raise certain challenges that courts have found justified partial reductions in other cases."

Despite that critical flaw, according to the airline, the court accepted all of the hours that the plaintiffs' counsel claimed and awarded a $5.7 million fee award, subject to only a 5% general reduction in hours.  "That decision cannot stand," the airline said in the brief.  "Because the lack of detail in the fee application deprived Virgin of a fair adversarial process and did not allow meaningful judicial review, the fee award must be vacated for that reason alone."

Moreover, the class counsel's flawed lodestar consisted of nearly 4,500 hours of billable time, most of which was billed at an absolute "top of the market" rate of $750 per hour, according to the brief.  On top of that, Judge Tigar improperly approved $251,000 in court-related expenses for the plaintiffs' attorneys, Virgin argued.  "Most of the expenses that the district court awarded were for 'expert fees,' which are not recoverable under black-letter California law," the airline said.  "In addition, the district court erred by ignoring the rule that a party cannot recover expenses without submitting an itemized list and accompanying receipts.  The district court did not identify any exception to this rule, and it candidly acknowledged that plaintiffs' counsel failed to comply with it.  But the court awarded expenses anyway."

NALFA Welcomes Jim Warren

July 23, 2020

NALFA welcomes Jim Warren to our membership.  Jim Warren of Carroll Warren & Parker PLLC in Jackson, Miss. is a fully qualified attorney fee expert.  Jim has an active litigation practice...

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