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Category: Lawyering

NALFA: Some Class Counsel Turn to Fee Experts When Seeking Fees

February 27, 2017

Attorney fees are often a bone of contention in class actions.  In fact, upon settlement, the only disputes usually to surface center around the attorney fees.  Upon settlement approval, class counsel file somewhat self-interested fee requests with the court.  Here, even when prepared with the proper standard of care, these fee requests appear bias and self-serving.  Indeed, these self-seeking requests for fees are a source of frustration for the courts and often contested by professional fee objectors.  These internal dynamics can drag class action litigation on for years.  Recently, some class counsel have even grudgingly low-balled their fee requests to avoid this confrontation and delay in payment (see Race to the Bottom: Class Action Lawyers are Low-Balling Fee Requests).  This self-reduction in fees is short-sighted and sets a bad precedent for future class action cases.

In order to break this stalemate, some class counsel are turning to attorney fee experts.  Attorney fee experts are fully qualified expert witnesses who provide expert declarations on the reasonableness of attorney fees and expenses in underlying actions.  They are skilled litigators with subject matter expertise and are highly qualified on a range of fee and billing issues like hourly rates, billing practices, fee award factors, litigation management, and lawyering just to name a few.  A qualified, outside fee expert provides a fee-seeking attorney with an independent, unbiased, and objective analysis of the attorney fees and expenses in the underlying class action.  Fee experts can manage the entire fee application process, provide an expert report/opinion, or advise and consult on fee matters.  Some fee experts include law professors and former judges.

Hiring a qualified fee expert during the settlement phase shows the court and would-be professional fee objectors that you are taking the setting of attorney fees in a constructive and impartial manner.  Retaining a fee expert shifts the focus from an internal and rather self-assured fee analysis to an outside, objective, and peer review-driven fee analysis.  By relying on a qualified fee expert, class counsel can defuse the existing tensions within the class action and speed up the recovery of attorney fees.  What is more, courts are more likely to rule in favor of a fee analysis provided by a qualified and disinterested expert, rather than someone with a financial stake in the outcome.

Judge Wants Review of Legal Bills After Inadvertent Billing Practices

February 11, 2017

A recent ABA Journal story by Debra Cassens Weiss, “Judge Wants Review of Legal Bills After Firm Reveal 9,000 Hours of ‘Inadvertent’ Double-Billed Time” reports that a federal judge in Boston is proposing the appointment of a special fee master to review the accuracy of legal bills submitted by several prominent law firms—and is suggesting the firms pay the costs of the probe.

U.S. District Judge Mark Wolf proposed in the Feb. 6 memorandum and order that up to $2 million in special fee master costs be paid from nearly $75 million in attorney fees that had been awarded to plaintiffs’ counsel in their settled suit against State Street Bank, the Boston Globe reports.  The class action had contended the bank overcharged its customers in connection with certain foreign exchange transactions.

Wolf cited a report by the Boston Globe Spotlight team that found three law firms submitted some charges for the same lawyers, often with differing hourly rates.  Some of the hourly rates listed in the legal filings were as much as 10 times more than what the lawyers generally earned, according to the newspaper’s report.

One of the firms, the Thornton Law Firm of Boston, submitted bills showing an hourly rate of $425 for staff attorneys, but one of those lawyers told the Boston Globe he was paid only $30 an hour for his work.  The Thornton firm was recently in the news as a result of a Boston Globe report that claimed partners at the firm who made Democratic campaign donations were reimbursed with law firm bonuses.

Wolf proposes that recently retired U.S. District Judge Gerald Rosen of Michigan be appointed as special fee master to review the accuracy and reliability of representations made in the legal bills, to report on whether misconduct occurred, and if so, to recommend whether the misconduct should be sanctioned.

Nine law firms shared in the legal fees.  Besides Thornton they included class-action law firms Labaton Sucharow, the lead law firm in the State Street case, and Lieff Cabraser Heimann & Bernstein.  According to the Globe, Thornton has a “lucrative partnership with Labaton Sucharow in which Thornton often finds potential legal clients for the much bigger New York firm.”

After Globe reporters contacted Labaton Sucharow for its story on the legal fees, the law firm submitted a letter to Wolf acknowledging “inadvertent errors” in written billing submissions.  Seventeen staff lawyers in Thornton’s report were also listed as staff attorneys on Labaton’s report, the letter said.  And six of the staff attorneys in Thornton’s report were also listed as staff attorneys on the report by Lieff Cabraser.

In all, the firms overbilled by about $4 million and double counted about 9,000 hours, the letter revealed.  The duplicative time has been removed, the letter said, and when differing billing rates were listed for a given staff attorney, the time will be claimed at the lower rate.

UK Judge Rules $20M Legal Bill ‘Highly Unrealistic’ in Fee Dispute Case

February 10, 2017

A recent American Lawyer story by Chris Johnson, “Dechert Client Fee Dispute to Proceed After Court Rules $20M Legal Bill ‘Highly Unrealistc’,reports that Dechert has been dealt a blow in its long-running fee dispute with a former client, with a High Court judge in the U.K. ruling that the company can proceed in its attempt to recover millions of dollars from the firm.

Eurasian Natural Resources Corporation accused Dechert of "systematic and gross overcharging" after the firm billed the London-based mining company $20.3 million for 23 months of work relating to a criminal investigation by the U.K.'s Serious Fraud Office.  The judge said that Dechert's fee estimates were "considerably awry on every occasion" and were based on "highly unrealistic" assumptions.

The dispute will now move to formal cost assessment proceedings, which an ENRC spokesman said are likely to take place early next year.  ENRC, which is being represented by London disputes boutique Signature Litigation, is disputing $14.5 million of Dechert's total fee.

The ENRC spokesman said the company was "pleased" with the ruling.  "We have always been concerned about the level of charging by Dechert, but felt unable to challenge these while our internal investigation was underway," he added.  A Dechert spokeswoman said: "We look forward now to proceeding with the costs assessment process."

The judgment also revealed that DLA Piper, which was originally hired by ENRC to work on the internal corruption probe, had estimated that its fees on the matter would come to around $500,000.

DLA's lead partner on the dispute, Neil Gerrard, took the case with him to Dechert when he joined the firm in 2011.  Dechert was subsequently fired by ENRC in April 2013, with the company initiating proceedings against the firm that fall.

In a letter to The American Lawyer last May, Dechert general counsel Arthur Newbold said that ENRC's allegations were "outrageous and unfounded."  Dechert had previously failed in two separate attempts to have the cost proceedings heard in public.  ENRC successfully argued that a public hearing could have potentially damaging consequences for the company's ongoing fraud office investigation.

Best Practices Strengthen Your Standing in Legal Fee Analysis

February 5, 2017

Legal fee analysis is the comprehensive review and analysis of attorney fees and costs in an outside legal matter.  Professionals who perform outside legal fee analysis include attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors.  Once known as legal auditing, a rather groundless, self-qualifying, and haphazard field, legal fee analysis has now matured and expanded into a new fully developed practice area of law, thanks in part to organization and professionalization.

Any new field of analysis, let alone one that deals with the sometimes contentious aspects of legal fees, requires some manner of professional ethics.  Emerging professions, like legal fee analysis must be grounded by some degree of qualification and some elements of generally accepted principles.  Indeed, professional standards can help ensure that professionals within a given field are qualified, competent, and ethical.

As part of our mission, NALFA has established Best Practices in Legal Fee Analysis.  This professional code of conduct was developed over several years with input and consensus from thought leaders from across the profession.  These peer review driven standards strengthen the legal fee analysis profession by ensuring integrity in the process and reliability in the results.  These best practice measures promote values such as ethics, independence, and professional development.  These best practice measures represent the mainstream of legal fee analysis.

As a 26 U.S.C. § 501(c)(6) organization, NALFA's statutory obligation is to improve the lines of business within the legal fee analysis profession.  Yet some old vestiges from the legal auditing era still remain.  As such, we encourage all within the legal fee analysis profession (whether a member or not) to read, understand, and follow Best Practices in Legal Fee Analysis.  Following these best practice measures only strengthens your standing within the legal fee analysis community.  We'd also encourage clients of outside legal fee analysis to choose a professional who follows Best Practices in Legal Fee Analysis.

For more on Best Practices in Legal Fee Analysis, visit http://www.thenalfa.org/Best-Practices/

The Possible Consequences of Pursuing Outstanding Legal Fees

January 18, 2017

A recent New York Law Journal article, “The Possible Consequences of Pursing Outstanding Legal Fees,” by Sue C. Jacobs of Goodman & Jacbos LLP in New York, considers the consequences of pursuing clients for unpaid legal fees.  This article was posted with permission.  The article reads:

The attorney client relationship is not one that always ends well.  The client is able to discharge the attorney at any time, but outstanding legal fees must be addressed.  The retainer letter should address the issue of outstanding legal fees and expenses or the contingency fee arrangement.  Normally the retainer letter provides the client is responsible for all reasonable fees and expenses incurred to the termination date.  If the fee arrangement is changed during the representation, the court will closely scrutinize it.  The former client may not promptly pay the agreed-upon outstanding legal fees or may claim the revised fee or contingency schedule was made improperly or under duress.

After several requests for the fees and notice to the client pursuant to Rule 137 of Rules of the Chief Administrator of the Court, the client may agree to mediate or arbitrate the dispute.  If the client either ignores the correspondence or refuses to pay the fees, the attorney may determine to commence an action seeking the legal fees.  What follows is a long, unhappy, expensive experience for each party.

The attorney, generally acting pro se, commences an action, the client retains counsel and alleges a counterclaim for legal malpractice with a demand for money damages and/or causes of action for breach of contract, breach of fiduciary duty and other possible causes of action a creative lawyer conceives.

The Account Stated

In a typical case the plaintiff law firm sues for unpaid fees.  Defendant, the former client, answers and denies the fees are due and asserts at least one counterclaim based on legal malpractice.

The relationship may have extended over several months or years.  The complaint will allege the fees sought are reasonable and the work done was necessary.  The complaint will probably allege either the fees were explicitly or implicitly approved.  If so, the law firm alleges the fees sought are for an "account stated," or counsel is entitled to fees on a theory of quantum meruit.  For an "account stated" to be established there must be an agreement, either express or implied from the retention of the account or invoice rendered that remains without objection for an unreasonable amount of time or generally prior invoices were paid.

The client may contest there is an account stated by claiming he never approved the invoices or the work was unnecessary.  The law firm may allege the client either approved of the invoices or failed to timely object after receiving them.  In two matrimonial actions in which the attorneys sought and were denied summary judgment the clients each claimed they signed the invoices to signify approval only under duress.  The courts held that the former client's affidavit, alleging counsel told them work would not continue until the invoices were signed, raised an issue of fact as to whether the defendant "acquiesced in the correctness of the invoices."

Counterclaim for Malpractice

The defendant's answer will frequently contain at least one counterclaim for malpractice.  In order for the malpractice claim to be effective the client will have to establish that "but for" the attorney's negligence he would have prevailed in the underlying action; the negligence was the proximate cause of the loss and the client suffered actual and ascertainable financial damages.  Base legal assertions of malpractice will not suffice and are not presumed to be true.

In one action, the law firm was not liable for legal malpractice in a matrimonial action after the client established the law firm negligently failed to timely respond to discovery demands.  The law firm proved that plaintiff was not precluded from introducing certain evidence at trial after the discovery responses were provided during a deposition.

Fiduciary Duty, Contract Claims

Courts look at claims of breach of contract and fiduciary duty to determine if they are duplicative of the cause of action for malpractice.  One court recently permitted a cause of action for breach of fiduciary duty based on allegations that the attorney disclosed confidential information in the complaint to recover legal fees.

Unconscionable Conduct

In an occasional case, the parties may agree to a new fee schedule or contingency fee arrangement during the representation.  Courts will look at these revisions with special scrutiny.  In In Re Lawrence, the Graubard Miller firm (Graubard) represented the defendant's wife, Alice Lawrence (Lawrence), and her children in estate litigation for more than 20 years after Sylvan Lawrence, a well-known real estate developer, had died.  Lawrence maintained she was very sophisticated, "tough," intelligent and knowledgeable about real estate and litigation.  She claimed she managed her own investment portfolio and "'never' consulted with her attorneys or children about business matters but rather kept her own counsel and 'trusted nobody.'"

After she unsuccessfully tried to negotiate a settlement directly with the executor's children, Lawrence complained to Graubard about the law firm's hourly legal fees to date, totaling more than $18 million.  She requested that the fee arrangement be altered.  The law firm suggested a contingency fee arrangement, a draft which the firm provided to Lawrence.  After Lawrence and her accountant reviewed it, she suggested an additional paragraph that the law firm accepted.

The parties signed the agreement with a contingency fee of 40 percent of any proceeds collected.  Soon after the contingency agreement was signed evidence described as a "smoking gun" emerged indicating malfeasance by the executor, and the estate settled for $100 million.

Graubard sued Lawrence in Surrogate's Court after Lawrence refused to pay her share of funds based on the revised retainer agreement.  Lawrence then sued Graubard in Supreme Court, claiming that the revised retainer was unconscionable and sought its rescission.  After many appeals, the Court of Appeals held the agreement was not unconscionable but stated the courts, "give particular scrutiny to fee arrangements between attorneys and clients," placing the burden on attorneys to show the retainer agreement is "fair, reasonable, and fully known and understood by their clients[.]"

The court acknowledged that fee arrangements revised during the representation are to be reviewed "with even heightened scrutiny, because a confidential relationship has been established and the opportunity for exploitation of the client is enhanced."  It is the attorney's burden to establish the validity of the changed fee agreement.

The court based its decision on a number of findings.  It held that the new agreement was not procedurally unconscionable since the evidence showed Lawrence "fully understood" its terms.  The court noted Lawrence was involved in "every detail" of her case; had submitted a draft of the new agreement to her accountant to review; and that the estate's expert witness testified that Graubard had provided Lawrence with "'a tremendous amount of detail'" concerning her claims, "including their likelihood of success and potential recoveries."  That expert confirmed that Graubard had given Lawrence "a lot" of the information she needed at the time the new agreement was being negotiated.

To determine whether the revised retainer was "unreasonably excessive" and substantially unconscionable, the court looked "primarily" at the risk borne by the attorneys and the value of those services in proportion to the overall fee.  The court determined that Graubard had considerable risk, since Lawrence frequently fired and threatened to fire her attorneys and a client may terminate the representation at any time leaving the attorneys only to recover in quantum meruit.

The court also noted that the value of Graubard's service was to be judged not merely by the time devoted to the representation but also by the result.  Lawrence ultimately recovered $111 million.  The court emphasized Graubard's diligent work in uncovering the "smoking gun" evidence.  Although the Court of Appeals held the 40 percent contingency fee agreement was not unconscionable, it was not complimentary about the parties' conduct.


The action for attorney fees is one in which all the parties' dirty laundry is aired.  An attorney who sues for fees can expect to litigate a malpractice claim.  If the fee arrangement is revised during the representation, the agreement is subject to heavy scrutiny to determine if the client fully understood the changes and whether the attorney's fees were out of proportion to the attorney's degree of risk and the result obtained.

Sue C. Jacobs is a member of Goodman & Jacobs. Howard M. Wagner, an associate at the firm, assisted in the preparation of this article.