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Category: Legal Bills / Legal Costs

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.

Article: Defense Costs Coverage 101

January 16, 2019

A recent New York Law Journal article by Howard B. Epstein and Theodore A. Keyes, “Defense Costs Coverage 101,” reports on defense fees and costs in the insurance coverage practice area.  This article was posted with permission.  The article reads:

Upon receipt of a claim, the risk manager or in-house counsel should coordinate with the company’s insurance broker to make sure notice is submitted to the insurer.  However, even earlier, in anticipation of claims, counsel should review the terms of the relevant insurance policies and develop an understanding of the defense cost coverage provisions.

An insurance company’s obligation to pay defense costs incurred by its insured in response to a claim typically falls into one of two categories: (1) a duty to defend or (2) a duty to advance defense costs. The duty to defend is most often included in general liability (GL) policies while the duty to advance is more likely to be included in directors’ and officers’ liability (D&O) policies.  Policy forms can vary, however, and a GL or D&O policy may contain either type of defense obligation.  In addition, specialty insurance policies covering, for example, employment practices or pollution liability risks may contain either a duty to a defend or duty to advance clause.

Regardless of the type of insurance policy, an insurer may be willing to consider including either defense clause if requested by the broker or the insured.  While each of these clauses provides insurance for defense costs incurred by the insured, there are distinctions worth considering which may dictate which clause is preferable for a given insured.

Duty to Defend

While case law varies to some degree from state to state, the duty to defend is broader than the duty to advance under New York law and the law of the majority of other jurisdictions.  It is also well-settled that the duty to defend is broader than the insurer’s duty to indemnify for loss under a policy. The duty to defend is triggered “whenever the allegations in a complaint against the insured fall within the scope of risks undertaken by the insurer, regardless of how false or groundless those allegations may be.” Seaboard Surety Company v. Gillette Company, 64 N.Y.2d 304, 486 N.Y.S.2d 873 (1984).  Even where some asserted claims fall outside the scope of covered risks, as long as some of the claims are within the scope of coverage, the insurer will have a duty to defend.  Once triggered, the insurer is required to pay defense costs on behalf of the insured.

While the duty to defend is broader than the duty to advance, it also gives the insurer control over the defense of the claim.  Typically, where a policy contains a duty to defend, the insurer will have the right to appoint defense counsel.  Thus, with a duty to defend policy, the insured gets the benefit of broad defense coverage but gives up the right to choose defense counsel and, effectively, control of the defense.

An exception to this rule, in most jurisdictions including New York, is that where there is a conflict of interest between the insured and the insurer, the insured is entitled to select independent defense counsel.  Public Service Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 442 N.Y.S.2d 422 (1981).  In the case of such a conflict, the insurer is responsible to pay the reasonable defense fees of independent counsel.

Duty to Advance Defense Costs 

In contrast to the duty to defend, the duty to advance merely requires the insurer to reimburse the insured for costs incurred in defense of claims.  Moreover, while the duty to defend requires the insurer to pay defense costs on behalf of an insured whenever the claims alleged fall within the scope of the risk insured, the duty to advance only requires the insurer to advance defense costs for covered claims.

Policies that contain a duty to advance clause generally require the insurer to advance defense costs on an unspecified “timely basis” or within a specified period of time that can range from 30 to 120 days after submission of invoices.  Such policies also typically permit the insurer to allocate defense costs to covered and uncovered claims and thus, in some cases, provide a basis for the insurer to advance only a percentage of the defense costs.  In addition, a duty to advance is conditional—in the event that it is subsequently determined that there is no coverage for the claims, the insurer may have a right to seek recoupment of the defense costs from the insured.

On the other hand, in the context of a duty to advance, the insured is typically entitled to select its own defense counsel and has control of the defense as well as the responsibility to defend the claim.  In addition, a duty to advance will typically be triggered by a written demand seeking monetary relief whereas a duty to defend, in some policies, will only be triggered by an actual suit.

Key Considerations

Whether a duty to defend or duty to advance is a better fit for a particular insured may depend on several factors including the insured’s profile and the types of potential claims.  For example, a cost-conscious insured may prefer a duty to defend because defense costs will be paid directly by the insurer and because the insurer is more likely to pay 100 percent (or close to 100 percent) of the defense costs above the applicable deductible or retention.  In contrast, under a policy with a duty to advance, there is likely to be considerable lag time between the submission of legal invoices and payment by the insurer, and there is also a stronger possibility that the insurer will pay less than 100 percent of the invoices—either based on an allocation between covered and uncovered claims or persons or based on the insurer’s defense counsel guidelines.

Where choice of counsel is important to the insured, a duty to advance will likely be the preferred option.  Choice of counsel may be of primary importance to an insured if the insured has a relationship with counsel in whom they have developed confidence.  Similarly, if the claims at issue require a particular expertise or in-depth understanding of a specific industry, the insured may believe it is better positioned to select counsel than the insurer.  Likewise, where the claims asserted threaten the continued viability of the insured’s business, the insured will likely prefer to retain counsel with whom they have substantial experience or counsel with a reputation for expertise in the relevant area.

While a duty to advance clause typically grants the insured the right to select counsel, in some cases selection of counsel will be subject to insurer approval, such approval not to be unreasonably withheld.  In the case of either a duty to defend or advancement policy, it may also be possible to negotiate pre-approval of defense counsel.

Where control of the defense is the primary concern, a duty to advance policy will likely be a better fit for the insured.  Control may be the primary concern where the insured is involved in a regulated industry and where it may be the subject of investigations or claims by government agencies.  Similarly, where the insured operates in an industry in which litigation is relatively common or routine, the insured may prefer to have control over its defense.  Likewise, where a claim concerns private, confidential or even potentially embarrassing issues, the insured will likely prefer to have control of the defense.

Timely Notice and Tender

In any event, regardless of the type of defense obligation, the risk manager or in-house counsel should be sure to give timely notice of claim in order to avoid jeopardizing the right to coverage.  In addition, it is crucial to give notice as soon as possible because an insurer’s obligation to pay defense costs is not typically triggered until notice has been submitted.  So while a couple of weeks’ delay in providing notice may not jeopardize coverage, the defense costs incurred prior to the notice will not be recoverable from the insurer.  Further, to the extent that an opportunity for early settlement negotiations may arise, it will be necessary to coordinate those discussions with the insurer.  Consequently, notice should always be provided before any significant defense costs are incurred.

Howard B. Epstein is a partner at Schulte Roth & Zabel, and Theodore A. Keyes is special counsel at the firm.

Insurer on Hook for Failing to Pay $4M in Legal Fees in Email Scanning Case

October 19, 2018

A recent Corporate Counsel story by Ian Lopez, “Insurer on Hook for Failing to Foot Yahoo’s $4M Outside Counsel Bill in Email Scanning Case,” reports that a federal judge in California has ruled that Yahoo’s insurer failed to defend and indemnify the company by refusing to foot $4 million in outside counsel fees from litigation over the tech company’s practice of scanning user emails for advertising purposes. 

In an order on motions for summary judgment, U.S. District Judge Edward Davila of the Northern District of California wrote Yahoo was “largely correct” in assuming legal fees incurred in a consolidated 2016 class action were covered under a “personal injury” policy purchased from National Union.  The insurer had argued Yahoo’s costs didn’t fit within the policy’s definition of a personal injury as damages accrued via the “oral or written publication … of material that violates a person’s right to privacy,” a view that Davila said is “incorrect.”

Settled in 2016, the consolidated case is one of three over which the liabilities under Yahoo’s National Union policies were in debate.  The other two, class actions undertaken in Marin County Superior Court and San Jose District Court in 2012, accused Yahoo of having “wiretapped … or eavesdropped upon and recorded” emails between class members, all Yahoo account holders, and other users of the company’s email services.  These actions, plaintiffs alleged, were invasions of the California Invasion of Privacy Act.

“The key finding was that [Yahoo was] not only scanning these emails, but they were sharing that private information with others for profit so that their privacy was not only violated, but it was considered personal injury because it was published to a third party,” said Joshua Bevitz, a Newmeyer & Dillion partner not affiliated with the case.

Yet Davila granted National Union’s motions that it didn’t breach the duty to indemnify in costs associated with the earlier two class actions, given the suits ended in voluntary dismissals and without any evidence of resulting payments from Yahoo.  Davila wrote that because Yahoo was never “legally obligated” to pay damages under the two earlier lawsuits, National Union couldn’t have breached its duty to indemnify under the personal injury policy.  So why bother pursuing the matter in later litigation?  Especially because, as Bevitz puts it, “someone spent a lot of money on attorney fees to get [litigation] to this point.”

Michigan Has Paid $35M in Defense Fees in Flint Water Crisis

September 4, 2018

A recent Crain’s Detroit Business story by Chad Livengood, “Flint Water Legal Bills Could Top $34.5 Million,” reports that three years after lead was discovered in Flint's water, there's no end in sight for the legal bills the state is paying private law firms to represent state officials in civil litigation and criminal prosecutions.  Private attorneys representing state health director Nick Lyon have billed taxpayers more than $1.6 million to defend a high-ranking member of Gov. Rick Snyder's cabinet facing involuntary manslaughter charges stemming from Flint's water crisis — and his trial date hasn't even been set yet.

That number is only a small part of amount the state has spent on Flint water crisis-related legal bills.  Through mid-August, the state had spent $26.5 million, while three state departments have current capacity in contracts to make that total top $34.5 million, according to public records compiled by Crain's.  Three days after a Genesee County judge ordered Lyon to stand trial last month for the suspected water-related deaths of two elderly Flint-area men, the state's Administrative Board increased the contract for Lyon's primary defense attorneys at the Grand Rapids firm Willey & Chamberlain by $1 million to $2.75 million.

The state Department of Health and Human Services, which Lyon remains in charge of while facing prosecution, has additional contracts of $400,000 each with two other law firms working to keep him out of prison — Bursch Law PLLC in Caledonia and Chartier & Nyamfukudza PLC in Lansing.

The $3.55 million budgeted for Lyon's criminal defense in a high-stakes and politically tinged criminal case brought by Attorney General Bill Schuette is seen by longtime Lansing observers as an unprecedented expense of taxpayer money.  Lyon's legal bills alone over three fiscal years exceed what Genesee County spends annually for defense attorneys who represent indigent residents.

"It's unheard of. It's beyond exorbitant," said William Whitbeck, a retired Court of Appeals judge who was paid nearly $300,000 by Schuette to evaluate charges leveled by a special prosecutor.  "If you or I were to commit a crime or even be charged with committing a crime, we'd pay our own way.  There's no reason in God's green earth why a similarly situated citizen who happens to be a state employee should be treated differently."

Schuette, the Republican nominee for governor, has run up some big bills himself in pursuit of criminal convictions of state officials he says are culpable for Flint's tainted water.  To date, Schuette's investigation, run by the Royal Oak law firm of attorney Todd Flood, has spent $6.9 million.  The Legislature has approved an additional $3.1 million for the prosecutions over the next 13 months.

Three years have passed since elevated levels of toxic lead were discovered in the city's drinking water, and, despite deep distrust from residents, public health officials have since declared the Vehicle City's tap water safe to drink again.  But there's no end in sight for the legal recriminations from the crisis that are keeping some private attorneys in Michigan busy.

Not a single trial from Schuette's litany of charges against 15 current and former local and state officials has begun, with Lyon just getting bound over for trial two weeks ago in Genesee County Circuit Court after a laborious 11-month preliminary examination in district court.

Gov. Rick Snyder's administration has spent at least $13.75 million to date on private attorneys hired to produce some 2 million pages of records for Schuette and Flood's investigation and represent the governor and at least 30 state employees in the criminal probe and subsequent court proceedings, state records show.

Richard McLellan, a Lansing attorney and ally of Lyon, said the outgoing Republican governor is "doing the right thing" using taxpayer money to defend "his people" in court.  "Yeah, it costs money.  But what is the cost of maybe going to prison for 15 years for something you didn't do?" McLellan said, referencing the prison sentence Lyon faces for involuntary manslaughter. "... What's Snyder supposed to do? Say, 'Oh, it's too much. You're just going to have to be on your own.'"

NJ Court: Attorneys Must Advise Clients of Billing Options in Fee-Shifting Litigation

August 30, 2018

A recent New Jersey Law Journal story by Michael Booth, “Lawyers Must Advise Clients of Other Options Before Billing Hourly on Fee-Shifting Case, Court Says,” reports that a New Jersey appeals court voided a retainer agreement between a lawyer and his longtime friend, saying he did not properly disclose hourly fees he would be charging for representing her in a discrimination case.  The three-judge Appellate Division panel, in a published ruling, said Somerville solo Brian Cige did not adequately explain the arrangement, which provided for an hourly billing rate and litigation costs, to his client, Lisa Balducci.

The panel said lawyers who wish to charge hourly fees for work on discrimination or other fee-shifting cases must explain to their clients that there are other competent counsel who will accept those cases on a contingency basis, and who also will advance any litigation costs.

“Ethically then, must an attorney whose fee for undertaking an LAD case that includes an hourly rate component explain both the consequences on a recovery and the ability of other competent counsel likely willing to undertake the same representation based on a fee without an hourly component?  We conclude the answer is yes,” Appellate Division Judge William Nugent said.

The lawsuit filed by Balducci claimed she never fully reviewed the retainer agreement offered by Cige but was shocked when she began receiving bills for hourly services and costs, which included a $1 fee for reviewing incoming emails and sending responses, the court said.  Balducci eventually fired Cige and hired another attorney to represent her and her son in a Law Against Discrimination claim.  The decision didn’t reveal the details of that matter,

Nugent, writing for the court, said a Somerset County Assignment Judge Yolanda Ciccone properly found that Cige violated his professional responsibility to explain the agreement’s material terms to Balducci so that she could reach an informed decision as to whether to retain him.  Thus the retainer agreement was void.  “The hearing recording in this case includes adequate, substantial, credible evidence support the court’s decision,” said Nugent.  Judges Carmen Alvarez and Richard Geiger joined in the ruling.  “There is no dearth of competent counsel attorneys willing to litigate LAD and other fee-shifting cases that do not include an hourly component.

Balducci retained Cige in September 2012 to represent her and her child in the LAD case.  Cige presented her with what he said was a standard retainer agreement stating he could charge up to $7,500 up front, plus $450 an hour.  Balducci signed the agreement despite having “concerns,” according to the decision.  Balducci began complaining when she began receiving bills from Cige for hourly services plus expenses.  He told Balducci to not worry about the bills, because he was using them for purposes of a future fee petition he would demand at the conclusion of what he believed was a successful case.

“We are friends,” Balducci, in depositions, quoted Cige as saying, according to the decision.  “I was at your wedding.  I would never do this to you.  Ignore that.  Don’t worry about.  It is standard info.”  Balducci also complained that she was devoting her time to preparing for depositions while Cige was away attending chess tournaments, the ruling said.  Balducci fired Cige after she complained that it would be impossible for her to advance tens of thousands of dollar for expert witnesses.  Balducci filed a lawsuit against Cige, and he filed a counterclaim seeking more than $286,000 in fees for work he already had done.

“The trial court properly found the agreement was unenforceable and void,” Nugent said.  “There is no dearth of competent, civic-minded attorneys willing to litigate LAD and other statutory fee-shifting cases under fee agreements that do not include an hourly component.  The number of such cases litigated in our trial courts and reported in the case law evidence this, as does—at least as to numbers—advertising on television and radio, in telephone books and newspapers, and on billboards and other media,” Nugent wrote, noting that Balducci’s current counsel in the LAD case is not charging hourly fees.

Law’s $1,000-Plus Hourly Rate Club

July 23, 2018

A recent Wall Street Journal story by Vanessa O’Connell, “Big Law’s $1,000-Plus an Hour Club,” reports that leading attorneys in the U.S. are asking as much as $1,250 an hour, significantly...

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Bitcoin for Legal Fees?

December 21, 2017

A recent Law.com story, by Ben Hancock, “What’s Next: Blockchain and Justice; Net Neutrality Fights Brews; Bitcoin for Legal Fees,” reports that the skyrocketing prices for crypto-currencies...

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