Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Legal Bills / Legal Costs

Article: How the Contingency Fee Provides Access to Justice

May 20, 2019

A recent article in Legal Intelligencer by Samuel H. Pond, “The ‘Great Equalizer—How the Contingent Fee Provides Access to Justice” reports on the benefits of the contingency fee model in civil litigation.  This article was posted with permission.  The article reads:

The core principle of our legal system is that all people, no matter their station in life, can bring their disputes to be heard in a court of law.  That’s in theory, in practice, however, justice is not always so available to those with limited means.  However, one innovation has somewhat evened the playing field—the contingent fee agreement.

Leveling the Playing Field

The pursuit of justice can be expensive, with litigation costs and attorney fees piling up quickly.  The average billing rate in 2018 for Pennsylvania attorneys was $262 per hour, according to Clio, a Canadian research firm tracking legal industry metrics.  Corporations and insurance companies often have unlimited resources at their disposal during litigation, putting the average person at a great disadvantage.

Under a contingent fee agreement, a client in a civil matter does not need to pay an attorney unless the case is successful.  Often, attorneys will also front all litigation costs.  Thus, the client does not have to pay anything out of their pocket.  Thus, all fees and costs are paid out of the recovery.

‘Not Going to Get Bullied’

This arrangement has greatly expanded access to the justice system and allowed those with modest means obtain the justice they deserve.  It’s the only way an injured worker can go up against a big insurance company and feel comfortable and confident. You’re not going to get bullied.  It’s a great equalizer.

The contingent fee has allowed ordinary people to sue large corporations and influential entities and receive monetary compensation.  In addition, the contingent fee has given credence to the idea all should be held accountable for their actions and no one is above the law.

Incentivizing Success

In addition, the contingent fee ensures that a lawyer’s interests are fundamentally linked to those of the client.  It incentivizes lawyers to provide the best quality service to clients because if they fail, they will not get paid.

The contingent fee agreement also discourages the filing of frivolous matters.  It is highly unlikely that an attorney on a contingent fee agreement will take on a case that lacks merit because doing so would mean investing thousands of dollars on a case with no hope of recovery.

Contingent fees restore some fairness to the system.  A powerful corporation with its economic clout and high-priced attorneys cannot simply steamroll over a litigant of modest means.  The average person can still get a fair shake by hiring a worthy champion to take up their cause.

Samuel H. Pond is the managing partner at Pond Lehocky Stern Giordano, the a workers’ compensation firm.  For more than 30 years, he has been representing workers injured on the job.  He is also the host of the Legal Eagles radio show, which aims to educate the public on the law.

Legal Fees in Puerto Rico Bankruptcy Under Review

March 13, 2019

A recent Caribbean Business story by Eva Llorens Velez, “Legal Fees in Puerto Rico Bankruptcy Drop,” reports that the examiner of fees charged by lawyers and professionals in Puerto Rico’s bankruptcy said fees have dropped to $71 million for the June to September period compared with the previous four-month period.  Fee examiner Brady C. Williamson resubmitted to the court a proposed order imposing additional standards to collect fees.  He also proposed an order setting procedures for interim compensation, all of which he said could be tackled in the omnibus hearing set for April.

At the Dec. 19, 2018, omnibus hearing, the court denied without prejudice the fee examiner’s motion to impose additional presumptive standards.  The new proposal incorporates comments from professionals.  However, it maintained a 5 percent a year limit on rate increases for partners/shareholders and a 7 percent-a-year presumptive limit on “step,” or seniority, increases for associates.

Through the interim period that ended in September, firms subject to the Puerto Rico Oversight, Management and Economic Stability Act’s (Promesa) fee-review process have requested more than $306 million in total interim compensation, at least $5.9 million of the total attributable solely to rate increases, Williamson said.  “That is the amount requested to date that, with or without specific client and Court approval, is the direct result of increases in the hourly rates charged at the outset of each professional’s engagement,” he explained.

Through the third interim period (February through May 2018), the collective and cumulative rate increases totaled almost $4 million.  While the 2018 cost increases for the 50 largest firms exceeded 7 percent, according to a Citi report, Williamson said the goal is not to try to regulate professional revenue or profit, but to suggest boundaries for prospective hourly rate increases that comply with Promesa’s reasonableness standards and seek to manage both the immediate and long-term impact on the cost of the proceedings.

At the December hearing, the court noted the “unique situation” presented to professionals by these proceedings, asking the fee examiner to reconsider the initial rate increase recommendations and noting a 2 percent annual rate of inflation in New York, where most of the law firms are located.

The fee examiner said the Feb. 15 decision by the U.S. Court of Appeals involving the composition of the Promesa-established fiscal oversight board for the island “does not conclude that constitutional litigation, nor have all of its consequences yet been felt or appreciated,” and that he “already has engaged professionals on the continuing need to avoid duplicative efforts with further appeals or related activity involving the legislative and executive branches of the federal or Commonwealth governments.”

Williamson also said a particular difficulty inherent in Promesa’s Title III structure, given the board’s role as debtor representative, has been identifying the “client” of each financial adviser.  For example, Deloitte Financial Advisory Services and Ernst & Young LLP are both financial advisers to the commonwealth, with Ernst & Young LLP reporting to the board and Deloitte FAS reporting to Puerto Rico’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym).  Many financial professionals, whether working for a flat fee or an hourly fee, provide advice on one or more aspects of a debtor’s finances.  However, for example, Ankura Consulting Group is the financial adviser to the Puerto Rico Electric Power Authority and no other debtor.

Deepwater Horizon Defendants Drown in Legal Fees

March 11, 2019

A recent Texas Lawyer story by Steven Meyerowitz, “Deepwater Horizon Defendants Drown in Legal Fees,” reports that the Supreme Court of Texas has ruled that an insurance policy issued to the minority owners in the Deepwater Horizon operation did not limit their right to recover for the legal fees and related expenses they incurred defending against liability and enforcement claims as argued by the policy’s underwriters.  Pursuant to a joint venture arrangement with BP entities and MOEX Offshore 2007 LLC, Anadarko Petroleum Corporation and Anadarko E&P Company, L.P. (together, “Anadarko”) held 25% of the ownership interest in the Macondo Well in the deep waters of the Gulf of Mexico.

During drilling operations on April 20, 2010, the well below the Deepwater Horizon drilling rig blew out.  Over the ensuing months and years, numerous third parties filed claims against the BP entities, Anadarko, and MOEX, seeking damages for bodily injury, wrongful death, and property damage.  Many of those claims were consolidated into a multi-district litigation (MDL) proceeding in the federal district court for the Eastern District of Louisiana.  The federal government also pursued civil penalties under the Clean Water Act and a declaratory judgment of liability under the Oil Pollution Act of 1990.

The MDL court granted a declaratory judgment, finding BP and Anadarko jointly liable under the Oil Pollution Act.  BP and Anadarko then reached a settlement agreement in which Anadarko agreed to transfer its 25% ownership interest to BP and pay BP $4 billion.  In exchange, BP agreed to release any claims it had against Anadarko and to indemnify Anadarko against all other liabilities arising out of the Deepwater Horizon incident.  In light of that agreement, the United States agreed not to pursue claims against Anadarko.  BP, however, did not agree to cover Anadarko’s legal fees and other defense expenses, which totaled well over $100 million, according to Anadarko.

Before the incident, Anadarko had purchased an “energy package” insurance policy through the Lloyd’s London market.  The policy provided excess liability coverage limited to $150 million per occurrence.  The policy did not require the underwriters to defend Anadarko against liability claims.  But it did require the underwriters to reimburse Anadarko for expenses it incurred providing its own defense.  The underwriters contended, however, that an endorsement within the policy reduced the $150 million limit when — as in this case — Anadarko’s liability arose out of the operations of a joint venture.  Based on the product of Anadarko’s percentage interest in the Deepwater Horizon joint venture (25%) and the total coverage limit under Section III ($150 million), the underwriters contended that this endorsement capped their excess coverage liability at $37.5 million.

Anadarko agreed that the Joint Venture Provision reduced the amount the Underwriters had to pay to cover Anadarko’s joint venture liabilities to third parties.  Anadarko contended, however, that the Joint Venture Provision capped the excess coverage only for Anadarko’s liabilities to third parties, and not for its “defense expenses.”  Therefore, it argued, in addition to the $37.5 million already paid, the underwriters still had to pay all of Anadarko’s defense costs up to the total $150 million limit.  When the parties could not resolve their dispute, Anadarko filed suit, seeking payment of its defense expenses up to $112.5 million ($150 million minus the $37.5 million already paid).

The trial court denied the Underwriters’ summary judgment motion and granted Anadarko’s summary judgment motion in part.  Finding the Joint Venture Provision unambiguous, the trial court concluded that the clause at issue in the Joint Venture Provision applied to and limited coverage for Anadarko’s defense expenses, but that an exception also applied and increased the Underwriters’ liability to “the combination of Anadarko’s working interest percentage ownership and the additional percentage for which Anadarko becomes legally liable, . . . subject only to the limits of the policy after subtracting monies that Underwriters have already paid.”

The court of appeals reversed the trial court’s judgment and rendered judgment for the Underwriters.  The dispute reached the Texas Supreme Court.  The court reversed the court of appeals’ judgment, rendered judgment granting Anadarko’s motion for partial summary judgment, and remanded the case to the trial court.  In its decision, the court explained that the primary issue was whether the clause at issue in the Joint Venture Provision limited Section III’s excess liability coverage only for amounts Anadarko was required to pay in response to third party claims or also for amounts Anadarko paid as defense expenses.  The court concluded that the clause did not limit the coverage for defense expenses and that, as a result, it did not have to address any exception.

The court observed that the clause stated that “the liability of Underwriters under this Section III shall be limited to” $37.5 million (that is, the product of Anadarko’s 25% interest in the joint venture — and $150 million — the total limit under Section III).  With a focusing on specific policy language, the court found that the clause only limited the underwriters’ liability for Anadarko’s “liability . . . insured,” which did not include its defense expenses.

The court was not persuaded by the underwriters argument that the reference to Anadarko’s “liability . . . insured” included defense expenses and that even if the term “liability” did not include defense expenses, the clause limited their liability for all of Anadarko’s Ultimate Net Loss, which included defense expenses.

The court observed that, although the policy did not define the term “liability,” it consistently distinguished between Anadarko’s “liabilities” and “expenses.”  Based on the policy’s usage of the term “liability” and its distinguishing references to “expenses,” the court concluded that, consistent with the term’s “common meaning within insurance and other legal contexts,” “liability” referred in this policy to an obligation imposed on Anadarko by law to pay for damages sustained by a third party who submitted a written claim.

The case is Anadarko Petroleum Corp. Houston Casualty Co., No. 16-1013.

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.

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...

Read Full Post