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Category: Expenses / Costs

Investor Seeks Attorney Fees in Compensation Savings Matter

September 26, 2017

A recent Law 360 story by Vince Sullivan, “Puma Investor Seeks Fees for $20M in Director-Pay Savings,” reports that a shareholder of Puma Biotechnology Inc. filed suit in Delaware seeking the payment of attorneys’ fees and expenses for his efforts in pursuing changes to the compensation packages of non-employee directors, which he says ultimately saved the company more than $20 million.  In a complaint, shareholder Paul Alan Leafstedt said Puma made changes to its director compensation plans that saved the company millions after he sent a demand letter to the board in February, but the sides could not work out a deal on compensation for attorneys he brought on in the effort.

As a result of Leafstedt’s demand letter, the company engaged an independent compensation consultant and amended its director packages to reduce awards to non-employee directors significantly.  The demand letter was spurred by the board awarding itself what Leafstedt described as “grossly excessive levels” of compensation that were allegedly nine times greater than what was appropriate.

Puma also capped director stock award and allowed shareholders to provide input on compensation procedures at annual meetings.  The company also added information about the program into its proxy statement, which were reviewed by Leafstedt’s attorneys before filing, and instituted additional corporate governance reforms relating to pay practices.

“Plaintiff’s efforts directly conferred a substantial and quantifiable benefit to Puma and its stockholders — with the compensation reductions and limits alone amounting to a savings of up to $20 million over the next five years,” the complaint said.  Leafstedt cites Delaware law that allows for fee awards where a corporate benefit results from a meritorious demand on the board in asking for attorneys’ fee and expenses related to the effort.

The compensation packages for non-employee directors of the company resulted in average annual awards in the amount of more than $1.4 million each, with each director receiving a $50,000 cash retainer and options to purchase 10,000 shares of Puma stock.  Directors who sat on a committee of the board were granted an additional option for 10,000 shares, while committee chairs could buy up to 20,000 shares.  Each newly appointed director would also receive a one-time option to buy 30,000 shares.

“The demand letter asserted that the compensation program constituted a waste of corporate assets, a breach of fiduciary duty and an unjust enrichment for the non-employee directors who agreed to accept the excessive levels of compensation they granted themselves,” the complaint said.

Puma made changes to the program that cap the annual compensation for non-employee directors at $1 million and shifted the stock option award metrics from a specific number of shares to a dollar amount.  So directors still receive a $50,000 cash retainer each year, but the annual stock option award is capped at $300,000, and committee service retainers have been switched to cash amounts ranging from $20,000 to $5,000.  Newly appointed directors will have the option to purchase stock up to an amount of $700,000.

These changes resulted from negotiations between the company and Leafstedt’s attorneys and were accomplished in May without the need to file a lawsuit.  Leafstedt filed the current complaint because the parties could not come to an agreement on reasonable attorneys’ fees for achieving the benefit that will save Puma more than $20 million over the next five years.

“Plaintiff’s counsel has expended considerable time and expense, completely at risk of loss and without remuneration, in pursuit of making the demand and subsequent negotiations, the resolution of which conferred substantial benefits to Puma and its stockholders,” the complaint said.  Leafstedt is asking for an equitable apportionment of attorneys’ fees and payment of legal expenses incurred in the pursuit of the demand and the negotiations, as well as the costs of bringing the current action.

The case is Leafstedt v. Puma Biotechnology Inc., case number 2017-0659, in the Court of Chancery for the State of Delaware.

How to Determine When Litigation Costs Include Attorney Fees

September 7, 2017

A recent Texas Lawyer article by Trey Cox and Jason Dennis, “How to Determine When Litigation Costs Include Attorney Fees,” covers attorney fee recovery in Texas.  This article was posted with permission.  The article reads:

Under the American Rule, a party may only recover attorney fees on certain narrow claims.  When a party has some claims that support the award of attorney fees and some claims that do not, then the party must segregate the recoverable attorney fees from the nonrecoverable attorney fees, as in Tony Gullo Motors I v. Chapa, 212 S.W.3d 299, 311 (Tex. 2006).  The need to segregate fees is a question of law, and the courts of appeals apply a de novo standard of review.

Similarly, when a plaintiff has multiple related claims against multiple defendants, the plaintiff is required to segregate the fees owed by one defendant from any fees incurred while prosecuting the claim against any settling defendants, according to Stewart Title Guaranty v. Sterling, 822 S.W.2d 1, 11 (Tex. 1991).

Generally, where a party has failed to properly segregate their claims, and an award of attorney fees has been erroneously awarded, the case requires remand in order to determine what attorney fees are recoverable.  However, it is important to note that the subsequent decision in Green International v. Solis, 951 S.W.2d 384, 389 (Tex. 1997), did state that a failure to segregate fees "can result in the recovery of zero attorneys' fees."  The court did not explain the circumstances under which an award of zero attorney fees would result from a failure to segregate.  The evidence of unsegregated fees requiring a remand on the issue of attorney fees is more than a scintilla of evidence.

The party seeking fees may only present evidence relating to services that were necessarily rendered in connection with the claims for which attorney fees are recoverable, as in Flint & Associates v. Intercontinental Pipe & Steel, 739 S.W.2d 622, 624 (Tex. App.—Dallas 1987).  If a party tries to present evidence relating to services that were rendered in connection with claims that attorney fees are not recoverable, a party must object.  Failure to object to nonrecoverable attorney fees constitutes waiver (see Green International, at 389).  The issue of failing to segregate is generally preserved "by objecting during testimony offered in support of attorneys' fees or an objection to the jury question on attorneys' fees," as in McCalla v. Ski River Development, 239 S.W.3d 374, 383 (Tex. App.—Waco 2007).

Inexorably Intertwined Damages

In Texas, an exception to segregating evidence of attorney fees developed over the years.  Where the attorney fees rendered were in connection with claims arising out of the same transaction, and were so interrelated that their "prosecution or defense entails proof or denial of essentially the same facts," it was held that the segregation requirement could be avoided (see Stewart Title at 11).  The initial exception was phrased such that if an attorney could claim that the "causes of action in the suit are dependent on the same set of facts or circumstances, and thus are 'intertwined to the point of being inseparable,' the parties suing for attorney fees may recover the entire amount covering all claims."

After the holding in Stewart, which first acknowledged an exception to the requirement of segregating fees for claims that are intertwined, the courts of appeals were flooded with claims that recoverable and unrecoverable attorney fees are so intertwined that they could not be segregated. (See, e.g., Tony Gullo at 312.)  For many years after the recognition of the exception to segregation, parties tried to escape the segregation requirement by generically claiming that they could not segregate the claims.  They relied on the recognized exception to the duty to segregate when the attorney fees rendered were in connection with claims arising out of the same transaction and were so interrelated that their prosecution or defense entailed "proof or denial of essentially the same facts."

The Texas Supreme Court has now reined in this exception, providing that if attorney fees relate solely to a claim for which such fees are not recoverable, a claimant must segregate recoverable from unrecoverable fees, but when discrete legal services advance both a recoverable and unrecoverable claim that they are so intertwined, they need not be segregated.

For example, the court explained that certain legal services such as: "requests for standard disclosures, proof of background facts, depositions of the primary actors, discovery motions and hearings, [and] voir dire of the jury" wouldn't be barred from recovering attorney fees just because they served multiple purposes.  However, the court was careful to point out that the mere presence of intertwined facts will not make tort fees recoverable. The new exception to the necessity of segregating fees is that "only when discrete legal services advance both a recoverable and unrecoverable claim" then they can be considered as being so intertwined as to not need segregation.  The segregation requirement can be met by offering expert opinion as to how much time was spent in relation to the recoverable claims versus the unrecoverable claims.

Defending Against Segregation

Whether supporting or attacking an award of attorney fees, the expert must deal specifically with segregation of fees.  The party must segregate fees incurred in connection with nonrecoverable claims, claims against other parties, or other lawsuits.

Trey Cox is a partner at Lynn Pinker Cox & Hurst.  He has spent nearly 20 years helping clients, from Fortune 500 corporations to entrepreneurs, resolve large, complicated and often high-profile business disputes.  Jason Dennis is a partner at the firm.  He has trial and appellate experience representing a diverse group of clients from Fortune 500 companies, to bankruptcy trustees, to individuals both as plaintiffs and defendants.

Judge Denies Fee Request, Refers Matter to Ethics Board

September 6, 2017

A recent Legal Intelligencer story by Max Mitchell, “Judge Tosses $1M Fee Request, Refers Matter to Ethics Board,” reports that a Scranton attorney who recovered $125,000 for his client in a bad-faith case wanted $1.12 million in fees, costs and interest, but the presiding judge has instead awarded his firm nothing and referred the case to the Disciplinary Board of the Supreme Court of Pennsylvania.

U.S. District Judge Malachy E. Mannion of the Middle District of Pennsylvania issued an order chiding attorneys Michael Pisanchyn and Marsha Lee Albright over their handling of the case Clemens v. New York Central Mutual Fire Insurance, and saying their request for fees and costs was "outrageous and abusively excessive."

Mannion's 100-page opinion went line-by-line through the request, slashing billed fees he deemed vague, duplicative and excessive.  Mannion also took issue with how the firm recreated its timesheets, saying that, while recreating timesheets is allowable if the attorneys did not make them contemporaneously, a number of the entries appeared to be based on guesswork.

Mannion ended his opinion by saying that, "given the conduct of the plaintiff's counsel and the exorbitant request for fees in this case, a copy of this memorandum will be referred to the Disciplinary Board of the Supreme Court of Pennsylvania for their independent determination of whether disciplinary action should be taken against attorney Pisanchyn and/or attorney Albright."

Pisanchyn, the name partner of Pisanchyn Law Firm, said that, while he tried the case, he had not been involved in preparing the attorney fees petition.  However, he said, both he and Albright conducted themselves according to the Rules of Professional Conduct.

"I believe that either no action will be taken, or if a complaint is opened, it will be dismissed," Pisanchyn said.  He added he did not think the fees were unreasonable, since the case had been litigated for nearly nine years.  "The defendants took the position of a scorched earth litigation, and we had to go toe-to-toe with them every step of the way," he said.  "I certainly tried the case to the jury. I didn't try the case to the judge.  The jury obviously liked my presentation and obviously thought it was effective."

According to Mannion, plaintiff Bernie Clemens' bad-faith claims came before a jury in November 2015, and ended with a $100,000 award.  The defendants had settled Clemens' uninsured motorist claim for $25,000.  When it came to the attorney fees, according to Mannion, the plaintiff's attorneys sought $48,050 for their work on the UIM claim, $827,515 for working on the bad-faith claim and $27,090 for preparing the fee petition, for a total of $902,655 in fees.  Except for awarding $4,986 in interest, Mannion denied the requests entirely.

"In addition to the unconscionable number of vague entries which had been billed for (or more accurately guessed about) by the plaintiff's counsel, there also appear to be a number of duplicative entries in the bad faith time logs for which no explanation is provided," Mannion said.  Mannion said one of the most "egregious" requests included billing 562 hours for trial preparation, with the plaintiff's attorneys entering between 20 and 22 hours per day on some days.

"If counsel did nothing else for eight hours a day, every day, this would mean that counsel spent approximately 70 days doing nothing but preparing for the trial in this matter—a trial in which the only issue was whether the defendant had committed bad faith in its handling of the UIM claim; a trial which consisted of a total of four days of substantive testimony; a trial which involved only five witnesses; a trial during which trial counsel had to be repeatedly admonished for not being prepared because he was obviously unfamiliar with the Federal Rules of Evidence, the Federal Rules of Civil Procedure and the rulings of this court," Mannion said.  "For this, the plaintiff's counsel are billing $196,700."

$32M More in Fees in Madoff Bankruptcy

September 4, 2017

A recent Law 360 story by Ryan Boysen, “Baker Hostetler Gets $32M More in Fees in Madoff Bankruptcy,” reports that BakerHostetler will receive $32 million for four months of work managing the liquidation of Bernie Madoff’s defunct investment firm after a New York bankruptcy court approved the fee request, bringing the firm’s total payout for its work on the Madoff case past the $900 million mark.  The latest fee request covers nearly 82,000 hours of work performed between the beginning of December and the end of March and was approved by U.S. Bankruptcy Judge Stuart M. Bernstein.

BakerHostetler partner Irving H. Picard serves as the liquidating trustee for Bernard L. Madoff Investment Securities LLC and his firm has received about $908 million all told since the case began in 2008, while recovering roughly $12 billion for victims of the $65 billion Ponzi scheme.

The legal costs in the case are paid by the Securities Investor Protection Corp., a member-funded organization that keeps a warchest stocked with roughly $2.5 billion at any given time to shell out for instances like the Madoff fraud.  SIPC covers investor losses directly in many types of financial frauds, and also works with law firms to recover funds for victims in bigger, more complex cases.

In addition to bearing the costs and fees to Picard, the organization has also paid about $555 million in legal expenses to special counsel, consultants and administrators that have worked on the case, according to the trustee.  The latest $32 million payout for BakerHostetler amounts to roughly 90 percent of the $35.7 million the firm was technically awarded for its work.  BakerHostetler and SIPC agreed to the discount early on in the case, and the firm typically receives about $435 an hour for its work, according to court documents.

"The reasonable value of the services for which the trustee and BH seek an allowance has been reduced significantly, based on consultation and review by SIPC, from the standard rates the trustee and BH charge," SIPC's general counsel wrote in a brief recommending the court approve the fee request.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC et al., case number 1:08-ap-01789, in the U.S. Bankruptcy Court for the Southern District of New York.

Smoker Fights to Keep Fee Award Against Philip Morris

August 24, 2017

A recent Law 360 story by Carolina Bolado, “Smoker Fights to Keep Fee Award in $35M Case,” reports that a smoker who won an award of attorneys' fees and costs on top of a $35 million jury award asked the Florida Supreme Court to reject an appeal of the fee award by Philip Morris and Liggett, arguing that there is no divide in the lower courts on whether or not email service is required to comply with the offer of judgment statute.
 
Richard Boatright and his wife urged the Florida Supreme Court to deny the petition by Philip Morris USA Inc. and Liggett Group LLC and leave in place a Second District ruling that said the trial court erred in denying a motion for attorneys' fees and costs because the Boatrights had served the defendants' attorneys by mail and not email.

The Boatrights had sent four settlement proposals to the tobacco companies before trial.  Under the offer of judgment law, they would be entitled to attorneys' fees and costs after their win at trial, but the judge ruled that they had not strictly complied with the law because they did not send the proposals via email.  The Second District reversed the decision, ruling that mandatory email service requirement does not apply to pretrial proposals for settlement.

The tobacco companies argue that the decision directly conflicts with a February 2017 ruling from the Third District and conflicts with a Fourth District ruling in an analogous case from 2014.

But in their brief, the Boatrights said the Third District's decision was limited to specific requirements of the email service rule and does not directly conflict with the Second District's decision in their case.  The couple added that the Fourth District's decision does not concern proposals for settlement.

Instead of taking up this case, the Boatrights urged the court to ask the Florida Bar’s Rules of Judicial Administration and Civil Rules Committees to propose amendments to clarify the rules regarding email service.  “Amendments to the rules will afford greater certainty to litigants and ensure statewide uniformity in the rules' interpretation and application,” they said in the brief.

The case is Philip Morris USA Inc. et al. v. Boatright et al., case number SC17-897, in the Supreme Court of Florida.