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Category: Expenses / Costs

Attorney Fee Dispute Litigation in Pelvic Mesh Case

July 3, 2019

A recent Law 360 story by Bill Wichert, “NJ, Texas Firms Unlawfully Pocketed Mesh Funds, Suit Says,” reports that law firms including Nagel Rice LLP and Potts Law Firm improperly pocketed attorney fees and expenses from the settlements of roughly 1,450 pelvic mesh cases in New Jersey state court by using invalid retainer agreements or no agreements at all, according to a proposed class action made available.  The lawsuit, filed in Bergen County Superior Court, says the firms unlawfully retained excessive fee percentages, deducted those fees "off the top" of gross settlement amounts, took expenses out of clients' portions of the recovery, and engaged in invalid fee-sharing.

"The defendants were negligent in that their conduct fell below and breached the applicable standard of care, because they failed to ensure that all the cases were retained, filed, litigated, settled and disbursed in accordance with New Jersey law,” according to the complaint filed by Mazie Slater Katz & Freeman LLC.  The alleged misconduct was "reckless and undertaken with willful and wanton disregard" for the rights of plaintiff Debbie Gore and the proposed class members, the complaint said.

In addition to New Jersey-based Nagel Rice and Texas-based Potts Law Firm, the defendants include Texas-based firms Bailey Cowan Heckaman PLLC, Junell & Associates PLLC, Burnett Law Firm and Houston attorney Annie McAdams.  The complaint, which includes legal malpractice, breach of fiduciary duty and other claims, asserts that the defendants should be ordered to disgorge all attorney fees and expenses from the cases and be limited to collecting attorney fees on a quantum meruit basis.

"On information and belief, defendants performed very little, if any, actual legal services of value on behalf of plaintiff and the proposed class members, thus entitling defendants to little or no recovery in quantum meruit," the complaint said.

Gore, a Texas resident, has demanded that the defendants provide "a full accounting" of the retainer agreements in the cases, the settlements, and the attorney fees and expenses deducted from those settlements.  Superior Court Judge Rachelle Lea Harz ordered the defendants to appear in court on July 11 to show cause why the court should not issue an order requiring them to turn over that information.  Gore entered into an invalid retainer agreement with one or more of the defendants in May 2013 that provided for 40% in attorney fees that would be deducted from the gross settlement amount and for expenses to be taken out of her share of the recovery, the complaint says.

Those provisions ran afoul of a New Jersey rule governing contingent fees, the complaint says.  Under that rule, an attorney can collect a fee of 33.33% of the first $750,000 recovered and then smaller percentages for subsequent amounts, and those fees must be based on the "net sum recovered" after deducting expenses.

The retainer agreement also "failed to disclose that some or all of the defendants were sharing the legal fees, and New Jersey law requires that all attorneys sharing in the legal fees — and the fee-sharing arrangement — be disclosed to and approved by the client in writing," the complaint said.  The agreement "allowed for the sharing of legal fees to attorneys who provided no legal services," the complaint said.

Nagel Rice and Potts — even though they were not "retained to act as legal counsel pursuant to a retainer agreement compliant with New Jersey law" — filed a suit on Gore's behalf in July 2014 as part of multicounty litigation against Johnson & Johnson and C.R. Bard Inc., according to the complaint.  Following settlements in the roughly 1,450 cases filed by Nagel Rice and Potts, the defendants improperly retained attorney fees and expenses and took part in the unlawful fee-sharing, the complaint says.

Dentons Wins Fee Award Despite Litigation Finance Agreement

July 1, 2019

A recent NLJ story by Mike Scarcella, “Dentons Wins $7.4M in Fees, Costs Despite Litigation Finance Agreement,” reports that the global law firm Dentons has won more than $7.4 million in legal fees, expenses and costs for its successful work in a patent suit against the U.S. government, despite having a third-party litigation financing arrangement that Justice Department lawyers said should not have allowed the attorneys to receive any compensation at all. 

Dentons successfully sued the government over claims that certain U.S. combat ships violated patents that belonged to the firm’s client, FastShip LLC.  The law firm, as part of a deal to proceed with the case in the first place, received an initial payment of $600,000 from a Virginia-based entity called IPco. LLC.  FastShip ultimately was awarded $12.36 million in damages.

A Washington-based U.S. Court of Federal Claims judge last week rejected the Justice Department’s argument that FastShip’s legal team, led by Dentons, should be denied attorney fees because of its arrangement with a company that had partially funded the litigation.  Judge Charles Lettow awarded $6.2 million in fees and related expenses, and more than $1.2 million in costs.

Litigation finance arrangements are on the rise, and judges ever more are grappling with novel issues about evidence, legal fees and, more generally, transparency.  In his ruling, Lettow described litigation finance as a “controversial,” and evolving, area of the law.  The Federal Claims court, the judge noted, “has not yet adopted any rules regarding litigation financing agreements.”

Much of the fee litigation in the Federal Claims court, including the Dentons fee petition itself, and the Justice Department’s opposition, remains sealed.  Lettow’s ruling described the general contours of the dispute, and he included various hourly rates of Dentons partners and associates who worked on the case for FastShip.

The two highest billers for FastShip were Mark Hogge in Washington, chairman of Dentons’ legacy patent litigation practice, and Rajesh Noronha, the firm’s senior managing associate in Washington.  Hogge, the attorney of record for FastShip, charged an average rate of $835, and Noronha charged an average rate of $669, Lettow reported.  The firm received an initial payment of $600,000 from the third-party IPCo, which was first registered in 2012.

“Litigation financing agreements help bridge this divide by providing the attorney of record a source of guaranteed fees for their work, while granting the financer a share of the proceeds if the case is successful,” Lettow wrote in his ruling, dated June 27.  “Here, IPCo. acted as that bridge, covering the gap between claim and litigation, allowing FastShip to successfully pursue their infringement case.  Preventing recovery based on such an agreement would be anathema to the underlying purpose of fee-shifting statutes.”

The Justice Department disputed that FastShip was a real party in interest based on the litigation financing agreement between Dentons and IPCo.  The dispute was further complicated by the fact a lawyer for FastShip, Donald Stout of Washington’s Fitch Even Tabin & Flannery, was a “‘joint member and manager’ of IPCo.”  Virginia state corporation records show Stout is the registered agent of the company.

“[E]ven if this court had adopted a local rule mandating the disclosure of litigation financing agreements, the court is, and has been, aware of IPCo.’s role in the litigation.  As the involvement of Mr. Stout makes evident, at no point was the court in the dark regarding his status,” Lettow said in his ruling.

The judge said “nothing about Mr. Stout’s role as a counsel of record and litigation financer suggests that a conflict exists.  These two roles are independent of one another and there is no evidence in the record that Mr. Stout acted improperly.”

At one point in his ruling, Lettow examined how litigation-funding practices could be abused, much like the patent system itself.  He said he was satisfied “that no double payment or windfall will go to Dentons for any award of attorneys’ fees and costs.”

“[T]he possibility of abuse does not mean the entire system should be discarded,” Lettow said.  “Instead, courts have focused on the disclosure of such agreements to encourage transparency and ensure a shadow broker is not using litigation as a form of harassment or for multiple bites at the same apple.  Disclosure also enables judges to appropriately evaluate potential recusal due to conflicts of interest.”

IP Group: USPTO’s ‘Peculiar’ Attorney Fee Rule Hurts Inventors

June 27, 2019

A recent Law 360 story by Bill Donahue, “USPTO’s ‘Peculiar Fee Rule Hurts Inventors, IP Attys Say,” reports that a prominent group of intellectual property attorneys is urging the U.S. Supreme Court to strike down the U.S. Patent and Trademark Office's controversial policy of seeking attorney fees regardless of the outcome of a case, warning it will “penalize emerging inventors.”  The amicus brief, filed by the New York Intellectual Property Law Association, came three months after the justices granted certiorari in Iancu v. NantKwest, a case that will decide whether the policy runs afoul of the so-called American Rule that litigants must typically pay their own legal fees.

In the brief, the NYIPLA sharply criticized the USPTO’s fee rule as “a rather peculiar circumstance where the government is seeking to recoup the salaries of its staff attorneys and paralegals from an adversary.”  And the new rule, the group warned the justices, will have a “chilling effect” on patent applicants.

“Allowing the [USPTO]’s interpretation … to stand would penalize parties for merely commencing a lawsuit to such a degree that many parties of limited means simply could not have their statutorily granted day in court,” the group wrote.  “This would particularly penalize emerging inventors and entrepreneurs seeking to file innovative patents.”

The NYIPLA is the latest outside group to criticize the USPTO’s policy.  The American Bar Association and other IP-focused bar associations have also urged courts to overturn the rule.

The controversy is rooted in language in both the Patent Act and the Lanham Act that says unsuccessful applicants who file a so-called de novo appeal to a district court — as opposed to a more streamlined record appeal directly to the Federal Circuit — must pay "all expenses of the proceeding."  But for decades, the USPTO interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  That changed in 2013, when the agency started seeking the substantially larger attorney fees.

The USPTO says the change was justified to pay for a more expensive type of case, but critics say the policy violates the American Rule, a doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.  Critics say the "all expenses” language is not that kind of explicit authorization.

The NYIPLA echoed that argument — pointing to the USPTO’s own longstanding approach.  “The [USPTO] itself has for over one hundred and seventy years taken the position that “expenses” do not include attorneys’ fees,” the group wrote.  “PTO did not even attempt to obtain reimbursement for attorneys’ fees under this definition until 2013.”

The case before the justices is being litigated by a drugmaker called NantKwest, which filed a de novo appeal to a district court after the USPTO denied the company a patent for a cancer drug.  The company was later forced to reimburse the USPTO’s attorney fees.  NantKwest won a ruling at the Federal Circuit striking down the policy, prompting the USPTO to take the case to the Supreme Court.  The justices agreed to hear the case in March, and the agency filed its opening brief in May.

CA Judge Failed to Employ Lodestar Method to Calculate Fees

June 20, 2019

A recent Metropolitan News Enterprise story, “Judge Meiers Misread Retainer Agreement, Failed to Employ Lodestar Method,” reports that an attorney fee award in a case brought under the state’s “lemon law” has been reversed by the Court of Appeal for this district because the trial court judge misread the plaintiff’s retainer agreement with her lawyers and failed to utilize the lodestar method of calculation.  The opinion was authored by Dennis Perluss of Div. Seven.  It reverses an order by Los Angeles Superior Court Judge Barbara A. Meiers.

The plaintiff, Mary Hanna, sued Mercedes-Benz USA, LLC under the Song-Beverly Consumer Warranty Act—Civil Code §1790 et seq.—popularly referred to as the “lemon law.”  Represented by specialists in that area of law, O’Connor & Mikhov, she obtained a settlement on Jan. 27, 2017, for $60,000 plus costs—including attorney fees—and expenses.  She had paid the all-inclusive amount of $52,948.54 in 2007 for a new Mercedes-Benz, and had received $14,998.02 from her insurance company after the vehicle was damaged beyond repair in a May 2015 accident.  The settlement amount was, therefore, in excess of actual damages.

Although the law firm took the case on a contingency-fee basis, the retainer agreement spelled out hourly rates. It also provided: “In some instances we are able to recover additional damages above and beyond Client’s actual damages.  In only those instances where we are able to recover additional damages, 40% of those additional damages shall be due the Law Firm as additional attorney’s fees.”  Hanna and Mercedes were unable to agree on the amount of attorney fees—she wanted to use the lodestar amount of $172,712.50 and a multiplier of 1.5, with the product being $259,068.75—and, pursuant to the settlement agreement, the setting of fees was left to the court.

Using the lodestar method, Meiers awarded $45,869 for the period up to Jan. 21, 2016, the date of upon which Hanna apparently received a Jan. 20 settlement offer from Mercedes, with terms less favorable than those she ultimately accepted a year later.  For the period after Jan. 21, 2016, up to Jan. 27, 2017 when the settlement was reached, the judge awarded $15,000 which she reckoned to be 40 percent of the pay-out in excess of actual damages.  The total attorney-fee award was $60,869.

Perluss quoted the language in the retainer agreement relating to “additional fees” and said:  “Contrary to the trial court’s reading, this language clearly specified that O’Connor & Mikhov would receive its hourly rate for all time expended on the litigation, whether directed to the recovery of actual or additional damages, but it would also be entitled to a bonus equal to 40 percent of all additional damages recovered.  By misreading this language as providing for a percentage recovery of additional damages ‘in lieu of an hourly rate’ for those legal services, and then using its faulty interpretation of the retainer agreement as the sole basis for awarding only $15,000 of the fees incurred after January 21, 2016, the trial court committed plain error.”

He added: “Even if the trial court’s interpretation of the retainer agreement were correct, however, it would still have been error to award fees for legal work performed by O’Connor & Mikhov after January 21, 2016 based entirely on the law firm’s percentage share of civil penalties or other ‘excess’ monetary recovery, rather than using the lodestar figure—time spent multiplied by reasonable hourly compensation for each attorney…—as specified in the parties’ settlement agreement and mandated by Civil Code section 1794, subdivision (d), as the starting point for its analysis.”

That paragraph, part of the Song-Beverly Act, reads: “If the buyer prevails in an action under this section, the buyer shall be allowed by the court to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses, including attorney’s fees based on actual time expended, determined by the court to have been reasonably incurred by the buyer in connection with the commencement and prosecution of such action.”  Perluss said the “trial court has broad discretion to increase or reduce the proposed lodestar amount based on the various factors identified in case law,” but that the initial inquiry must always be what number of hours were reasonably expended by counsel.

Class Counsel Seek $11M in Fees in $45M Shareholder Settlement

June 18, 2019

A recent Law 360 story by John Petrick, “Bernstein Litowitz Seeks $11M in Fees for $45M Waste Deal,” reports that Bernstein Litowitz asked an Illinois federal court to approve $11 million in fees for its work as lead counsel in negotiating a $45 million settlement over stockholders' claims that a solid waste hauler overstated projected earnings by ripping off customers with illegal fees.  The firm also asked for more than $190,000 in litigation expenses, like phone, copy and travel costs, as well as nearly $22,000 in fees for lead plaintiff the Public Employees’ Retirement System of Mississippi and almost $900 for co-lead plaintiff the Arkansas Teacher Retirement System for their work representing the proposed class of Stericycle Inc. stockholders.

The fees are comparable to those courts have awarded in investor class actions with similar recoveries and are fair given the time, work and energy that went into reaching the settlement, according to the motion brief.  “In light of the excellent recovery obtained, the time and effort devoted by plaintiffs’ counsel to the action, the skill and expertise required, the quality of the work performed, the wholly contingent nature of the representation, and the considerable risks that counsel undertook, lead counsel respectfully submits that the requested fee award is reasonable and should be approved by the court,” the firm said in a memorandum in support of its motion.

Word of a settlement surfaced back in December, based on information in a filing with the U.S. Securities and Exchange Commission.  A final version of the settlement still needs to be approved by the court.  The shareholders filed the case in 2016 claiming the waste disposal company falsely inflated its financial results through fraudulent pricing.  Stericycle misled investors regarding its financial and growth potential by touting revenues that were actually buoyed by "perpetrating a massive pricing fraud against its own customers," according to the complaint.