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Category: Expenses / Costs

US Airways Defends $122M Fee Request in Sabre Antitrust Case

April 20, 2017

A recent Law 360 story by Rick Archer, “US Airways Defends $122M Fee Bid in Sabre Antitrust Suit” reports that US Airways defended its request for $122 million in attorneys' fees for its $15 million victory against trip-planning giant Sabre Inc. in a suit over a contract giving booking access to all of the airline's seats, saying the fees are reasonable and in line with Sabre’s own legal costs.

Refuting Sabre’s argument that the fee request should be trimmed by nearly 90 percent because of unnecessary expenses, failure to get the full award sought and the dismissal of three-fourths of its claims, US Airways said the recommendation would make its fee award $40 million less than Sabre’s own reported defense costs.

“Although Sabre begrudgingly concedes that US Airways is entitled to some of what it incurred in this lengthy and aggressively defended case, reading Sabre’s opposition, one would think that Sabre — not US Airways — had won,” US Airways said.

The airline won a $5 million verdict, automatically tripled to $15 million, late last year in its case accusing Sabre — which controls 58 percent of the ticket distribution market — of restraining trade by forcing unfavorable terms on US Airways in a 2011 contract that required the airline to give Sabre access to all of its seats in order to reach the large cadre of travel agents that use the Sabre system.

US Airways has requested $122 million in attorneys’ fees and costs, arguing last month that the lengthy and complex nature of litigation justified fees that are more than eight times the amount of damages.  Sabre had argued US Airways should receive only $13 million in fees, noting three of its four original claims were rejected and the award was less than US Airways had asked for, and claiming a number of specific decisions in the airline’s legal strategy had generated unnecessary fees.

US Airways replied that the claim it ultimately won on was always the focus of their efforts, saying two of the claims were dismissed at the beginning of the case when minimal work had been done and the third had required only a fraction of the work.  “The Clayton Act does not require a plaintiff to prevail on all motions and claims in order to be entitled to a full recovery, particularly where it wins what it set out to achieve,” the airline said.

The airline said the reasonableness of the fees was justified by Sabre’s own $53 million in reported attorneys' fees, and argued this number was deceptively low because defense counsel Bartlit Beck Herman Palenchar & Scott LLP agreed to work at a discount in exchange for a success fee.

“Sabre refused our request to see Bartlit’s success-fee rate, but it appears to be nearly 50 percent based on the bonus Sabre paid for defeating declaratory relief,” it said.  “Even a 30 percent bonus would have increased Sabre’s fees to roughly $70 million had it, not US Airways, won.  That approximates US Airways’ roughly $85 million in attorneys’ fees.”

The case is US Airways Inc. v. Sabre Holdings Corp. et al., case number 1:11-cv-02725, in the U.S. District Court for the Southern District of New York.

SCOTUS Rules Fee Awards from Bad Faith Must Be Compensatory, Not Punitive

April 18, 2017

A recent The Recorder by Ross Todd, “At Odds With 9th Circuit, SCOTUS Nixes $2.7M in Discovery Sanctions,” reports that the U.S. Supreme Court held on Tuesday that attorney fee awards resulting from acts of bad faith in litigation must be causally linked to the underlying misconduct.

In a unanimous 13-page opinion (pdf), Justice Elena Kagan reversed a $2.7 million fee award against the Goodyear Tire & Rubber Co. finding that sanctions in civil cases “must be compensatory rather than punitive in nature.”  The upper end of fee award sanctions, Kagan wrote, should be “limited to the fees the innocent party incurred solely because of the misconduct—or put another way, to the fees that party would not have incurred but for the bad faith.”

Goodyear’s case drew amicus support from the American Bar Association and the National Association of Manufacturers.  Both warned that failure to require a direct causal link between penalties and a litigant’s discovery abuses could lead to outsized and abusive sanctions awards.

Tuesday’s decision reverses a 2015 ruling from the U.S. Court of Appeals for the Ninth Circuit that put Goodyear on the hook for all $2.7 million in legal fees incurred by Leroy, Donna, Barry, and Suzanne Haeger after an alleged discovery violation in their personal injury case.  The Haegers claimed that faulty Goodyear tires caused a 2003 accident involving their motor home in which they all suffered serious injuries.

For years with the case pending at the trial court, the Haegers’ lawyer had asked the company to hand over all test results for the tire model in question.  But only after the case settled pretrial in 2010 for an undisclosed sum did the Haegers’ lawyer learn from a newspaper article that Goodyear had disclosed test results in separate litigation that he’d never seen.

In response to a motion for sanctions U.S. District Judge Roslyn Silver in Phoenix issued an order in 2012 forcing Goodyear to pay its opponents legal fees and costs from the moment when she found Goodyear made its first dishonest discovery response.  Although the judge acknowledged that sanctions are limited to fees caused by the misconduct in the “usual” case, she wrote that Goodyear’s sanctionable conduct rose “to a truly egregious level.”

A divided Ninth Circuit panel affirmed Silver’s finding that she could grant attorney’s fees incurred “during the time when” Goodyear was acting in bad faith.  But in dissent, Circuit Judge Paul Watford wrote that his colleagues had mistakenly pointed to “a temporal limitation, not a causal one” to justify the sanction.  “A sanctioning court must determine which fees were incurred because of, and solely because of, the misconduct at issue (however serious, or concurrent with a lawyer’s work, it might have been),” wrote Watford, in a section quoted by Kagan.

Justice Neil Gorsuch did not take part in Tuesday’s decision.

Law Firms Seek Share of Fees From $680M Fund in BP MDL

April 14, 2017

A recent NOLA.com story by Katherine Sayre, “BP Oil Spill: Two Louisiana Firms To Receive $87 Million Each in Attorney Fees,” reports that two law firms in New Orleans and Lafayette that led the massive BP oil spill litigation are set to receive $87.8 million each under a proposed division of about $680 million in class action attorney fees, according to a court filing this week.

The complex case over the 2010 Deepwater Horizon drilling rig explosion and ensuing oil spill in the Gulf of Mexico involved a two-phase trial with expert testimony and settlement negotiations over several years.  The case consolidated individual economic and medical claims and state government claims from across the country to U.S. District Court in New Orleans.

BP, owner of the failed Macondo well, Transocean, owner of the Deepwater Horizon rig, and Halliburton, which was in charge of pouring cement at the well, have agreed to pay the plaintiffs' attorney fees.

A proposed split of about $680 million -- not including reimbursed expenses -- was filed in U.S. District Court in New Orleans this week.  The two firms getting the biggest chunk of the award are Herman, Herman & Katz of New Orleans and Domengeaux, Wright, Roy & Edwards of Lafayette with $87.8 million each.  Cunningham Bounds of Mobile, Alabama, and Weitz & Luxenberg of New York are set to receive about $42 million each.  Nearly two dozen firms based in New Orleans are proposed to get a combined $243 million.

The fee committee, made up of six of the plaintiffs' attorneys, reviewed requests from the dozens of law firms involved in the case and conducted 74 interviews over 12 days before making their recommendation, according to the proposal filing.  "The fee committee felt confident that a minimum of 518,250 hours were reasonably expended through the end of 2015 for the common benefit of class members and others affected by the Deepwater Horizon incident," the filing says.  BP agreed to pay about $555 million in attorneys fees; Transocean and Halliburton agreed to about $124 million.

For Domengeaux Wright Roy & Edwards of Lafayette, the case "required full-time devotion and pre-occupation with substantial personal and professional sacrifice (among other things effectively relocating to New Orleans for approximately three years)," the proposed allocation says.

In October, U.S. District Judge Carl Barbier, who has overseen the seven-year-old case, wrote that the multi-district litigation "would appear to be one of the largest, if not the largest, MDL in history."  "Over 130,000 individual civil actions and/or claims-in-limitation were filed by private businesses, individuals, and local governments," Barbier wrote.  "Yet even greater than its sheer size was the MDL's complexity."  The proposed allocation must be reviewed by John Perry, appointed special master over fees for the case, and Barbier.

In April 2016, Barbier approved a $20 billion settlement for BP to pay out to state and local government claims and Clean Water Act violation fines.  BP is expected to pay an estimated $13 billion in economic and medical claims to individuals and businesses.

Fee Request Reduced 90 Percent in VW Dealer Case

April 13, 2017

A recent Courthouse News story by Nicholas Iovino, “Judge Whacks 90% of Attorney Fees in VW Dealer Case,” reports that a federal judge cut more than $25 million from attorneys’ fees in a $1.2 billion settlement between Volkswagen and its U.S. dealerships.  U.S. District Judge Charles Breyer reduced the award to $2.9 million, finding a request for $28.5 million too high, given that “much of the groundwork for the settlement was laid in negotiations” for a previous deal.

Breyer lopped off $1.5 million in billable hours deemed as “hybrid time,” or hours spent negotiating both the dealership settlement and a larger, $10 billion deal for owners of 2.0-liter diesel engine vehicles.  He found that attorneys already had been compensated for those hybrid hours in a $175 million fee award approved in March.

The $2.9 million fees award is the latest Volkswagen must pay to make amends for its installation of emissions-cheating software in 11 million vehicles worldwide, including nearly 600,000 diesel-powered vehicles sold in the United States.  The defeat device software kicked in to hide emissions during tests, while allowing cars to spew up to 40 times more nitrogen oxide on the road than allowed under federal law.

Under the $1.2 billion deal approved in January, 644 U.S. dealerships will each receive an average $1.85 million to cover losses precipitated by the German automaker’s diesel-gate scandal.  Although the requested $28.5 million makes up a mere 2.8 percent of the $1.2 billion deal, granting it would allow the lawyers to pocket more than 14 times the value of hours they actually worked, Breyer wrote.

“Dealer class counsel did not expend significant additional time procuring the settlement, nor did it undertake significant additional risk, given Volkswagen’s incentive to settle quickly,” Breyer wrote in the 10-page ruling.  He cut an additional $560,000 in anticipated billable hours, finding Volkswagen has already started paying dealerships and no further hours are needed to execute the deal.

Breyer recalculated the total value of billable hours at $1.47 million and applied a 2.0-multiplier, for a total of $2.95 million to be split between two law firms.  Hagens Berman Sobol Shapiro will receive $2.3 million; Bass Sox & Mercer will get $622,000.  The judge also granted the firms $87,538 in litigation costs.

Five Fundamentals of Collecting Attorney Fees

April 3, 2017

A recent Daily Report article by Randy Evans and Shari Klevens, “5 Fundamentals of Collecting Fees,” addresses attorney fee collection.  This article was posted with permission.  The article reads:

It pays to implement an effective billing system—literally.  On the front end, having a system in place increases realization rates because it gets money in the door.  On the back end, fee disputes and related malpractice claims can be minimized, if not avoided altogether.  Knowing the fundamentals of billing and collections can make the world of difference for any law practice from both a financial and risk management perspective.  Here are five steps worth considering when implementing or revising your billing and collections processes.

Determine Fee Arrangement Before Attorney-Client Relationship Begins

Subject to market conditions and the simple economics of supply and demand, lawyers typically enjoy the ability to negotiate fees with a prospective client.  The best way to minimize problems down the road is to finalize the negotiations before the attorney-client relationship commences.  In negotiating a fee arrangement, the most significant requirement under the ethical rules is that the fee must be reasonable.  In addition, fee agreements cannot penalize a client who decides to terminate an attorney at any time.  (Notably, requiring a client to pay an attorney for the time spent on the representation prior to termination is generally not an unreasonable term.)

If the fee arrangement is not finalized until after the representation begins, the attorney and client may already be in a fiduciary relationship at that point.  Attorneys have to take care not to use information learned in the course of the attorney-client relationship to the attorney's advantage and to the client's detriment in negotiating the fee.  If a client challenges the fee later, courts and bars will look to whether the attorney took advantage of the client's need for continued representation.

That is not to say that mid-representation fee changes are impermissible.  In fact, they happen frequently, such as when an attorney's hourly rate changes due to market conditions.  This is fairly routine.  For a major fee change mid-representation, however, the attorney could recommend that the client consult with independent legal counsel regarding the amended fee arrangement.  Attorneys who advise clients on new fee arrangements during the representation that seriously alter the previous terms may be subject to heightened scrutiny.

Set Expectations

If the attorney or law practice expects to get paid on a monthly or quarterly basis, that is something that can be discussed with the client at the outset of the representation.  Similarly, if the fees are expected to be paid directly from settlement proceeds or at closing, tell the client.

Avoiding surprises is the most important risk prevention technique.  When both attorney and client have set their respective expectations (and adjusted them as appropriate), then the attorney-client relationship begins and proceeds on the same page.

Memorialize the Fee Arrangement

There has been considerable commentary regarding the implications of a "fee agreement," particularly whether written agreements extend the statute of limitations for legal malpractice claims.  However, the risks of failing to document a fee arrangement far exceed the risks of an extended statute of limitations.

A great majority of fee disputes involve the amount of the fee itself.  The simplest and most effective method for avoiding this type of dispute is simply to agree in writing to the terms of the fee arrangement and to have the client sign the document confirming the fee arrangement.

Bill Regularly

Sending out bills on a regular basis helps show the client—in close to real time—what tasks are being completed and what charges are being incurred.  Then, if the client objects to the services or has a problem with the charges, such issues can be addressed quickly.  If the attorney is not sending bills on a regular basis, however, the client may later object to the fees (even if the client would have paid the same aggregate amounts if invoiced at regular intervals).

Most attorneys will recommend informing the client what the fees are or will be well in advance of the request for payment.  For the hourly fee attorney, this means sending out bills regularly so that the client gets a sense of what the fees and costs are.  What constitutes "regular" billing will obviously differ based on the circumstances of each representation.

If there is little activity while a motion or appeal is pending, then bills might not be sent for a few months.  On the other hand, if there is significant activity, then bills might be sent on a monthly basis.

For transactional representations, providing a pre-closing preview of the closing statement with the fees is helpful.  For contingency fees, pre-settlement previews of the amount of the fees is appropriate.  If the representation involves significant out-of-pocket expenses for which the client is responsible, consider interim bills.  The key is to make sure the client understands (and accepts) what the projected fees are before they are locked in by a closing or settlement to avoid a fee dispute.

Timely Address Unpaid Bills

Unpaid bills are problems waiting to happen.  The sooner those problems are identified and resolved, the better.  While many attorneys do a good job at documenting the fee and sending the bills, they may do a poor job on the follow-up.  Rather than leave the follow-up to chance, the better approach is to set an internal deadline for following-up on outstanding bills.  This contact enables the attorney to determine if the client has any issues with the bill or whether the failure to pay is a simple oversight or intended delay.

If there are concerns or issues about the bills, then the attorney should address them.  If nonpayment is an oversight, then the contact will serve as a friendly reminder.  If it is intended delay, then the attorney and client can discuss what the limitations are and how they might be addressed.

There is no magic time for following up.  Instead, it will depend on the contours of the relationship with the client.

For attorneys and law practices that follow the steps discussed above, fee collections can be a little less daunting.  For attorneys and law practices who do not, it is never too late to put the systems in place or revise existing ones.  Your balance sheet and law license will thank you.

Randolph Evans is a partner at Dentons US in Atlanta.  He handles complex litigation matters in state and federal courts for large companies and is a frequent lecturer and author on the subjects of insurance, professional liability and ethics.  Shari L. Klevens is a partner and deputy general counsel at Dentons US in Washington and Atlanta.  She is co-chair of the global insurance sector team, a member of the firm's leadership team and is active in its women's initiative.