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Category: Legal Malpractice

Demand for Contingency Fees Grows Amid Pandemic

November 30, 2020

A recent Law.com story by Dan Roe, “Demand for Contingency Fees in Business Litigation Grows Amid Pandemic,” reports that contingency fees are not only confined to personal injury matters.  In the midst of the recession and pandemic, some firms are increasingly taking on contingency fee matters in business litigation and commercial cases.  Business owners who don’t have the cash on hand to front litigation costs are turning to law firms that work on contingency and are willing to absorb case costs, say firm leaders, who report a rise in contingency fee inquiries since the beginning of the pandemic.

Morgan & Morgan is one of the largest personal injury firms in the country, but it also has a 24-lawyer group dedicated to business disputes.  William B. Lewis, the firm’s business trial group co-managing partner, said the practice has seen a 20% to 25% increase in contingency cases — the only type they do — since the pandemic began.  The firm recently hired an associate out of law school to join the group and plans to hire three or four additional attorneys in the next six months.

The cost of hiring an hourly law firm or trying a case can exceed the cash positions of many businesses with legitimate disputes, said Lewis in an interview.  “Trying a case can cost almost as much as everything leading up to it,” Lewis said.  “Even in a two year litigation cycle, it could be $300,000 in attorney’s fees to try a case.  There are pressure points for folks to settle even if they have a valid, strong claim.  We allow clients to try cases because they don’t have to pay huge amounts to get cases in front of a jury.”

Commercial litigation boutique Cain & Skarnulis in Austin, Texas, is also taking an increased number of cases on contingency.  “There are some good business contingency fee cases coming,” founding partner Steve Skarnulis said in an interview.  “I’d estimate that over the last six months we’ve seen inquiries for at least twice as many contingent fee cases and have probably taken 25% more than we normally would.”

And in New York, the commercial litigation boutique The Stolper Group is also seeing more contingency fee questions than usual.  “There’s definitely been an uptick in inquiries,” founding partner Michael Stolper said in an interview.  “Those who do commercial contingency have to be very selective in cases so I wouldn’t say we’re doing more or less than before, but there have been a lot more inquiries now during the pandemic.”

Financial hardship and disputes that stem from it are driving demand for contingency fee arrangements, firm leaders say.  “We’ve had investment loss cases, securities cases where brokers mismanage money and dump everything into an account after the pandemic when they didn’t have the authorization from the client to do so, an uptick in legal malpractice, and real estate commission cases,” Lewis said about the type of matters Morgan & Morgan has handled on contingency.

The firm’s business trial group is also representing community associations in construction defect claims because of the high costs involved in litigating and the fact that community associations hesitate to shift those costs onto their members, Lewis said.  At Cain & Skarnulis, landlords are turning to the litigation firm to handle disputes with commercial tenants on a contingency fee basis, Skarnulis said.

Firms that specialize in commercial contingency may offer a number of fee arrangements, based on the details of the case.  Tiered fee arrangements such as those at Morgan & Morgan’s business trial group may charge 25% to 35% for an early resolution, whereas a more time-consuming trial may net the firm 35% to 45% of a judgment.  Other firms engage in hybrid arrangements, where attorneys charge a reduced hourly rate and a smaller percentage of a recovery.

Clients may look to firms to absorb case costs as well.  Court costs and associated fees such as electronic document management can cost in the hundreds of thousands of dollars, Lewis said, so firms may also agree to front those costs in exchange for a higher percentage of the recovery.

Big Law firms may not be promoting contingency arrangements, but that doesn’t mean they aren’t doing them, said Davie, Florida-based legal consultant Joe Ankus.  “I do think some of largest firms in the world will take on a contingency case if they believe at the outset the odds of recovery or settlement justify taking the risk,” he said.  “Twenty-five years ago, that wouldn’t have happened at Am Law 100 firms.  Now, people have adjusted to the new normal.”  The prospect of collecting significant damages against a major corporate defendant — and the possibility of punitive damages — may entice large firms that have historically abstained from contingency cases, he added.

Meanwhile, Skarnulis said he’s seeing traditional plaintiff’s firms — more adept at selecting contingency cases than hourly firms — get involved in contingency business litigation, as well as mid-size firms that specialize in commercial litigation.

The 18-attorney Miami litigation boutique Podhurst Orseck is handling contingency cases related to the pandemic, such as business interruption cases against insurance companies.  “It’s a huge financial and time commitment, putting our resources into claims on a complete risk basis,” partner Steven Marks said in an October interview.  “On the opposite side, if we’re successful, it’s very good for the firm.”

Marks said the firm’s historical contingency revenues make up 70% to 80% of the firm’s total revenue, while comprising about 50% of cases.  Overall, the economic downturn from COVID-19 has accelerated an ongoing trend, paved by personal injury firms, to extend the realm of contingency work, said Ankus.  “If you were to talk to me 25 years ago and say, ‘Joe, how many law firms are doing contingency work?’ I’d have told you none or less than 5%,” he said.  “Today, the number has exponentially increased to where many firms, more often than not, will readily take on a contingency matter.”

Law Firm Seeks Defense Fee ‘Advance’ from Trustee

October 19, 2020

A recent Law 360 story by Andrew Strickler, “Brown Rudnick Seeks Defense Bill ‘Advance’ From Trustee,” reports that facing a $300 million malpractice suit over its work for a bankrupt chemical company, Brown Rudnick LLP told a New York federal judge it is "unmistakably" entitled to having its legal bills covered by the trustee now suing the firm and a trust director.  Rather than pursue "immunity" from the massive potential liability, Brown Rudnick told the court it only seeks an "advance" on its mounting bills under the terms of a trust agreement at issue in the case, which it said provides for the payment of legal costs for any agent sued over work for the trust.

Brown Rudnick also argued that if it ultimately loses the case, it would be required to return the money to the trustee.  Therefore, the payment would not violate ethics rules or case law disfavoring lawyers securing blanket protections from a client's legal malpractice claims.  "[T]here is no public policy concern with advancement of fees where a party commits to returning the fees if ultimately adjudicated to have committed malpractice for which it cannot receive indemnity," the firm said.

Brown's unusual stance in the case stems from work commenced nearly a decade ago for a litigation trust formed in the bankruptcy of Lyondell Chemical Company, of which a Brown Rudnick partner was the original trustee.  After the bankruptcy declaration, trustee Edward Weisfelner of Brown Rudnick filed numerous claims against investor Leonard Blavatnik's company, Access Industries Holdings Inc.  He also lost a trial three years ago in which he tried to recoup some $300 million in credit line repayments made by AIH.

A replacement trustee, Mark E. Holliday, then sued Brown Rudnick, saying the firm committed malpractice by failing to establish at trial that Lyondell had been insolvent, a finding that would have made the money available for clawback as avoidable preference payments.  Brown has denied botching the trial, and insisted that a trust advisory board refused to give Weisfelner authority to settle before it decided to "roll the dice" at trial.

In counterclaims brought in August, Brown pointed the finger at a trust advisory board member, Paul Silverstein, as personally responsible for not settling, and for going after Brown Rudnick in court.  As part of that personal liability claim, the firm accused Silverstein of breaching his duty regarding the "advance fee" portion of the trust agreement, and the board generally of "depleting whatever negligible [trust] funds remained" through their salaries and legal bills.

In the motion, which answers Holliday's own bid for a dismissal, the firm did not put a number on its legal expenses thus far.  But the firm did say that, as of March of last year, the trust had a cash balance of $1.96 million, which it called insufficient to cover its bills.  And at a September hearing, Judge Engelmayer encouraged the parties to reach a settlement, and suggested that a discovery "autopsy" on the bankruptcy court trial would be costly.  He also noted that experts alone could cost the parties $1 million.

Silverstein "committed gross negligence by, among other things, directing the assertion of this malpractice suit against Brown Rudnick despite the fact that the Trust lacked adequate funds to pursue its claims and advance Brown Rudnick's defense costs," the firm said.  The personal liability and counterclaims "clearly arise out of the same transaction/series of transactions, i.e., authorizing suit against Brown Rudnick without advancing funds, or having sufficient funds to advance, to Brown Rudnick for its defense," according to the filing.

Billing Rates at Issue in Bankruptcy Matter

September 17, 2020

A recent Daily Business Review story by Michael Mora, “Carlton Fields Billing Rates in Spotlight as Firm Battle for About $80,000 in Attorney Fees” reports that Carlton Fields is demanding tens of thousands in fees to prepare several partners for a series of depositions.  The problem?  The other side argues the lawyers are merely fact witnesses, entitled under federal rules only to a maximum $40 daily witness fee for depositions.  It’s the latest issue in a malpractice suit that has dogged the firm, and garnered widespread attention.

Jan L. Jacobowitz, the director of the professional responsibility and ethics program at the University of Miami Law School, said the fee determination is complicated, because it is a bankruptcy case with a creditor trustee adversely pleading against the debtor’s former counsel.

The dispute is between Carlton Fields and Dan Stermer, the court-appointed creditor trustee pursuing claims against people or entities responsible for ATIF’s demise. The litigation is pending in the U.S. Bankruptcy Court for the Middle District of Florida.

Carlton Fields attorneys and former ATIF counsel mentioned in the litigation include Steven Dupré, Nathaniel l. Doliner and William G. Giltinan, shareholders in the Tampa office, as well as Marty J. Solomon, who is now a partner at Awerbach | Cohn in Clearwater.

Dupré, a whose professional biography describes him as a seasoned business trial lawyer and Carlton Fields shareholder with more than four decades of experience, billed about $73,000 for nearly 88 hours at his standard hourly billing rate of $830.  Doliner — who specializes in mergers and acquisitions, corporate law, corporate governance and joint ventures — sought compensation for five hours at $820 an hour.  Solomon sought 3.5 hours at $735 an hour. And Giltinan, who chairs the firm’s intellectual property practice, sought about two hours’ pay at $620 an hour.

In total, Carlton Fields billed the ATIF bankruptcy estate around $80,700.  Bob Jarvis, a professor of law at Nova Southeastern University, said based upon his review of the motion, the argument made by Carlton Fields is overreaching, and the court will likely reject it.

However, Dennis P. Waggoner, a partner at Hill Ward Henderson and outside counsel for Carlton Fields, justified the deposition fees, citing the Federal Rules of Civil Procedure, which governs discovery from a non-party.  “It specifically authorizes the court to impose as a sanction lost earnings or reasonable attorney fees against the subpoenaing party, who does not take reasonable steps to avoid imposing an undue burden for the party being subpoenaed here,” Waggoner said.  Now, it will be up to U.S. Bankruptcy Court Chief Judge Caryl E. Delano to decide whether to award those fees to Carlton Fields.

Thomas M. Messana, a partner at Messana P.A. in Fort Lauderdale who is representing the creditor trustee, said the relief the Carlton Fields lawyers have sought should not be granted for three reasons.  Messana argued that when Carlton Fields received the Rule 30(b)(6) subpoena, the law firm had an obligation to choose a person with sufficient knowledge about the topics listed.  Instead of doing that, Messana claimed the representative the firm selected required nearly 90 hours to educate himself, and then later wrongly required the party seeking testimony to pay for it, which is contrary to the Federal Rules of Civil Procedure.

The trustee’s counsel also argued the U.S. Code fixes witness fees for a fact witness to attend a deposition at $40 per day.  And since the plaintiff called for fact witnesses, not court-appointed experts, it should not cover the difference between the hourly rate and the amount designated by the U.S. Code.

Plus, according to the creditor trustee, Carlton Fields’ actions resulted in the plaintiff having to incur the cost and expense of taking four depositions, instead of one Rule 30(b)(6) deposition. Messana said Carlton Fields’ request to have the plaintiff cover those fees are invalid.

Jarvis believes the trustee’s objection is well-founded.  “Clearly, there is a difference between a fact witness and an expert witness,” Jarvis said.  “And just because the fact witness is a lawyer does not mean that the witness is entitled to his or her normal billing rate.”

Law Firm Denied Quick Win in Legal Bill Dispute

September 14, 2020

A recent Law 360 story by Emma Cueto, “Vedder Price Denied Quick Win in $800K Legal Bills, Suit,” reports that a New York federal court has declined to grant a quick win to Vedder Price PC in a dispute with an investment bank client over $800,000 in allegedly unpaid fees, saying that the firm failed to account for the bank's counterclaims for fraud in their arguments.  U.S. District Judge J. Paul Oetken said that even though Vedder Price had a reasonable argument on each of the key considerations of the state law claim at issue in its motion for summary judgment, the firm could not prevail without also answering for allegations by defendants U.S. Capital Partners LLC and related entity U.S. Capital Partners Inc. that the firm's representation of Breakwater Capital Investment Group LLC was a conflict of interest.

U.S. Capital claims that if it had known Vedder Price represented its former shareholder Breakwater in its attempt to sever ties with the company, U.S. Capital would have cut its own ties to the firm.  Because the "account stated" claim at issue included a fraud exception to its usual standard threshold for success, Vedder Price could not prevail without directly addressing these counterclaims, Judge Oetken said.

"In the two cursory paragraphs it spends dismissing the salience of the counterclaims, Vedder Price maintains that defendants fail to address 'how such counterclaims are in any way a valid defense' to an account stated claim," Judge Oetken wrote, quoting Vedder Price's filings.  "But it is at least possible that Vedder Price's alleged representation of Breakwater could count as fraud, misrepresentation, or some other equitable consideration."  The motion for summary judgment was denied without prejudice.

The account stated claim was one of 14 counts Vedder Price filed against U.S. Capital and two of its executives, alleging that the investment bank racked up about $1,822,000 in legal fees between 2011 and 2016, but paid only $1,010,000, leaving about $800,000 in unpaid invoices.

According to court documents, during that time the firm helped to recover "significant" money that was due to U.S. Capital and defended it and its executives against allegations of improper business practices, including violations of the Racketeer Influenced and Corrupt Organizations Act.  U.S. Capital responded to the suit by denying all allegations and hitting back with seven counterclaims, including breach of contract, legal malpractice and fraudulent representation.

Insurer Wins Recovery of $5.5M in Defense Fees

September 7, 2020

A recent Law 360 story by Daphne Zhang, “Insurer Win ‘Incompetent’ Atty Fight to Recoup $5.5M,” reports that a California federal judge axed a claims handler's suit seeking additional coverage of its legal bills from an insurer that it says hired a bad lawyer to fend off underlying litigation involving a car crash, ruling instead in favor of the insurer's counterclaim to recoup over $5.5 million in defense and arbitration costs it paid.  U.S. District Judge Janis L. Sammartino said that American Claims Management Inc.'s coverage claims are barred by Allied World Surplus Lines Insurance Co.'s policy exclusions, and since some of the claim handler's legal bills should not have been covered, the insurer is entitled to recoup its over $5.5 million payment from ACM.

Allied World has sufficiently shown that its policy's claims services and dishonest acts exclusion precludes coverage since ACM acted in bad faith and concealed information in its handling of insurance claims in the underlying case, Judge Sammartino said.  The judge dismissed ACM's allegation that Allied World breached its duty of defense because the claims handler failed to show that attorney Alan Jampol of Jampol Zimet, appointed by Allied World to defend ACM in the underlying suit, was incompetent or inexperienced, according to the order.

ACM processed claims for QBE Insurance Corp. As of October 2010, it retained Allied World to insure its work for up to $5 million and contracted with other insurance companies for an additional $10 million in coverage.  In the underlying case, a driver insured by QBE crashed into a vehicle and injured a family.  When processing the injured family's claim, ACM missed a March 2011 deadline that would have capped QBE's exposure at $30,000.  The family subsequently won a $21 million jury verdict in the underlying case, which QBE later settled for $15 million, according to filings.

QBE then offered to settle with ACM for $15 million, but Allied World allowed the matter to go to arbitration.  In July 2017, an arbitration panel awarded QBE more than $18.5 million, according to court papers.  With the portion of the over $5 million policy that Allied World paid and the $10 million paid by its other insurance carriers, ACM wanted Allied World to pay the remaining $4.9 million of the arbitration award and sued them.

In the order, Judge Sammartino said that Allied World's policy exclusions bars coverage for acts of bad faith and dishonest conduct in handling an insurance contract, and QBE specifically alleged that ACM handled the car accident claim in bad faith.  The judge said the arbitration panel in the underlying case found that ACM "chose to withhold from QBE evidence of its own negligent performance," provided QBE with "inadequate and misleading" information, and that ACM "has repeatedly tried to conceal and misrepresent the fact of timely receipt of the letter demand" from the injured family.

Additionally, the court has found that Jampol was competent at the time of his appointment by Allied World to defend ACM, Judge Sammartino said. ACM has alleged that Jampol was inexperienced with car accident cases and had never handled a "bad-faith" case as complicated as the underlying suit, according to filings.

"Plaintiff gives no reason why an auto accident case such as this would be more complex than other bad-faith insurance claims that Jampol had experience handling.  Nor does plaintiff identify any skills or knowledge necessary to litigate an auto accident case that Jampol lacked," the judge said.