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Category: Legislation

New Jersey Legislation Would Mandate Fee Retainers

August 23, 2017

A recent New Jersey Law Journal story by Michael Booth, “Bill, Spurred by Wray Representation, Would Mandate Retainers,” reports that one of Gov. Chris Christie's most persistent critics in the state Legislature is sponsoring a bill that effectively would have barred Christie's apparent hiring of high-profile lawyer Christopher Wray—now the FBI director—without a written retainer fee agreement.

Assembly Deputy Speaker John Wisniewski, D-Middlesex, has introduced A-5179, which would require retainer fee agreements between any state agency and private counsel to be memorialized in writing within 30 days of the attorney's retention.  The bill, which has not yet been assigned to a committee, would prohibit a firm from being paid with public funds if the 30-day requirement is not met.

Wray, according to reports, was Christie's personal attorney for 11 months during the Bridgegate investigation, and while Christie was gearing up to run for the Republican nomination for president—before Wray and the administration signed a retainer agreement.

Wray, then of the Washington, D.C., office of King & Spalding, began representing Christie in September 2014 but did not sign a retainer agreement until August of the following year.  Ultimately, Wray and other lawyers at the firm, which charged a blended rate of $340 an hour, racked up about $2 million in fees and costs, reports said.

New York public radio station WNYC first reported the arrangement between Wray and Christie on July 24.  A day later, Wisniewski voiced his concern about the lack of a retainer agreement, which he pointed out would have been a document available to the press and public.

"This is highly unusual and raises questions about whether Gov. Christie was trying to hide this cost and legal representation from the public," Wisniewski said in a statement at the time.  "Mr. Wray and his colleagues ended up costing taxpayers $2 million, yet the governor did not even take basic steps to provide public transparency and uphold ethics standards.

Florida Court Empowers Fee Agreements in Claims Bill Fee Disputes

June 30, 2017

A recent Daily Business Review story by Noreen Marcus, “Court Empowers Lawyers in Claims Bill Fee Disputesdiscusses Florida’s legislation on a victim’s claims bill and fee agreements.  The story reads:

Which comes first, the promise of a sizable contingency fee or the Florida Legislature's passage of a claims bill?  The answer is the fee agreement between, typically, one or more prominent personal injury law firms and a victim suing someone who enjoys the protection of sovereign immunity and damage caps.  The example from this past session is $3.75 million in private relief to Victor Barahona, the victim of hideous child abuse that his twin sister, Nubia, did not survive.

But would a claims bill ever get past go without the guarantee of a significant fee and costs to cover lobbyists and everything else it takes to succeed in the Legislature?  As a practical matter, probably not.  This reality irritates people who want to maximize payouts to victims as opposed to their lawyers.  That's the dilemma when claims bills turn into legislatively recognized damage awards and the money must be split between victims and attorneys.

To this point, Fourth District Court of Appeal Chief Judge Cory Ciklin penned a June 21 opinion in Grossman Roth v. Mellen that must seem to him like good karma.  In 2015, the influential jurist wrote a dissent that the Florida Supreme Court later adopted — the very precedent that dictated his ruling.

In the precedent-setting case of Searcy Denney Scarola Barnhart & Shipley v. State, a claims bill awarded $15 million to the victim in a medical malpractice case and capped all fees and costs at $100,000.  A Fourth District panel majority approved the formula; Ciklin's dissent called it "draconian."

Ultimately, the Supreme Court agreed with Ciklin that the Legislature cannot constitutionally impair fee contracts through a private relief act.  Access to courts might otherwise be chilled, the court reasoned in an unsigned opinion.

The claims bill could be saved by severing the fees and costs provision, the justices concluded.  Searcy Denney and other firms would get their contracted $2.5 million for fees and costs.  The guardianship trust for Aaron Edwards, a child who suffered a catastrophic brain injury due to hospital negligence, would get $12.5 million.

The decision drew two dissents from Justices Charles Canady and Ricky Polston, the latter joined by Chief Justice Jorge Labarga.  "Although this is a favorable result for the plaintiff and his attorneys, it is not what the law requires," Polston wrote.  "The Legislature was very clear that it was awarding only $100,000 for anyone other than Aaron Edwards."  But he noted the result was to take $2.5 million from the guardianship of Aaron Edwards for attorney fees, "a result that was explicitly rejected by the Legislature with its enactment of the claims bill."

Florida TaxWatch, a nonprofit government watchdog that keeps track of how taxpayer dollars are spent, sees a need to reform the claims bill system.  "The current process is a little too arbitrary," said Kurt Wenner, head of research for TaxWatch.  "It's more a factor of lobbying than the justification for the claim, so it's political, and lobbying plays too big of a role."

Not that TaxWatch would oppose passage of a claims bill in an obviously worthy case like Victor Barahona's. "Our whole thing is, make sure that people have access and are allowed to file just claims and get their compensation in a timely manner, but don't pay unnecessary costs where taxpayers have to foot the bill," Wenner said.

TaxWatch produced a 2013 briefing paper for a legislative committee reviewing claims bill procedures.  The committee accepted the group's suggestions, held hearings and drafted legislation that went nowhere.  TaxWatch's ideas are all about trying to avoid the court system and the Legislature in the kinds of tort cases that tend to result in claims bills.  It's hard to imagine PI lawyers and lobbyists would support this kind of change.

For instance, Wenner talked about raising the sovereign immunity cap from the current $200,000 to a figure that would be tougher to resist and therefore encourage settlements.  His research turned up four states with caps of $1 million per person.  Florida's current political climate suggests a $1 million cap would be a hard sell.

As for attorney fees and lobbying costs, Wenner praised the Legislature for combining the two into one number in claims acts.  He said TaxWatch recommended adding that concept to the law.  It didn't happen and, in fact, Ciklin was talking about a $100,000 total for fees and costs when he used the word "draconian" in his Searcy Denney dissent.

The recently decided Grossman Roth case is similar to the Searcy Denney case.  The Grossman Roth matter began in 2008 when Kristi Mellen and her husband Michael Mellen went to a public hospital because he showed symptoms of a heart attack.  In the waiting room he suffered a massive heart attack and died.

His widow sued the North Broward Hospital District for medical malpractice.  She signed a contingency fee contract with Grossman Roth that promised the firm what amounted to 25 percent of her total recovery.  After huddling with Mellen's lawyers, the hospital district agreed to a $3 million settlement and to support a claims bill.

The claims bill passed and apportioned $290,000 of the award to attorney fees and $2.8 million to Mellen.  The trial court approved the split — but this was before the Supreme Court handed down its Searcy Denney decision, Ciklin noted.  Grossman Roth will get its $750,000 fee.

Court Denies Fees to Notorious Whistle Blower

June 16, 2017

A recent Bloomberg BNA story by Michael Bologna, “Court Tosses Fees for ‘King of Qui Tam’, Business Model Done?” reports on the denial of attorney fees for a notorious whistle blower.  The article reads:

The profit motive driving hundreds of false claims lawsuits by a Chicago lawyer known as the “king of qui tam” may be drying up after an appeals court rejected the prolific whistle-blower’s demand for fees in a case involving unpaid sales and use taxes (Illinois ex rel. Schad, Diamond & Shedden PC v. My Pillow, Inc. , Ill. App. Ct., No. 152668, 6/15/17).

In a case of first impression, a three-judge panel of the Illinois Appellate Court reversed a portion of a circuit court ruling that granted Stephen B. Diamond attorney fees in an action under the Illinois False Claims Act (FCA) against the retailer My Pillow Inc.

Diamond had successfully demonstrated that My Pillow had failed to collect and remit tax on merchandise sold to Illinois customers from internet and telephone sales platforms.  After a bench trial in September 2014, a Cook County Circuit Court judge awarded a judgment of $1,383,627, with $782,667 in the form of damages and penalties, and $600,960 in the form of attorney fees.

The appeals panel upheld the circuit court’s judgment with regard to My Pillow’s failure to collect and remit taxes to Illinois, but it reversed on Diamond’s eligibility for attorney fees.  The court found Diamond, serving as relator on behalf of the State of Illinois, couldn’t achieve benefits in the litigation as both the whistle-blower and the attorney for the whistle-blower.

“We hold that the fee-shifting provision in the Act does not permit the award of attorney fees to relator, who served as its own attorney for much of this case,” Judge David Ellis wrote on behalf of the panel.  “To the extent that the trial court awarded relator fees for work performed by relator’s own attorneys, that fee award is reversed.”

The ruling—the first of its kind dealing with a whistle-blower also serving as his own counsel—could derail the false claims freight train that Diamond, and his law firm Stephen B. Diamond P.C., has steered through Cook County Circuit Court for more than a decade.  Diamond is regarded as the most prolific tax whistle-blower in the country, and his “cottage industry” of FCA actions has perplexed and annoyed retailers, policymakers, and legal scholars across the country.  All of the cases involve purported violations of the Illinois sales and use tax code.

“We think this could really solve the problem here in Illinois,” said Catherine A. Battin, a partner with McDermott Will & Emery in Chicago and counsel to My Pillow.  “There have been discussions about solving it legislatively.  This decision leaves the door open for legitimate insiders and relators, but not this kind of cottage industry where you have one lawyer filing a 1000 lawsuits.”

Diamond has served as relator in about 1,000 qui tam actions over the last 15 years.  A recent investigation by Bloomberg BNA revealed Diamond has collected almost $12 million through this pattern of litigation.  The Illinois General Assembly is considering various legislative fixes to address Diamond’ strategies.

Officials with Diamond’s law firm didn’t immediately respond to a request for comment.  Battin speculated that Diamond would likely appeal the ruling to the Illinois Supreme Court because it undermines the “abusive fee generation” component of his business model.

Judge Highlights Excessive Billing in Sprint Litigation

March 15, 2017

A recent Wall Street Journal story by Joe Palazzolo and Sara Randazzo, “One Lawyer, 6,905 Hours Leads to $1.5 Million Bill in Sprint Suit,” reports that, Alexander Silow, a contract lawyer for a Pennsylvania plaintiffs’ firm, clocked 6,905 hours of work on a shareholder lawsuit against former executives and directors of Sprint Corp. related to its 2005 merger with Nextel.  Averaging about 13 hours a day, Mr. Silow reviewed 48,443 documents and alone accounted for $1.5 million, more than a quarter of the requested legal fees, according to court documents.

“Unbelievable!” is how Judge James Vano in Kansas described the billing records.  And he meant it.  “It seems that the vast amount of work performed on this case was illusory, perhaps done for the purpose of inflating billable hours,” Judge Vano, who sits in Olathe, Kan., wrote in a Nov. 22 opinion.

Courts often slash what they see as excessive billing in securities and other litigation, but rarely are they so scathing, legal experts said.  Judge Vano’s ruling might have gone unnoticed but for a recent disclosure about Mr. Silow by the law firm where he worked: He was disbarred in 1987 and practiced law illegally for decades.

The revelation, contained in a February letter to Judge Vano, could ​rupture​ a settlement in the Sprint case, and provide grist for corporate groups and others that have highlighted alleged abuses in the civil-justice system, fueling current momentum for legislative change.

A Republican bill passed by the House of Representatives would make it harder to file class actions, curtailing lawyer-driven litigation that provides little benefit to shareholders and consumers, its supporters say.  Plaintiffs’ lawyers and consumer-rights advocates say the legislation would reduce access to the courts and blunt litigation that has improved corporate governance and forced companies to pull unsafe drugs and faulty products from shelves.

Courts regularly bless multimillion-dollar fee awards in recognition of the risk plaintiffs’ firms take by fronting the costs for litigation.  But fee experts said bill-padding is pervasive in class actions and shareholder suits because billing records aren’t reviewed by clients and are scrutinized only when a judge needs to approve a settlement or award fees after trial.

William G. Ross, a law professor at Samford University in Alabama who has written two books on attorney billing, said his most recent survey of lawyers showed that two-thirds were personally aware of bill-padding and more than half admitted they sometimes performed work they otherwise wouldn’t have done had they been charging a flat fee.

Mr. Silow had been working as a contract attorney for at least eight years when staffing agency Abelson Legal Search placed him at the Weiser Law Firm PC in Berwyn, Pa., in 2008, according to a Feb. 3 letter from the firm to Judge Vano.  The law firm was contacted last month by a third party it declined to name and learned that no one with Mr. Silow’s name was listed in a state database of licensed lawyers, Robert B. Weiser, co-founder of the firm, said in the letter.

Mr. Weiser said Mr. Silow presented himself to the firm as Alexander J. Silow, but “was in actuality named Jeffrey M. Silow” and confessed he had been disbarred when the firm confronted him, the letter said.  The firm has since ended its relationship with Mr. Silow and alerted authorities, it said.

Pennsylvania’s attorney discipline office confirmed Mr. Silow was disbarred in 1987 but could provide no additional information.  Mr. Silow didn’t respond to emails and calls seeking comment.  Abelson Legal Search didn’t respond to requests for comment.

Mr. Weiser said in the letter that his firm stands by the accuracy of Mr. Silow’s billing records in the Sprint lawsuit, which alleged the company directors and officers concealed problems created by the merger with Nextel.  The company posted a nearly $30 billion loss as a result of the deal.

The lawsuit sought to claw back profits from former Sprint directors and officers, who it accused of incompetence and self-dealing.  But a settlement reached last year was more modest.  Sprint agreed to changes to its corporate governance and the composition of its board of directors.

Judge Vano approved the deal in his November ruling but slashed the proposed legal fees for plaintiffs’ attorneys from $4.25 million to $450,000.  “The focus appears to have been upon an easy, cheap settlement in the first instance,” Judge Vano wrote.

The plaintiffs’ lawyers—Mr. Weiser’s firm, Florida lawyers Alison Leffew and Bruce G. Murphy and the Kansas City firm Dollar Burns & Becker LC—have appealed Judge Vano’s ruling on the fees.  They argued the results of the settlement, rather than the hours billed, justified the amount sought.

In court documents, Mr. Weiser and the other plaintiffs’ lawyers representing a Sprint shareholder said Mr. Silow’s “extensive document review” enabled them to make “well-informed decisions.”

Michael Hartleib, a Sprint shareholder who objected to the settlement, asked the Kansas appeals court last month to return the case to Judge Vano’s court so he can reconsider the deal in light of the new evidence showing Mr. Silow had no license to practice law.

Legislation to Cap Attorney Fees Struck Down in Florida

February 2, 2017

A recent Daily Business Review story, by Celia Ampel, “Legislation Attorney Fee Cap in Claims Bill Struck Down,” reports that the Florida Legislature cannot limit attorney fees in a claims bill if it contradicts the client's contract, the Florida Supreme Court ruled in a 4-3 decision.

The opinion favors the West Palm Beach law firm Searcy Denney Scarola Barnhart & Shipley, which challenged the state after the Fourth District Court of Appeal ruled in 2015 that the firm and co-counsel could recover only $100,000 of a multimillion-dollar contingency fee award in a medical malpractice case.

Searcy Denney and other firms were set to receive $2.5 million in fees under a contract with the family of Aaron Edwards, who was seriously injured at birth because of negligence by employees of Lee Memorial Health System in Fort Myers.  The firms won a $28.3 million judgment for the Edwards family in 2007, which was capped at $200,000 because the public hospital was protected by sovereign immunity.  The attorneys pushed for a claims bill to allow a larger payout to the family, and the Legislature passed a $15 million claims bill in 2012 to benefit Edwards — but with a $100,000 cap on legal fees and costs.

A guardianship court backed the small fee for 7,000 hours of work and $500,000 in expenditures, and the Fourth District affirmed the decision on appeal.  But the Florida Supreme Court found the fee limitation unconstitutional as the Florida Constitution prohibits laws that impair preexisting contracts.  The decision was in line with a dissent in the Fourth DCA case from Chief Judge Cory Ciklin.

"The right to contract for legal services in order to petition for redress is a right that is related to the First Amendment, and any impairment of that right not only adversely affects the right of the lawyer to receive his fee but the right of the party to obtain, by contract, competent legal representation to ensure meaningful access to courts to petition for redress," the Supreme Court ruled in a per curiam decision.

The majority also accepted Searcy Denney's argument that the fee limitation wasn't in line with a statute that blocks attorney fees "in excess of 25 percent of any judgment of settlement."  The 25 percent limit should apply to the $28.3 million excess judgment, the court found, and instead the claims bill capped the fees at less than 1 percent of that judgment.

The court ruled that rather than striking the entire claims bill, it would sever the valid parts of the bill compensating the Edwards family from the fee limitation portion.  Justices Barbara Pariente, R. Fred Lewis and Peggy Quince formed the majority with Senior Justice James E.C. Perry, who retired at the end of last year.  He has since been replaced by Justice C. Alan Lawson, who joined the court too late to hear arguments in this case.

In a separate dissent, Justice Ricky Polston wrote the fee limitation did not impair Searcy Denney's contract, which said, "Florida law may limit the amount of attorney fees charged by" the firm.  He also disagreed with the majority's reasoning on severability.  "The result of the majority's ruling is to take $2,500,000 from the guardianship of Aaron Edwards for attorneys' fees, a result that was explicitly rejected by the Legislature with its enactment of the claims bill," Polston wrote.