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Category: Litigation Financing / Funding

Litigation Funder Seeks Share of Attorney Fees

February 16, 2021

A recent Law 360 story by Carolina Bolado, “Litigation Funder Wants Cut of $350M Shire Deal,” reports that law firm lender Counsel Financial Services asked a Florida federal judge for permission to intervene in a dispute over divvying up attorney fees from a $350 million whistleblower settlement with biotech company Shire, alleging the law firm Barry A. Cohen PA should be forced to direct any fees it receives to pay back a $43.8 million line of credit.

Counsel Financial says it loaned money to the Cohen firm in February 2009 in exchange for a secured interest in the firm's assets, which includes legal fee proceeds.  In January 2019, the company obtained a $43,778,684 judgment against the Cohen firm, which previously represented whistleblower Brian Vinca in his suit against Shire.

"Counsel Financial thus has an interest in the legal fees that will be awarded to [the Cohen firm] in this action," the company said in the motion.  "Consequently, Counsel Financial seeks to intervene to ensure that its interest in the legal fees obtained by [the Cohen firm] in connection with this matter are rightfully directed by this Court to Counsel Financial directly from the court registry."

The motion is the latest development in a fight over fees from the $350 million settlement, which was announced in August 2016 and resolved claims stemming from Shire's sales and marketing practices around Dermagraft, a skin substitute the company picked up when it acquired Advanced BioHealing Inc. — now known as Shire Regenerative Medicine Inc. — as part of a $750 million deal in 2011.  Vinca and co-plaintiff Jennifer Sweeney filed the first of the six False Claims Act suits against Shire that led to the settlement.

Kevin J. Darken, who represents Vinca's former counsel, says Vinca's current attorneys, Noel McDonell of Macfarlane Ferguson & McMullen and Bryen Hill of Mahany Law, have tried to cut him and the Cohen firm out of a fee award.  Darken has asked the court to disqualify McDonell and Hill for allegedly using stolen confidential emails to challenge the charging lien filed by Darken, Cohen and Saady & Saxe PA for a cut of the attorney fees.

McDonell and Hill have accused Darken and Kevin M. Cohen, the representative for Barry Cohen's estate, of conspiring to a fee-splitting scheme of the proceeds.  Vinca, who fired his attorneys in March 2018, is suing Darken, the Cohen firm and Saady & Saxe for malpractice, claiming they cost him the full whistleblower's cut of the Shire settlement.  Vinca claims his former counsel's failures forced him to share the whistleblower award of the Shire settlement with the five other relators who filed FCA suits after he did.

Generally, the first whistleblower to file gets about 20% of the government's recovery, and any subsequent whistleblowers do not receive a cut. But in this case, U.S. District Judge James Moody Jr. decided to divvy up the proceeds, in part because of deficiencies in the initial eight-page complaint from Vinca and Sweeney, according to McDonell.  Vinca and Sweeney shared more than $50 million from the settlement, while the other whistleblowers shared approximately $30 million.

The six whistleblower lawsuits that led to the settlement all alleged misconduct by Shire from 2007 through the beginning of 2014, including that it paid illegal kickbacks to get health care providers to use or overuse Dermagraft, marketed Dermagraft for uses not approved by the U.S. Food and Drug Administration, inflated the price of the drug and spurred the coding of Dermagraft-related reimbursement claims for payouts higher than what was appropriate.

McDonell told Law360 that Counsel Financial's claim has no bearing on this lawsuit because Vinca was not a party to the financing contract between Counsel Financial and the Cohen firm.  "As Magistrate Judge Porcelli noted in June of 2019, the matter at issue is the merits of a charging lien filed against relator Brian Vinca by former counsel, and to what extent compensation is appropriate," McDonell said.  "Accordingly, on behalf of Brian Vinca, we are confident that CFS has, as Judge Porcelli so aptly put it, 'no dog in this fight.'"

UK Ruling Bolsters Contingency Fee Arrangements

January 21, 2021

A recent Law 360 story by Richard Crump, “Contingency Fee Ruling Paves Way For Hybrid Arrangements,” reports that a recent appellate ruling has made damages-based agreements in the U.K. more attractive and could herald a new era for litigation funding by permitting a wide array of hybrid arrangements that lawyers say would make it easier to take advantage of the contingency fee structure.  In a Jan. 15 ruling, three Court of Appeal judges unanimously found that a damages-based agreement — a form of retainer in which a lawyer working on the case can charge a share of the recoveries if the claim succeeds — can be enforced if it is terminated by the client.

"There can be little doubt that this is a seminal moment in litigation funding and that the road has now been paved for DBAs to be used more widely in appropriate cases," said Matthew Waszak, a barrister at Temple Garden Chambers.  "Undoubtedly, there is likely to be an increased appetite to consider and use DBAs in appropriate cases."  Judges Peter Coulson, Kim Lewison and Guy Newey dismissed an attempt by a Lexlaw Ltd. client to withhold payment from the London law firm for its work on a misselling claim against Royal Bank of Scotland by seeking to terminate the DBA before the case concluded.

In doing so, the Court of Appeal removed a long-standing source of uncertainty that had prevented the more widespread use of DBAs since they were introduced in 2013 as part of a sweeping overhaul of the funding arrangements for civil litigation.  "One key obstacle preventing their wider use has been the fear among the legal profession that if a client terminates a retainer, the lawyer will end up being paid nothing for what might have been months or even years of work," Waszak said.  "The Court of Appeal has now put that concern to bed."

The uncertainty in relation to termination was one of the reasons the Bar Council the and Law Society have yet to offer a model form for DBAs.  The Bar Council, which intervened in the appeal, said it expects to publish further guidance on DBAs shortly.  DBAs were created to let would-be litigants hire counsel who would share the risks of litigation in return for a percentage of the proceeds.  But flaws in the drafting of the regulations created confusion over whether a DBA could allow for other kinds of fees if terminated early.

Lexlaw filed its suit against former client Shaista Zuberi in February 2016 after she failed to pay a £125,123 invoice the firm issued in July 2015 when she reached a settlement with Royal Bank of Scotland to end her claim over an interest rate hedging product sold at the height of the financial crisis.  On appeal, Zuberi argued that the DBA, which gave Lexlaw 12% of any sum recovered plus expenses, was unenforceable because it violated DBA regulations by including an obligation to pay legal costs and expenses to Lexlaw on its hourly rates up to the date of termination.

The Court of Appeal held that the inclusion of termination provisions is not a breach of the regulations — which Judge Coulson said were "designed to encourage the use of DBAs, not make them commercial suicide for the lawyer" — but arrived at the conclusion by different routes.  In a majority decision, Judges Lewison and Couslon adopted a narrow interpretation of the meaning of a DBA, so that other elements of the retainer, such as termination provisions or the responsibility for a law firm's expenses, are not connected to the sharing of recoveries and fall outside the regulation's scope.

Judge Lewison recognized that this conclusion meant that the current regulations do not deal with a lawyer's fees in the event the client takes a case to trial and loses.  That, the judge said, is a matter that could be legislated separately so that a DBA could prevent or limit a lawyer from charging fees if the claim were lost.  The regulations, which Judge Coulson dryly observed that "nobody can pretend ... represent the draftsman's finest hour," appeared to preclude so-called hybrid DBAs, which combine a share of recovered proceeds with another form of payment, such as hourly rates.

4 New Square's George McDonald said this narrow interpretation has "startling consequences," most notably that opens the possibility of hybrid fee arrangements.  "This means that a solicitor can still charge a client time-based charges even if the claim is unsuccessful and in addition to the DBA payment," McDonald said.  "This is contrary to the widely held beliefs that DBAs were pure contingency agreements which fell under the 'no win, no fee' banner."

While the ruling is significant and will go a long way to putting DBAs back on the table, Signature Litigation LLP's Johnny Shearman said the regulations would benefit from revisions proposed in 2019 that have not yet been adopted.

"Definitive wording on the use of hybrid DBAs would still be welcomed along with a number of other revisions," Shearman said.

Among other things, the proposed switch from paying costs out of the DBA fee rather than on top of it to a success fee model would be helpful, he said.

"Further reforms are needed to the regulations before we get to the watershed moment that this judgment is being referred to as," Shearman said.

The case is Lexlaw Ltd. v. Zuberi, case number A3/2020/1270, in the Court of Appeal of England and Wales.

ABA Adopts Best Practices for Third-Party Litigation Finance

August 4, 2020

A recent American Lawyer story by Dan Packel, “ABA Adopts Best Practices for Third-Party Litigation Finance” reports that the American Bar Association’s House of Delegates overwhelmingly voted to approve a new set of best practices for litigation funding arrangements, updating their guidance on the increasingly popular tool for the first time since 2012.  The report, which outlines a list of issues lawyers should consider before entering into agreements with outside funders, cleared the body by a vote of 366 to 10.

While the document avoids taking a position on the use of outside funding, it recommends that lawyers detail all arrangements in writing, while making clear the non-recourse nature of the investment.  Lawyers are also advised to ensure that the client retains control of the matter.  “The litigation should be managed and controlled by the party and the party’s counsel,” the report asserts.  “Limitations on a third-party funder’s involvement in, or direct or indirect control of or input into (or receipt of notice of), either day-to-day or broader litigation management and on all key issues (such as strategy and settlement) should be addressed in the funding agreement.”

The report also cautions attorneys against providing advice to funders about the merits of any given case, warning that this could raise concerns about the waiver of attorney-client privilege and also expose lawyers to claims that they have an obligation to update this guidance as the litigation develops.

Zachary Krug, a former Quinn Emanuel Urquhart & Sullivan litigator who now works as a senior investment adviser with Woodsford Litigation funding, suggested this concern was misguided.  “Courts have been fairly consistent in protecting such communications under the work product doctrine,” he said in an email.

He also cautioned that the guidance could backfire in an environment where critics of litigation funding are already arguing that the availability of outside capital may lead to an increase in unmeritorious lawsuits.  “If our concern is making sure good cases get funded—and bad ones don’t—this seems like a problematic and short-sighted approach,” he said.

The report aims to stay neutral on a number of other contested issues surrounding the practice of litigation funding. In a controversial 2018 ethics opinion, the New York City Bar Association warned that paying funders through attorney fees could violate ethics rules over fee splitting.  “Positions on fee splitting, however, are far from unanimous; the New York City Bar Opinion is not the ‘law of the land’ outside of its reach, nor are opinions or approaches that contradict the New York City Bar Opinion,” the report said.

Likewise, opponents of the practice, namely business groups led by the U.S. Chamber of Commerce, have pushed for rules requiring mandatory disclosure of funding arrangements during litigation.  The report does not take a stance on whether disclosures to judges or adversaries should be obligatory.  But in a footnote, it urges lawyers to be prepared for the prospect of arrangements being scrutinized.

“A careful lawyer will assure that the written undertakings accurately reflect that the client retains control of the litigation, that disclosures to the funder are limited so as not to create risks of waiver of attorney-client privilege or work product, and that the attorney retains and protects his or her ability to exercise independent professional judgment,” it said.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA