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Category: Quantum Meruit

No Attorney Fees for Non-Class Counsel in VW Settlement

January 23, 2019

A recent Metropolitan News-Enterprise story, “No Fees for Non-Class Counsel in Volkswagen Settlement,” reports that the Ninth U.S. Circuit Court of Appeals yesterday rejected a bid by several law firms to claim attorneys’ fees in connection with the recent multi-billion dollar Volkswagen diesel vehicle class action settlement despite not being class counsel because the firms didn’t provide a compensable benefit to the class.

The opinion was written by Circuit Judge Milan D. Smith Jr. It affirms the denial by U.S. District Judge Charles R. Breyer of the Northern District of California of 244 separate attorneys fee applications in the multidistrict litigation (“MDL”), consolidating seventeen of the eighteen appeals from those fee motions (the eighteenth firm filed a notice of appeal but did not join either of the two briefs submitted on appeal).

The litigation against Volkswagen was sparked by accusations in a notice of violation (“NOV”) by the U.S. Environmental Protection Agency that the company had utilized a device designed to spoof emissions tests in 500,000 of its diesel vehicles.  Those accusations were prompted by a study commissioned by the California Air Resources Board to look into discrepancies between the emissions numbers of American and European models of certain vehicles.  Audi and Porsche, two German marques also owned by the Volkswagen Group, were also sued in the class action, which resulted in a settlement of more than $7 billion, as well as $175 million in class counsel fees, agreed to by the parties.

Breyer, responding to several motions for attorney fee liens from lawyers who were not class counsel, noted that the purpose of the settlement was to give class members opting into the agreement’s buyback program “sufficient cash to purchase a comparable replacement vehicle and thus facilitate[] removal of the polluting vehicles from the road.”

He continued: “An attorneys’ lien on a Class Member’s recovery frustrates this goal. By diverting a portion of Class Members’ compensation to private counsel, a lien reduces Class Members’ compensation and places them in a position where they must purchase another vehicle but lack the funds to do so.  Put another way, attorneys—notably, attorneys who did not have a hand in negotiating the Settlement—stand to profit while their clients are left with inadequate compensation.”

The judge enjoined state court proceedings related to any class member’s attorney’s lien on his or her recovery, but noted that some lawyers “may have provided Class Members with compensable services,” and implemented a procedure whereby such attorneys could apply for reimbursement.  That scheme resulted in the 244 applications for fees.

Nagel Rice LLP of New Jersey wrote the lead brief on appeal, joined by 15 other firms. They argued that the appeal presented “an issue of first impression in the Ninth Circuit: whether Independent Counsel who performed services and incurred costs in a multi-district litigation prior to the appointment of Lead Counsel are entitled to an award of fees and costs, or are only the firms appointed to leadership roles entitled to a fee award for services performed prior to their appointment.”  Smith responded: “In truth, however, the central issue before us is narrower: whether the district court abused its discretion when it denied Appellants’ motions for attorneys’ fees.”

The jurist noted that under Federal Rule of Civil Procedure 23, courts are permitted to award attorneys fees “authorized by law or by the parties’ agreement,” and that such awards are available even to non-class counsel in class actions.  Nevertheless, he said, a trial court must determine whether an attorney fee award is reasonable.  According to Nagel Rice, its commencement of hundreds of lawsuits against Volkswagen before the class action was commenced, its filing of discovery and other motions, and other research and communications benefitted the class.

Smith agreed with the plaintiffs in the case as to the pre-trial work done by Nagel Rice and its co-objectors, who noted on appeal that “even assuming these activities are all attributable to the Appellants, [they] fail to establish how, precisely, these activities benefitted the Class.”

He wrote: “Appellants may have filed complaints and conducted preliminary discovery and settlement work on behalf of their clients before consolidation of the MDL and appointment of Class Counsel, but they do not appear to have discovered grounds for suit outside of the information contained in the widely publicized NOVs, or otherwise provided guidance or insights that were later used in securing the Settlement.  In short, Appellants have not demonstrated that, in Plaintiffs’ words, ‘they engaged in serious settlement efforts, much less that any such efforts contributed to the class settlement framework that was ultimately reached, approved, and successfully implemented.’ ”

He also rejected the appellants’ claim that their work after class counsel was appointed, consisting largely of actions to “remain updated on the case,” helped the class, especially in light of a pretrial order stating: “Only Court-appointed Counsel and those attorneys working on assignments therefrom that require them to review, analyze, or summarize those filings or Orders in connection with their assignments are doing so for the common benefit.  All other counsel are reviewing those filings and Orders for their own benefit and that of their respective clients and such review will not be considered Common Benefit Work.”

Smith said: “We are sympathetic to Appellants, and have no doubt that many of them dutifully and conscientiously represented their clients. This is not necessarily a case where latecomers attempt to divide spoils that they did not procure. But Appellants’ efforts do not entitle them to compensation from the MDL, when the record indicates that they did not perform work that benefited the class, and that they neglected to follow the protocol mandated by the district court. We commend the district court’s efforts to successfully manage a massive and potentially ungainly MDL, and conclude that the court did not abuse its discretion when it determined that Appellants were not entitled to compensation.”

The opinion also rejects the attorneys’ contentions that Volkswagen had agreed to pay fees to them or that they were entitled to recovery on a theory of quantum meruit, which would itself require them to have benefitted the class by their work.  The case is Bishop, Heenan & Davies v. Volkswagen Group of America, No. 17-16020.

Texas Attorney Wins Millions in Fees Despite Invalid Fee Agreement

April 17, 2018

A recent Bloomberg Big Law Business story by Bernie Pazanowski, “Attorney May Get Millions Despite Invalid Fee Agreement,” reports that a Texas attorney may be able to recover millions of dollars in unpaid fees even though the oral contingent-fee agreements he entered into with his client are unenforceable under Texas law, the Texas Supreme Court said April 13.

Texas law requires contingent-fee agreements for legal services to be in writing, the opinion by Justice Paul W. Green said.

But when they’re not, the value of the services rendered may still be recoverable thru an equitable remedy known as “quantum meruit.”

Attorney Gregory Shamoun had four separate agreements with Albert G. Hill Jr., to represent Hill in cases in which Hill was involved. But Hill was also involved in a number of other additional, connected cases involving other members of his family, family trusts, and a number of business entities.

Shamoun soon became entangled in the other cases.

Shamoun and Hill never signed a written agreement for the extra services. Instead, they orally discussed Shamoun getting a bonus based on the amount Shamoun saved Hill through a global settlement of the other cases.

While Hill paid Shamoun for his services under the signed agreements, he refused to pay him the $11.25 million he requested for legal services related to the settlement, which was finalized after Shaoun had been terminated.

Shamoun’s firm sued Hill and a jury said Shouman provided $7.25 million in compensable services. The trial court set aside those findings because of the lack of a written fee agreement.

Shamoun’s quantum meruit suit may proceed, the supreme court said. The top court revived the attorney’s chance to collect but said Shamoun must again prove the value of the services he rendered as the jury’s award wasn’t supported.

Gibson Dunn & Crutcher LLP represented Hill. Alexander Dubose Jefferson & Townsend LLP represented Shamoun.

The case is Hill v. Shamoun & Norman LLP, 2018 BL 130514, Tex., No. 16-0107.

Update: Kasowitz Wins in Fee Dispute Matter

February 8, 2018

A recent New York Law Journal story by Christine Simmons, “Law Firm Legal Battles That Slipped from the Headlines in 2017,” reports on an update of the Kasowitz Benson Torres unpaid legal fees case.  The story reads:

While law firms have a mixed record of beating back legal malpractice and discrimination cases, they often are successful in obtaining judgments against ex-clients for unpaid legal fees on a quantum meruit basis.  For instance, Kasowitz Benson Torres, which has a history of going to court to get such fees, sued Patriot National Inc. in late May 2017 in Manhattan Supreme Court, seeking $1.097 million in legal fees.

The company, which provided back-office functions to insurance companies, then filed suit against the firm the Florida state court, alleging it engaged in fraudulent billing, malpractice and other misconduct that cost the company millions of dollars. The former CEO of Patriot also sued Kasowitz as well as Simpson Thacher & Bartlett in Florida state court.

Despite the malpractice litigation in Florida, Kasowitz prevailed in its New York collection fee suit: it obtained a $1.185 million judgment against Patriot National in December 2017, after a ruling from Manhattan Supreme Court Justice Gerald Lebovits.

Yet any immediate opportunity to collect the judgment is in doubt. Patriot National filed for Chapter 11 bankruptcy papers in late January in Delaware.

Kathryn Coleman, a partner at Hughes Hubbard & Reed representing Patriot in its bankruptcy, did not return a call for comment, neither did Kasowitz’s attorney in the collection matter, partner Joshua Siegel.

Texas Justices Weigh Attorney Pay After Oral Contingency Deals

October 13, 2017

A recent Law 360 story by Jess Krochtengel, “Texas Justices Weigh Atty Pay After Oral Contingency Deals,” reports that the Texas Supreme Court justices on questioned whether attorneys can collect a “reasonable value” for their work on behalf of clients if that value is tied to any type of contingency, as they weigh whether to throw out a $7.25 million award for
Shamoun & Norman LLP’s work in a dispute over a Hunt Petroleum Corp. heir’s family estate.  In oral argument, the justices probed lawyers for the firm and Hunt heir Al Hill Jr. about how lawyers can be paid for the work they’ve done when they don’t have an enforceable fee agreement.

Shamoun & Norman argues it earned a fee for the reasonable value of the services it provided to Hill when it negotiated a global settlement of 20 lawsuits over the family fortune.  But Hill contends there’s no evidence supporting that fee other than an unenforceable and disputed oral contingency agreement, and says the award should be reversed.

Questioning the firm, Justice Jeff Boyd asked whether the “reasonable value” a jury might award under a theory of quantum meruit recovery — an amount paid for services rendered when there is no legally enforceable contract between the parties — can be based even in part on the fact the client eventually prevailed.

Wallace B. Jefferson of Alexander Dubose Jefferson & Townsend LLP told the judge yes, it can, because Shamoun & Norman provided “tremendous value” to Hill by reaching an agreement with all parties to settle the cases for far less than Hill was willing to pay.  Jefferson said the jury didn’t base its award on the disputed contingency agreement, under which the firm claims it was to be paid half the savings it achieved for Hill.  Jurors came up with a reasonable fee based on what they determined was the value Hill ended up with as a result of the settlement.

Pushing back, Justice Boyd said if the reasonable value of the services provided is tied to the outcome of the case, that’s a contingency.  If the case hadn’t ended in a settlement in line with what Hill wanted, Shamoun wouldn’t be in court arguing the jury award was a reasonable amount, the judge said.  “You’re conceding your argument allows for the ‘contingency of prevailing’ to be a key factor in determining the reasonable value,” Justice Boyd said.  “I wouldn’t say it that way,” Jefferson said.  “Everything else you say says it that way,” Justice Boyd said.

Jefferson said the value of the services Shamoun provided doesn’t go away because of the contingency, nor does the value of the results achieved.  The jury was asked to determine the value of Shamoun’s services, and the fee the jury came up with should stand up in court, he said.

Justice Debra Lehrmann asked whether it matters if the underlying oral agreement had a contingency or not.  And she said to Hill’s counsel that it seems to her the whole point of quantum meruit recovery is that it applies when there is an unenforceable contract like the alleged oral contingency agreement.

Arguing for Hill, Jim Ho of Gibson Dunn said “of course” quantum meruit applies to the case, and Shamoun & Norman could have sought fees for its work on the settlement, so long as those fees were based on an hourly rate for the time it spent working on the case, or some other theory of recovery that doesn’t have a contingency component.  Ho said the fee the firm is seeking here is “obviously contingent on the outcome of the case,” as evidenced by its “bragging” about the value of the case’s outcome to try to justify the fee award.

And he argued the firm simply can’t rely on evidence of the alleged oral contingency agreement to support its claim for fees because state lawmakers made the judgment call that they want contingency agreements to be written.  Failing to get a fee agreement in writing means lawyers proceed at their own peril, Ho said.  “What Shamoun is asking you to do today is to eviscerate the Legislature’s judgment,” he said.

The state of Texas argued as an amicus in the case, siding with Hill’s position.  Texas Solicitor General Scott Keller told the court the lower appellate decision “effectively nullifies the state statute of frauds.”  Keller said the fee Shamoun & Norman seeks is clearly contingent on achieving a certain result and that the evidence presented to the jury was based entirely on the unenforceable contingency agreement — but that an unenforceable contract cannot be given any weight or effect or legally be considered as evidence.

Justice Paul Green said the point of quantum meruit recovery is to avoid unjust enrichment.  He asked if a lawyer who has done a lot of work that helps resolve the case, yet gets fired before the case winds up, would be entitled to any recovery at all.  Keller said recovery could be available in that kind of a scenario, but only if the award isn’t contingent on achieving a certain result.

Justice Boyd posed a question about an agreement in which the parties agree to a fixed hourly rate, but with payment of that hourly rate only required if the lawyer wins.  Keller said even though the amount is fixed, that payment is still contingent and would be barred unless the parties had reduced it to writing.

The case is Hill v. Shamoun & Norman LLP, case number 16-0107, in the Supreme Court of Texas.

Judge: Even Split of $20M Fee Award was Wrong

September 29, 2017

A recent Law 360 story by Cara Salvatore, “Even Split of $20M Atty Fee was Wrong, Judge Says” reports that a New York federal judge on reversed a bankruptcy judge’s division of a $20 million attorneys’ fee award to four law firms into four equal parts, saying that in the decades-old asbestos-related insurer litigation, there was “no evidence” to support that the four intended an equal split.
 
Bevan & Associates LPA LLC, Law Offices of Bruce Carter and Madeksho Law Firm PLLC were appealing a bankruptcy judge’s order splitting the $20 million into four equal $5 million parts; the three believe that the fourth set of counsel, Eric Bogdan and Bogdan Law Firm, didn’t do enough to justify that large a share.

The litigation from which the fee stems can trace its lineage back to 1982, when Johns-Manville Corp. declared bankruptcy.  Manville eventually paid $770 million to its insurers to settle the litigation.  The settlement was enshrined in 1986.  Then, asbestos plaintiffs started suing one of the insurers, Travelers.  The four sets of counsel represented plaintiffs and reached a $70 million deal with Travelers in 2004, which set an additional $20 million aside for fees.

But “the agreement did not specify clearly how, to whom, and in what percentages the $20 million in attorneys’ fees were to be distributed,” Judge Engelmayer said, finding that a bankruptcy judge must be the one to do that, and can choose the most appropriate method — except for the method of splitting equally.

“It was clear error to hold that the parties objectively intended to split the $20 million fee award evenly among the three appellant law firms and Bogdan at $5 million apiece.  There was no evidence to support that finding,” the judge said.  Under black-letter contract law, faced with an ambiguity — the deal actually contained the words “to be paid as follows,” but no details followed — the bankruptcy court erred, Judge Engelmayer found.

“The court therefore has no choice but to reverse and vacate the decision below and remand to the bankruptcy court to resolve the proper allocation,” he said.  The so-called quantum meruit method, a main option that sprang to Judge Engelmayer’s mind, “is admittedly an imperfect fit” here because it’s usually used when there is no agreement, and here there is an agreement that speaks to fees.  Still, it “may be the most apt” method here, Judge Engelmayer mused.  But he still left it up to the bankruptcy judge to decide.

A lawyer for Bogdan, Todd Duffy of Duffy Amedeo LLP, said, "We think that under the test for quantum meruit as articulated by Judge Engelmayer, our client may receive an even larger portion of the attorney fee pool than was previously awarded."

Meanwhile, Richard Haddad of Otterbourg, who argued for the three other firms, said they also were hopeful and "very pleased" with the ruling.  "The historical settlement was a highlight of the legal career of Larry Madeksho, who passed away last year while the appeal was pending," Haddad said.

Travelers deposited the money into a court escrow account in early 2015. Bogdan filed the new litigation over the fee allocation in February 2015.  In August 2016, a bankruptcy court decided the fee should be split into four equal parts, finding that was the parties’ intention, even though the agreement itself was fuzzy.
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The case is In re Johns-Manville Corp., case number 1:16-cv-07154, in the U.S. District Court for the Southern District of New York.