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Category: Unpaid Fees

Year-End Fee Collection Remain Steady in COVID-19 Era

January 1, 2021

A recent Law.com story by Justin Henry, “Pandemic Be Damned, Year-End Collections Are Steady (So Far)” reports that despite the great anxiety that roiled the legal industry throughout 2020, fee collections at law firms have largely returned to pre-pandemic levels as the fourth quarter comes to a close, law firm leaders and industry observers said, thanks to the successful shift to remote work and a diversity of practice areas bringing in revenue.  As 2020 ends, many firms are now preserving resources to give themselves a head start in 2021.

The fourth quarter is always a high-pressure time to collect fees from clients, especially in a year defined by economic uncertainty.  But the legal industry had one of the most successful rebounds from the pandemic-fueled economic downturn that began in the spring, and the financial strain that many forecasted proved to be short-lived.

At many law firms, however, the results of 2020’s economic turmoil won’t be known until January, with much of collections coming in these last days of the year.  Asked to comment on the net impact of the COVID-19 pandemic on their firms’ bottom lines, many firm leaders said to call back in January.  “Our results depend on dollars in the door by a certain date and, not surprisingly, the last few weeks of the year are always important, but it’s always a little hard to predict,” said Tom Froehle, co-chair of Faegre Drinker Biddle & Reath, which formed in 2020 out of the combination of Faegre Baker Daniels and Drinker Biddle & Reath.

While instituting flexible fee arrangements has played an important role in firms maintaining close relationships with clients throughout the pandemic, firm leaders said for the most part they had returned to normal by the closing weeks of 2020, with the exception of a few more economically precarious practice areas.

G. Mark Thompson, president and CEO of Marshall Dennehey Warner Coleman & Goggin, said the “vast majority” of his firm’s clients that requested payment discounts and deferrals have returned to pre-COVID payment agreements. The firm’s hospital clients and municipal government clients were among those that asked for discounts and deferrals on their fee payments as a result of the pandemic and its financial impacts.

Thompson said while the firm’s hospital clients—which requested flexible fee arrangements due to a downturn in elective surgeries amid an inundation of COVID-19 patients—have returned to their pre-COVID payment rates, Marshall Dennehey’s base of municipal government clients haven’t yet returned to pre-COVID fee arrangements as a result of financial distress.  “That is going to remain a problem going forward,” Thompson said.  Thompson added that one of the ways Marshall Dennehey has braced itself for economic uncertainty is having a diversified set of practice areas.  “That’s given us a competitive advantage that we’re hoping to leverage and expand moving forward,” he said.

Brad Hildebrandt, chairman of Hildebrandt Consulting, said the majority of practice areas that struggled as a result of the pandemic-induced recession—like M&A work, business transactions and in-person litigation—have successfully rebounded by the fourth quarter as attorneys and their clients adapted to a virtual work environment.

The legal industry is historically one of the fastest to rebound from a recession, and this remained true in 2020, Hildebrandt said, due in large part to the reduction in expenses that came with the shift to remote work, combined with a diverse set of high-performing practice areas, like health care and bankruptcy.

“The way the large firms have performed is actually pretty remarkable,” Hildebrandt said.  “It turns out as the last quarter came about, many of the practices were showing a return, like M&A and private equity.  Most firms at the end of the year are going to have increased revenue or at least the same revenue, and profits are going to be very high.”  Some industry observers said firm leaders may be looking to hold onto partner distributions heading into 2021 so they can preserve cash flow into the first quarter, which is historically a lower-performing period—recession or not.

Jeff Lowe, global practice leader of legal search firm Major, Lindsey & Africa, said many firms are less concerned about end-of-year cash flow than they are about setting themselves up financially for a successful 2021.  “If you’ve already had a great year, it just puts pressure on your next year,” Lowe said.  “They would rather know they have accounts receivable coming in in January when it’s going to count toward next year.  It’s sort of like starting the new year with a head start.”

Texas Court Lets Lawyer Keep Fees, Despite Unethical Fee Agreement

December 30, 2020

A recent Texas Lawyer story by Angela Morris, “Court Lets Houston-Area Lawyer Keep $70,000 Fee, Despite Unethical Contract, reports that a Houston-area attorney won’t have to pay back more than $70,000 in fees to two clients who argued the lawyer’s fee agreement was unconscionable, after Texas’ 14th Court of Appeals ruled that the clients’ defensive argument wouldn’t support a recovery.  But one of the justices on the three-judge panel disagreed, explaining that Bellaire lawyer Joe Alfred Izen Jr. had an unconscionable fee agreement with his clients, which breached the attorney’s ethical duties, and that it was right for the trial court to make him return the money.

“In Texas, attorneys are held to the highest standards of ethical conduct in their dealings with their clients.  As a result, attorneys must conduct their business with their clients with inveterate honesty and loyalty, and they must always keep the client’s best interest in mind,” said a concurring and dissenting opinion by Justice Jerry Zimmerer.  “The question of Izen’s fees must be viewed through that prism.”

Izen, who represented himself pro se in the appeal, didn’t immediately respond to a call seeking comment.  And Ralph Kraft, member in Kraft Lege Anseman in Lafayette, Louisiana, who represented Izen’s past clients Brian and Kimberly Laine, declined to comment.

Izen represented the Laines in a 2002 personal injury settlement agreement over Brian Laine’s injury at work, said the 31-page majority opinion by Justice Kevin Jewell, joined by Justice Bourliot.  His employer took care of him after the injury and initiated a settlement for two lump sum payments and a monthly annuity for 30 years, and then the Laines hired Izen to look over the settlement agreement.  The Laines also wanted Izen to research if they may have a claim against any third-party entities—but not to sue Brian Laine’s employer.

An attorney-client agreement between Izen and the Laines was for a 35% contingency fee of the settlement with the employer.  Izen testified at trial they paid him between $70,000 and $90,000 and eventually he expected nearly $229,000 total.  Izen wasn’t licensed to practice in Louisiana and he contracted with an attorney there to represent the Laines in litigation against a third-party entity.  However, Brian Laine eventually dismissed that litigation and he did not owe any contingent fee for it.

In 2007, Brian Laine terminated Izen’s representation because he didn’t need it anymore.  He also quit paying Izen 35% of his monthly annuity payments from the settlement with his employer.  In 2010, Izen sued the Laines alleging they still owed him 35% of the annuity payments.  In response, the Laines argued his fee agreement was unconscionable and filed counterclaims seeking the return of the fees they already paid him.

After a jury trial, the judge granted a directed verdict in favor of the Laines, ruling the fee agreement was unconscionable.  But Izen also got a favorable ruling dismissing the clients’ counterclaims because they weren’t filed within the four-year statute of limitations.  Later, the trial court ordered Izen to disgorge all his fees to the Laines and to pay prejudgment interest spanning back to 2002.  In the appeal, Izen attacked the notion that his attorney fee agreement was unconscionable.

The appellate court ruled that Izen’s work reviewing the Laines’ settlement agreement with Brian Laine’s employer, and going to a meeting where the parties signed the agreement, was representation with little risk or expense to Izen.  His work on litigation against the third-party entity did have some risk, that there would be no recovery—which did happen in the end.

The 14th Court rejected Izen’s “attempt to combine the two separate jobs he was hired to perform.”  He was insisting his 35% fee on the settlement wasn’t unconscionable because the money financed the third-party litigation.  “Any fees Izen collected under the guise of financing the litigation against the Louisiana third party defendants were collected under false pretenses in violation of an attorney’s duty of honesty and loyalty to his clients,” said the opinion.  “Izen is not entitled to any fee on the Louisiana third-party litigation because there was no recovery.”

The appellate court upheld a trial court ruling that said that the Laines should not have to pay Izen any more money under that agreement.  But it also determined that Izen shouldn’t have to pay back the fees the clients had previously paid him.

The clients didn’t file their counterclaims seeking fee forfeiture within the four-year statute of limitations, explained the ruling. It said they couldn’t get back the fees based on an affirmative defense that the agreement was unconscionable.  While the Laines’ defense did defeat Izen’s claims, it could not advance their own claims for relief, the ruling said.

Law Firm Sues Pharmacy Over $600K in Unpaid Fees

December 29, 2020

A recent Law.com story by Lizzy McLellan, “Winston & Strawn Sues Pharmacy Chain Over $600K in Unpaid Fees,” reports that in another instance of a large, profitable firm suing a client over fees, Winston & Strawn recently brought a case against Tampa, Florida-based Benzer Pharmacy Holding, seeking more than $600,000 in unpaid legal fees and late payment fees.  Winston & Strawn filed its complaint against the client in November, in the Superior Court of Washington, D.C.  On Dec. 23, the firm filed a motion seeking an order of default against Benzer, a privately owned chain of pharmacy stores.

According to the complaint, Benzer originally hired a different law firm in D.C. to represent it, in March 2019.  But when the lawyer representing Benzer joined Winston & Strawn in July of that year, the company signed an engagement letter with the Am Law 50 firm.  The engagement letter, attached to the complaint as an exhibit, listed hourly rates of $745 to $1,650 for partners; $685 to $1,185 for of counsel; $540 to $860 for associates; $195 to $390 for paralegals and legal assistants; and $155 to $600 for practice support personnel.

According to the complaint, Benzer has not paid the firm since Aug. 12. Later that month, the company told the firm it would be transferring its case to another lawyer, and the firm transferred the files in September.  “Winston repeatedly asked Benzer to comply with its payment obligations and attempted to work with Benzer on its outstanding balance,” the complaint said.  The firm is seeking $608,960.99 from its ex-client.

Benzer has not filed any answer to the complaint, and no lawyer has entered an appearance on the company’s behalf.  Winston & Strawn is not the only vendor suing Benzer. McKesson Corp. has sued the company in federal court, alleging that it owes McKesson more than $7 million.  In that case, Benzer has filed an answer and counterclaims related to the supplier agreement with McKesson.

Another example of a large firm suing a client over fees came in October, when U.K. firm Allen & Overy issued a summons against digital currency platform Noble Talents and its former CEO John Betts, alleging that the company failed to pay invoices for services rendered totaling $938,235.  Betts denied the claims, which were filed in New York state court.

Over the summer, Pittsburgh-based Am Law 200 firm Eckert Seamans Cherin & Mellott sued a former client over nearly $1.5 million in legal fees.  The client, Nexus Services Inc. and Libre by Nexus Inc., which provides bail securitization services, had filed its own suit against Eckert Seamans earlier this summer, alleging that the firm breached its contract with the client by doing significantly more document review than necessary.

Law Firm Billing Tips For Good Client Relations

December 1, 2020

A recent Law 360 story by Aebra Coe, “Law Firm Billing Tips For Avoiding An Irate Client,” reports that a recent lawsuit filed against K&L Gates LLP by a client unhappy with a legal bill highlights some common pitfalls that law firms face when it comes to billing practices, but there are ways to avoid a similar situation, experts say.  The lawsuit against K&L Gates, which was filed in August by Chicora Life Center LC, accuses the firm of using several tactics to increase its bill for representing the bankrupt medical center in a Chapter 11 proceeding over a lease termination dispute.

Some of the alleged billing practices are not entirely uncommon among law firms, according to two experts who declined to comment directly on the lawsuit but provided their thoughts on client billing more generally.  The alleged practices include "block billing," where a lawyer "blocks" together a number of tasks over a set amount of hours; "hoarding," when an overqualified lawyer with a high billing rate retains work rather than passing it on to someone with a lower billing rate; and "multibilling," which occurs when multiple attorneys are tasked with performing the same work.

"All of those things mentioned have been going on for years and years.  This is not at all new," said James Wilbur, an expert on law firm billing at consulting firm Altman Weil Inc.  Regardless of how the K&L Gates suit shakes out in court, other law firms are likely looking for ways to avoid being in a similar position.  While such situations are not entirely preventable because clients can sometimes file bad-faith suits, there are steps firms can take to ensure clients are as happy as possible with a bill at the conclusion of a matter, Wilbur said.

He suggested firms rely on three things to accomplish this: technology, training and collaboration.  E-billing software can often catch double billing and block billing, he said, as well as phrases that might irk a client, like "reviewed phone notes," that may not indicate that the time spent added any value to the matter.

And that leads to training, which should be conducted at all levels on a regular basis so that any attorney or paralegal who puts together a bill is aware of best practices and is skilled in conveying the value brought to the client via the time the individual spent working, he said.  Senior attorneys billing for work that could be done by someone more junior is another beast, Wilbur said, and one that law firm management must work to dissuade by encouraging collaboration and the sharing of work.

Clients have many different rules when it comes to fees, but "no surprises" is a big one, said Toby Brown, chief practice management officer at Perkins Coie LLP.  "The bottom-line answer is more transparency.  And more real-time updates about what's going on," Brown said.  "The lawyers are uncomfortable talking about these things, and so they don't talk about them head-on."

He said lawyers and clients can often get wrapped up in the legal issues at hand, with fee issues taking a back seat.  For example, if the volume of discovery in a major case increases substantially, a conversation on cost might not always occur, but it should, he said.  Real-time sharing of information on the cost of a matter is vital, Brown said.  He said his firm has worked to incorporate the help of its project management team to flag when the scope of a matter has changed so that the attorney on the matter is aware a conversation is needed.

The firm has also implemented technology that goes beyond basic e-billing software to allow attorneys to better monitor their budget on a matter, he said.  Ultimately, according to Wilbur, having a strong relationship with a client to begin with will go a long way.

"Even in a firm that's highly ethical and has training around these issues, mistakes are going to happen. Something is going to creep through," he said.  "The first thing is you have to have a good enough relationship with the client so they know they can text or email you, pick up the phone and point out a problem in the bill, and you will deal with it without arguing."

When contacted by Law360 for comment about its case, K&L Gates described Chicora's claims as "a transparent attempt to re-litigate issues that were raised and rejected years ago through final orders in a concluded bankruptcy."  A third-party fee examiner, it said, expressly found that the fees requested by the firm were reasonable and should be recoverable, and then the bankruptcy court adopted that determination.  "We are confident the present claims also will be rejected," the firm said.

Quinn Emanuel Seeks to Collect $15M in Unpaid Fees

November 18, 2020

A recent Law 360 story by Diamond Naga Siu, “Quinn Emanuel Looks to Collect $15M in Unpaid Fees,” reports that Quinn Emanuel Urquhart & Sullivan LLP urged a D.C. federal judge to confirm and enforce a $15 million arbitration award for unpaid legal fees after the Indian textile manufacturer it previously represented ignored documents to confirm the amount for more than a year.  CLC Industries Limited — formerly known as Spentex Industries Limited — used the law firm when it initiated a failed cotton investment claim against Uzbekistan in 2013 for bankrupting three cotton processing plants it invested in.

After the case was tossed, CLC Industries allegedly did not pay Quinn Emanuel its legal fees, and the firm initiated arbitration in the United States with the Judicial Arbitration and Mediation Services, Inc., or JAMS, against the textile company to receive payment.  JAMS awarded the fees in 2018, according to Quinn Emanuel's affidavit, ruling that the law firm could collect them as described under a letter of engagement the law firm and company entered ahead of the arbitration against Uzbekistan.

"More than 500 days elapsed since Respondents were served with the Petition," Quinn Emanuel wrote in its filing, referring to how long the firm's petition to confirm the award amount has been ignored.  "Petitioner respectfully requests the entry of a default against Respondents."  "Petitioner served the Petition and accompanying exhibits on Respondents by Federal Express on July 3, 2019, pursuant to Respondents' consent to service of process 'by regular mail or courier' in the Engagement Agreement," the firm added.

Quinn Emanuel said that CLC Industries received and signed for the documents at its New Delhi, India, office within the week the petition was sent.

CLC Industries opened a case in the Delhi High Court in India, asking Judge Jayant Nath to dismiss certain fees in its letter of engagement with Quinn Emanuel.  CLC and the law firm had signed the original agreement in 2013 but amended it in 2015 after they realized the case would be complex and expensive to fight, according to Judge Nath's opinion.

He ruled in favor of the law firm in May, saying that the textile company was responsible for paying Quinn Emanuel's contingency fees, which aren't permitted in India.  The judge ruled that since the letter of engagement was governed by U.S. laws, the fee arrangement was allowed.  "They have chosen to abstain themselves from the arbitration proceedings and the award has already been passed," Judge Nath wrote, referring to the award of legal fees.  "They are free to take appropriate steps as per law against the award."