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State Judge: Hourly Rates Too Steep For North Carolina

September 2, 2022

A recent Law 360 story by Hayley Fowler, “Perkins Coie $2.35M Fee Bid Deemed Too Steep in NC Biz Spat” reports that a North Carolina state court judge has scrapped a request for more than $2.3 million in attorney fees by Perkins Coie LLP following a trial win, saying the requested rates are a far cry from what's typically charged in the state.

Superior Court Judge Adam Conrad said Wednesday that the rates proffered by Perkins Coie — which exceeded $700 per hour — "dwarf(ed)" that of their local counsel at Womble Bond Dickinson LLP for their representation of a North Carolina-based knitting machine maker in a lawsuit accusing its CEO of self-dealing.

"These rates may be typical of firms and attorneys based in California and Texas but are significantly higher than rates customarily charged in North Carolina for cases of this type," he wrote.

The judge consequently denied the attorneys' request but said they can renew it once post-judgment motions and appeals are completed.

Perkins Coie's fee bid follows a multimillion-dollar jury verdict in March on behalf of high-speed knitting machine manufacturer Vanguard Pai Lung LLC and majority owner Pai Lung Machinery Mill Co. Ltd.

The case centered on claims that Vanguard's former CEO and president William Moody had "orchestrated a long-running scheme of self-dealing and other misconduct designed to benefit himself, his family, and his friends," Judge Conrad wrote.

According to the judge's opinion, Moody was a minority owner of Vanguard through his company Nova Trading USA Inc. Both were named as defendants in Vanguard's 2018 lawsuit.

Moody had also filed counterclaims accusing Pai Lung of forcing him out of the business and seeking to have the company dissolved, the judge said, most of which were resolved before the case went to trial.

The jury ultimately issued a verdict for Vanguard and Pai Lung on their claims for fraud, conversion, embezzlement, unfair and deceptive trade practices and unjust enrichment. Court documents show the resulting damages totaled more than $3.4 million.

Shortly thereafter, attorneys with Perkins Coie and Womble Bond submitted their request for fees, saying state law in North Carolina allows parties to collect reasonable attorney's fees in a civil action for embezzlement.

The request outlined $2.35 million for Perkins Coie and $240,499 for Womble Bond.

Judge Conrad said Wednesday the motion was plagued by "several deficiencies," starting with the fact that state law only permits attorney's fees for the owner of property that was embezzled.

"Here, Vanguard is the owner of the property that Moody embezzled," he wrote. "Pai Lung is not the owner and had no claim for embezzlement. Plaintiffs have offered no reason why Pai Lung should recover attorneys' fees based on a claim it did not assert and property it did not own."

The law also does not allow parties to collect fees for claims unrelated to embezzlement unless they are "inextricably interwoven," the judge said, which he determined was not the case here. He also said the requested dollar amount was unreasonable, pointing in particular to two of the highest billing rates from counsel with Perkins Coie that exceeded $1,000 an hour.

Though Judge Conrad ruled the attorneys could collect fees on behalf of Vanguard for the embezzlement claim, he said they didn't submit any billing records to justify the amount requested.

"It is therefore impossible to determine whether Vanguard's attorneys spent a reasonable or unreasonable amount of time drafting or responding to motions, preparing for and conducting depositions, and handling other discovery matters," the judge wrote.

In denying the motion for fees with permission to renew, Judge Conrad also rejected a motion by Moody to dissolve Vanguard, which he said contained "no supporting evidence" and was "a glaring violation of the Business Court Rules."

Moody had contended in a post-trial motion that his company Nova Trading was powerless in the current operating agreement and dissolution was necessary to protect their rights.

But the judge said certain safeguards that prevent Pai Lung from making unilateral decisions are still in place, even if it has a "three-to-one advantage" over Nova Trading, he said.

"That is the division of authority that Nova Trading bargained for and agreed to when it signed the operating agreement," Judge Conrad wrote. "Being outvoted is not, by itself, a basis for dissolution."

Florida Justices: Attorney Fee Dispute Can Move Forward

September 1, 2022

A recent Law 360 story by Carolina Bolado, “Fla. Justices Allow Mintz Truppman To Pursue Fee Fight” reports that the Florida Supreme Court on Thursday reopened the way for Mintz Truppman PA to pursue a state court lawsuit against Lexington Insurance Co. and Cozen O'Connor over an attorney fee award, ruling that an intermediate appellate court improperly issued a writ prohibiting the suit.

The justices said the Third District Court of Appeal's decision barring a state court lawsuit — which sought damages based on claims that Lexington and Cozen O'Connor violated Florida's Mediation Confidentiality and Privilege Act by disclosing certain details from their mediation in federal litigation — was an improper use of the writ of prohibition because it was used to undo an action by the trial court in a matter within its subject matter jurisdiction.

"The Third District undid the trial court's exercise of jurisdiction in denying Lexington's and Cozen's motions to dismiss on the basis of an affirmative defense," the justices said in their opinion. "That matters because, were we to permit litigants to seek prohibition in every case in which a trial judge denies a motion to dismiss based on collateral estoppel, res judicata, or any other affirmative defense, the writ could be used to end-run our rules on appeals generally and interlocutory appeals in particular."

Justice John Couriel authored the decision, in which he was joined by five other justices. Justice Jorge Labarga concurred, though he declined to write a separate opinion.

The law firms and insurance company were fighting over a Third District decision that found that Mintz Truppman was essentially trying to augment a federal court's final ruling on an attorney fee award that came in well below its full request.

The Third District granted a writ of prohibition to Cozen O'Connor and Lexington, finding that the state circuit court lacks authority to hear Mintz Truppman's claims that Cozen O'Connor and Lexington violated Florida Statute 44.406, which provides for mandatory civil remedies against mediation participants who willfully disclose a mediation communication.

Mintz Truppman argued that the 44.406 claim is a new one separate from the federal court dispute, but Lexington's counsel argued that Mintz Truppman had deliberately ignored that claim in federal court because it wanted to take it to a different forum.

The dispute arose from Mintz Truppman's representation of Daphne Query in a 2014 suit against Lexington over a coverage claim for water damage caused by a broken pipe in her home. Query originally filed her suit in Miami-Dade County court, but Lexington, which was represented by Cozen O'Connor, removed the case to federal court.

The parties settled the property damage portion of Query's claim in June 2016 but were unable to reach a deal on attorney fees she was owed.

In her motion for attorney fees and costs, Query proposed a 2.0 contingency risk multiplier and sought a total award of about $828,000 for Mintz Truppman and Kramer Green Zuckerman Greene & Buchsbaum PA, the firm Mintz Truppman brought on as co-counsel when the case moved to federal court.

In October 2016, Cozen O'Connor filed Lexington's response, which argued for a fee award of $70,000 to $85,000. The response rebutted Query's assertion that she had obtained 100% of her property damage claim in their settlement, which was supported by an attachment of Mintz Truppman's premediation demand letter that the Third District said was not in the record but apparently showed Query had sought more than the $125,000 settlement amount.

Query did not move to strike Lexington's response or raise any mediation confidentiality objection with the federal court at the time, the Third District noted. However, in November 2016, Mintz Truppman filed the current suit in state court, raising its claims that Cozen O'Connor and Lexington violated mediation confidentiality.

The federal court ultimately entered a final judgment in March 2017 that found a fee multiplier was not warranted and awarded Query about $259,500 in attorney fees and costs, plus about $9,500 in prejudgment interest.

Neither party appealed the final judgment, and Lexington paid Query the property damage settlement and fee award amounts in full, the Third District said.

In their petition to the Third District for a writ of prohibition, Lexington and Cozen O'Connor conceded that a Florida circuit court would generally have jurisdiction to hear Mintz Truppman's mediation confidentiality claim, but they argued that the gravamen of the case was to recover additional attorney fees that Mintz Truppman claimed it was entitled to for its representation of Query in the federal case.

In April 2021, the appellate panel agreed, saying that Mintz Truppman "seeks to relitigate in state court a fee claim that the federal court determined with finality."

Insurer Must Pay Attorney Fees in Nassar Coverage Action

August 31, 2022

A recent Law 360 story by Celeste Bott, “USAG Keeps Fee Award in Nassar Coverage Suit reports that Liberty Underwriters Insurance Inc. must pony up the remainder of a roughly $2.1 million judgment for USA Gymnastics, a Seventh Circuit panel ruled Tuesday, saying the insurer failed to show that any portion of the fees incurred during investigations into sexual abuse by former team doctor Larry Nassar were not reasonable and necessary.

At issue are legal costs incurred when USA Gymnastics responded to investigations by both houses of Congress, the Indiana Attorney General's Office, and the U.S. Olympic and Paralympic Committee into Nassar's conduct. During oral arguments in the case, a three-judge Seventh Circuit panel pushed the Liberty Mutual unit to address why it paid more than $1.4 million toward those defense costs if it believed it owed no reimbursement. In the court's opinion Tuesday, written by Chief Circuit Judge Diane Sykes, the court noted that in light of that payment, all that remains up for discussion is the remaining $458,472.26 of the lower court's judgment.

Liberty argued that a district court and a bankruptcy court wrongly applied a presumption established in Thomson Inc. v. Insurance Company of North America, an Indiana case, that an insured's defense costs are reasonable and necessary if the insured has secured, supervised and paid for a defense.

Liberty said the Thomson presumption does not apply because USAG failed to adequately supervise the outside counsel it engaged and did not pay the full amount of legal fees it incurred. Liberty cited a Seventh Circuit ruling in Metavante Corp. v. Emigrant Savings Bank, in which the appellate court observed that a "prevailing party's general counsel, or similar corporate officer, has a duty, imposed by various provisions of federal and state law, to scrutinize the bills before paying them,"

The panel was unpersuaded by those arguments. It clarified Tuesday that that duty does not require a party to request write-offs from outside attorneys or ask them questions about invoices.

"We hold that a litigant may supervise its outside counsel without refusing to pay portions of legal bills or engaging in hairsplitting about those bills. Nothing in the case law provides otherwise," the Seventh Circuit said.

Also, no Seventh Circuit case law mentions a requirement that the party seeking fees must have paid its fees in full for the presumption of reasonableness to apply, the panel said.

The insurer also argued on appeal that USA Gymnastics's damages expert had a flawed methodology and that its chief legal officer, C.J. Schneider, was effectively a "rubber stamp" for defense counsel. It also said his review of the work of his own law firm, Miller Johnson, constituted a conflict of interest.

But an apparent conflict of interest does not negate the presumption under governing case law and "an insurer's objections to a policyholder's selection of defense counsel lose force when the insurer disclaims its duty to defend and turns out to be wrong on the law," the panel said.

Liberty could have reserved its defense that it had no duty to defend and assumed USAG's defense, choosing and supervising the lawyers defending USAG and seeking reimbursement later, the court said.

"Liberty chose not to do so, instead electing to gamble by not defending USAG. With the benefit of hindsight, Liberty now identifies a purported conflict of interest," the panel said. "The case law does not reward such a choice, and Liberty cannot use the purported conflict to render the presumption inapplicable."

Further, Schneider was not the only one engaging in an internal review of USAG's legal bills, as its CEO and chief financial officer also checked the bills and approved them for payment, the court said.

And, while Liberty asserts that the nearly $8 million in grant funds USAG received from the National Gymnastics Foundation removed the incentive for USAG to drive down costs, the very basis for the Thomson presumption, it does not cite evidence to back that up, the panel held.

"There is no dispute that USAG was bankrupt and lacked money to spare. Liberty has not identified evidence to challenge the factual finding that USAG used the grant money to stay afloat by paying some bills it had incurred," it said. "The record does not support, much less require, any finding that USAG stockpiled vast sums of money for legal expenses, which would have removed any need to economize."

The appellate court also said it lacked any adequate basis for overriding the bankruptcy court's determination that USAG's expert witness was more credible than Liberty's in its analysis of whether the legal fees at issue were reasonable and necessary.

The Seventh Circuit ruled earlier this year the Liberty Mutual unit must help fund USA Gymnastics' $380 million bankruptcy settlement with Nassar's victims after the insurer had appealed a 2020 summary judgment order holding that it has a duty to defend USA Gymnastics in lawsuits alleging it allowed the Olympic team doctor to abuse hundreds of victims. All those claims have since been resolved through the $380 million settlement trust in the organization's Chapter 11 plan.

Liberty argued that Nassar's effective life sentence triggered an exclusion in USA Gymnastics' directors and officers insurance policy barring coverage for criminal conduct and willful violations of law.

But the Seventh Circuit majority said the exclusion applies only to the 10 counts of criminal sexual assault admitted in Nassar's 2017 guilty plea. The hundreds of other claims by victims, many of which Michigan state prosecutors agreed to drop as part of the plea deal, are too different to group together under the exclusion, the court concluded.

Attorneys Earn $71M in Fees in $1B Surfside Settlement

August 29, 2022

A recent Law 360 story by Carolina Bolado, “Attorneys Get $71M in Fees For $1B Surfside Settlement Work” reports that the judge overseeing the consolidated litigation over the collapse of the Champlain Towers South condominium in Surfside, Florida, approved about $71 million in attorney fees for class counsel who secured a global settlement of more than $1 billion for the victims.  In a hearing, Miami-Dade Circuit Judge Michael Hanzman said he would award $65 million in attorney fees for work by counsel in bringing the case to a close about a year after the collapse of the beachfront condominium tower on June 24, which killed 98 people.

He added $6.5 million in fees for work attorneys have performed in recent weeks guiding victims' families through the now-completed claims process.  Coupled with the $5.65 million Judge Hanzman awarded to court-appointed receiver Michael Goldberg and the three firms that represented him — Akerman LLP, Berger Singerman LLP and Boyle Leonard & Anderson PA — for their work handling the receivership of the condominium association, the total fees amount to about $77 million.

The judge noted that amount is between 6% and 7% of the total $1.2 billion recovery obtained for victims of the collapse, far less than what victims would have had to pay had they retained counsel and litigated claims on their own.  Judge Hanzman commended the attorneys, who worked the complicated case "in a glass house and under extreme pressure."  He said they signed on at the beginning of the case, when expected recovery was $200 million to $300 million and the court had warned them not to expect any fees.

"This case could've been a disaster for them," the judge said.  "There was so much potential to go off the rails.  They could've been stuck in a decade-long slog with no compensation."  Class counsel had requested a lodestar fee amount of about $22 million, multiplied by 4.5 to get to just over $100 million.  The judge agreed a multiplier was warranted, given the extraordinary result, but he was unwilling to go that high.

At the hearing, co-lead counsel Harley Tropin of Kozyak Tropin & Throckmorton, told Judge Hanzman that "whatever you award us is good with us."  "We had one goal: Recover as much money as we could," Tropin said.  "I hope you think we did a good job. Whatever you award us, we're good."

Following the hearing, Tropin and co-lead counsel Rachel Furst of Grossman Roth Yaffa Cohen PA said in a statement that they were "grateful to have had the opportunity to represent the victims and serve the court."  "We are grateful for the recognition of our work in the form of this fee award and for having this brought this case to a conclusion for the victims," they said.

The funds going out to the victims will come from the $1 billion from a global settlement with a number of parties, insurance proceeds from the condominium association's policies, and $120 million from the sale of the property to Dubai, United Arab Emirates-based buyer Damac Properties PJSC.

Chancery Approves $75M Fee Award in Williams Merger Dispute

August 29, 2022

A recent Law 360 story by Jeff Montgomery, “Chancery Oks $75M Cravath Fee in Williams Merger Dispute” reports that Cravath Swaine & Moore LLP nailed a nearly $75 million fee after a Delaware vice chancellor upheld its 15% contingent pay agreement with The Williams Cos. during much of a long battle with Energy Transfer LP and its affiliates over a $410 million deal-termination damage claim.

Vice Chancellor Sam Glasscock III also upheld a provision of the agreement that shifted Cravath's fees to Energy Transfer — the losing side of a $410 million battle with Williams over a termination fee triggered when Williams abandoned an earlier deal with one of its affiliates to pursue an eventually doomed, $38 billion Energy Transfer merger.

Energy Transfer, already required to pay Williams' $410 million break fee, fought the reasonableness of Cravath's fee, the 15% contingent arrangement as well as the court's decision to allow quarterly compounding interest for the fee, including a multiyear span while the case was stayed.  According to the decision and a transcript of earlier arguments on the dispute, Cravath's average or "lodestar" rate was $47.1 million for the same hours, compared with $74.8 million under the contingent fee arrangement.

"It is worth pointing out that these sophisticated parties surely were aware that post-merger-agreement litigation, seeking a break fee, could likely include representation on a contingent basis." the vice chancellor wrote in a decision that upheld the Williams side on all points.  Energy Transfer "had every opportunity, therefore, to contract against use of a contingent fee to determine the amount of fees shifted, if they so desired. This they failed to do," the vice chancellor wrote.

"The merger agreement contains no limitation on what kinds of attorneys' fees and expenses may be shifted to the losing party, other than a requirement, which is already implied under Delaware law, that the shifted fees and expenses must be 'reasonable,'" the vice chancellor wrote.  Williams had argued that a new general counsel secured the contingent agreement with Cravath in mid-2017, after Delaware's Supreme Court let stand the vice chancellor's finding that failure of a required tax-treatment for the $1.38 billion merger allowed Energy Transfer to walk away.

Energy Transfer argued that interest should have been suspended during a two-year period between 2019 and 2021 when a Williams' discovery vendor's error brought litigation to a halt. They also argued that litigation time over the interest rate and fees should likewise not count.

The decision also provided for interest at 3.5%, compounded quarterly, with the court observing other decisions that found compound interest "the standard form of interest in the financial market."  In all, according to a court brief filed, Cravath earned $4,358,372.70 prior to the start of the contingent fee terms, $4 million under a contractual fixed fee and $74,846,161 under the contingent fee.