A recent Law.com article by Suzanne Ganier of QuisLex, “Conventional Wisdom is Wrong: Legal Bill Review Won’t Harm Your Relationship with Outside Counsel”, reports on legal bill review.  This article was posted with permission.  The article reads:

Legal departments use various tools to manage spend and reduce costs, including shifting work from one law firm to another, moving from larger to smaller law firms, pulling more work in-house and employing more alternative legal service providers.  However, many legal departments aren’t employing one tool that can reduce costs immediately and support other tools to produce long-term cost containment: legal bill review.

Not using legal bill review as a primary tool for cost containment is like trying to build a house without a hammer; you may be able to do it, but it’s going to be a lot more difficult.  Most corporate legal departments recognize bill review will reduce outside counsel legal spend, as those partners don’t always comply with the department legal billing guidelines.  High outside counsel spend can have a domino effect across the legal department, resulting in smaller budgets for other needs including technology and headcount.

So why don’t more legal departments implement bill review?  The simple answer is relationships.  Many fear legal bill review will irreparably harm the rapport with long-time outside counsel who are often handling sensitive issues, high-stakes litigation and other issues of the utmost importance to the organization.

These relationships have often been nurtured over time, involving people that have worked together for many years.  And these relationships have hopefully resulted in success for all.  But corporate legal departments are part of businesses, which live and die by budgets, revenue and margins.  To remain competitive, they must stay hyper-focused on cost containment – in all areas, including the legal department.  For this reason, legal bill review doesn’t just make sense; it becomes a necessity not only to be fiscally responsible, but also to help the business maximize its competitiveness.  However, this fact doesn’t alleviate concerns about harming relationships with the department’s law firms.  That so many have considered and rejected or have discontinued legal bill review due to such concerns demonstrates their power.  So how do you solve this problem?

Acknowledge the Issue

First, recognize the problem.  In this context, acknowledge three things:

1. Legal bill review is a cost containment necessity.
2. Corporate legal departments are implementing legal bill review.
3. The law firms they work with are going to be concerned that legal bill review means their bills will be unjustifiably reduced.

Corporate legal departments often don’t acknowledge one or all of these points.  Some believe they can reach cost containment goals through other means such as rate negotiations, discounts or e-billing (building that house without the hammer).  Others think if they advocate for the law firm under the guise of protecting the relationship, they can make legal bill review magically disappear.  Such thinking fails to admit the importance of cost containment, which can be harmful to the business.

Have the Conversation

Have a frank and open conversation about legal bill review with your outside counsel.  Go beyond discussing the nuts and bolts and talk to the firms about why bill review is necessary to meet the financial and strategic goals of the business.  Recognize the value of the relationship but focus on the fact that both the corporate legal department and the law firm are businesses and how it is in the best interest of both that the relationship be treated as a business as opposed to a personal one.  Acknowledge that with the implementation of legal bill review, the firm will undoubtedly see their invoices reduced for failure to comply with the legal billing guidelines.  But reassure the firm it will continue to get paid for its time and effort and will be further helped to acclimate to the process.

Be frank, open and transparent with each law firm, and they will return the favor.  Such conversations will not only ease the implementation of legal bill review, but they will also help to strengthen the relationship.

Show Them How to Do It 

There isn’t a class in law school called “Appropriate Legal Billing” (although some would argue there should be,) and there isn’t much training on this topic.  Even attorneys of long standing may not understand billing best practices and know how to comply with a client’s legal billing guidelines.  Frustrated counsel often wish their clients would give them more guidance.  Nothing will hurt a relationship faster than telling firms to change their behavior but not providing the details on how.  Providing firms with specific training on how to meet your expectations will further improve the relationship.  If law firms can see they aren’t being left to figure it out on their own, they will be more inclined to view legal bill review as a partnership, thereby strengthening that relationship.

Ask for Help

Most importantly, ask for help. Explain to the law firm why, as a valued partner, it’s being asked to do this.  People want to help; if you give them the opportunity, they will usually go out of their way to offer it.  Being honest about what your business needs and how firms can help meet those needs opens the door to that help and makes the relationship between law firms and the corporate legal department stronger.

It’s a cliché, but still true – change is never easy. But change doesn’t have to be painful.  While law firms are never going to celebrate legal bill review, it doesn’t have to harm the relationship between law firm and client and, perhaps, can even enhance it. 

A recent Law 360 story by Jeff Montgomery, “Chancery’s Fee Ruling In Dell Is On The Money, Experts Say”, reports that the $266.7 million fee award Delaware's Chancery Court granted shareholder attorneys in the $1 billion Dell settlement represents a win for those seeking incentives for class counsel doggedness and a setback for corporate and institutional investors hoping to prune attorney fees after mega awards, experts told Law360.

In a 92-page decision, Vice Chancellor J. Travis Laster approved one of the largest fee awards of its type in Chancery Court history even though it was trimmed from the original request of $285 million.  His decision held to the Chancery Court's history of notching up fees for the plaintiffs' side when it's successful after pushing deep into the litigation and piling up risk.  The defense bar has routinely pushed the other way, arguing for adoption of approaches taken in federal securities actions that grant declining fee percentages as total awards grow.

Vice Chancellor Laster's opinion relied heavily on the Delaware Supreme Court's 2012 decision upholding a $304 million legal fee from a $2 billion Chancery award in Americas Mining Corp. v. Theriault, a case that went to trial.  The opinion "doubled down on that Americas Mining decision" and examined it extensively in the order, said Brian T. Fitzpatrick, the Milton R. Underwood chair in Free Enterprise at Vanderbilt Law School.  "And it doubles down on the notion that judges in Delaware are going to do what is best for class members," Fitzpatrick said.

In Americas Mining, stockholders sought damages after a 2004 deal that saw the company and its parent, Southern Copper Corp., agree to an overpriced, $3 billion acquisition of a Mexican mining company owned by Southern Copper's controller.  Then-Chancellor Leo E. Strine Jr. found in 2011 that the plaintiffs "indisputably prosecuted this action through trial and secured an immense economic benefit" for Southern Copper, while working on an entirely contingent basis for six years, facing "major league, first-rate legal talent" and grappling with complex financial and valuation issues.

In his decision this week after the Dell settlement, Vice Chancellor Laster said that the best scheme for compensating class attorneys working on a contingent fee remains the current standard, first paying out-of-pocket costs, then providing a fee based on a percentage of the net award and how far the case had progressed.  "This case involved true contingency risk. Plaintiff's counsel did not enter the case with a ready-made exit or obvious settlement opportunity.  There was a serious possibility that plaintiff's counsel would lose and receive nothing," the vice chancellor wrote.  That risk, the vice chancellor said, "supports a results-based award using the Americas Mining percentages.  No downward reduction is warranted under this factor."

At issue was Dell Technologies decision to issue a "tracking" stock after it went private in order to finance its acquisition of EMC Technologies.  The "Class V" shares were meant to follow the value of VMware Inc., in which Dell acquired a majority as a result of the EMC deal. In practice, the Class V shares traded at a steep discount, with shareholders alleging in Chancery that the 2018 swap short-changed them by about $34 per share.  The Dell settlement recovered 9.34% of the estimated potential $10.7 billion in damages that attorneys for the stockholders identified, the vice chancellor found, making it the 11th largest among cases studied as a percentage of maximum damages.

Minor Myers, a University of Connecticut School of Law professor, said the settlement was "garden variety" in every respect but its size and the opposition from some of Dell's big private investment funds.  "Presumably that's why these objecting funds are paying attention (most don't)," Myers said in an email to Law360.  "The fee request in this case was, if anything, modest in percentage terms, but of course it's gotten a lot of attention because it's a big number in the aggregate.

Myers said the opinion is in "the best tradition of Delaware's extraordinary sensitivity to incentives in confronting settlements in stockholder litigation.  When people do bad things out in the world, we rely, for better or worse, on plaintiffs' attorneys to do something about it.  They're the ones who generate results in class actions, on behalf of people who aren't usually paying attention."

Definitely paying attention were some private fund investors in Dell, who argued that the court would make a wrong turn if the award went forward as proposed.  "The enormity of plaintiff's counsel's $285 million fee application, both in absolute terms and as a proportion of the settlement fund, risks creating a dangerous precedent for Delaware courts," Pentwater Capital Management LP, holder of 1.6% of the Dell Class V tracking stock at issue in the case, said in a brief.  Pentwater was joined in its objection by other fund investors representing 24.6% of the stock. Vice Chancellor Laster acknowledged their arguments in his decision, but also pointed out their potential multimillion-dollar gain should the court prune the fee award and leave more in the settlement pool.

Jacqueline S. Vinaccia, a California attorney and member of the National Association of Legal Fee Analysis, said in a telephone interview that Vice Chancellor Laster supported his decision with an "incredibly detailed" analysis that addressed each of the objectors' points.  "All of the theories and different approaches to attorney fees that I have seen seem to have been referred to and analyzed in this case.  It's a really extensive and well-thought-out and supported opinion, which we don't often see in fee cases.  But then again, this is a billion-dollar settlement with a 26 and ⅔ percent fee award."  A group of law professors also backed a declining scale, saying a $150 million fee would be defensible while keeping $135 million more for stockholders.

Anthony A. Rickey of Margrave Law LLC, counsel to the five law professors who filed a friend of the court brief opposing the settlement and suggesting bringing Chancery Court litigation fees more in line with relatively lower payouts for large cases in U.S. District Court securities actions.  Rickey said a 15% fee would be more appropriate, providing a still-large $150 million fee while earmarking another $135 million for shareholders.  "There is a considerable amount of decreased risk after motions to dismiss," Rickey said in court papers, "even in Chancery practice."

In Dell, Vice Chancellor Laster rejected motions to toss the case in June 2020, but the battle and risks continued for another three-plus years before the settlement.  "Even where a plaintiffs' attorney has been dealt an especially strong hand, sometimes the cards aren't worth a dime if you don't lay them down on the settlement table," said Myers, the Connecticut professor.  "This opinion ensures that the incentives will be well-calibrated in the future to push attorneys to take good settlements but still make it worth it to decline bad settlements and push forward with the case."

Lawrence A. Hamermesh, professor emeritus at Widener University Delaware Law School, said the court was wrestling with the question of "What's a good approximation of what people bargaining at arm's length would do if one of them had a claim, went to a lawyer and said, 'I want you to prosecute this for us. I don't want to put up the money. You're going to take all the risk.'"  The issue becomes one of deciding when the recoveries are large, as in Dell, and whether throttling back on fees as the total rises discourages class attorneys from risking dismissal if they push past a $500 million offer and go for $1 billion.

"The government cannot do everything, and sometimes the government doesn't do anything.  If we didn't have private attorneys looking out for us, there would be more corporate misconduct in the world," Vanderbilt's Fitzpatrick said.  "This is not icing on the cake.  Private enforcement is the cake," Fitzpatrick said.  "And we need to make sure those lawyers have the right incentive.  Cutting their fee because they get more for you is not the right incentive."

A recent Law 360 story by Jeff Montgomery, “Del. Judge Calls For Fee Examiner in Kidde-Fenwal Ch. 11”, reports that a Delaware bankruptcy judge took the rare step of ordering a fee examiner up front for a larger-than-usual proposed unsecured creditor committee assembling around the Chapter 11 of fire protection and suppression venture Kidde-Fenwal Inc. and affiliates.  Ruling from the bench, U.S. Bankruptcy Judge Lori Selber Silverstein said the court would require an examiner to avoid duplication of work in the case, involving one of the companies at the center of massive multidistrict litigation targeting the sale and use of toxic firefighting foams.

"There are billions of dollars in claims here, and albeit this case may have been presented as, 'Let's get to a sale ... Let's sell the company, distribute the assets' — it's a complicated case that's going to involve many issues," said David J. Molton of Brown Rudnick LLP, counsel to the committee.  Proposed on Thursday was the retention of Brown Rudnick and Stutzman Bromberg Esserman & Plifka PC as co-counsel for the committee, along with Hogan McDaniel as Delaware counsel, Gilbert LLP as special insurance counsel, KTBS Law LLP as special counsel, Houlihan Lokey Capital Inc. as investment adviser and Province Inc. as financial adviser.

"The complexity and size of prepetition litigation is demonstrated by non-comprehensive 10-figure and 11-figure settlements within the [aqueous film forming foam] multidistrict litigation," Molton said.  Judge Silverstein said Kidde-Fenwal would likely have ended up with a fee examiner appointment anyway.  On Thursday, however, the judge said she will select the examiner "from the get go."

"I understand it's a tricky issue," Judge Silverstein said.  "The committee is entitled to choose their counsel and pick their team.  I don't think, though, that they're entitled to hire everybody they want to hire because either they can't agree or they simply think it would be nice to have more rather than less."  The appointee "will be charged not only with general fee examiner issues but monitoring the sharing of tasks that the committee assigned to its various counsel.  Not interfering, but letting me know."

Judge Silverstein's fee examiner order followed an objection from the Office of the U.S. Trustee, which argued in part that the "committee has not met its burden to demonstrate that the services of three law firms which substantially overlap are reasonable and in the best interest of the debtor's estate."

A recent Law 360 story by Vince Sullivan, “Pillsbury’s Fee Bid Slashed For ’Over-Lawyering’”, reports that a Delaware bankruptcy judge reduced the fees payable to Pillsbury Winthrop Shaw Pittman LLP for its work on the Chapter 11 case of the owner of a California hotel by $946,654, saying the firm overstaffed the case with senior attorneys in what he described as "over-lawyering."   In an opinion from U.S. Bankruptcy Judge John T. Dorsey, the court cited a report from a fee examiner appointed in the case of SC SJ Holdings LLC when it directed the reduction of the firm's fee application, cutting the payable amount from the $6,288,809 requested by Pillsbury down to $5,342,155.

Judge Dorsey said the firm assigned partners and other senior lawyers to tasks below their level of experience, calling the staffing decisions "troubling" in light of Pillsbury twice before having its billings reduced by bankruptcy courts because of similar issues.  "Pillsbury's senior attorneys routinely performed tasks far below their paygrade, including hours of legal research, and they failed to utilize associates for even the most straightforward of tasks such as document review or preparation of privilege logs," Judge Dorsey said.  "This cavalier approach to billing would be unreasonable in any case, but considering this is a firm that has at least twice had its fees reduced for similar staffing concerns, it is troubling."

The firm reduced its rates by 15% before submitting its fee request, and Judge Dorsey directed a further reduction of 10% after other reductions had been made, amounting to a cut of $593,572.  The court also ordered reductions for vague time entries submitted by Pillsbury that don't provide sufficient information about what tasks were being performed and for what reason.

"It is not the Court's job to piece together entries and try to make sense of them. Each entry must be capable of evaluation on its own," the opinion said. "Many of Pillsbury's entries are not."  The reduction in fees on account of vague entries amounts to $67,706.  A further reduction of $284,315 was also ordered by the court because of lumped entries that aggregated billings for multiple activities.

A recent Law 360 story by Dorothy Atkins, “CORRECTION: Facebook Users’ Attys Seek $185M in $725M Meta Privacy Deal”, reports that counsel representing a preliminarily certified class of more than 200 million Facebook users asked a California federal judge to award them $181.25 million in fees and $4.1 million in costs for securing a $725 million deal to resolve privacy claims over the Cambridge Analytica data harvesting scandal.

In a 40-page motion, class counsel told U.S. District Judge Vince Chhabria that although the case in many ways raised novel and "unprecedented" legal questions regarding privacy laws, the $181.25 million attorney fee request, which represents 25% of the total settlement, is in line with other mega settlements, which have awarded an average of 22% in fees, according to the class' expert.  The class' expert also determined that large non-securities class action settlements in the $500 million to $1 billion range have average fee awards of 20.3% and a quarter of those deals have awarded attorney fees greater than 20.3%, according to the motion.

The motion additionally notes that the requested fee amount represents a 1.99 lodestar multiplier for roughly 150,000 hours of attorney work done over the past five years. That multiplier is well below the average 3.2 multiplier for typical fee requests, the motion says.  "Thus, in these circumstances, class counsel respectfully submit that their request for 25% of the common fund, though substantial, is justified," the motion says.  "The unprecedented size of the settlement is the product of class counsel's concentrated and successful efforts, and their requested fee reflects the scale of that effort and the risks they have borne for years."

The proposed nine-figure deal seeks to end litigation launched after the March 2018 revelation that a third-party app developer had taken personal data from roughly 87 million unsuspecting users of the popular social media platform Facebook and later sold the data to Cambridge Analytica, a U.K.-based political consulting firm hired by former President Donald Trump's 2016 campaign.  Cambridge Analytica filed for bankruptcy shortly after the scandal came to light and Facebook Inc. has since changed its name to Meta Platforms Inc.

After years of hotly contested litigation and heated discovery battles, the parties struck a settlement in principle in August, as Facebook users sought hefty sanctions against Facebook and its counsel Gibson Dunn & Crutcher LLP for alleged discovery misconduct.  During a hearing on the sanctions bid in September, the judge ordered the parties to file briefs on how a sanctions award would affect class counsel's attorney fee request and proposed settlement.

In March, Judge Chhabria tentatively signed off on the proposed settlement, which creates a nonreversionary settlement fund of $725 million to compensate eligible members of the settlement class. The class includes all Facebook users in the U.S. between May 2007 and December 2022, an estimated 250 million to 280 million people.

The parties asked the judge to award class counsel $181.25 million in fees, which they noted is equal to their $91.2 million lodestar multiplied by 1.99, as well as $15,000 to each class representative.  They also clarified in a footnote that the settlement fund would only pay $180.4 million in fees, because the fee amount would be reduced by roughly $800,000 already paid as sanctions.

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