A recent Law 360 story by Beverly Bank, “’Vague’ Billing Justifies 10% Cut in Atty Fees, Judge Says”, reports that a federal magistrate judge recommended slashing an Iron Workers' benefits funds' request for attorney fees in a case over an employer's unpaid contributions, saying there are "vague" billing entries from the plaintiffs' counsel as part of a $2.2 million judgment.

U.S. Magistrate Judge Kimberly G. Altman issued a report and recommendation, suggesting the district court cut a nearly $111,000 attorney fee request from Iron Workers Local No. 25's benefit funds by 10%.  The attorney fees dispute is connected with U.S. District Judge Nancy G. Edmunds' order, requiring Next Century Rebar LLC to pay more than $2.2 million in unpaid contributions with interest and liquidated damages.  The company filed a notice of appeal to the Sixth Circuit.

"Portions of the trustees' itemized hourly work are described insufficiently to prove that the work 'was performed with reasonable diligence and efficiency,'" Judge Altman said.  The judge said many of the funds' billing entries linked to an audit are "vague," necessitating a drop in proposed attorney fees from around $110,900 to roughly $99,800.  Judge Altman did not disturb the funds' request for more than $18,200 in costs.

The judge pointed to billing entries connected with an audit, saying some entries about the correspondence and emails with the auditor "provide the court with little information as to the necessity of the work."  The benefit funds requested around $110,900 in October, saying the plaintiffs' counsel spent 388.8 attorney hours in pursuing the case.

Next Century Rebar called billing entries linked to the attorney fees request "excessive, duplicative, and vague" as part of the company's Oct. 30 response. The company challenged the funds' bid for fees over review of the audit.  "Excessive review of the audit is ongoing throughout the time entries of multiple persons without any detail or reason for the excessive amount of time spent reviewing, re-reviewing, and again revisiting the audit report," Next Century Rebar said.

The company said the funds were seeking fees for clerical work that could have been undertaken by a legal clerk or assistant to the plaintiffs' attorneys.  Judge Altman found that some of Next Century Rebar's complaints about the clerical work entries were valid and warranted lower attorney fees.  "Next Century has highlighted instances where parts or all of the described work was clerical in nature and could have been handled by paralegals or other staff at much lower rates," the judge said.

The judge took on arguments from Next Century that the request related to audit costs of about $13,000 was "outrageous," saying the company didn't raise evidence to back up this claim.  Judge Altman said an affidavit "from an attorney that worked closely on this case and on the review of the audit" corroborated the cost of the audit.

A recent Law 360 story by Chart Riggall, “Colo. Judge Calls Out Enviro Attys For ‘Egregious’ Billing”, reports that a Colorado federal judge chided a group of environmental attorneys who successfully sued a gold-mining company for polluting the South Platte River over their "egregious" billing practices, slashing their request for fees by nearly two-thirds.  U.S. District Judge William J. Martinez of the District of Colorado — who in a 2022 bench trial ordered the Wyoming-based High Mountain Mining Co. LLC to pay $500,000 in penalties for violations of the federal Clean Water Act — said spotty record-keeping produced a fee request the court "cannot condone."

"These issues make the court seriously doubt counsel's billing judgment," Judge Martinez wrote in an order.  The judge ultimately awarded over $295,000 in fees and $77,000 to the attorneys representing Park County residents Pamela Stone, Twyla Rusan and M. Jamie Morrow, along with a pair of nonprofit groups, the South Park Coalition Inc. and Be the Change USA.  The groups also sued James R. Murray, a managing member and part owner of High Mountain.

That fell far short of the plaintiffs' request of nearly $1 million, which Judge Martinez pinned not only on their billing records but also on their "unprecedented" request for attorney fees in two separate, earlier lawsuits that were dismissed.

Stone and the other plaintiffs had argued that those two earlier cases yielded information directly bearing on the ultimately victorious lawsuit, but Judge Martinez disagreed, saying they pointed to "no case law supporting the proposition that a court may award fees for work done in earlier, failed actions at the conclusion of a later, successful action."

Filed in 2019, the residents' lawsuit took aim at a High Mountain mine near Alma, Colorado — mere steps from a fork of the South Platte River — that was allegedly leaking pollutants into the waterway.  The source of the contamination, according to the lawsuit and expert witnesses, was a series of unlined settling ponds containing mine waste that allowed chemicals to leach into the groundwater and then the river.

Judge Martinez used the factors laid out in the U.S. Supreme Court's 2020 decision in County of Maui v. Hawaii Wildlife Fund to determine whether the company was required to obtain a permit for its discharges, which plaintiffs' attorneys said was one of the first applications of the Maui precedent.  The judge relied primarily on two factors: the distance the pollution has to travel to get to the river and the time it takes to get there.

The final $500,000 judgment was based on Judge Martinez's calculations of how much the company had saved by failing to line the ponds, as he declined to award an additional $500,000 sought by the plaintiffs absent evidence of serious environmental damage.

Because the plaintiffs didn't succeed on all their claims, High Mountain argued that the case was, in effect, only 25% successful and that the fee award should be slashed accordingly.  But Judge Martinez said he wanted to avoid having to disentangle the fee requests from the prior actions and elected to split the baby by cutting the fee request by 50%.

More problematic, he continued, were a number of billing line items where the work reportedly done wasn't fully documented, or the plaintiffs' attorneys had put apparently frivolous tasks down for billing.  In one such case, an attorney billed 0.02 hours for reading court transcripts, "rather than writing off 72 seconds of work during which he could not have possibly accomplished anything for his client," Judge Martinez said. 

High Mountain had also tried to argue that opposing counsel had charged exorbitantly high rates for their work, but that argument ultimately fell short.  "The court concludes that plaintiffs' requested hourly billing rates are very much on the high end, but ultimately accepts them as reasonable for environmental law attorneys of comparable skill and experience in the Denver area," Judge Martinez said.

A recent Law 360 story by Lynn LaRowe, “Southwest Slams ‘Excessive’ Fee Bid in Religious Bias Case”, reports that Southwest Airlines has called on a Texas federal court to reduce the nearly $180,000 in fees sought by a flight attendant in connection with contempt proceedings that followed her victory in a religious bias suit against the airline, saying the requested amount is "excessive rather than reasonable."  In a brief, the airline said that while it "previously agreed to pay plaintiff's reasonable attorney's fees in connection with her contempt motion," the amount requested should be cut to about $83,000.  "However, Southwest respectfully submits that [Carter's] fee request is, in substantial part, excessive rather than reasonable," the airline said.

U.S. District Judge Brantley Starr sanctioned Southwest and in-house lawyers Kerrie Forbes, Kevin Minchey and Chris Maberry in August, saying they "didn't come close to complying with the court's order" in posting a notice of non-discrimination over religious beliefs, and that the three attorneys "were at the root of the problem."  The judge ordered them to attend training given by Alliance Defending Freedom, which advocates against abortion, and LGBTQ and similar causes.

Last month, plaintiff Charlene Carter urged the court to order Southwest to pay roughly $176,000 in attorney fees, $3,000 in expenses and $600 in other costs to the National Right to Work Legal Defense Foundation Inc., which represents her.  The airline pointed out in its brief that the court held "approximately 9 hours of hearing (approximately 3 hours of which occurred ex parte without plaintiff's participation) during which [Bobby G. Pryor] examined four members of Southwest's legal team, [Matthew B. Gilliam] made a closing argument, and [Matthew D. Hill] displayed exhibits," referring to members of Carter's legal team.

Southwest is asking Judge Starr to cut Carter's lawyers' request to be paid for "nearly 500 hours of attorney time" and reduce the total award to just over $83,000.  The airline argues that Carter's team used "block billing" for a large portion of their attorney fees, "making it impossible to assess how much time counsel spent on each specified task, and whether that time was reasonable."  Southwest also noted that the court had reduced a previous fee award request from Carter's team by 30% that included block billing.

The airline further argued that each of the three lawyers who attended the contempt hearing had more than a decade of experience, and each could have handled the matter solo.  "Mr. Pryor handled all of the witness examinations," the airline said.  "In contrast, Mr. Hill's role was limited to displaying exhibits from his computer, a task that a non-lawyer could have handled; and Mr. Gilliam's role was to make a brief closing argument at the conclusion of the contempt hearing."

Southwest also said Carter's lawyers spent a lot of time filing pretrial motions related to the contempt proceeding, which were "unnecessary and minimally successful," and that Carter's attorneys have shown "a failure to exercise billing judgment."  The brief includes a detailed chart outlining the reasons for the more than $90,000 in reductions sought by the airline to Carter's fee bid.

A recent Law 360 article by Lourdes Fuentes, “Twitter Legal Fees Suit Offers Crash Course in Billing Ethics”, reports on ethical lessons from the recent Twitter fee dispute litigation case.  This article was posted with permission.  The article reads:

Corp.'s case against law firm Wachtell Lipton Rosen & Katz, filed over Twitter's legal bill in connection with Elon Musk's $44 billion acquisition of the company, highlights the importance of following proper billing practices, which are governed not only by contract law but also by the higher standards imposed on lawyers by the rules of professional conduct.  The claims in X Corp. v. Wachtell Lipton Rosen & Katz, filed in early July in California's San Francisco County Superior Court, include restitution (unjust enrichment), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and violation of California Business and Professions Code, Section 17200.

The pleading contains a litany of facts but recounts a concise timeline. From when Wachtell was retained on June 21, 2022, to the Oct. 13 party held to celebrate the month-end closing of the deal at the original $44 billion price, only 114 days had elapsed.  In that time, Twitter received two invoices.  These invoices were included as exhibits to the complaint.  A review of the invoices reveals blank time entries, vague descriptions, irrelevant references and block billing, among other issues.  The invoices amount to close to $18 million.

To compound these perceived improprieties, the final fee statement then added an extra $72 million dollars to that tab.  This was a "success fee" that was referenced in the closing day letter agreement drafted by Wachtell and signed by Twitter's then-chief legal officer, Vijaya Gadde, allegedly hours before the closing sale of Twitter on Oct. 27.  Significantly, the success fee had not been outlined in the engagement letter.

While the validity of the claims will be decided in court, the suit spotlights vital legal billing practices and ethical considerations for attorneys and clients alike.  Even if Wachtell defeats X, the suit has put the reputation of the firm's billing practices at risk.  Moreover, the suit has put the reputation and ethics of individual attorneys at risk by disclosing the invoices at issue, tying timekeeper names to time entries.

Further, the answer to whether the $90 million is fair pay or windfall may not be based on the amount itself, but on whether the parties followed the rules of professional conduct governing attorney-client relationships.  By reexamining billing approaches in light of the Twitter fees case, law firms and clients can take away important lessons on proper billing practices.

The Relevant Rules

Client and lawyer can maintain a positive partnership that is founded on transparency and trust by following an ethical road map.

The claims in the complaint provide us with a good starting point.  They are based on common law tort, contract law and the American Bar Association's Model Rules of Professional Conduct, which have been similarly adopted to varying degrees in other states' jurisdictions.  These are:

    Section 6147 of the California Business and Professions Code, which addresses contingency fees;

    Rule 1.5 of both the California and New York Rules of Professional Conduct, which prohibit unreasonable or unconscionable fees;[6] and

    Rule 1.8 of both the California and New York Rules of Professional Conduct, which prohibit soliciting gifts from clients.

By keeping these rules — or their equivalent from your jurisdiction — top of mind, practitioners can avoid the appearance of impropriety. Though not mentioned in the complaint, I would also add ABA Rule 1.4, which deals with attorney-client communications, to this list.

8 Crucial Steps for Success Fees

Fees based on the outcome of a case, like the success fee in the Twitter case, are permissible, but they still need to be reasonable.  While the ABA rules do not specifically mention success fees, they state that a fee may be contingent on the outcome of the matter for which the service is rendered.  The rules do, however, state that:

A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined.  Success fees are common in transactional matters, but these are typically negotiated as part of an engagement letter.  They are structured to incentivize the law firm to achieve the best possible outcome for the client.  However, the exact nature and amount of these fees can vary and are a subject of negotiation between the parties.  As a result, it is crucial for both parties to follow these steps.

Transparency and Disclosure

All terms related to the success fee should be clearly stated in the engagement letter or contract.  This includes how the fee is calculated, when it is to be paid, and under what conditions it may be modified or waived.

Reasonableness of the Fee

All fees must be reasonable.  Look for guidance in ABA Rule 1.5 for factors that can be considered to determine reasonableness of a success fee. These can include:

    The novelty and difficulty of the case;

    The skill required to properly provide legal services;

    Comparable rates in your area for like services;

    The amount at issue and the results obtained;

    Time limitations imposed by the client or by the circumstances;

    The reputation, experience and ability of the lawyers performing the services; and

    Whether the fee is fixed or contingent.

Proportionality

The success fee should be proportional to the value provided by the law firm.  This could be in relation to the deal size, the complexity of the transaction or the level of risk involved.

Incentive Alignment

Make sure that the fee structure selected aligns the firm's incentives with the client's goals.  Otherwise, it could be considered a conflict of interest, among other ethical pitfalls.

Regulatory Compliance

Understand your state-specific rules or regulations that might apply.  For example, California's Section 6147 speaks to contingency fee agreements.  Research your jurisdiction's rules and regulations.  Remember, as well, that some jurisdictions may cap or ban certain types of fees.

Dispute Resolution

Include a clause specifying how any disputes over the success fee will be resolved, whether through arbitration, mediation or court proceedings.

Periodic Review

It may be prudent to include provisions for reviewing the success fee arrangement at various stages of the transaction.

Client Consent

Explicit, informed consent from the client is crucial, especially if the success fee arrangement is unconventional or complex.  It is important to note that all fees must not only be reasonable but also adequately explained to clients.  Circumventing clear documentation enables end-runs around billing safeguards in violation of ABA Rule 1.5 and violates Rule 1.4.

While a lawyer and client may renegotiate a fee agreement during an ongoing relationship, the lawyer typically carries the burden of establishing fairness of the new arrangement if it is ever challenged.  Fee agreements entered during the attorney-client relationship will get heightened scrutiny to avoid the appearance of undue influence or impropriety.

In the case of Twitter, the success fee was agreed upon allegedly hours before the closing of the deal.  Although Twitter's old board agreed to the fees, the circumstances in which this transpired could be perceived as unethical and improper because of the lateness of the agreement made by the parties to include a success fee.  Hence, in addition to challenging the fee as unreasonable, the lawsuit claims that, based on the facts leading to the closing day letter agreement, the success fee should be considered a gift, and hence a violation of ABA Rule 1.8.

10 Proper Billing Practices

The controversy highlighted in the Twitter fee case provides a valuable reminder of the heightened scrutiny in attorney-client relationships due to its fiduciary nature and the rules of professional conduct.  In addition to the steps specific to success fees outlined above, it is important to keep these broader billing best practices in mind.

Engagement

Always formalize the fee arrangement in a written agreement.  This holds true whether you are dealing with an hourly rate, a contingency fee or some other type of fee structure.  Any modifications to the engagement terms or fee structure should also be put in writing.

Transparency

Clearly outline how legal fees will be calculated, any percentages that may accrue in the case of a contingency fee and any other expenses that will be deducted from the recovery.

Client Communication

Keep the client informed about any developments.

Alternative Fee Arrangements

There is nothing wrong with exploring creative billing options that can benefit both parties, but ensure they are in line with ethical guidelines and are clearly outlined in the agreement.

Data-Driven Metrics

Consider using data-driven methods to establish fees, especially for alternative fee arrangements.  This adds an element of fairness and can help align incentives between client and lawyer.  Notably, today we have the benefit of using artificial intelligence to come up with creative data-based alternative fee arrangements.

Review and Oversight

Periodically review the billing practices to ensure compliance with your client guidelines.  Train your timekeepers in proper billing practices and client-specific billing guidelines.  This training should be done annually and while onboarding new personnel.

Regulations

Understand the rules governing fees and conflicts of interest.  Train your lawyers in the rules of professional conduct.  This training should be done annually and while onboarding new personnel.

Fiduciary Duty

Always act in the best interest of the client, keeping in mind the fiduciary nature of the attorney-client relationship.

Avoid Surprises

Be proactive to avoid sticker shock.  Discuss potential scenarios and outcomes openly with the client, so they know what to expect in terms of fees.

For example, one fact alleged in the complaint is that:

[I]n the middle of the board's final October 27 meeting, former Twitter general counsel Sean Edgett sent the chart of fees that the Twitter board was meeting to approve.  Upon seeing the magnitude of the fees being presented for the board's approval, one former Twitter director immediately exclaimed in an email reply to Edgett: "O My Freaking God."

Regular Invoicing

Provide detailed invoices that outline the work done, the time spent and the costs incurred.  This not only aids transparency but will also help in resolving any disputes that may arise.  Also remember, your time entries should be treated with as much care as any work product; they should be clear, concise, descriptive and grammatically correct.

By following this ethical road map, the parties will reduce the likelihood of disputes and misunderstandings and, also, maintain a good working relationship.

Conclusion

Whether you are the client or the lawyer, beware falling asleep at the wheel when it comes to new engagements, modifications to billing and billing practices generally.  To do so may risk legal action and your reputation.

Lourdes Fuentes is a seasoned litigator, Founder & Chair of Karta Legal LLC, law firm partner and CEO.  She has a law degree from the University of Pennsylvania and is also a certified Legal Project Manager and Lean Six Sigma Black Belt.  With decades in the field, her expertise lies in optimizing legal operations and promoting ethical billing.  Lourdes founded Karta Legal to tackle these specific challenges, offering tailored solutions that include innovative technology adoption and process improvement.  Her firm caters to a diverse range of clients—from Fortune 100 companies to specialized boutique law firms—ensuring they adhere to transparent and ethical billing practices.

A recent Law 360 story by Brian Steele, “McCarter & English Client Didn’t Notice Rate Hikes, Jury Hears”, reports that a dietary supplement company founder battling McCarter & English LLP over a $2 million legal bill admitted to a Connecticut federal jury that he didn't thoroughly read the firm's invoices, but also refuted the firm's claim that he was verbally informed about the rate hikes at the heart of his counterclaim. 

On the third day of testimony in a Hartford trial, Jarrow Formulas Inc. owner Jarrow Rogovin said that he was responsible for reviewing and approving payment on the company's legal bills, including those that were generated after Caudill Seed & Warehouse Co. filed a lawsuit in Kentucky in 2013 for misappropriation of trade secrets.  But he said that he did not read those monthly bills past the first page, with one exception, because the thought of the legal action and its potentially devastating consequences made him "sick."

"I didn't do a good job" reviewing the bills before paying them, Rogovin said. He added that he did not notice when rates for two partners rose months after the start of the case, or that prior bills were reissued with higher rates.

McCarter & English, which has offices in Hartford and Stamford, is seeking more than $2 million in unpaid legal bills, mostly from the final five invoices related to the lawsuit filed in Kentucky federal court.  Jarrow countersued for allegedly improper billing practices and claimed that its attorneys botched the case, which ended in 2019 with an adverse verdict for Jarrow and $2.4 million in damages.

Rogovin, a Los Angeles resident, testified that several of the legal team's decisions caused his namesake company to lose the lawsuit and he "repeatedly" conveyed his concerns to McCarter & English attorneys, including partner Mark D. Giarratana.  He said the attorneys declined to pursue certain third-party subpoenas and depose the owner of the plaintiff, Caudill, about a disputed claim that it had spent $5 million and 23 years on research and development related to a broccoli-based product at issue in the case.

"They didn't do their job. They committed malpractice," Rogovin said, prompting U.S. District Judge Michael Shea to instruct the jury that only an expert witness can draw that conclusion.  Judge Shea said the testimony could be used to illustrate Rogovin's state of mind when deciding not to pay outstanding bills after the trial.

On direct examination, defense attorney James E. Heavey asked if Rogovin conducted a line-by-line review of legal bills before authorizing payment.  Rogovin said no, and that he was the only one at Jarrow responsible for reviewing the relevant bills when they came in.  "I looked at the front, the amount of money, and I was sick to my stomach about what was going on," he said when asked about his review process during cross-examination.  "I read the front, I saw what it was and I signed off."

Giarratana previously testified that the firm accidentally billed for his and fellow partner Eric Grondahl's services at the start of the case at an outdated rate, and when he discovered the mistake, the firm reissued three out of five monthly invoices.  But the firm also submitted all five invoices, showing the higher rate, to Jarrow's insurer as part of a failed effort to secure coverage.  Rogovin said that the attempt to obtain payment from the insurer at the higher rate was "unethical" and Jarrow did not know about it.  If he had been aware, Rogovin said, he would have been "very disapproving."

McCarter & English chief financial officer Jacqueline Bosma testified Monday that when the firm reissued the bills to Jarrow, it applied a credit for payment that had been received on one invoice already, according to a review of accounting records.  She said the reissued bills were paid at discounts near the end of the fiscal year.  She was hired as a controller at the firm in 2016.

When the rates rose, they were then frozen for the length of the lawsuit in accordance with Giarratana's policy, even when, Bosma said, the standard rate for each attorney continued to climb.  The freeze allowed Jarrow to save more than $500,000 on fees for Giarratana and Grondahl, she said, and even though attorney Thomas J. Rechen's rate rose in 2016 when the firm noticed it was charging an outdated figure, it also froze, amounting to a total savings to Jarrow of more than $200,000.  Heavey said there was no evidence that Jarrow agreed to the rate increases, but Bosma reiterated Giarratana's prior testimony that paying 70 of the bills without complaint signified an agreement.

Rogovin testified that he was not aware of a credit and the company never received a refund.  He said that he "probably had some kind of vague idea" of what the attorneys were charging per hour, but he did not know that the rates rose several months into the trial, or that McCarter reissued the previous months' bills at higher rates for Giarratana and Grondahl.  Rogovin denied Giarratana's testimony that he had told Rogovin of the rate changes in three phone calls.

"What would be the point of telling me three times?" Rogovin said. "If it were three times, I'd certainly remember it."  He said that if he had known the rates were going up, he would not have agreed to pay them and would have sought advice from the company's CFO.

Rogovin said that since he first retained Giarratana in 1996, when Giarratana worked for a different firm, he had only caught two errors on his legal bills, and one of them appeared on the first page.  Defense attorneys showed that on at least one bill related to the Kentucky litigation, the attorneys' hourly rates were shown on page 32.

Under questioning from plaintiffs' attorney Louis R. Pepe, Rogovin said he found an error on one bill related to the Kentucky case when he noticed that a particular line item described work on a separate legal matter McCarter & English was handling.  Pepe said the only way he could have noticed the error on page 5 was by conducting a line-by-line review, allegedly contradicting his prior testimony.  Rogovin disagreed that he had contradicted himself on the stand or in his deposition, but Judge Shea stopped him from reading the transcript of his deposition out loud and Pepe moved on.

Pepe asserted that there was a decades-long "pattern and practice" whereby Giarratana and ultimately other McCarter partners' rates would rise without prior written notice, Rogovin and Giarratana would not discuss it, and Rogovin would simply settle up, sometimes with a discount if the bills were still outstanding as the end of the fiscal year approached.

Rogovin said he founded Jarrow in 1977 and the company started manufacturing its own product lines in 2002.  He and Giarratana signed an engagement letter in 1996 that notified Rogovin that hourly rates could rise "from time to time," and Rogovin said that he read and understood that letter.  Even though Giarratana's standard rate climbed over the years and he moved firms, landing at McCarter & English through a merger in 2003, Rogovin said they did not sign a new written agreement that contemplated fees.

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