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Category: Billing Judgment

Insurer Overpaid Policyholder’s Attorney Fees, Judge Finds

August 25, 2021

A recent Law 360 story by Daphne Zhang, “Insurer Overpaid For Policyholder’s Legal Bills, Judge Finds,” reports that a New York federal judge said that an insurer's decision to stop paying a GoPro accessory maker's attorney fees was reasonable, finding the policyholder's defense counsel billed administrative work at partner rates and logged excessive working hours.  U.S. District Judge Mae D'Agostino denied 360Heros Inc.'s motion for summary judgment against Main Street America Assurance Co., saying the carrier's payment of more than $2 million in attorney fees fully satisfied its defense obligations.

The judge sided with Main Street in finding that 360Hero's defense counsel, Gauntlett & Associates, repeatedly charged "unreasonable and excessive" legal fees in an underlying patent infringement suit with GoPro.  The camera company sued 360Heros alleging the harness maker used its copyrighted pictures and infringed two of its trademarks.  The suit was settled in May 2018. 360Heros sued Main Street in 2017 after the insurer stopped paying for its defense costs.

"Based on Gauntlett's repeated practice of billing excessive, redundant or otherwise unnecessary hours the court finds that a 15% reduction in Gauntlett's fees is warranted," the judge said.  According to the order, a Main Street attorney found in 2017 that the insurer overpaid for defense costs after retroactively reviewing the payment history.  Main Street subsequently stopped paying the policyholder's legal bills, which 360Hero claimed violated its insurance policy.  "The amount of unpaid fees is significantly less than the amount that the court finds were reasonably expended," Judge D'Agostino found, saying that Main Street was fully entitled not to pay because the defense counsel overcharged on legal bills.

Some of Gauntlett's invoices were billed without any tasks designated to a paralegal, the judge pointed out, and the firm repeatedly charged administrative work at partner rates. Gauntlett also charged full rates for travel, which should have been billed at half of their hourly rates, Judge D'Agostino said.  "For travel to a one-day out-of-town settlement conference, [one Gauntlett attorney] billed for $418.48 in meals," she said.

Article: Actual and Necessary: A Guide to Keeping Time So You Get Paid

June 6, 2021

A recent ABI Journal article by Brittany B. Falabella and Allison P. Klena, “Actual and Necessary: A Guide to Keeping Time So You Get Paid,” reports on good billing practices in large Chapter 11 bankruptcy.  This article was posted with permission.  The article reads:

Billing time is one of the most dreaded aspects of private practice in any field of law, but not because it is hard or overly time-consuming.  The extra step of recording discrete, detailed time entries is much more than an annoyance.  For bank­ruptcy practitioners employed under §§ 327, 1103 and 1051 of the Bankruptcy Code and certain credi­tors’ counsel,2 it is a step that cannot be done in a sloppy, haphazard way — at least, if the attorney wants to be paid.

In non-bankruptcy areas of practice, an attorney may have to explain generic, unclear and blocked billing to a client.  However, a bankruptcy practi­tioner’s bills are subject not only to this review, but also to that of multiple other parties, including the U.S. Trustee’s Office, debtors, committees, interest-holders and, most importantly, the court, before the practitioner will be awarded compensation under §§ 330 and/or 331.  Developing proper billing habits from the start will pay for itself — literally.

Although most new attorneys who enter an established bankruptcy practice will have standard forms for fee applications, taking the time to under­stand the law informing a court’s analysis is the first step in understanding how to effectively and proper­ly keep time for easy approval.  The first part of this article discusses the Code sections and cases that likely apply to every fee application.  The second part discusses the common pitfalls that can result in a court reducing a fee request, and easy and practi­cal tips to avoid them.  By making proper billing a habit rather than a dreaded task, the foundation will be laid to get paid in full.

The Laws of Getting Paid: Section 330 of the Bankruptcy Code

Under § 330, after notice and a hearing an attor­ney may be awarded (1) “reasonable compensa­tion for actual, necessary services rendered” and (2) “reimbursement for actual, necessary expens­es.”  On the court’s own motion or that of any party-in-interest, a court can, however, reduce the com­pensation requested.  In making the determination of whether and how much to reduce a request, the court is directed to consider the nature, the extent, and the value of such services, taking into account all rel­evant factors, including:

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were neces­sary to the administration of, or ben­eficial at the time at which the service was rendered toward the completion of, a case under this title;

(D) whether the services were per­formed within a reasonable amount of time commensurate with the com­plexity, importance, and nature of the problem, issue, or task addressed;

(E) with respect to a professional per­son, whether the person is board cer­tified or otherwise has demonstrated the skill and experience in the bank­ruptcy field; and

(F) whether the compensation is rea­sonable based on the customary com­pensation charged by comparably skilled practitioners in cases other than cases under this title.6

In addition, the court “shall not allow compensation for — (i) unnecessary duplication of services; or (ii) services that were not (I) reasonably likely to benefit the debtor’s estate, or (II) necessary to the administration of the case.”

The Lodestar Method

The lodestar method is a court’s starting point for deter­mining whether fees billed were reasonable.  The “lodestar” equals a reasonable amount of time for the matter multiplied by a reasonable hourly rate.  Reasonable time is the time that the court believes a billing attorney should have spent on the matter.  Then, a “reasonable hourly rate” is calculated with reference to a billing attorney’s experience and skill, as well as prevailing rates in the community for similar services provided by reasonably comparable attorneys.  The sum (i.e., the lodestar) may then be adjusted to account for the specific demands of the case, often with reference to some or all of the 12 Johnson factors.

The Johnson Factors

The Johnson factors are derived from the Fifth Circuit’s decision in Johnson v. Georgia Highway Express Inc., and consist of the following: (1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney’s opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attor­ney’s expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the expe­rience, reputation and ability of the attorney; (10) the unde­sirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys’ fee awards in similar cases.

However, courts have not taken a uniform approach to the Johnson factors.  Some courts view the factors as already subsumed into the lodestar method, while others apply the lodestar method and then look to the Johnson factors to decide whether the lodestar amount should be modified.  Still other courts consider the Johnson factors in conjunction with calculation of the lodestar,  Although these distinctions may matter in some cases, the one- and two-step processes will often generate essentially similar results, especially given that enhancement of the lodestar is a rare occurrence.

Biggest Pitfalls and Strategies to Avoid Them

Even with an understanding of the law, unless time records are maintained in anticipation of bankruptcy court review, a practitioner will often fall into some of the pitfalls discussed below. In many cases, a simple fix can nip errors in the bud.  This avoids the headache of reviewing and editing voluminous invoices at the end of a fee-application period or the end of a case, and, most importantly, permitting the court to allow fees in full and without objection.

Not Enough Detail/Excessive Billing

Vague time entries are virtually always a problem.  A gen­eral, shorthand description might be easy to understand for the time-keeper doing the work and making a contemporane­ous record (it goes without saying to always keep contem­poraneous time).  However, the court and other parties who analyze vague, generic time entries do not have the benefit of the billing attorney’s on-the-spot thoughts.

Time entries should be drafted with an eye toward explaining and justifying why the work was “reasonable and necessary,” and how it benefited the estate or a constituent.  Entries such as “reviewed emails” are certainly insufficient, but even additional details, such as “conference with X con­cerning research and strategy” or “conference with X con­cerning pending matter related to debtor” might not provide enough detail for a court to determine whether the time was justified.  Vague entries can cause the court to spend time attempting to decipher the context, conduct an evidentiary hearing, or simply deny the compensation.

While courts frequently complain that counsel have engaged in excessive billing, the heart of the issue is fre­quently that the court does not understand how the amount of time billed was “reasonable and necessary.” In other words, the billing entry was not specific or detailed enough to explain to the court that the full amount of time delegated to a task benefited the estate or was necessary to the admin­istration of the case.  This issue is often remedied if detailed descriptions are crafted with an eye toward the benefit to the case as previously explained.

Vague and ambiguous entries are a common and costly mistake.  No attorney, particularly a new associate, wants their entries to be the reason that the firm’s fee application is reduced or its approval delayed.  Taking the time to carefully prepare time entries is essential, not optional.

Tip: Have an attorney or professional assistant who is not working on the case review the time entries.  If that person cannot understand the value of the time billed or the task that was completed, more detail should be included until it becomes clear.  If it becomes necessary to bill significant time to certain tasks, make sure the explanation is particularly thorough to explain the circumstances.

Block-Billing

Similar to time entries that are insufficiently detailed, time entries that are block-billed — multiple tasks com­bined in a one-time entry — do not establish for the review­er (1) how much time was spent on a particular task, or (2) whether the time spent on each task was reasonable.  For example, if an attorney records 3.0 hours total for “review of a motion for approval of DIP financing; telephone call with debtor’s counsel concerning alternative financing sought; and email to client regarding financing options for debtor’s continued operation under chapter 11 and recommendation not to object to the filed DIP financing motion,” the court has no idea whether the review of the motion took 0.6 hours (presumably reasonable) or 2.7 hours (perhaps unreason­able absent additional undescribed factors).  According to the U.S. Trustee’s guidelines, while block-billing is gener­ally not allowed, a single daily entry that combines de mini­mus tasks can be combined, provided that the entry does not exceed 0.5 hours.

A consequence of block-billing is that the court may conclude that it lacks the information to trim excessive time from a particular task among those blocked, and may choose to reduce the total time billed by a discretionary percentage.  The goal is to establish that your work was reasonable and necessary.  Do not give a court an “excuse” to question the reasonableness of your time by block-billing.

Tip: Break up time entries so that each task corresponds to the amount of time spent on that task — even if the amount of time is modest.  Making use of time-tracking software or timers and developing good habits can be quite helpful in mastering detailed task-billing.

Not Delegating to Proper Staff/Duplicative Billing

Whether certain tasks are properly completed by senior-level attorneys, lower-level attorneys or support staff is largely out of the control of an associate.  Nevertheless, there will be times when tasks that would be more suitable for a junior-lev­el attorney must be completed by a senior attorney, or where an attorney may need to complete a task that would ordinar­ily be delegated to a staff person.  Similarly, there are times when multiple attorneys must participate in the same hearing or conference, which reviewing courts often view skeptically.

In such situations, courts are more inclined to allow the “double billing” if the exigent circumstances are explained in the entry and such staffing situations are kept to a mini­mum.  When matters are not explained or apparent from the time description, the court is left to question how the time and/or rates are reasonable and necessary.

Tip: While a junior associate might not have much con­trol over the delegation of tasks, associates typically draft the fee applications, so they should keep this issue in mind when reviewing bills and flag any issues with a supervising attorney prior to filing.  A good-faith reduction for certain tasks might go a long way with the court and other parties-in-interest.  At a minimum, make sure your own time is not subject to objection or reduction.  If you find yourself bill­ing time to routine tasks, be sure the circumstances are fully explained in the entry.

Conclusion

Given the consequences of failing to record time properly, it is well worth the time to develop the habit ofrecording specific time entries that are separated by each task performed and that indicate that how the time spent was both reasonable and necessary. With such a “reason­able and necessary” standard as a guide, a professional can ensure that the court and other interested parties under­stand the value being added to the case and that the fees requested are fully warranted.

Block Billing Reduces Fee Award in Personal Injury Case

May 14, 2021

A recent Law 360 story by Mike Curley, “After ‘Block Billing’ and ‘Paper Dump,’, Attys Net Only $786K” reports that an Arizona federal judge has awarded $786,472 to attorneys representing a man who suffered additional injuries after a fall when his insurer delayed approving surgery, down from the requested $1.04 million as a result of "block billing," a "paper dump" and other failures in their request for fees.  U.S. District Judge Susan M. Brnovich also denied Greg Jarman's request for $74,000 in expenses from American Family Insurance Co. in its entirety, saying he failed to itemize the costs and the court will not "do the hard work for him" in separating out items like clothes for one attorney and a hotel room for another.

Jarman's request for fees comes after a jury in September awarded him $4.5 million over delays in care for injuries stemming from an on-the-job fall in 2015.  The court later reduced the verdict to $2.8 million.  Jarman, who had worked at electrical company Efficient Electric Inc. for more than 10 years before his injury, experienced a severe fall on July 25, 2015, according to court documents, and a couple of weeks later he went to the hospital and was diagnosed with a shoulder sprain and put on limited activity.  Jarman's neurologist on Oct. 6 of that year recommended cervical decompression surgery, after his orthopedic surgeon called his case "urgent."

American Family wanted its own doctor, Dr. John Beghin, to examine Jarman before approving the surgery, and he agreed on Nov. 5, 2015, that surgery was necessary.  The surgery was performed five days later, and Jarman said the delay caused cognitive injuries.  In the order, Judge Brnovich reduced the total fee for several reasons, starting with Jarman's failure to comply with court rules requiring his counsel to confer with American Family's on the fees before submitting his request.

While the judge did not accept American Family's argument that Jarman isn't entitled to fees at all, she did reduce them still further, saying that there is a particularly egregious case of block billing in this case, with one of the attorneys attributing hundreds of hours of work to single line items, leaving the court unable to determine how much time was spent on specific tasks.

The request also does not contain an affidavit as to the tasks that support staff at the firms took on during the case, so the court is unable to determine if the rates for their work are reasonable, the judge wrote, adding some entries from support staff are clerical in nature.  Jarman also failed to produce evidence that his attorneys' fee rates are reasonable, the judge wrote, further warranting a reduction to the fee.  The attorney fees request also includes entry for work done relating only to dismissed defendants, the judge added

Lieff Cabraser Can’t Freeze $1M Fee Reduction During Appeal

March 14, 2021

A recent Law 360 story by Brian Dowling, “Lieff Cabraser Can’t Freeze $1M State St. Fee Cut Amid Appeal,” reports that Lieff Cabraser Heimann & Bernstein LLP failed to persuade a Massachusetts federal judge to freeze $1.1 million of its fee slated for repayment in the wake of an overbilling scandal connected to a $300 million settlement with State Street Corp.  The firm, one of three ordered to repay seven-figure sums to the settlement fund, had sought to keep the money in escrow as it asks the First Circuit to review Senior U.S. District Judge Mark L. Wolf's reallocations of the fee award.

Denying Lieff Cabraser's motion in a 57-page order, Judge Wolf said the firm isn't likely to succeed on appeal and also faces no threat of irreparable harm if the money isn't frozen.  Instead of facing the tough odds of potentially having to recoup distributed settlement funds from the class, Lieff Cabraser would get any increase ordered by the First Circuit from its co-counsel, Labaton Sucharow LLP and Thornton Law Firm LLP.

Labaton Sucharow and Thornton received the bulk of the blame for improprieties and overbilling practices and repaid much higher sums to the settlement fund when Judge Wolf slashed the fee award from $75 million to $60 million in February 2020.  The two firms did not appeal the reallocation but supported Lieff Cabraser's request for a stay, Judge Wolf noted.

"The repeated, egregious misconduct of Labaton and Thornton alone caused the court to decide that it was most appropriate to award $60,000,000," Judge Wolf said. "If the court had allocated an additional $1,140,000 to Lieff, it would have reduced the awards to Labaton and Thornton by that amount."

Judge Wolf disputed Lieff Cabraser's arguments that the court violated noticing requirements in sanctioning it with the lower fee award.  There was no sanction, Judge Wolf said, just the court taking into account "proven misconduct of Labaton and Thornton in deciding to make a new fee award."  The court explained that its review of the attorney overbilling referred to Lieff Cabraser's conduct as "deficient" rather than as "misconduct" delineating that the firm's shortcomings were not critical to the new lower fee award.

The underlying suit, filed in 2011, alleged that Boston-based State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade. State Street settled the claims in 2016 for $300 million.  Judge Wolf approved the initial $75 million fee in 2016 but vacated that order after allegations of double-billing surfaced in a 2016 Boston Globe report.  He appointed retired U.S. District Judge Gerald Rosen as a special master to investigate the fee.  The firms admitted to overstating their billing but contended the $75 million fee was still proper.

Judge Rosen in 2018 recommended the firms disgorge just over $10 million, but Judge Wolf's 160-page order in late February ruled that the cuts should be even deeper and took the firms to task in the process.  Also before Judge Wolf is a legal fight between Thornton and its liability insurer over whether the company, Continental Casualty, can avoid covering the firm's attorney fees stemming from the court-ordered overbilling probe.

Judge Wants Skadden Affidavit on Fees and Billing Practices

March 4, 2021

A recent Law 360 story by Jeff Montgomery, “Chancery Wants Skadden Affidavit in TransPerfect Fee Fight,” reports that Delaware's chancellor ordered Skadden to submit an affidavit attesting to the accuracy and reasonableness of custodian fees recently charged to TransPerfect Global Inc., saying it was in the interest of ending billing battles stemming from a rancorous court-ordered sale of the business.  Chancellor Andre G. Bouchard gave Skadden Arps Slate Meagher & Flom LLP and custodian Robert B. Pincus a week to submit the information after a half-day argument on three pending issues in the case.  Among them was a motion by Pincus for a discharge from his custodian's role with indemnification and nondisparagement protections, among other terms, opposed by TransPerfect and co-founder Philip R. Shawe.

Also at issue were claims by TransPerfect that Skadden had charged excessive and unsupportable fees on a range of matters, including "fees on fees" billings for Pincus' and Skadden's defense against fee claims, as well as a TransPerfect motion to block Pincus and Skadden from recovering fees for a contempt action.  While taking the overall issues, including Pincus' discharge, under advisement, the chancellor also directed Skadden to provide support in its affidavit for more than $200,000 in billings for what were alleged by TransPerfect to be "the administrative work" of sending a bill.

"Is it typical? I'm not aware of it happening," the chancellor said.  "I'm talking about [billing for] the actual generation of an invoice and, if you will, running that bill.  Give it thought.  If it's your position that it's ordinary and that it would be billed to a client ordinarily and permissibly, so attest" in the affidavit.  "If you want to carve that out. It might be prudent to do so."

Pincus was appointed custodian of TransPerfect after its two co-founders, Shawe and Elizabeth Elting, had a falling-out and could not agree on how to manage the company.  In May 2018, the Delaware Supreme Court affirmed the chancellor's February 2018 ruling that allowed Shawe to buy Elting's 50% stake in the company.  Chancellor Bouchard had also determined that Pincus' impartiality wasn't compromised by threats of litigation made against him by Elting or by Shawe's alleged interference in the sale process.

During the arguments, Jennifer C. Voss of Skadden, counsel to Pincus, said the expenses had been prompted by TransPerfect's and Shawe's actions, and were handled with the same diligence and efficiency as that given to all of Skadden's clients, at rates consistent with its practice.  "Mr. Shawe is an adjudicated serial litigator," Voss told the court while arguing for Pincus' discharge.  "Now, years out from closing [on the TransPerfect sale], he has filed a barrage of baseless, unprovoked attacks against Mr. Pincus and Skadden.  These attacks are meant to coerce Mr. Pincus. He has not succeeded, but they're also meant to harass him and his advisers."

Voss said TransPerfect and Shawe "weaponized access to billing statements" for a "punitive and protracted campaign of fee warfare," despite Pincus' right to recover costs as custodian and for litigation in disputes with TransPerfect and Shawe in the years after the sale.  Much of the dispute related to the custodian's authority to bill TransPerfect for the costs of responses to or defenses for challenges raised by the company and Shawe.

During the hearing, David B. Goldstein of Rabinowitz Boudin Standard Krinsky & Lieberman PC, counsel to Shawe, described the billing arrangements as a "fee merry-go-round," with filings by TransPerfect and Shawe generating billings from the custodian, objections to the bills and new bills for addressing the objections.  "The sale of TransPerfect Global closed almost three years ago," Goldstein said.  "At that point, TransPerfect had already been ordered to pay Skadden almost $13 million, and another $31 million to [Pincus'] handpicked advisers."

Fee and other disputes since then have pushed the total to $14 million for Skadden and $45 million for advisers, Goldstein said, with additional billings pending.  "Our position is these fees are really excessive," Goldstein said, arguing that the process appeared to have become a "billing frenzy" without end.  "I'm not telling the court or suggesting that Skadden should get zero," he said.  But "if they got nothing else, they would have gotten far more than a reasonable amount of fees."

Voss disputed TransPerfect's calculations of the billings and costs of the case, and said expenses had been driven by TransPerfect's and Shawe's frivolous arguments, haphazard and mistaken filings, and pressures for expedited court proceedings.  One billing alone, Voss noted, was answered with 100 pages of objections.