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Category: Billing Practices

Former Billing Manager: Law Firm Put Legal Fees Over Clients

February 12, 2024

A recent Law 360 story by George Woolston, “Ex-Billing Manager Says NJ Firm Put Fees Over Clients”, reports that a former billing manager for the New Jersey personal injury firm Brandon J. Broderick Attorney At Law claims she was fired for insisting that the firm's clients receive the most money possible from their settlements, according to a lawsuit filed in New Jersey state court.

Monique Pruett alleged in Mercer County Superior court that she was terminated after objecting to the firm's requests that she process personal injury settlements as quickly as possible.  Pruett claimed that when she took time to ensure that medical bills and liens were properly reconciled before making settlement payments to personal injury clients and clearing medical escrow accounts, "she was told that was not her job, and her job was simply to pay the bills and get the money out of escrow," the suit claims.

Clients and medical providers would sometimes receive less money than they were owed, but the firm would tell the providers "they would be taken care of," Pruett alleges in the suit.  The difference would be made up by paying a different client less money than the client was entitled to, Pruett claimed.  "It was clear that Broderick's priority was to get the firm its fee, the medical providers their money, and the best interest of the client was not considered," the suit claims. "The client's interest was given the lowest priority, if considered at all."

She also said she was treated unfairly because she is Black.  The suit brings three causes of action under the Garden State's whistleblower and discrimination laws. Pruett is seeking compensatory damages for emotional distress, reinstatement, counsel fees and punitive damages.

Attorney Keeps $1.15M Fee Award Despite Tossing Billing Record

February 9, 2024

A recent Law 360 story by Madison Arnold, “Atlanta Atty Keeps $1.15 Fee Award Despite Tossing Notes”, reports that a Georgia state appellate court has upheld an award of $1.15 million in attorney fees to a solo-practice attorney, saying an Atlanta-based airport travel spa operator he did work for failed to show the trial court was wrong in finding the attorney didn't have to save notes about the legal services he provided.

In its ruling, a three-judge panel upheld the attorney fee award for Gebo Law LLC and its only member, Carl Gebo, who provided five years of legal services for Cordial Endeavor Concessions of Atlanta LLC.  The appellate court didn't buy Cordial's argument that the trial court erred by not giving jury instructions related to the "spoliation of evidence," meaning Gebo's tossing of his notes, among other concerns.  "But the court did not abuse its discretion in refusing to give a spoliation instruction or in refusing to allow an expert to opine on an irrelevant issue, and the jury's award was within the range of damages shown by the evidence.  So we affirm the trial court's judgment," the panel said.

Cordial was hoping to overturn the award for nearly 2,000 hours of work performed by Gebo Law, saying the attorney intentionally destroyed time records and that the award was excessive, according to the appeal Cordial filed in May.  At the heart of Cordial's appeal are the notes Gebo made detailing the date, length of time and the description of legal services he provided to the company, the panel said.  In an affidavit, Gebo said it was his normal practice to create invoices based on notes and then discard the notes afterward.

"A lawyer who fails to secure an engagement agreement, fails to communicate his hourly rate to the client, and then discards his contemporaneous time records when fee litigation is likely does not get to recover unpaid fees at the upper range of what might be considered a reasonable hourly rate," the spa operator said in May.

Gebo added that when he threw away the notes, he believed Cordial would soon be paying for his legal services since the company had confirmed a payment plan, the panel said.  That meant Gebo was not yet thinking about or anticipating any litigation, and he only filed after months of unsuccessful negotiations with the company about receiving payments, the panel said.  That turned out to be central to the panel's ruling.  In its eight-page opinion, the panel said the term "spoliation" is used to refer to the destruction of evidence that is relevant to "contemplated or pending litigation."

"Such conduct may give rise to the rebuttable presumption that the evidence would have been harmful to the spoliator.  However, in order for the injured party to pursue a remedy for spoliation, [including a jury charge on the rebuttable presumption,] the spoliating party must have been under a duty to preserve the evidence at issue," the panel said.

The panel found the trial court was within its bounds to decide that a duty to preserve notes was not triggered at the time Gebo pitched them because he used them to create invoices as part of his normal practice.  "[T]here was evidence that Gebo did not contemplate litigation when following its practice of discarding notes after memorializing them in invoices, the trial court did not abuse its discretion in denying Cordial's spoliation motion," the panel said.

The appellate court separately held that Cordial failed to show the lower court abused its discretion in approving the jury's award of $1.15 million in quantum meruit damages.  "[T]he jury did not understand that Gebo disregarded an important rule of professional responsibility and thus did not understand Gebo should be awarded recovery at the lower range of what otherwise would be a reasonable negotiated fee," Cordial said in May.

That award equals a fee rate of about $630 per hour and that rate is within the range of evidence presented at trial, with expert testimony saying the going rate should be between $500 and $800 per hour.  "[W]e cannot say that the trial court, who saw the witnesses and heard the testimony, abused its discretion in [approving the verdict]," the panel said, quoting a precedential case.

Law Firm Can’t Dismiss Bill Padding Claims in California

February 1, 2024

A recent Law 360 story by Lauren Berg, “O’Melveny Can’t SLAPP Bill-Padding Claims, Calif. Panel Says”, reports that a California appellate panel refused to strike allegations that O'Melveny & Myers LLP padded its legal bills while investigating the alleged mismanagement of funds at an apartment cooperative, saying disputes related to a firm's billing practices don't arise from activity protected by the state's anti-SLAPP statute.

In an opinion, a Second District Court of Appeal panel largely rejected O'Melveny's arguments that a Los Angeles Superior Court judge should have relied on California's anti-SLAPP statute to strike Ocean Towers Housing Corp.'s allegations that the law firm's invoices were excessive, it charged exceptionally high hourly rates and it padded its bills.  Anti-SLAPP, or anti-strategic lawsuits against public participation, laws are intended to prevent litigants from using the courts to intimidate people who are exercising their First Amendment rights.

"But disputes about the validity of an attorney's fees or billing practices do not arise from protected petitioning activity just because 'petitioning activity is part of the evidentiary landscape within which [the allegations] arose,'" the panel said.  "Instead, these allegations arise from an attorney's independent professional duties to ensure that 'fee agreements and billings "[are] fair, reasonable, and fully explained"' and to avoid charging unconscionable fees."

Ocean Towers is a cooperative housing corporation operating a beachside apartment complex in Santa Monica, and every person who buys a residential unit at the property also acquires shares of company stock, according to the opinion.  Shareholders pay monthly fees to the company in proportion to the number of shares they own.  The dispute goes all the way back to 2015, when an Ocean Towers shareholder filed a derivative lawsuit alleging board member John Spahi and others "caused Ocean Towers to incur significant expenses for [Spahi's] personal benefit," the opinion states.

The board in April 2017 put together a committee to investigate the claims, which chose O'Melveny to assist with the investigation, according to the opinion.  Under two contracts — one signed in April 2017 and the other in December 2017 — the committee would be O'Melveny's client, while Ocean Towers agreed to pay the legal bill.  By September 2017, Ocean Towers had paid $1.27 million of O'Melveny's invoices, but in December 2017, CEO Joseph Orlando told the law firm that the company's financial condition had deteriorated to the point that it wouldn't be able to pay any other fees.  O'Melveny, however, continued to perform work for the committee and charge Ocean Towers through June 2019, according to the opinion.

In March 2021, O'Melveny sued Ocean Towers to recover the unpaid balance, which is put at nearly $1.1 million, the opinion states.  Ocean Towers hit back with a cross-complaint in December 2021, alleging the law firm breached the contracts by "unethically billing" the company, charged "exceptionally high hourly rates for tasks that were unnecessarily performed by far more lawyers than were needed" and engaged in "bill padding and duplicative billing."

O'Melveny in March 2022 filed an anti-SLAPP motion to strike the cross-complaint, arguing it attacked the adequacy and scope of an investigation performed by an attorney while representing a client, the expenditure of money to prosecute an action and the circumstances around O'Melveny's retention, which it said are protected by the anti-SLAPP statute.  In June 2022, the trial court sided with Ocean Towers, finding the cross-complaint was "essentially about a fee dispute" and that "resisting what is essentially a collection action is not a SLAPP," the opinion states.

In its opinion, the three-judge appellate panel rejected O'Melveny's argument that because Ocean Towers was not technically the law firm's client — the committee was — the cross-complaint billing allegations fall under the scope of the anti-SLAPP law.  "The gravamen of Ocean Towers's claims against O'Melveny is not the petitioning activity that the firm conducted on its client's behalf; nor is Ocean Towers a third party completely uninvolved in the underlying litigation," the panel said.  "Rather, we are addressing limited allegations about fees and billing practices, made by a payor who is contractually obligated to pay the invoices generated by the law firm."

However, the panel did reverse the trial court's denial of the motion as to the allegations that target the validity of O'Melveny's client, which are based on Ocean Towers' claims that retired Judges Michael Latin and James Steele were wrongly appointed to serve on the committee, the opinion states.  The panel found the law firm has demonstrated that those claims arise from protected activity because the two judges were appointed to the committee through a court order and the Ocean Towers' board's resolution carrying out that order, according to the opinion.

Yuga Labs to Receive $7M in Attorney Fees and Costs

January 29, 2024

A recent Law 360 story by Aislinn Keely, “Bored Ape NFT Copycats Owe Yuga Labs $7M in Atty Fees", reports that the artists accused of ripping off the Bored Ape Yacht Club non-fungible token collection have been ordered to pay creator Yuga Labs more than $7 million in attorney fees and costs, despite their concerns that Yuga's counsel at Fenwick & West LLP overbilled in the case.

In an order, U.S. District Judge John F. Walter awarded Yuga Labs just shy of $7 million in fees and an additional $300,000 for the costs associated with three experts deposed during the case, adopting the recommendation from Special Master Margaret M. Morrow.  The figure eclipses the $1.6 million in damages awarded to Yuga Labs when artists Ryder Ripps and Jeremy Cahen were found to have infringed Yuga Labs' flagship NFT collection.

Ripps and Cahen agreed to the fees to wrap up the case, but noted they may raise qualms about the fees on appeal.  "The parties seek to avoid further litigation concerning the amount of Yuga Labs' fee award, and defendants seek to preserve their objections to the amount of the fee award ... for purposes of appeal," the order says.

In a November joint statement to Morrow, Yuga Labs reported that its attorney fees were more than $12.6 million, and additional $500,000 in costs and expert witness fees, but said it would only seek $7.5 million in fees and roughly $300,000 in costs.  It doubled back to the $12 million figure when it couldn't find common ground with Ripps and Cahen, who said a reasonable total award would be $455,000.  In their objection, Ripps and Cahen argued that Yuga Labs' counsel at Fenwick maintains billing practices that "artificially increased hours, resulting in unreasonable fees."

They argued that the more than 14,000 hours billed over the two-year dispute is more than 20 times greater than comparable cases in the district, and that Fenwick used practices including duplicative time entries, where more than one attorney billed for efforts on the same task, and block billing, which bills multiple tasks in one billing entry.

The duo also argued that the hourly rates of $1,290 for a partner, $1,135 for a counsel, $1,030 for a fifth-year associate, $780 for a first-year associate and $515 for a paralegal are much higher compared to those charged by other attorneys in the Central District of California.

But Morrow found the Central District of California has approved rates in the general range of those billed by Fenwick, and while the firm's figures are high, they fell within the top end of the report referenced by Ripps and Cahen.  She did, however, recommend that the court adjust the paralegal rates down to $450 for 2022 and $500 for 2023.

While she didn't take issue with the block billing practices of the Fenwick attorneys, she did note that many of the descriptions in the time records related to duplicative billing were "so vague that it is difficult to discern what tasks were being performed or how they advanced the case," recommending a 45% reduction of fees from $12.6 million to the $6.9 million the court ultimately adopted.

In their December objection, Ripps and Cahen also claimed Yuga Labs racked up billable hours by litigating the case "in an unreasonable way," including unproductive settlement discussions, increasing its damages demand ahead of trial and a "frivolous" motion for sanctions.

"Yuga, a four-billion dollar company fueled by its animosity towards Mr. Ripps and Mr. Cahen, retained a huge litigation team at an expensive firm to wage a yearlong scorched earth litigation campaign against them," they said in the objection.  On the flip side, Yuga Labs argued the pair's own litigation strategy needlessly complicated and dragged out the case by repeatedly attempting to relitigate issues the court rejected.

California Bar Adopts AI Guidelines Tackling Legal Billing

December 26, 2023

A recent Law 360 story by Sarah Martinson, “Calif. Bar Adopts AI Guidelines Tackling Confidentiality, Billing”, reports that the California bar has approved guidance for attorneys using generative software — systems that produce images and text — addressing confidentiality, competence, nonlawyer supervision and billing, as other states consider passing similar guidelines.

Erika Doherty, program director for the bar's Office of Professional Competence, said at a meeting of the California bar's board of trustees that the guidelines would be the first addressing large language models, or LLMs, to be approved by a regulatory agency for lawyers.  "The benefit of that is that there is guidance available for lawyers as of right now," she said.  "The downside of that is that this is an evolving technology, and so it's going to need to be continually updated."

The guidelines advise attorneys not to input client information into any generative tool without sufficient confidentiality and security protections, and to consult with information technology or cybersecurity professionals about whether an system meets strict confidentiality, security and data retention requirements.

To meet competency requirements, attorneys should understand how the tech, generally referred to as generative AI, works and its limitations before using it, the guidelines say.  "Overreliance on AI tools is inconsistent with the active practice of law and application of trained judgment by the lawyer," they say.  On non-lawyer supervision, the guidelines advise managerial and supervisory attorneys to establish clear policies for the use of generative AI.

The guidelines also advise attorneys to charge for actual time spent working on crafting prompts and editing outputs and not to charge for time saved using the technology.  "A fee agreement should explain the basis for all fees and costs, including those associated with the use of generative AI," they say.

Since OpenAI LLC released its chatbot ChatGPT in November 2022, lawmakers and state bar authorities have been trying to figure out the best way to regulate the technology.  In June, a New York judge sanctioned two personal injury attorneys for submitting a ChatGPT-generated brief that cited nonexistent case law, finding the lawyers "abandoned their responsibilities" to check their work, and their behavior rose to "bad faith" when they then waited weeks to come clean.

This month, the State Bar of Michigan issued an opinion saying that judges have an ethical obligation to understand advancing technology, including so-called artificial intelligence, and to ensure its use in the legal system is consistent with the law.  And a Florida bar ethics committee released proposed guidelines for how attorneys can ethically use generative AI in their legal work.  Those guidelines addressed confidentiality, oversight, billing and advertising. Florida bar members have until January to comment on the proposed guidelines.

Holland & Knight Faces Overbilling Suit

December 13, 2023

A recent Law 360 story, “Holland & Knight Faces Overbilling Suit From Ex-Bank CEO”, reports that Republic First Bancorp's former CEO has accused Holland & Knight LLP of padding its bills...

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