A recent Law 360 story by Celeste Bott, “Ill. Judge Needs More Info To OK $57M Chicken Antitrust Fee”, reports that an Illinois federal judge overseeing a sprawling antitrust litigation against broiler chicken producers said he couldn't rule on class counsel's renewed bid for a $57 million attorney fee award thrown out by the Seventh Circuit last year without more information on one of the firm's graduated fee arrangements in a similar 2015 antitrust case, which wasn't disclosed in the first go-around.

U.S. District Judge Thomas Durkin said during a remote hearing that he wanted more briefing from the both plaintiffs' firms — Hagens Berman Sobol Shapiro LLP and Cohen Milstein Sellers & Toll PLLC — and from class objector John Andren as to what effect the 2015 case has had in assessing the attorney fee award in the $181 million deal for chicken buyers.

In the earlier case, Cohen Milstein took on some of the nation's largest investment banks while representing the Public School Teachers' Pension and Retirement Fund of Chicago, a sophisticated plaintiff which negotiated attorney fees ex ante, or ahead of case resolution.

In that case, the plaintiff adopted a graduated scale.  If the same scale were to be used in the chicken case, class counsel estimated they would be entitled to $44 million for the $181 million settlement, or roughly 26%.  But the counsel argued they would have negotiated a higher rate in the broiler chicken case because it doesn't involve a trillion-dollar financial market.

Andren, meanwhile, said Judge Durkin should apply a similar fee schedule agreed to by Chicago Teachers, which entail fee brackets that decline both by the size of the settlement and by the stage of settlement.

"The latter is as important as the former, because sophisticated plaintiffs realize that trials are expensive and risky," Andren said in his opposition to the firms' renewed bid for a $57 million fee award in the chicken case.  "To align the incentives of class and counsel, attorneys need to receive a larger share of the recovery for more procedurally-advanced settlements and verdicts. This cannot occur when relatively early settlements are paid at 33%."  Judge Durkin also noted Tuesday that both are large, complex antitrust cases with many defendants and astronomical damages.  "There's enough similarities where I want to hear from both sides," he said.

The law firms, however, have contended "there is an ocean" between the size of the potential recovery, and potential fee awards, in both cases, and noted that in the chicken case, they represent indirect purchasers, which increases the risk relative to the banking cases.

"Indirect purchasers face defendant attacks that direct purchasers do not, and these attacks increase the chance of waking away with nothing.  And even though they take on this additional risk, the total damages indirect purchasers can recover based on state law claims is about half of what direct purchasers can recover for their federal claims," the firms said in a renewed fee motion filed in September 2023.

In that motion, they argued the court applied the correct methodology for determining fees the first time and came to the correct conclusion in awarding just over 33% of the settlement fund.  "Not only does the original award align with other awards in this specific case, it also aligns with the best available data on negotiated rates in antitrust cases," the class counsel said.  The fee award is back for reconsideration by Judge Durkin after the Seventh Circuit held last year that he failed to adequately consider bids made by class counsel in auctions in other cases and fee awards in different circuits.

Andren had taken issue with the roughly one-third cut of the settlement that Hagens Berman and Cohen Milstein were to receive in a deal the firms had struck with Fieldale Farms Corp., Peco Foods Inc., George's Inc., Tyson Foods Inc., Pilgrim's Pride Corp. and Mar-Jac Poultry.

Private plaintiffs began suing the nation's largest broiler-chicken producers in September 2016, claiming the producers coordinated and limited chicken production to raise prices and exchanged detailed information about capacity, sales volume and other data through statistical research compiler Agri Stats Inc.

The settlements at issue in this appeal were reached with Tyson for $99 million, Pilgrim's for $75.5 million, Peco for $1.9 million, George's for $1.9 million, Fieldale for $1.7 million and Mar-Jac for $1 million.  The agreements were awarded final approval by a district judge in December 2021.

A three-judge Seventh Circuit panel complimented the lower court in August 2023 for its "fine job of shepherding" the complex litigation, but said it made a mistake when it discounted bids made by one of the two firms serving as class counsel in other cases because the proposals had declining fee scale award structures.

Andren had also argued that the lower court should have taken into account that class counsel frequently did work in Ninth Circuit district courts, which employ a lower 25% "benchmark" for presumptively reasonable attorney fees.  The Seventh Circuit panel agreed the Illinois district judge shouldn't have categorically assigned less weight to Ninth Circuit cases in which counsel was awarded fees under a mega-fund rule.  In addition to vacating the fee award, the panel remanded the matter for "greater explanation and consideration" of the factors it laid out, noting it expressed no preference as to the amount or structure of the award, just the need for further review.

A recent Law.com story by Abgail Adcox, “Big Law Takes Bigger Bet on Contingency Fee Practices”, reports that, in a quest to maximize profitability, Am Law 200 law firms have grown their share of business tied to contingency fees, a gamble that has paid off for some firms in recent years.  Kirkland & Ellis, Crowell & Moring, Quinn Emanuel Urquhart & Sullivan and Susman Godfrey are among the firms that have represented plaintiffs on a contingency fee basis, agreeing to take on certain litigation in return for a portion of any recovery in a settlement or judgment.

And it’s not just these firms, say litigation funders.  ”It’s fair to say we’ve seen a noticeable increase in interest in building out plaintiff side practices among the more traditional defense-oriented law firms,” said Evan Meyerson, director at Burford Capital, in an interview.  “There’s a growing desire to become—and comfort level with becoming—truly the one-stop shop for their institutional clients.”

Last year, Burford executed multiple portfolio-style transactions with first-time counterparties in the Am Law 50, Meyerson reported.  Firms are seeking new ways to “differentiate their businesses,” with plaintiff-side litigation being a “pretty powerful differentiator in the marketplace,” according to Meyerson.  ”We’re definitely seeing an increase in appetite among what were traditionally the more risk-averse law firms in growing their contingency practices.”

Law firms such as Kirkland & Ellis have trumpeted a concerted effort to expand its contingency docket in recent years.  In 2021, Kirkland brought home a $200 million contingency fee for its representation of client Huntsman Corp. in a dispute.  Overall, in 2022, Kirkland said it had secured more than $2 billion in recoveries in trials for clients such as Motorola and Trizetto.

“We launched what’s now a very successful plaintiff-side practice on the view that we’re uniquely positioned in the market to arm our top trial lawyers with unlimited resources and a willingness to invest whatever it takes for the right cases,” Andrew Kassof, a leader of Kirkland’s litigation practice and a member of its executive committee, said in a statement this week.  “This practice has remained really active, with a number of new litigation matters filed last year and more coming in 2024,” Kassof added.

Other firms are also seeking out more contingency fee work.  For instance, at DLA Piper, the firm is “looking to exploit contingency fee opportunities more.  That’s part of our strategy for the firm.  We’re not going to do it wholesale, but where the opportunity works for our philosophy, we’re going to do it,” said global co-CEO, co-chair and Americas chair Frank Ryan.

Financial Swings

However, due to the unpredictable nature of when cases lead to recoveries, firms’ contingency practices have sometimes resulted in sharp swings in financial performances over the years for some.  A slow year for contingency collections contributed to Fish & Richardson’s 2.4% decline in gross revenue, firm president and CEO John Adkisson said.

“At a high level, I’m thrilled with where our business levels are,” said Adkisson, noting that the firm’s “core” or non-contingent revenue rose for the seventh year in a row.  “On the contingent side, our principals here recognize that that is going to ebb and flow.  We have a number of very exciting opportunities in the pipeline but 2023 was a slower year in terms of contingency fee recoveries.”

Crowell & Moring’s gross revenue growth slowed last year, inching up 0.9% to $595.5 million, as receipts from the firm’s contingency docket returned to lower levels in 2023.

In previous years the firm has reported hefty contingency fees supporting double-digit percentage revenue growth.  In 2020, a year in which the firm recovered more than $2.2 billion for clients in affirmative recoveries, the firm posted an 18.7% increase in gross revenue.

Crowell chair Phil Inglima said in an interview that the firm is “balancing prudently how much we’re investing in contingent docket versus how much we’re deriving from the traditional strengths of the firm.”

Inglima reported that the firm only factors a “small amount” of contingency matters into the firm’s budget each year and that attorneys spend no more than 10-12% of their time overall on the matters.  “We do anticipate with some precision when the claim funds will be paying, when distribution events will occur from that.  So that’s the only part that we really budgeted at all,” Inglima said about 2023.  “We did achieve at the level that we expected in the budget last year, but we didn’t have extraordinary receipts to have a windfall of any kind in 2023 for the contingent docket.”

Meanwhile, at Quinn Emanuel, gross revenue increased nearly 28% to $2.07 billion in 2023.  Approximately 8% of the firm’s revenue came in the form of contingency fees, a slightly higher proportion than 2022, but not materially, Michael Carlinsky, one of three co-managing partners at the firm, told The American Lawyer in an interview.

Trial firm Susman Godfrey nearly doubled its revenue in 2023 and more than doubled its profits per equity partner.  According to Kalpana Srinivasan, co-managing partner at Susman, 71% of the firm’s fees in 2023 came from contingent-fee work, compared with 43% contingent-fee in 2022.

Those percentages reflect the lifecycle of litigation, Srinivasan said. “We have 40-plus years of experience in contingent-fee matters.  We know you can’t precisely designate when a case is going to resolve or generate revenue, but that’s OK, because we have so many of them in the pipeline,” she said.

King & Spalding and Dorsey & Witney leaders also said contingency fee cases contributed to their firm’s financial gains last year.  For 2022, Lowenstein Sandler cited litigation and contingency fee work as a driver of a double-digit percentage gains in revenue and profits that year.

Lit Funding Terms

In light of the risks that come with contingency work, firms have increasingly sought out funders such as Burford Capital, which will fund a portion of their fees and expenses.  “Our deals are what we call non-recourse,” said Meyerson, adding that means, “if a case we finance loses, our counter-party on that deal keeps that financing and has no further obligations to repay Burford.”

“Probably unsurprisingly, our pricing reflects that risk,” he added.  “We’re usually seeking some combination of a multiple on our investment amount, percentage of the outcome or an interest rate that in aggregate typically resembles a law firm contingency rate.”  As a result, there is not a “one-size-fits-all model” for Burford’s pricing, Meyerson said.

“It is typical for firms to come to us asking for something close to full coverage on expenses, whereas on fees, there’s greater variability with firms who are willing to take on more or less of that risk,” Meyerson later said.  While, overall law firms typically only see a small portion of their revenue derived from alternative fee arrangements, which includes contingency work, the percentage has grown in recent years.

The Citi Law Firm Leaders Survey found that 20.6% of 2022 revenue came from AFAs, which is the highest average the survey has recorded.  In 2023, similar proportions are expected, according to the 2024 Citi Hildebrand Client Advisory.  By 2025, 72% of law firms expect revenue from AFAs to increase, the advisory said.

A recent Law 360 story by Jeff Montgomery, “Epic Tesla Fee Bid May Blaze Extraordinary Chancery Path”, reports that an unprecedented $5 billion-plus stock-based fee award sought by class attorneys who recently short-circuited Tesla CEO Elon Musk's 12-step, $51 billion compensation package has set up an equally unprecedented test for Delaware Court of Chancery fee guidelines and a potential award one law expert described as "dynastic wealth."

Class attorneys who have battled Tesla's compensation scheme for Musk since mid-2018 last week sought more than 11% of the 266,947,208 Tesla shares freed up Jan. 30, when Chancellor Kathaleen St. J. McCormick ordered rescission of the options that Tesla's board awarded to Musk in an all-stock compensation plan.  The value had been estimated initially at $5.6 billion, but would fluctuate with the value of Tesla's stock.

While the process of seeking a stock fee award instead of cash is not unprecedented, it is an unusual posture for Delaware Chancery litigation, and its scale is likely to reopen what were once considered settled questions over counsel risks, rewards, and just how much attorneys can command for corporate benefit fees, experts told Law360.

"Given the order of magnitude here, I suspect that the case will not set any records in terms of percentage of the recovery awarded to the plaintiffs attorneys, but in absolute terms it'll still amount to dynastic wealth," said University of Connecticut School of Law professor Minor Myers. He described the fee as "destined to be epic, if only because it involves the invalidation of a pay package that was itself comically large."

Chancellor McCormick put the fee in play with an order rescinding Musk's 12-tranche, all-stock compensation plan Jan. 30, after a week-long trial in November 2022.  The ruling cited disclosure failures, murky terms, conflicted director architects and Musk's own conflicted influence in Tesla's creation of an Everest-sized mount of fast-triggering stock options.

"Plaintiff won complete recission of the largest pay package ever issued," the fee motion, filed last week, said.  "Our research demonstrates that the court's decree of recission, conservatively valued, was the largest compensatory award in the history of American jurisprudence by multiples," driven by "the gargantuan size of the tort underlying this action."

But class attorneys are seeking an equally gargantuan fee, even after departing from calculation customs that Vice Chancellor J. Travis Laster stressed last year in declining to apply a size reduction to a nearly 27%, $267 million award to stockholders who challenged a Dell Technolgies stock swap in 2018.  In his fee ruling, the vice chancellor said the calls to reduce the Dell fee conflicted with court efforts to reward attorneys for going deeper into litigation and taking greater risks in pursuit of legitimate claims.

"Of course, everyone involved will try to fit this into an existing framework, but the reality is that a $5.6 billion fee award is staggeringly high, whatever factors are considered," said Lyman P.Q. Johnson, Robert O. Bentley professor of law, emeritus, at Washington and Lee School of Law.  "I think Chancellor McCormick will find a way to go a fair bit lower, while still providing the attorneys with a very high award of some amount."  Johnson added: "The shock of Musk's compensation, undone by the chancellor, is unlikely to be followed by what many would regard as a shockingly high $5.6 billion fee award."

Vice Chancellor Laster's most recent big fee ruling established, pending appeal, a $266.7 million fee last year for attorneys who secured a $1 billion settlement for minority stockholders who sued over a $23.9 million Dell Technologies stock swap in 2018.

In Dell, the vice chancellor rejected investor arguments that large "mega-fund" settlements justified throttling back on fee payouts because customary fee percentages can produce massive, windfall payouts.  Instead, Vice Chancellor Laster defended the use of customary, variable percentages, including 15% to 25% shares of awards for settlements after "meaningful litigation and motion practice" and up to 33% post-trial.  He also acknowledged the tension between successful plaintiffs' counsel seeking appropriate compensation and large investors working to minimize carve-outs from court awards.

In Tesla, class attorneys, wary of blowback over big recoveries borne of typical fee ratios, acknowledged the Dell ruling's guidance, but also pointed to an earlier ruling that produced the current largest court-approved fee, a $304 million award approved in 2011 by then-Chancellor Leo E. Strine and upheld by Delaware's Supreme Court a year later.

That decision required Grupo Mexico to return to Southern Peru Copper Corp. nearly $1.3 billion worth of Southern Peru stock — rather than cash — after finding that Southern Copper had been coerced by a conflicted, controlling stockholder into overpaying for a Grupo Mexico mine in 2005.  With pre- and post-judgment interest, the award reached more than $2 billion, with class attorneys awarded 15%, or $304 million, for fees and expenses.

Tesla class attorneys referenced the 15% fee carve-out approved in Southern Peru, but adjusted even that percentage downward — to just over 11% — to reflect value added by the absence of a holding period for any award of Tesla shares before they could be sold.  Case costs included more than $13.6 million in attorney fees and more than $1.1 million in expenses during the multi-year Chancery action.  Requested fees would equal a $288,888 hourly rate that the fee motion said was justified by the case's complexity, results and attorney skill levels, among other factors.

Jill E. Fisch, Saul A. Fox distinguished professor of business law at the University of Pennsylvania Carey Law School, said use of stock for attorney fees was once "kind of frowned upon," but is not unprecedented.  "They are repeat players" in Delaware's courts, Fisch said of the attorney teams that prevailed in the Tesla case.  "They want credibility before the court.  The numbers, I think, reflect the benefit and risk of this kind of litigation, and traditionally, Chancery Court has acknowledged those risks."

The suit, led by stockholder Richard Tornetta, branded Musk's compensation package as unprecedented and unfair, noting that Musk had already qualified for some $20 billion in awards by the time the suit was filed, "making him one of the richest men on Earth" at the time.  It alleged in part that he relied on two in-house Tesla attorneys for work on the plan before the board's conflicted compensation committee took up the issue.

Ann M. Lipton, the Michael M. Fleishman associate professor in business law and entrepreneurship at Tulane University Law School and associate dean, pointed to another Tesla- and Musk-related case to illustrate the risks stockholder attorneys take.

Last year, after about seven years of litigation, Delaware's Supreme Court upheld a post-trial dismissal of a suit filed by stockholders of rooftop solar venture SolarCity, seeking damages tied to Tesla's $2.6 billion purchase of the company, for which Musk was CEO and also held a big share of company stock.

At one point during the case, the SolarCity stockholders suggested a damage award amounting to a $13 billion giveback of Tesla stock Musk received for his SolarCity shares. Dismissal of the case and rejection of class claims, however, wiped out class attorneys' hopes for a share of a big award.

In the more-recent scuttling of Musk's Tesla stock awards, Lipton said, shareholders benefited from the stock award cancelations by being dramatically less diluted in their holdings.  "That the attorneys are asking for a little bit of dilution" through their fee, "but far less than the shareholders would otherwise have suffered, seems like a real benefit that was provided, from a financial point of view."

Lipton said she was not familiar enough with the current Tesla fee motion to comment on the percentage sought, but cited the enormous risk and stockholder counsel loss in SolarCity and said that "attorneys deserve to be compensated" when they prevail.

University of Michigan Law School professor Gabriel Rauterberg said the fee bid in Tesla appears excessive, despite the importance of fee as a motivator.  "It seems to me extremely implausible that an award this large is necessary to provide the right incentives, given that plaintiffs attorneys' fixed costs for investigating lawsuits, conducting research, and prosecuting cases can be significant but not on this scale," Rauterberg said.  "It seems like a windfall to me. You can give the attorneys a large award, while still falling short of billions."

Counsel for the Tesla stockholders have pointed out that Delaware's Supreme Court has in the past declined to replace the current fee approach with declining percentages.  "Under Delaware law, the unprecedented size of the benefit conferred does not alter plaintiff's counsel's entitlement to 33% of that benefit," attorneys for the Tesla stockholders wrote.  They also pointed to voluntary concessions reducing the total ask to around 11%, with features that reduce the cost to the company.

Some of the sting felt by Tesla, the brief indicated, could be taken away by federal tax law terms that will make 21% of the fee award cash tax-deductible, reducing the post-tax fee award cost from $5.63 billion to $4.45 billion.  State corporate income tax and payroll tax deductions and allowances also could offset the share payout.

UConn's Myers said the Tesla stockholder attorneys won a landmark victory and "deserve to be compensated handsomely" for taking a risky case through trial, while also predicting that the court will "take a hard look at the magnitude of the benefit actually achieved here — that may be a figure in some dispute."  The case nevertheless also stands as an example of "how the Delaware system effectively harnesses the efforts of folks like the plaintiffs attorneys to generate powerful incentives for good governance at public companies," Myers said.

A recent Las Vegas Review-Journal story by Taylor Avery, “Uber-Backed Proposal Would Cap Attorney Fees at 20%”, reports that rideshare company Uber is backing a proposal in Nevada to cap the percentage of fees an attorney can collect in civil cases.  The “Nevadans for Fair Recovery Act,” an initiative petition filed with the Secretary of State’s Office by a group of the same name, aims to ensure plaintiffs receive “their fair share” of awards or settlements in civil cases by capping attorneys’ fees at 20 percent.

Uber lobbyist Harry Hartfield said in a statement that the petition would bring “common sense reforms” to the state’s legal system.  “A system where billboard and television attorneys can afford to spend more than $100 million a year on advertisements and lobbying, while plaintiffs are left with barely half of their judgments, doesn’t benefit anyone except a small number of attorneys,” Hartfield said.  “Our hope is that this ballot measure can bring common sense reforms to the legal system, put victims first and potentially lower costs for all Nevadans.”The Retail Association of Nevada and Nevada Trucking Association are also supporting the measure. 

Major Las Vegas personal injury firms Dimopoulos Law, Adam S. Kutner Injury Attorneys and Naqvi Injury Law weren’t available for comment late Monday afternoon, but trial lawyer organization Nevada Justice Association President Jason Mills said Uber’s purpose for filing the petition is “embarrassingly transparent.”

“It’s more of Uber protecting itself,” Mills said. “This could make it harder for everyday folks in Nevada to get competent representation.”  “We protect Nevadans that can’t protect themselves from corporations like [Uber],” he said.

Under the proposal, attorneys would not be able to collect a contingency fee, or a percentage of the amount awarded in a civil case, greater than 20 percent of the award.  The cap would apply to all forms of awards, including settlements, arbitration, and judgements.  Currently, there’s no cap on how much attorneys can collect in contingency fees, except in certain circumstances.

The cap would apply to the awarded amount after legal fees have been deducted from the total amount, meaning attorneys will still be reimbursed for actual legal costs, including those incurred by hiring expert witnesses or conducting investigations.

Instead of being paid on an hourly basis, some lawyers are instead paid by contingency fees, meaning the amount they’re paid depends on how much they recover for the plaintiff.  Contingency fees aren’t allowed in criminal cases, but are common in personal injury cases.  Proponents of contingency fees say they improve access for plaintiffs who couldn’t otherwise afford an attorney and give attorneys an incentive to win cases for plaintiffs.

A recent Law 360 story by Carolina Bolado, “11^th Circ. Says Broker Can’t Collect Fees in Copyright Case”, reports that the Eleventh Circuit has ruled that a Florida real estate broker cannot collect attorney fees incurred for defending himself from a copyright infringement suit by an aerial photography company because the broker was not a prevailing party once the photography company voluntarily dismissed the case.

In an opinion issued Feb. 28, the appeals court affirmed a district court decision denying a request by real estate broker John Abdelsayed and his company Trends Realty USA Corp. for an award of their attorney fees and costs from Affordable Aerial Photography Inc.  That company had sued over the use of a copyrighted photograph on Trends Realty's website.

Abdelsayed and Trends Realty argued that they are entitled to fees under Federal Rule of Civil Procedure 68, which mandates a fee award if an offer to settle is not accepted and ends up being more favorable than the judgment obtained, and under the Copyright Act's cost-shifting provision.

But the Eleventh Circuit said they are not entitled to fees under Rule 68 because it only applies when a plaintiff has obtained a judgment for an amount less favorable than the defendant's settlement offer.  It does not apply in cases where the defendant wins a judgment, the appeals court said.  And because Abdelsayed and Trends Realty did not obtain a judgment, they are not prevailing parties in the suit and are therefore not eligible for a fee award under the Copyright Act, according to the Eleventh Circuit.

"The order of dismissal does not prevent AAP from refiling its claims," the appeals court said.  "And even assuming future action by AAP may be unlikely or now barred by the statute of limitations, those facts are irrelevant because the court did not rebuff or reject AAP's claims on any grounds."

Abdelsayed, who operates in the Palm Beach County market, was sued in August 2021 in the Southern District of Florida by Affordable Aerial Photography for using a copyrighted photograph on Trends Realty's site.  AAP moved to voluntarily dismiss the suit without prejudice a year later.

After briefing and a hearing, the district court granted the motion and dismissed the case without prejudice. The court ruled that if AAP were to refile its case, it would have to pay the defendants' reasonable attorney fees incurred in defending this case.  Two months later, Abdelsayed and Trends Realty asked the court to reconsider that order, claiming they were entitled to immediate recovery of their fees under Rule 68 and the Copyright Act. But the court denied the request.

On appeal, the defendants argued to the Eleventh Circuit that allowing this would create an incentive for a plaintiff to drop a case just before an expected adverse ruling, but the appeals court pointed out that the plaintiff can't do this unilaterally and that a dismissal must be approved by the court.  In this case, the district court held a hearing and found that the defendants would not suffer legal prejudice because their counsel was pro bono or on a contingency agreement, according to the appeals court.

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