A recent Law 360 by George Woolston, “NJ Firm Keeps Victory In Retainer Fee Billing Challenge,” reports that the New Jersey state appeals court has backed Arbus Maybruch & Goode LLC's win in an ex-client's suit alleging it failed to disclose the incremental billing structure of its retainer fee, reasoning in a published decision that the firm's bimonthly invoices showed the terms were spelled out.  A three-judge panel affirmed a Monmouth County trial judge's decision to award summary judgment to the firm on breach of contract claims against Daniel Cohen and his company Cohen Capital Management over $142,000 in unpaid attorney fees and costs.

Cohen challenged the lower court's decision, claiming that the New Jersey firm's fee and retainer agreements were illegal and unethical under the state's rules of professional conduct for attorneys, according to the opinion. Cohen argued that attorneys are required to include language defining what unit of incremental billing the attorneys planned to use in retainer agreements, despite hourly rates and initial deposits being otherwise clearly defined.  The firm had been billing Cohen in increments of one-tenth of an hour, according to the opinion.

In its review of two retainer agreements between the firm and Cohen and the relevant rules and case law, the panel found "no rule as rigorous as the one defendants urge us to adopt" and reached the same conclusion as the trial court — the firm's legal fees were reasonably presented and agreed to by the parties.

"The fees awarded here were based upon a reasonable hourly rate, as determined by the trial judge, who made detailed findings regarding the type of matter involved, the rates charged by other New Jersey attorneys possessing similar experience in like matters, and regional considerations regarding the amount billed," Judge Maritza Berdote Byrne wrote for the panel.  The panel also found Cohen's argument that he was not aware of the firm's incremental billing was not supported by the record in the case.

"Further, based upon the parties' course of dealing, where defendants availed themselves of AMG's legal services for more than two years without objecting to any invoices or raising the incremental billing issue, defendants' claim suggests an improper motive," Judge Berdote Byrne wrote.

Arbus Maybruch & Goode represented Cohen and his company for more than two years, starting in 2018, in a negligent construction suit as well as in a separate lawsuit against Cohen by a law firm seeking unpaid attorney fees, according to the appellate opinion.  In July 2020, the firm ended its representation of Cohen and a month later filed its breach of contract suit over the unpaid attorney fees.  According to the opinion, the first time Cohen argued that the agreements did not permit billing on an "incremental" basis was in its answer to the lawsuit, filed in Oct. 2020.

A recent Law 360 by Aaron West, “ABA Stresses Client Protections in New Prepaid Fees Guidance,” reports that a committee of the American Bar Association issued new guidance on the ethical obligations surrounding retainers and prepaid attorney fees, offering guardrails to protect clients from paying non-refundable fees for unearned legal work.  The opinion from the Standing Committee on Ethics and Professional Responsibility spells out how lawyers should handle advance non-contingent fees paid by clients for single-issue matters like divorce, defense of criminal charges and certain civil litigation, among others.

"[ABA Rule 1.15] requires that fees paid in advance must be held in a trust account until the services for which the fees will be paid are actually rendered, thereby allocating various risks to lawyer and client," the opinion says, referring to the flat fee rule at issue in the guidance.

According to the ABA's Formal Opinion 505, the problem it seeks to clarify stems from flat fees being classified as retainers, which are often nonrefundable. Attorneys shouldn't consider retainers as a "payment for the performance of services, but rather is compensation for the lawyer's promise of availability," according to the opinion.

"Given the rarity and unusual nature of a general retainer, and the fact that very few clients would actually need or benefit from one, the nature of the fee and lawyer's obligations and client's benefits under such an agreement must be explained clearly and in detail," the opinion states.  When it comes to handling upfront fees, the committee suggested that attorneys use "plain language."

"Instead of 'retainer' say 'advance' and explain that it is a 'deposit for fees,'" the opinion says.  "Explain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen."  The committee also stressed that "an advance fee paid by a client to a lawyer for legal services to be provided in the future cannot be non-refundable."

"Any unearned portion must be returned to the client," the opinion says. "Labeling a fee paid in advance for work to be done in the future as 'earned upon receipt' or 'nonrefundable' does not make it so."  The ethics committee periodically issues opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules to specific issues of legal practice, client-lawyer relationships and judicial behavior.

Although the ABA Model Rules provide guidance that U.S. legal jurisdictions can adopt, many states have their own rules that aren't necessarily in line with the ABA model.  In the case of ABA Rule 1.15, multiple jurisdictions have rules on the books that don't align with the new guidelines.

For instance, California and Oregon have their own model rules that clarify and outline how flat fees paid in advance of legal services should be deposited or labeled.  The ABA in its opinion acknowledges the jurisdictional discrepancy but also says that the approach "departs from the safekeeping policy of the Model Rules" and "creates unnecessary risks for the client."  While it's important to safeguard client payments from being considered non-refundable when an attorney hasn't yet earned them, too broad of an approach also risks preventing states from creating their own legal regulatory rules.

A recent Law 360 story by Jack Karp, “Quinn Emanuel, Insurers Spar in $185M Fee Fight,” reports that Quinn Emanuel Urquhart & Sullivan LLP balked at what it called insurers' "incendiary" request for an accounting and discovery related to $185 million in attorney fees stemming from a $3.7 billion award secured in litigation over the Affordable Care Act.  The case law Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. cited to justify their requests for an accounting related to the $185 million and discovery regarding judgment preservation insurance taken out by the firm is irrelevant, Quinn Emanuel told the U.S. Court of Federal Claims in a join status report concerning the briefing schedule for its renewed fee application.

The insurers' request "once again relies on aspersions rather than any on-point precedent," the firm said.  "Throwing around the idea of ethical violations having nothing to do with class counsel's representation of the class against the government may be incendiary, but it is not a basis to delay resolution of the renewed fee application."  Quinn Emanuel asked the court to consider just its renewed fee application.  If the court allows the objectors to file any motions, the briefs on those motions should be filed simultaneously "in order to prevent undue delay in resolving this seven-year-old case," the firm said.

"Given the age of this case, class counsel respectfully submits there is no reason to drag this process out unnecessarily, and class counsel still does not understand the antagonism the United/Kaiser objectors are bringing to a process involving fees for claims that class counsel originated, pursued to a 100% result for United and Kaiser, and has continued to pursue doggedly for all remaining class members through the present," it said.  The two insurers were equally heated in their own portion of the joint status report.

Quinn Emanuel's proposal that the court order simultaneous briefing on the objectors' motion for discovery and accounting and Quinn Emanuel's motion for fees is inappropriate and would deprive the insurers of the information they need to file their opposition to the fees, they said in response.  "In effect, by insisting on simultaneous briefing, Quinn Emanuel seeks to moot the objectors' motion for discovery," they said.  The class has a right and the court has a duty to know if the accounting they request would demonstrate any ethical violations, the insurers added.

"Quinn Emanuel calls this argument 'incendiary' but does not deny that it is refusing to provide an accounting contrary to its obligations under Rules of Professional Conduct," they said.  In January, the Federal Circuit wiped out the $185 million in attorney fees awarded to Quinn Emanuel by the federal claims court following heated oral arguments in which an attorney for the firm was scolded for being "aggressive."

Quinn Emanuel and a group of health care plan insurers it represents had urged the Federal Circuit to affirm the fee award, insisting the firm had used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But Kaiser, UnitedHealthcare and others argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

Quinn Emanuel had originally promised in a supplemental class notice to limit its fee request based on the hours it worked on the litigation — the lodestar cross-check — and said its fee could be "substantially less than 5%" of the recovery, according to the Federal Circuit's January ruling.  But a Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, finding that a lodestar cross-check was unnecessary.  That conclusion "was legal error," the Federal Circuit ruled.

"We are proud of our work in this case and of the unprecedented $3.7 billion award we obtained for qualified health plan providers, including Shepherd Mullin's clients," Quinn Emanuel partner Adam Wolfson told Law360 in a statement.  "When Quinn Emanuel won this case, we made certain the class administrator paid out 95% of the risk corridors claims to the plaintiffs as soon as possible.  We believe that the fee agreement the class members agreed to when we began our work on the case should stand," he said.  "Should the court come to a different conclusion, we will pay back any ordered amounts to the class administrator, who will then distribute those funds to the entire class."

A recent Indiana Lawyer story by Marilyn Odendahl, “7th Circuit Rules Victory Merits Reduced Attorney Fees” reports that the 7th Circuit Court of Appeals has affirmed a reduction in attorney fees of more than 50% for an Indiana attorney who had been previously admonished by the appellate court for trying to up his compensation.  Ronald Weldy represented a group of drivers against Jerry W. Bailey Trucking Inc.  The plaintiffs claimed the company and its owners violated the Fair Labor Standards Act and Indiana wage laws by not paying drivers for time spent working before and after hauling jobs.

After the litigation began, the U.S. District Court for the Northern District of Indiana asked Weldy for additional information as to whether he could adequately perform as class counsel.  The court noted he had only recently gotten his law license reinstated following a disciplinary suspension.  Weldy was able to convince the court once he provided examples of his work as class counsel following his reinstatement.

However, although the district court conditionally certified an FLSA collective and certified a Rule 23 class, the drivers were only able to identify less than 20 individuals who met the class definition.  Subsequently, the court granted the defendants’ motion to decertify the class and collective.

The two drivers who initiated the lawsuit were able to win a partial summary judgment, successfully arguing the company had violated federal and state wage laws.  Later, the employees were able to negotiate settlements for each of the remaining plaintiffs.  Once the court approved the settlements, the drivers petitioned for an award of attorney fees of more than $200,000.  Their request reflected a billing rate of $450 per hour for about 416 hours of work performed by Weldy, plus additional hours billed by Weldy’s associate at $200 per hour and his paralegal at $150 per hour.

The district court disagreed with the calculations and made three modifications.  First, the court found a $350 per hour rate was more reasonable.  Second, the court struck some of the time Weldy billed, finding the attorney should not be able to recover fees for the time he had to spend showing he was capable of handling the case.

Finally, the court reduced the fee because Weldy achieved only partial success in litigating the case.  The court noted he failed on the suit’s primary objective of obtaining a judgment on behalf of a class and collective.  The district court thus cut the fee to $70,000.

In response to the fees order, the defendants mailed a check to Weldy and filed a satisfaction of judgment with Weldy’s approval.  The drivers responded by filing a motion for reconsideration, but the court concluded the employees had waived any objection to the fee award.  The drivers then appealed to the 7th Circuit, which affirmed the ruling in Daniel Koch, et al. v. Jerry W. Bailey Trucking, Inc., and Estate of Jerry W. Bailey, 21-2952.

The 7th Circuit’s opinion concluded the district court had reasonably cut the counsel’s billable hours and had reasonably determined the employees obtained only a partial victory.  In reviewing the drivers’ damages, the appellate panel noted not only did they receive significantly less than they originally sought, but also, their attorney wanted sought a healthy fee.

“Altogether, the employees recovered about $60,600 of the $103,500 they claimed in damages, with each individual plaintiff receiving between 17% and 73% of that plaintiff’s claim.  This limited recovery was particularly striking when compared against Weldy’s request for more than $200,000 in fees, about triple what his clients received.  A district court assessing a plaintiff’s degree of success may consider how the size of the final recovery stacks up against the amount plaintiff originally sought,” Judge Candace Jackson-Akiwumi wrote for the court, citing Spegon v. Cath. Bishop of Chi., 175 F.3d 544, 558 (7th Cir. 1999).

In 2015, the 7th Circuit ruled in a different case that involved Weldy’s fees for representing a class.  That panel blocked the attorney’s attempt to increase his fee of $302,780 by claiming a share of the compensation that clients received.

A recent Law 360 story by James Boyle, “Philly, Pa. Bar Clarify How Attys Can Handle Advance Fees” reports that Pennsylvania attorneys can deposit advance fees into their operating accounts as long as the client clearly consents, according to a new ethics opinion jointly released by the Pennsylvania and Philadelphia Bar associations.

The PBA's Legal Ethics and Professional Responsibility Committee issued the opinion with the Philadelphia Bar's Professional Guidance Committee.  The opinion was issued as a clarification to a PBA ethics opinion from 1995, which said nonrefundable retainers from a new client were permissible, but it must be accompanied by a clear written agreement or deposited into a client escrow account.

According to Sarah Sweeney, co-chair of the Philadelphia Bar's Professional Guidance Committee, attorneys were confused whether there was a difference between a retainer fee that is earned upon receipt and an advance payment for legal services.  The new opinion makes that distinction.

"The [two committees] worked together in an effort to provide some clarity on the proper handling of legal fees paid at the outset of an engagement," Sweeney said in a statement.  "Specifically, the Opinion distinguishes fees that are earned upon receipt from fees that are simply paid in advance, and concludes that the former may be deposited in the attorney's operating account."  In other words, fees that are not earned upon receipt are considered advance fees, which are typically placed into an escrow account and drawn upon by the attorney as they represent the client.

Under the newly issued opinion, if there is an informed, written consent from the client, that fee can be placed into the attorney's operating account.  Fees that are considered earned upon receipt can be deposited into the operating account, as long as the attorneys clearly inform clients of the fee agreements.

"Ethics opinions are one of the most valuable services that we provide as Philadelphia's premier trade association for attorneys," Philadelphia Bar Association Chancellor Wesley R. Payne IV said in a statement.  "We were happy to partner with the Pennsylvania Bar Association in providing valuable clarity for our community on a common practice management issue."

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