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Category: Ethics & Professional Responsibility

Seventh Circuit Rules Reduced Attorney Fees in FLSA Case

October 19, 2022

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.

Philadelphia Bar Clarifies Advancement of Attorney Fees

August 24, 2022

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."

Article: A Lawyer’s Guide To Collecting Fees From Nonpaying Clients

August 12, 2022

A recent Law 360 article by Joshua Wurtzel, “A Lawyer’s Guide To Collecting Fees From Nonpaying Clients,” reports on collecting unpaid fees.  This article was posted with permission.  The article reads:

You've done the work and sent the bill, but haven't been paid. What do you do?  This is unfortunately a question that lawyers, from solo practitioners to BigLaw partners, confront all too often.  But most lawyers struggle with the answer.  And even worse, many end up doing nothing — leaving significant receivables on the table from clients who have the ability to pay.  Struggle no longer.  Here, I offer some recommendations on how to deal with a nonpaying client. The article focuses on the law on account stated in New York.  These principles and advice are generally applicable in most U.S. jurisdictions, though you should of course consult the specific law in your jurisdiction.

Make Sure Your Retainer Agreement Gives You Adequate Protection

Good collection starts with a good retainer agreement.  There are several important clauses any retainer agreement should have.

Thirty Days to Object

Your retainer agreement should include a clause stating that if a client has an objection to an invoice, the client must make a specific objection in writing within 30 days.  Courts have upheld these types of clauses, and have further held that a client that fails to make a specific, timely objection in accordance with this clause waives objections to the invoice.

Fee Shifting

Many lawyers avoid suing clients for unpaid fees because the time spent doing so can be better spent on other, billable tasks.  But if you include a fee-shifting clause in your retainer agreement, a nonpaying client could end up being responsible for fees you incur in bringing the suit.  Make sure, however, that the fee-shifting clauses run in favor of the client as well if he or she is the prevailing party, or else it will be unenforceable.

Choice of Forum and Acceptance of Service of Process

Your retainer agreement should also include a forum selection clause in the state in which you practice so you don't have to go out of state to sue a nonpaying client.  And it should also include a clause stating that the client agrees to accept service of process by mail or email, in case you have trouble serving the client personally.

Rely on the Retaining Lien and Charging Lien

New York law strongly favors attorneys who are stiffed by their clients.  So there are some tools you can use to try to collect without having to bring a lawsuit.

Retaining Lien

When a client has an outstanding balance with his or her former lawyer, the lawyer can assert a retaining lien over the client's file. This allows the lawyer to refuse to turn over the file to the client or his or her new counsel until the outstanding balance is paid or otherwise secured.  To lift the retaining lien, the former client must either pay the amount owed to the lawyer or post a bond for that amount.

Charging Lien

Under Section 475 of the New York Judiciary Law, "from the commencement of an action," the lawyer who "appears for a party has a lien upon his or her client's cause of action," which attaches to a verdict, settlement, judgment or final order in his or her client's favor.

This section gives the lawyer a lien on the proceeds of the former client's case to the extent of the amount owed to the lawyer, with the result that no proceeds can be distributed to the former client or his or her new counsel until the former lawyer is paid.

In 1995, the New York Court of Appeals in LMWT Realty Corp. v. Davis Agency Inc. held that this lien "does not merely give an attorney an enforceable right against the property of another," but instead "gives the attorney an equitable ownership interest in the client's cause of action."

Sue for Account Stated

If all else fails and you need to sue a nonpaying client, the account stated cause of action will be your best friend.  Indeed, in New York, this cause of action allows a professional services provider to sue a client for nonpayment of an invoice if the client has retained the invoice for at least a few months and has failed to make timely, specific, written objections.  This cause of action thus provides lawyers with a substantial tool to pursue a nonpaying client.

Invoice Requirement

To state a claim for account stated, you must show only that you sent the invoices to the client and the client retained them — usually for at least a few months — without making specific, written objections.  It is thus important to maintain a record of when invoices are sent and to whom — ideally by email to an email address the client gave to receive invoices.

Oral Objections

Generally, a client must make specific, written objections to an invoice; general or oral objections will not be enough to defeat a claim for account stated. Nor will general claims by a client that he or she is dissatisfied with a particular outcome suffice.

Reasonableness of Fees

Many nonpaying clients will defend against a nonpayment suit by claiming that they were overbilled or that the quality of the work was not to their liking.  But if these objections are not made in a timely way, with specificity and in writing, courts generally hold that they are waived.

This is significant for a lawyer pursuing a nonpaying client, as most clients will defend by claiming that there was something wrong with the work done by the lawyer.  And so if an account is stated by virtue of the client's retention of the invoices, the reasonableness of the fees and the quality of the work has no bearing on the merit of the account stated claim.

Underlying Agreement to Pay

While account stated is a powerful cause of action, it works only if there is an underlying agreement to pay for the services rendered.  So a person who randomly sends out invoices without having an underlying agreement with the recipients of the invoices can obviously not rely on account stated.

But if you have a retainer agreement that properly covers the scope of the work you will be doing, you shouldn't have a problem.  Nor is there a requirement that the client has agreed to pay for the specific invoices at issue, as long as the client has agreed to pay for your services generally.

The Dreaded Malpractice Claim

Most nonpaying clients faced with a lawsuit by their former lawyer will assert counterclaims for malpractice — even if the malpractice claim has no merit.  While the lawyer must, of course, still deal with the malpractice claim, courts generally go out of their way to sever a lawyer's account stated claim from a nonpaying client's malpractice counterclaim.  This is especially so if the alleged malpractice relates to different work from what is at issue on the unpaid invoices.

Further, as a strategic matter, unless the malpractice counterclaim has merit, most nonpaying clients will drop it after the lawyer obtains a quick judgment on summary judgment at the outset of the case.

Conclusion

Suing a former client is never pleasant, and is a last resort after the attorney-client relationship has broken down. But using efficient, streamlined ways to collect from nonpaying clients can allow a law firm to provide greater value to the rest of its clients.

Joshua Wurtzel is a partner at Schlam Stone & Dolan LLP in New York.

NALFA Releases 2021 Litigation Hourly Rate Survey & Report

July 19, 2022

Every year, NALFA conducts an hourly rate survey of civil litigation in the U.S.   Today, NALFA released the results from its 2021 hourly rate survey.  The survey results, published in The 2021 Litigation Hourly Rate Survey & Report, shows billing rate data on the very factors that correlate directly to hourly rates in litigation:

City / Geography
Years of Litigation Experience / Seniority
Position / Title
Practice Area / Complexity of Case
Law Firm / Law Office Size

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs’ litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  This is the nation’s largest and most comprehensive survey or study on hourly billing rates in litigation.

This is the second year NALFA has conducted this survey on billing rates.  The 2021 Litigation Hourly Rate Survey & Report contains new cities, additional categories, and more accurate variables.  These updated features allow us to capture new and more precise billing rate data.  Through our propriety email database, NALFA surveyed thousands of litigators from across the U.S.  Over 8,400 qualified litigators fully participated in this hourly rate survey.  This data-rich survey was designed to aid litigators in proving their lodestar rates in court and comparing their rates to their litigation peers.

The 2021 Litigation Hourly Rate Survey & Report is now available for purchase.  For more on this survey, email NALFA Executive Director Terry Jesse at terry@thenalfa.org or call us at (312) 907-7275.

Client Drops Attorney Fee Dispute Against Law Firm

May 16, 2022

A recent Law 360 story by Caroline Simson, “Taiwanese Co. Says It Won’t Arbitrate Fisch Sigler Fee Dispute” reports that a Taiwanese manufacturer of smartphone camera lenses is pressing a DC federal court to quash arbitration initiated by intellectual property boutique Fisch Sigler LLP seeking millions in additional fees for its work on a "meandering, inconclusive" and expensive patent lawsuit that settled last year.  Largan Precision Co. Ltd. told the court in the lawsuit filed May 10 that it never gave its informed consent to arbitrate the dispute with Fisch Sigler, which is set to be heard by the DC Bar Attorney/Client Arbitration Board, or the ACAB.

The company noted that while the DC Court of Appeals requires any attorney who is a DC Bar member to submit to arbitration before the ACAB if a client chooses that venue to pursue a fee dispute in matters with some connection to DC, there has never been any such rule for clients.  Largan argued that since it intends to challenge the validity of an arbitration agreement that was "quietly added" to its engagement agreement with the firm near the end of their negotiations, that question should be left to the court.

"[G]overning precedent makes plain that only a court, and not an arbitration panel, can decide the threshold issue of whether a valid agreement to arbitrate exists, unless there is clear and unmistakable evidence that the parties agreed to have that question decided by the arbitrators," the company wrote.  "There is nothing here to suggest that the parties ever discussed, let alone agreed to, the ACAB deciding the specific issue of arbitrability."

Largan alleges in the litigation that the firm has already gotten $4.5 million in "fixed fee" payments.  It's now seeking an additional $5.6 million in success fees — despite the fact that Largan agreed to settle the litigation in Texas due to the outcome of parallel litigation in Taiwan that Fisch Sigler had not worked on, according to the brief.  The underlying dispute for which Largan engaged Fisch Sigler involved another Taiwanese company called Ability Opto-Electronics Technology Co. Ltd., which Largan accused of misappropriating its trade secrets in 2013.

While litigation was ongoing in Taiwan, Largan hired Fisch Sigler to file a patent infringement lawsuit in the U.S. against Ability Opto-Electronics Technology and two other entities in Texas.  Largan alleges that while the lawsuit was ongoing, Fisch Sigler charged a fixed fee despite not doing all the work that was supposed to be included under that fee.  That included depositions and a hearing in mid-2020 that Largan says never took place.

Largan won some $50 million in the Taiwanese litigation in early 2021, and it subsequently approached Fisch Sigler about settling the Texas litigation.  The company claims that the litigation had gone poorly, and that there was no reason to continue with it at that point.  It was then that the firm attempted to collect the success fee "based on the resolution of a litigation in Taiwan in which it had no role — and despite achieving nothing resembling success from the meandering, inconclusive, yet very expensive litigation it had pursued for Largan against [Ability Opto-Electronics Technology] and others in Texas and, later, California," according to the suit.