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Category: Ethics & Professional Responsibility

Ninth Circuit Strikes Down $7M Fee Award in ConAgra Class Settlement

June 2, 2021

A recent Law 360 story by Emily Field, “9th Circ. Strikes Down $7M Atty Fees in ConAgra Label Deal,” reports that the Ninth Circuit overturned a judge's approval of a class action settlement with ConAgra Food Inc. over its labeling on oil products, saying the parties crammed into the deal "a squadron of red flags" including attorney fees of nearly $7 million that are much larger than what consumers were awarded.  The panel in a published opinion said the agreement includes a number of questionable provisions and "reeks of collusion," particularly the attorney fee award of $6.85 million that is seven times higher than what class members received.

ConAgra and class counsel contended the deal could be worth more than $100 million, but ultimately, ConAgra paid out less than $8 million, with just $1 million going to the class.  Large counsel fees comparative to the payout for class members raises the possibility that counsel colluded with the defendant to lower class compensation in exchange for a larger fee, the panel said.  A defendant would go along with this kind of conspiracy because it only cares about how much it's paying in total, not how it's divided up, they added.

The panel said district courts must scrutinize attorney fee award arrangements when deciding whether a class action settlement is fair, following revisions to the Federal Rules for Civil Procedure that introduced the requirement in 2018.  Specifically, that requirement also applies to settlements that were reached after a class was certified, the panel held for the first time.  "[A] post-class certification settlement only ensures that the parties litigated aggressively to arrive at an adequate total fund size; it does not, however, address the inherent incentives that tempt class counsel to elevate his or her own interest over those of the class members," the panel said.

The panel's decision reverses the 2019 approval of the deal and sends the case back to California federal court.  In the suit, the buyers alleged ConAgra mislabeled its Wesson oil products as "100% natural" even though they contain genetically modified ingredients.

The deal also included a stipulation that ConAgra not advertise the Wesson brand of essential oils as "100% natural" anymore, which was supposedly worth tens of millions of dollars but now appears worthless since ConAgra no longer owns the brand, the panel said.  "That is like George Lucas promising no more mediocre and schlocky Star Wars sequels shortly after selling the franchise to Disney.  Such a promise would be illusory," the panel wrote in their opinion.

Objector and University of Chicago law professor M. Todd Henderson brought the appeal last year, arguing the lower court did not take into account the deal's value to the class when it granted the fees.  The panel also found other red flags in the settlement, such as a "clear sailing arrangement" under which ConAgra agreed not to challenge the class counsel fees.  "A clear sailing provision signals the potential that a defendant agreed to pay class counsel excessive fees in exchange for counsel accepting a lower amount for the class members," the panel said.

Judge Sanctioned for Eating Lunch With Firm Seeking Fees

April 28, 2021

A recent Texas Lawyer story by Angela Morris, “No Free Lunch? Judge Sanctioned for Eating Meal From Firm Seeking $2M in Fees,” reports that a judge who ate for free at a law firm’s luncheon—and the next day awarded the firm $2 million in attorney fees—is facing a judicial sanction that claims her activities cast doubt on her impartiality and ability to perform her judicial duties.

Judge Fredericka Phillips of the 61st District Court in Houston received a public warning for attending a 2018 lawyer swearing-in celebration of the Houston firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, even though the firm represented a defendant in a hotly contested case before the judge.

Neither Phillips nor her attorney, Billy Shepherd of Shepherd Prewett in Houston, immediately responded to messages seeking comment.

“To the extent there is any suggestion that the fees were awarded because of the luncheon is ludicrous,” said John Zavitsanos, an Ahmad Zavitsanos partner. “The award of attorney fees was taken up by another court after Judge Phillips was recused, and that amount was affirmed in its entirety.”

He added that the judge was only at the luncheon for a short time, after she had sworn in five new attorneys. Those new lawyers had recently attended parts of a civil trial in Phillips’ courtroom where Ahmad Zavitsanos represented a defendant who won.

“I think she had like a salad and it was like $15 or something. I guess in retrospect, I should have made her pay or something. But it didn’t occur to me,” said Zavitsanos.

The State Commission on Judicial Conduct released the public warning Wednesday, although it was issued April 9. The warning explained that Zavitsanos was representing a defendant in a multiparty civil case in Phillips’ court. After a September 2018 jury trial, the defendants won a verdict and attorney fees.

In November 2018, the judge swore in five new lawyers working at Ahmad Zavitsanos and then she ate lunch at a celebration at a downtown Houston restaurant, Brennan’s.

“Judge Phillips indicated that although she left the luncheon before it was over and before the table received the check, she assumed that Zavitsanos and/or his firm paid the bill,” said the warning.

The very next day, Phillips held a hearing on post-judgment motions in the civil case and later awarded $2 million in attorney fees to the defendants.

In January 2019, the plaintiffs in the case sought to recuse Phillips, but she declined to step down. Then the recusal motion was heard by another judge, who ruled that Phillips did have to get off the case.

“Judge Phillips expressed her belief that given the nature of the luncheon as a celebration of the new attorneys, the small price of her meal and the very public nature of the luncheon taking place in the open restaurant near downtown Houston that is frequented by attorneys, she did not believe anyone could reasonably view the circumstances of the swearing-in and celebratory lunch as improper,” said the warning.

The commission disagreed.

It found that the judge violated ethics rules by going to the lunch, paid for by a law firm that was in a contested case pending in her court that had been scheduled for a hearing the very next day. It was unethical for Phillips to fail to disclose the luncheon to all of the parties in the case, the commission ruled.

It determined that the judge’s behavior broke ethical rules that prohibit a judge from conveying or allowing others to convey that they can influence the judge. She broke rules that require judges to conduct extra-judicial activities in a way that doesn’t cast doubt on their ability to act impartially and that doesn’t interfere with the judge’s performance of her duties, said the warning.

Texas Attorney Accused of Fabricating Billing Record

April 27, 2021

A recent Texas Lawyer story by Angela Morris, “Dallas Area Lawyer Accused of Fabricating Client Invoices, reports that an allegation that he fabricated the legal work entries on a client’s invoices has landed a Dallas-area attorney in hot water with the State Bar of Texas.

James Mosser, who works at Mosser Law in Plano, is facing a lawsuit by the Commission for Lawyer Discipline, which claims he violated attorney discipline rules with the billing fiasco.

Mosser denied the allegations and vowed to fight the lawsuit.

“I don’t fabricate work entries and the lawyer who represents the proponent of that is a disgruntled lawyer who used to work in my office and got mad and quit,” said Mosser. “The proponent of this is her aunt who she was doing work for, and didn’t properly obtain a contract.”

Mosser was licensed in 1994 after he received his law degree from Texas Wesleyan University School of Law in 1993. His Texas Bar profile shows no public disciplinary history. And his law firm profile said that he practices trial and appellate litigation in the business and commercial arena and banking and financial industry, real estate law, class action defense and more.

The lawyer-client billing dispute arose after a client in 2019 hired another attorney who worked at Mosser’s law firm. That lawyer recovered just under $15,000 in a probate matter. The client agreed that $10,000 would go into the firm’s trust account to pay the attorney fees and to hire another lawyer in Tennessee for another part of the case, according to the petition in Commission for Lawyer Discipline v. Mosser, filed in Collin County District Court.

The Mosser firm attorney who worked for the client had agreed to reduce her hourly rate to $175, the petition said. But the client got an invoice for nearly $2,600 and said it didn’t show the proper reduced rate. Mosser never responded to the client’s billing complaint, said the petition. Mosser did pay $1,500 to the Tennessee lawyer to complete the client’s probate matter.

The allegation of fabricated invoices arose later.

The attorney who had worked with the client left the Mosser firm in September 2019. Soon after, the client wanted her funds back from the firm’s trust account. Mosser did not send the client the balance, alleged the petition. Instead, Mosser sent a new bill for $7,200 that had new entries, the pleading claimed.

“These entries were fabricated by respondent,” alleged the petition. The client only got $230 as a refund.

The lawyer discipline commission claimed in the litigation that Mosser broke attorney discipline rules that say an attorney is not allowed to charge an illegal or unconscionable fee, require a lawyer to return money that a client is entitled to receive, and require a lawyer to refund unearned fees after the end of representation. The petition also claimed Mosser broke a rule that prohibits an attorney from engaging in dishonest, fraudulent, deceitful or misrepresentative conduct.

Claire Reynolds, spokeswoman of the Texas Bar’s Office of Chief Disciplinary Counsel, which represents the lawyer discipline commission, declined to comment.

Novel Ruling: Law Firm Awarded $10M in Fees After Withdrawing in NJ

April 17, 2021

A recent New Jersey Law Journal story by Charles Toutant, “Novel Holding in New Jersey: Law Firm Awarded $10M After Withdrawing From Case,” reports that a New Jersey judge has awarded $10 million to the law firm of Kirsch, Gelband & Stone in a fee dispute stemming from a $125 million personal injury settlement of a suit by a lawyer who was left paralyzed by a falling utility pole.  Although Kirsch Gelband was ultimately replaced by another firm, it had a key role in developing evidence that yielded such a large settlement, Essex County Superior Court Judge Thomas Vena said.

The ruling, giving a law firm that withdrew from representation a share of successor counsel’s legal fees, based on its contribution toward the recovery, is a novel holding in New Jersey, Vena said.  The ruling gives Kirsch Gelband a 40% cut of the $25 million awarded to its successor in the case, Mazie Slater Katz & Freeman.

Justifiable withdrawal

The case stems from a 2017 accident in which Maria Moser Meister was left paralyzed and brain damaged after a deteriorating utility pole fell on her on a street in Union City.  At the time of the accident, Meister was general counsel for finance firm Milberg Factors in New York, and previously had been an associate at Simpson Thacher & Bartlett.  David Mazie of Mazie Slater obtained the $125 million settlement in May 2020, calling it the largest settlement in New Jersey history.

Vena found that Kirsch Gelband’s Gregg Alan Stone had a stormy relationship with Meister’s husband, Peter, who would contact him at all hours. Finding that Stone had a justifiable cause to withdraw, the judge found that Kirsch Gelband was entitled to a calculation of how much of the fee the firm deserves.

Vena concluded that “the nature of and deterioration of the attorney/client relationship, exhibited throughout the hearing, justified Mr. Stone’s good-faith belief that the representation could not ethically be continued.” Vena said a “balancing of predecessor and successor contribution” was needed to decide Stone’s cut of the fees.  Bruce Nagel of Nagel Rice, who represents Kirsch Gelband, says that “in view of Mr. Mazie’s position that Kirsch Gelband was entitled to zero, we are extremely pleased with the $10 million award.”

But additional proceedings are underway between Mazie Slater and Kirsch Gelband.  Nagel and Mazie have a long history of acrimony.  The two are former law partners who frequently face each other as litigation adversaries.  Their rancor dates back to when Mazie split with Nagel to start his own firm in 2006. Mazie took cases with him that led to disputes over counsel fees.

Nagel said evidence in the case supported his claim, raised in a separate suit pending against Mazie Slater by Kirsch Gelband, that Mazie provided false information to Meister in order to get the case.  Mazie called that claim “nonsensical.”

Nagel also said he was filing an additional motion in the Verizon case to vacate a deal between Mazie and Philip Rosenbach, a lawyer who handled the case before Stone, in which Mazie purchased the other lawyer’s right to receive a referral fee from Kirsch Gelband.  Such a deal is “highly unethical and highly improper,” Nagel said.  But Mazie said Rosenbach “chose to resolve his claim for that one-third referral fee by settling with us rather than being embroiled in this frivolous litigation,” and added that there’s “nothing unethical about it.”

Under Economic Pressure, More Firms Sue Clients for Unpaid Fees

April 13, 2021

A recent Legal Intelligencer story by Justin Henry, “Under Economic Pressure, Large Firms May Increasing Sue Clients for Nonpayment,” reports that economic pressures accelerated by the COVID-19 pandemic have forced many law firms into difficult conversations with clients, as they aim to balance flexibility during an economic downturn with their own budgetary constraints. In some instances, the challenge is leading to lawsuits.  Over the last 12 months since the onset of the pandemic, Am Law 200 firms including Blank Rome, Buchanan Ingersoll & Rooney, Armstrong Teasdale and Baker McKenzie, among others, have sued clients for allegedly unpaid legal fees, court filings show.

Attorneys who represent law firms in collections disputes say firms are wary to sue clients over unpaid fees because it potentially leaves them vulnerable to counterclaims of legal malpractice.  They say law firms see litigation as a last resort, especially during an economic downturn when flexibility in collections can be key to maintaining solid client relationships.  But law firms are also on alert for exploitation by clients citing the economic tribulation of the last 12 months as a pretext to avoid costs, attorneys say.  Industry leaders also said a large portion of these claims by law firms don’t show up on the public record because the services contracts include an arbitration provision for settling fee disputes.

“As firms become billion-dollar-plus big businesses, they tend to be run more like big billion-dollar-plus businesses,” said Ronald Minkoff, a litigation group partner at Frankfurt Kurnit Klein & Selz, who represents law firms in fee collections disputes.  “If they feel that a client is taking advantage of them, they’re much more willing to call the client to account for that.”

Last summer, according to court filings, Buchanan found itself with $2.7 million in outstanding legal fees from Best Medical International, a medical device company that retained Buchanan for patent litigation against alleged infringers in which Buchanan was victorious.  The fee is now the subject of ongoing litigation in the U.S. District Court for the Western District of Pennsylvania.

“Our cash flow difficulties do indeed continue to make it difficult to pay the Buchanan legal bill which now approaches $2.8 million,” said James Brady, Best Medical’s in-house counsel, in a May 11, 2020, email to Buchanan CEO Joe Dougherty, that was included in court documents.  “We will do everything we can to achieve a reasonable settlement with Varian and Elekta so your firm can be fairly compensated.  We appreciate your willingness to continue the forbearance on any collection efforts and we are hopeful a successful plan will be forthcoming soon.”

Court documents also included a May 12 email reply, in which Dougherty told Brady the firm’s board is “growing impatient with my forbearance on initiating collection efforts.”  Dougherty added Buchanan “is not immune from cash flow challenges these days, and the $2.7 million owed is very significant to us.”  Buchanan has annual revenue around $300 million, according to the most recent ALM data for the firm.

Best Medical took the firm to court in July, alleging it had breached fiduciary duties by failing to provide monthly estimates as promised in their initial contract, which the firm denies.  Court records show Best Medical failed to pay monthly payments from Sept. 23, 2019, through Feb. 11, 2020, citing the opposing parties’ request to stay proceedings and postponing a potential settlement.  Buchanan declined to comment for this story.

Armstrong Teasdale on March 17 filed a complaint in the U.S. District Court for the Eastern District of Missouri against former clients, who the firm had represented in multiple lawsuits and in various arbitrations before the American Arbitration Association from October 2018 to October 2020. The suit alleges that the clients owe more than $3.5 million to the firm, plus a 9% annual interest rate.  That amount is equal to 2.3% of the firm’s 2020 revenue of $149.2 million.

In its complaint, Armstrong states the former clients paid legal bills invoiced through July 2019, but alleges that legal bills remain unpaid from then until September 2020, when the clients informed Armstrong they were retaining new counsel.  Armstrong Teasdale declined to comment for this story.  Blank Rome in a Jan. 8 complaint, filed in the Superior Court of the District of Columbia, claimed former clients Joseph Gurwicz and GR Ventures of New Jersey have outstanding legal fees for the firm’s services connected to preparing and filing a provisional patent application.

As of the date of filing, more than 100 invoices dated from Nov. 8, 2017, through Nov. 6, 2019, remain either partially or fully unpaid, the firm alleges.  Of the $485,563 in legal costs incurred by Blank Rome on behalf of their client, the firm claims $187,860.85 have yet to be paid in full.  In addition, Blank Rome said it’s owed an annual accrued interest rate of 6%, bumping the total amount of the firm’s claim to just over $211,000.

Last week the firm opted to withdraw from the case. Blank Rome declined to comment for this story.  In another case, related to a five-figure fee, Baker McKenzie sued former client Catherine Brentzel in June 2020 in D.C. Superior Court.  Last month, the court entered judgment in the amount of $77,325.88 in the law firm’s favor, court records show.

Minkoff said there had been a stigma attached to firms using the court to induce payments from clients, because it might signal poor client relationship management on the part of the law firm.  But that has taken a back seat in recent years due to revenue pressures and stagnant demand, which have been ramped up by the COVID-19 pandemic, he said.

“There were businesses and law firms who were affected by the pandemic in a negative way, and that increased the pressure in these situations,” Minkoff said.  “The Big Law numbers were not usually affected, particularly at the top levels, but the pressures that existed before the pandemic existed during the pandemic and will exist after the pandemic.”  Minkoff said the industry may be in for a rise in the volume of fee collections disputes between firms and their clients, mirroring the uptick that occurred in the mid-2010s.

“Partners are under pressure to bring in as much money as they can, and that has led to more aggressive behavior in terms of fee collections and those kinds of disputes,” Minkoff said.  He added that the rise in fee collections litigation coincides with firm protectionism in partnership agreements.

Expense-related pressures fall on the side of clients, who are sometimes surprised by high litigation fees and prefer to wait for a result to pay.  “The firms are more aggressive, they have more tools at their disposal to get paid, they’re more willing to litigate to get paid, especially if it’s a sort of one-off arrangement,” Minkoff said.  “Clients are faced with this kind of sticker shock.”

Akerman litigation partner Philip Touitou said law firms are even more focused on collections during the pandemic.  He said the crisis has “changed the dynamic” between clients struggling to make payments and law firms, who work to balance accommodations for struggling clients with their own financial pressures to make budget.  Touitou added that flexible fee structures are “here to stay” as law firms work to avoid potential fee disputes from the outset of a client engagement.

“I think the pandemic has only accelerated that effort,” Touitou said. He added that as firms reevaluate their costs after working remotely and cutting travel expenses to zero, they “may be in a better position to offer more flexible [fee] structures.”  “I think the benefits of law firm cost consciousness will work to the benefits of clients,” he said.