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Category: Ethics & Professional Responsibility

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 Steps Down From Case Amid Fee Ethics Probe

February 7, 2024

A recent Law 360 story by Clara Geoghrgan, “Jackson Walker Steps Down From 4E Ch. 11 Amid Fees Probe”, reports that Jackson Walker LLP, the firm at the center of a legal ethics scandal over the undisclosed relationship between a lawyer and a bankruptcy judge, has stepped down as Chapter 11 counsel to hand sanitizer maker 4E Brands Northamerica LLC as a Texas bankruptcy judge considers revoking $800,000 in legal fees paid to the firm in the case.

In the brief notice filed and signed by Jackson Walker attorneys Matthew D. Cavenaugh and Genevieve M. Graham, the firm told the court it no longer represents the debtor or its plan agent.  The announcement comes as the court is considering requests from creditors and the Office of the U.S. Trustee to order the return of legal fees in the case after it came to light that ex-Jackson Walker attorney Elizabeth Freeman was the live-in romantic partner of former U.S. Bankruptcy Judge David R. Jones, who oversaw the case.

4E is one of over a dozen cases where the Office of the U.S. Trustee, the U.S. Department of Justice's bankruptcy watchdog, is trying to claw back payments to Jackson Walker in cases overseen by Jones between 2017 and 2022 when Freeman worked at the firm.  Jackson Walker has represented 4E since it filed for bankruptcy in 2022.

During that time period, neither Jones nor Freeman, who left Jackson Walker at the end of 2022 to start a solo bankruptcy practice, disclosed that they were live-in-romantic partners.  In December 2023, the Office of the U.S. Trustee said it plans to file up to 35 disgorgement motions to recover tens of millions of dollars in legal fees Jones approved for the firm while Freeman worked there.  Jones resigned in October 2023, hours before the Fifth Circuit Court of Appeals issued a complaint against him stating there was probable cause that his actions rose to judicial misconduct.

4E, a Mexican subsidiary of consumer products maker Kimberly-Clark, filed for bankruptcy to wind down its business following a 2020 recall of its hand sanitizer products for potential methanol, or wood alcohol, contamination.  The company also faced a wave of personal injury and wrongful death litigation connected to the recall. In October 2022, 4E confirmed a Chapter 11 liquidation plan.  According to information from the Office of the U.S. Trustee in November 2023, Jones awarded Jackson Walker $859,462 in legal fees and $7,301 in expenses in connection with representing 4E.

Following Jones' resignation, the trustee and one of 4E's creditors, the estate of Joshua Maestas, who died after consuming 4E sanitizer, asked U.S. Bankruptcy Judge Marvin Isgur, who took over the case after Jones resigned, to order Jackson Walker to return fees from the case.  Judge Isgur, who survived a bid to remove him from the case due to his friendship with Jones, is currently considering the matter alongside a motion from 4E's official committee of unsecured creditors to amend the confirmed Chapter 11 plan.

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.

Law Firm’s Reimbursement Agreement Violates Ethical Rules in Colorado

January 16, 2024

A recent Law 360 story by Thy Vo, “Colo. Justices Say Firm’s Departing Atty Fee Is Unenforceable, reports that the Colorado Supreme Court has found a family law firm's contract requiring a departing attorney to pay a fee for every client he took with him is unenforceable, ruling in a unanimous decision that such a provision would improperly limit the attorney's practice and incentivize attorneys to drop clients with less lucrative claims.

In the published decision, the justices said Modern Family Law's reimbursement contract requiring that lawyers pay a fixed fee for clients that follow them, without any consideration for actual costs, violates the state's rules of professional conduct for attorneys.  While there are circumstances where reimbursement would make sense — like if a firm spent additional money to court a big client — justices called the firm's "undifferentiated" fee a "direct intrusion on the attorney-client relationship."

"Of particular concern, such a fee forces attorneys to make individualized determinations of whether a client is 'worth' retaining and incentivizes them to retain clients in high-fee cases and to jettison clients with less lucrative claims," Justice Melissa Hart wrote on behalf of the court.

Troy R. Rackham of Spencer Fane LLP, counsel for former Modern Family Law associate Grant Bursek, told Law360 that they are "grateful" for the court's opinion.  The $18,000 that the firm demanded from Bursek when he left was roughly a quarter of his total net compensation at the time, Rackham said.  "He decided to challenge the unfairness of the provision … and wanted to create a precedent that firms shouldn't be able to do this," Rackham said.

The Colorado law firm's reimbursement agreement required departing attorneys to reimburse the firm for "marketing expenses related to any client, case or active matter" that they took with them.  The contract lays out a fixed fee of $1,052 per client, plus 1.5% in monthly interest, based on "historic" expenses for clients of the Denver office, according to the ruling.  When Bursek left the firm in September 2019 and 18 clients decided to go with him, Modern Family Law demanded he pay $18,936 under the agreement.  Bursek refused, prompting the family law firm to sue him for breaching their contract.

Modern Family Law contended that Bursek, a competent lawyer who previously ran his own firm, exercised his autonomy in signing the reimbursement agreement, allowing him to benefit from the firm's marketing.  He wasn't required to sign the agreement unless he opted to use the firm's marketing services and the reimbursement doesn't apply to clients that Bursek brought to the firm or who were generated by referrals, according to the firm's petition for writ of certiorari.

A trial court concluded that the per-client reimbursement provision unreasonably restricted Bursek's right to continue representing his clients and said the entire agreement was unenforceable.  On appeal, a Colorado Court of Appeals panel agreed that the fee was unreasonable and unenforceable, and held that a fee that "disincentives an attorney from leaving a firm" can pass muster if it's not "unreasonably restrictive."  Courts should consider several factors when assessing reasonableness, such as attorney autonomy, client choice, and the financial burden on a law firm when an attorney departs, the panel said.

The appellate panel also reversed the trial court's tossing of the entire agreement, finding parts of the contract unrelated to the per-client fee were enforceable.  That included a provision requiring Bursek to pay the firm's attorney fees and costs for disputes related to the agreement.

In the ruling, Justice Hart said Modern Family Law's fixed fee is "fundamentally at odds" with a rule aimed at protecting a lawyer's professional autonomy and ensuring clients have the freedom to choose an attorney.  While reasonableness is an appropriate standard for assessing whether a financial disincentive impermissibly restricts a lawyer's right to practice, the justices said they didn't need to address that question here because Modern Family Law's fee doesn't take into account actual costs associated with specific clients.

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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