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Category: Fee Allocation / Fee Apportionment

Article: What is a Legal Fee Audit?

October 7, 2021

A recent article by Jacqueline Vinaccia of Vanst Law LLP in San Diego “What is a Legal Fee Audit?,” reports on legal fee audits.  This article was posted with permission.  The article reads:

Attorneys usually bill clients by the hour, in six minute increments (because those six minutes equal one tenth of an hour: 0.1).  Those hours are multiplied by the attorney’s hourly rate to determine the attorney’s fee.  There is another aspect of attorney billing that is not as well known, but equally important — legal fee auditing.  During an audit, a legal fee auditor reviews billing records to determine if hourly billing errors or inefficiencies occurred, and deducts unreasonable or unnecessary fees and costs.

Both the law and legal ethics restrict attorneys from billing clients fees that are unreasonable or unnecessary to the advancement of the client’s legal objectives.  This can include analysis of the reasonableness of the billing rate charged by attorneys.  Legal fee audits are used by consumers of legal services, including businesses, large insurance companies, cities, public and governmental agencies, and individual clients.  Legal fee audits can be necessary when there is a dispute between an attorney and client; when the losing party in a lawsuit is required to pay all or part of the prevailing party’s legal fees in litigation; when an insurance company is required to pay a portion of legal fees, or when some issues in a lawsuit allow recovery of  attorneys’ fees and when other issues do not (an allocation of fees). 

In an audit, the auditor interviews the client, and reviews invoices sent to the client in conjunction with legal case materials to identify all fees and costs reasonable and necessary to the advancement of the client’s legal objectives, and potentially deduct those that are not.  The auditor also reviews all invoices to identify any potential accounting errors and assure that time and expenses are billed accurately.  The auditor may also be asked to determine if the rate charged by the attorney is appropriate.

The legal fee auditor can be an invaluable asset to parties in deciding whether to file or settle a lawsuit, and to the courts charged with issuing attorneys’ fee awards.  The court is unlikely to take the time to review individual invoice entries to perform a proper allocation of recoverable and non-recoverable fees leaving the parties with the court’s “best approximation” of what the allocation should be.  The fee audit provides the court and the parties with the basis for which to allocate and appropriately award reasonable and necessary fees. 

Audits are considered a litigation best practice and a risk management tool and can save clients substantial amounts of money in unnecessary fees.  It has been my experience, over the past two decades of fee auditing, that early fee auditing can identify and correct areas of concern in billing practices and avoid larger disputes in litigation later.  In many cases, I have assisted clients and counsel in reaching agreement on proper billing practices and setting litigation cost expectations. 

In other cases, I have been asked by both plaintiffs and defendants to review attorneys’ fees and costs incurred and provide the parties and the court with my expert opinion regarding the total attorneys’ fees and costs were reasonably and necessarily incurred to pursue the client's legal objectives.  While the court does not always agree with my analysis of fees and costs incurred, it is usually assisted in its decision by the presentation of the audit report and presentation of expert testimony on the issues.

Jacqueline Vinaccia is a San Diego trial attorney, litigator, and national fee auditor expert, and a partner at Vanst Law LLP.  Her practice focuses on business and real estate litigation, general tort liability, insurance litigation and coverage, construction disputes, toxic torts, and municipal litigation.  Her attorney fee analyses have been cited by the U.S. District Court for Northern California and Western Washington, several California Superior Courts, as well as various other state courts and arbitrators throughout the United States.  She has published and presented extensively on the topic of attorney fee invoicing, including presentations to the National Association of Legal Fee Association (NALFA), and is considered one of the nation’s top fee experts by NALFA.

Class Counsel Win Reduced Attorney Fees of $152M in Antitrust Case

August 30, 2021

A recent Reuters story by Mike Scarcella, “Class Lawyers Win Reduced Fee of $152M in Sutter Case,” reports that a California judge has slashed a requested legal fee award in an antitrust settlement with Sutter Health, approving $152.3 million in compensation for class counsel, after concluding the plaintiffs' lawyers had claimed "unreasonably high" hours for their work.  Judge Anne-Christine Massullo of San Francisco Superior Court gave final approval to the $575 million settlement as she awarded fees to five law firms that represented plaintiff labor unions and employers, in an order released.

Sutter Health in 2019 first agreed to the settlement resolving claims that anticompetitive practices led to higher healthcare costs in northern California.  The awarded legal fee marked about 26% of the settlement, in line with compensation in other class actions, Massullo wrote.  Massullo said her award accounted for the "risk presented by this litigation" and also "the novelty and complexity of the issues."  The plaintiffs' lawyers had asked for $172.5 million in fees.

Massullo's order awarded $11.5 million in fees to the California attorney general's office, which sued Sutter in 2018.  The state's complaint was consolidated with the private litigation, which began in 2014.  Massullo said the state attorneys and class lawyers "demonstrated a high level of skill in providing high quality of representation in this case."  Still, the judge raised concerns about the number of hours -- 194,642 -- that class lawyers claimed in their request for fees.  Massullo said the claimed hours compared to "93.6 years of work, or more than 7 years of work for 13 attorneys."

Declarations from plaintiffs' attorneys involved in the case "do not, except at a high level and very generally, permit assessment of the extent to which the five firms that constitute class counsel unreasonably duplicated efforts," Massullo said.  Still, she said she was "satisfied that this litigation was a monumental undertaking" that required a "vast number of hours."

Attorneys Seek $3.6M in $14M John Hancock ERISA Settlement

August 26, 2021

A recent Law 360 story by Rachel Stone, “Lawyers Seek $3.6M Cut of $14M John Hancock 401(K) Deal,” reports that attorneys from Nichols Kaster and Block & Leviton have asked a Massachusetts federal judge to award them $3.6 million for their work securing a $14 million settlement for John Hancock Life Insurance workers who said the company steered their retirement savings into shoddy proprietary funds.  Named plaintiffs Jennifer Baker and Jean Greenberg filed a memorandum that said a $3.5 million fee request, which represents a quarter of the settlement value, was less than class counsel typically get in similar Employee Retirement Income Security Act cases.

"The requested fee of 25% of the settlement is not only reasonable, but substantially less than the one-third fee award consistently granted in ERISA cases," according to the memorandum.  In addition to $3.5 million in attorney fees, the memorandum asked the court for nearly $39,000 in costs and more than $85,000 in expenses incurred while litigating the case.

The settlement agreement, which the parties struck in June, resolved claims alleging the insurer packed its 401(k) plan with proprietary funds and siphoned inflated administrative costs from its employees who only had the option of investing in John Hancock funds.

The class representatives emphasized that their counsel worked through 5,000 documents produced by John Hancock and its benefits committee as well as forking over 4,000 documents of their own during the pre-settlement discovery process.  "Class counsel have expended significant time and effort prosecuting this action and achieving the settlement on behalf of the class," the memorandum said, adding that ERISA class actions are complex and the plaintiffs' lawyers had worked on a contingent fee basis.

Law Firm Wants Attorney Fee Dispute in Arbitration

August 18, 2021

A recent Law 360 story by Caroline Simson, “King & Spalding Says Fee Fight Must Be Arbitrated”, reports that King & Spalding is urging a Texas court to force a former client to arbitrate allegations that the firm fraudulently colluded with Burford Capital to maximize fees while representing him ​​in a treaty claim​ against Vietnam, pointing to an arbitration clause in the underlying fee agreement.  Fighting back against Trinh Vinh Binh's arguments earlier this month that the clause is inapplicable because the firm didn't sign the funding agreement with Burford, King & Spalding argued in a brief that the clause is broad enough to encompass the dispute.

Binh, who's accused the firm and two of its international arbitration partners in Houston of making a "mockery of the fiduciary obligations an attorney owes to their clients," told the court that the funding agreement doesn't contain any reference to King & Spalding.  In fact, the firm had already inked a deal with him that laid out all the terms of their relationship and did not include an arbitration clause, he said.

But the firm pointed in its brief to the wording of the clause, noting that it applies to "any controversy or claim" that is "relat[ed] to" the funding agreement.  The clause also applies to "any other transaction document," which includes a "counsel letter" through which Binh instructed the firm to distribute any arbitration proceeds in accordance with the funding agreement, according to the brief.  "Plaintiff cannot reasonably dispute that his claims 'relate to' the [funding agreement] and the counsel letter," according to the brief, which notes that Binh is seeking damages based on the firm's alleged failure to allocate the arbitration proceeds in compliance with the funding agreement.

"While plaintiff attempts to characterize these claims as arising out of the engagement agreement, that agreement does not address the allocation of arbitration proceeds," the firm continued. "The terms cited in the petition were set forth in the [funding agreement] and 'agreed to' by defendants through the counsel letter, bringing those claims squarely within the ambit of the [funding agreement]'s arbitration agreement."

Counsel for Binh declined to comment, saying they will file a response with the court.  Binh sued King & Spalding and two of its partners, Reggie R. Smith and Craig S. Miles, in June, alleging they made a "mockery of the fiduciary obligations an attorney owes to their clients" by "colluding" with litigation funder Burford to take more of the arbitration proceeds than Binh had agreed to.

The law firm had represented Binh in a treaty claim against Vietnam over the confiscation of certain real estate that ended in a $45 million award against the country in 2019.  In the arbitration, filed in 2015, Binh accused the country of improperly taking several valuable properties he says were worth an estimated $214 million.  Under their deal, the law firm agreed to hold back 30% of billings for fees and defer the payment of those amounts until work had concluded in the arbitration.

At the same time, Binh entered into a funding agreement with Burford Capital with a $4.678 million spending cap, according to the suit.  Binh claims that King & Spalding told him the firm could complete the arbitration work within that cap.  But by May 2016, the firm had already billed and been paid some $1.9 million, leaving about $1.8 million after initial costs and expenses had been paid out.  Binh alleges that at that point the firm, "motivated by securing continued, guaranteed immediate payment of their fees, colluded with Burford" to contrive a scheme to increase the amount potentially owed by Binh by increasing the cap on King & Spalding's legal fees and, consequently, increasing Burford's potential entitlement to an increased return.

Binh says that the way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more he was at risk of paying a so-called success return, to be paid if he prevailed in the arbitration.  The success return was to be split between King & Spalding and Burford based on the relative portion of their investments in the arbitration, Binh said.  Binh alleges that King & Spalding tried to make him agree to increase the cap on expenditures for legal fees — and potentially, provide more of a return for Burford — but that he refused.  Thereafter, Burford and the law firm allegedly executed a side agreement between themselves.

In addition to accusing King & Spalding of breaching its fiduciary duty, Binh's lawsuit includes claims for negligence if the overpayment of fees was due to a mistake, as well as claims of misrepresentation and fraud.  He also accuses the firm of negligence after the tribunal in the case against Vietnam rejected an expert report the firm provided stating that Binh's property was worth some $214 million.  The tribunal instead awarded $45.4 million.

3 Law Firms Seek ‘Mootness Fees’ in Investor Suit

August 14, 2021

A recent Law 360 story by Rose Krebs, “3 Firms Seek Fee For Mooted ViacomCBS Board Suit in Del”, reports that Cooch & Taylor, Glancy Prongay & Murray, and Kranenburg have asked the Delaware Chancery Court award them $120,000 in attorneys' fees for an investor's suit dismissed earlier this year over a challenged bylaw as to how company directors can be removed.  In a stipulated agreement filed with Vice Chancellor Sam Glasscock III, Cooch & Taylor PA, Glancy Prongay & Murray LLP and Kranenburg, along with counsel for ViacomCBS and its directors, resolved the firms' bid for attorneys' fees and expenses now that the case has been dismissed after an action by the company's board mooted the underlying issue.

"The parties negotiated at arms' length and resolved Plaintiff's claim to entitlement to a mootness fee, with the company agreeing, in the exercise of business judgment, to pay $120,000 for any and all attorneys' fees and expenses" for the three firms, the stipulation said.  A notice that would be provided to the U.S. Securities and Exchange Commission, including a clause that the company has agreed to pay the fees and expenses, was attached to the filing.  The notice would be sent to the SEC once the court signs off an order finalizing the agreement.

The firms sought the fee in connection with a suit filed last year by stockholder Gerald Lovoi flagging a provision of the company's bylaws that gave directors the authority to remove other directors, contrary to Delaware law.  "Stockholders of a corporation organized and existing under Delaware law have the exclusive authority to remove directors," the lawsuit asserted.  Lovoi sought a declaration from that court "that the removal provision was invalid and sought attorneys' fees and expenses if the claim was successful," the suit said.