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Category: Fee Award Factors

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.

Federal Judge Cites NALFA Survey in Attorney Fee Award

October 1, 2021

A federal judge has cited a NALFA survey in a class action attorney fee award.  U.S. District Judge Amos L. Mazzant of the U.S. District for the Eastern District of Texas referenced NALFA’s hourly rate survey in awarding attorney fees and expenses in Cone v. Porcelana Corona de Mexico, S.A.de C.V. et. al (“Vortens”).  The NALFA survey independently showed prevailing market rate data of class counsel in the Dallas-Fort Worth area. 

“To support its submitted rates, Class Counsel commissioned and submitted a survey conducted by the National Association of Legal Fee Analysis ("NALFA").  The sample of the NALFA survey was Dallas-Fort Worth metropolitan area plaintiffs’ counsel practicing in consumer related or product liability class-action work.  Class Counsel’s submitted hourly rates, while on the higher side, falls within the accepted range,” wrote Judge Mazzant.

NALFA conducts custom hourly rates for clients such as law firms to independently prove billing rates in court.  Lead plaintiffs’ counsel commissioned NALFA to conduct a billing rate survey of plaintiffs’ rates in class actions in the Dallas-Fort Worth area.  NALFA conducted this survey via email, employing its best practices measures.  In his 26-page fee order (pdf), Judge Mazzant accepted the hourly rate data and survey results and awarded over $4.3 million in attorney fees in the Vortens class settlement.

$22.5M in Fees in $100M Asbestos Settlement in NJ

September 27, 2021

A recent Law 360 story by Mike Curley, “BASF, Cahill Gordon To Pay $22.5M Atty Fees in Asbestos Suit,” reports that a New Jersey federal judge granted final approval to a $100 million settlement to resolve claims that BASF Catalysts LLC's predecessor and its former counsel at Cahill Gordon & Reindel LLP concealed that industrial and commercial talc from a Vermont mine may contain asbestos.  As part of the deal, class counsel will receive $22.5 million in attorney fees, as well as $1.2 million for costs and expenses incurred during the case and for the administration of the settlement, according to the order.  The six named plaintiffs, led by Kimberlee Williams, will each receive a $50,000 incentive award.

Christopher M. Placitella of Cohen Placitella & Roth PC, representing the plaintiffs, told Law360 that the total settlement comes to $100 million between the attorney fees and costs, incentive awards, $3.5 million for administering notice to the class, and the $72.5 million fund to be paid to the class.  He added that class members will be able to seek between $3,500 and $300,000 from the fund.  U.S. District Judge Brian R. Martinotti also certified a settlement class consisting of anyone who brought an asbestos suit against Englehard Corp. between 1984 and 2011 over the talc products in question, and who had either voluntarily dismissed or settled the suit or had it involuntarily dismissed before March 2011.

According to the lawsuit, Englehard, which was acquired by BASF in 2006, retained Cahill Gordon to defend it against claims that the Emtal Talc it produced between 1967 and 1983 contained asbestos.  The plaintiffs said Cahill Gordon and Englehard falsely said there was no evidence or testimony that the products contained asbestos, and had used those assertions to dismiss or settle thousands of claims.

Judge Martinotti said that the deal was entered into in good faith following substantial discovery and is a fair, reasonable and adequate method of resolving the claims at issue in the suit.  Williams and the other named plaintiffs asked the court for preliminary approval of the deal in July 2020, and the court granted preliminary approval in September of that year, according to court documents.

Article: Ninth Circuit Ruling Signals Scrutiny of Attorney Fees in Class Actions

September 25, 2021

A recent Law 360 article by Jason Russell, Hilary Hamilton and Adam Lloyd of Skadden Arps, “9th Circ. Ruling Signals Scrutiny of Class Settlement Fees,” reports on a recent ruling from the Ninth Circuit.  This article was posted with permission.  The article reads:

Despite the playful tone of the Briseño v. Henderson decision issued by the U.S. Court of Appeals for the Ninth Circuit in June, class action litigators should take the case seriously when structuring class action settlements.  Amid a thicket of pop-culture references, the Briseño panel held that under the revised Federal Rule of Civil Procedure 23(e)(2), federal courts must heavily scrutinize any settlement made on behalf of a class — whether pre- or post-class certification — to ensure that counsel for the defendant and the class have not colluded on an unfair distribution of settlement funds between recovery for the class and the fees for its attorneys.

Over a decade ago, in June 2011, the Briseño plaintiffs alleged that defendant ConAgra Foods Inc. misled consumers who wished to avoid consuming genetically modified organisms by placing a "100% Natural" label on its Wesson cooking oil brand, which allegedly contained GMO ingredients.  Notwithstanding the fact that the parties had been litigating the plaintiffs' false advertising claims for nearly 10 years, the Ninth Circuit rejected the parties' settlement that was negotiated after class certification, on grounds raised by a single objector.  The panel took significant issue with the class counsel's fee award, and found that the settlement "reek[ed]" of collusion.

The panel determined that the parties' settlement agreement and fee arrangement "raise[d] a squadron of red flags billowing in the wind and begg[ed] for further review," because (1) class counsel would receive disproportionately more money than the class; (2) the defendant agreed not to challenge class counsel's requested fee award (and any reduction in fees would revert to the defendant); and (3) the labeling-change injunctive relief that class counsel secured was "worthless," so it could not be used to justify class counsel's fee here.

The panel grounded its analysis in the history and text of Rule 23(e)(2), which was revised in December 2018, and requires a court to ensure that a class settlement is fair, reasonable and adequate.  Prior to the 2018 revision, however, Rule 23(e) did not provide guidance as to what was fair, reasonable or adequate.  So the Ninth Circuit filled in the gaps by providing several factors for district courts to consider, including the strength of the plaintiffs' claims and the risk and expense of further litigation at the stage of the proceedings.

The Ninth Circuit also was particularly wary of settlements reached on behalf of a class precertification — where it found that counsel may be most incentivized to maximize their own financial gain at the expense of the class members — and in 2011, provided an additional instruction for courts to watch out for what it called "subtle signs" that class counsel was putting their own self-interest before the class.

These signs included: (1) counsel receiving a disproportionate distribution of the settlement; (2) parties negotiating a "clear sailing arrangement," under which the defendant agrees not to challenge a request for an agreed-upon attorney fee; and (3) an agreement containing a "kicker" or "reverter" clause, that returns unawarded fees to the defendant, rather than the class.  In the Ninth Circuit, these are commonly known as the Bluetooth factors.

Then, in 2018, Rule 23 was amended to set forth specific factors for courts to consider when determining whether a class settlement was adequate, including "the costs, risks, and delay of trial and appeal"; "the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims"; and "the terms of any proposed award of attorney's fees, including timing of payment."

The Briseño panel focused on this last factor, and held that the new Rule 23(e) "indicates that a court must examine whether the attorneys' fees arrangement shortchanges the class" for all class settlements.  As a result, the panel found, district courts should apply the Bluetooth heightened scrutiny factors for both pre- and post-class certification settlements to "smoke out" potential collusion on attorney fee arrangements.

Applying the Bluetooth factors to the Briseño class counsel's fee arrangement here, the panel concluded that the fee arrangement "features all three red flags of potential collusion."  First, the panel noted the "gross disparity in distribution of funds between class members and their class counsel raises an urgent red flag," as counsel was set to receive nearly $7 million in fees, while the class received less than $1 million.

The panel found this disparity particularly problematic here because the parties knowingly structured a relatively common claims-made settlement, requiring class members to submit a claim to obtain a recovery, for a low-ticket item, which typically results in what the panel called "notoriously low" redemption rates. In this case, class members would recover 15 cents per unit of Wesson oil purchased during the class period.

Second, ConAgra agreed not to challenge the fees for class counsel, and the panel held that "the very existence of a clear sailing provision increases the likelihood that class counsel will have bargained away something of value to the class."  Third, the agreement provided that ConAgra was to receive any remaining funds if the district court reduced the agreed-upon attorney fees for class counsel, and the panel concluded that if a court determined the "full amount unreasonable, there is no plausible reason why the class should not benefit from the spillover of excessive fees."

Significantly, the panel also held that the settlement's injunctive relief component — ConAgra's agreement to no longer market Wesson oil as "100% Natural" — could not be used to justify the class counsel's excessive fee.  The panel panned the injunctive relief as "virtually worthless," "illusory" and "meaningless," because ConAgra had already decided to stop using the "100% Natural" label two years before the settlement agreement was reached — for reasons it stated were unrelated to the litigation — and no longer even owned the Wesson oil brand.

Although ConAgra's sale of the Wesson oil brand in Briseño clearly presents an uncommon circumstance, the panel made clear that going forward, courts must eliminate inflated valuations of injunctive relief "untethered to reality" that are used to justify excessive fee awards for class counsel.  Briseño's discussion of worthless injunctive relief will have significant repercussions for future settlement of many California federal class actions, as many companies often make labeling changes for business reasons before any complaints are even filed.

While the panel expressly stated that its decision did not mean that "courts have a duty to maximize the settlement fund for class members," and a "class does not need to receive much for a settlement to be fair when the class gives up very little," the practical effect of, and takeaway from, Briseño is that class counsel should expect significantly more resistance from defense counsel and courts to high attorney fee awards in class action settlements.

This will especially impact low-value and/or labeling claims arising from a plaintiff's subjective beliefs of purported harm — particularly when a defendant has already decided to make a labeling change for business reasons.  In such cases, the relief that counsel can secure for the class is likely to be limited, and Briseño plainly requires a commensurate fee award for class counsel.

Jason D. Russell is a partner, and Hillary A. Hamilton and Adam K. Lloyd are associates, at Skadden Arps Slate Meagher & Flom LLP.

Gibson Dunn Under Fire for Billing Practices

September 23, 2021

A recent Law 360 story by Rose Krebs, “Gibson Dunn Under Fire For Billing in Landmark Theatres Suit,” reports that Gibson Dunn & Crutcher LLP and Ross Aronstam & Moritz LLP have been accused of problematic billing in a Delaware Chancery Court suit over a price adjustment dispute that followed the 2018 sale of Landmark Theatres to billionaire real estate developer's Charles S. Cohen's theatrical production and distribution company.

In a brief, Cohen Exhibition Company LLC told Vice Chancellor Paul A. Fioravanti Jr. that a request by Gibson Dunn and Ross Aronstam to have the buyer reimburse roughly $840,000 of the sellers' legal costs and expenses should be reduced by no less than about $396,000.  A lesser-than-sought amount should be awarded, in part, due to the firms' "failure to support the hourly billing rates" included in the fee motion, the brief says.

The sellers, Roma Landmark Theaters LLC and MCC Entertainment LLC, which are represented by the two law firms, told the court in August that buyer Cohen Exhibition Company should have to pay costs and expenses they incurred litigating a battle over post-closing adjustments that ended up being largely decided in their favor.

But Cohen raised issues with the billing.  "Both the Ross Aronstam and Gibson Dunn invoices contain significant redactions of time entries," Cohen said in Tuesday's filing.  "The redactions are particularly problematic insofar as they not only completely obscure the services performed ... but also because they even obscure the timekeeper and amount of time spent."  Cohen argues that due to the redacted information it is "completely impossible" for the court to assess the reasonableness of certain invoices.

The company also pointed to "excessively high charges for Westlaw research, in one month totaling over $20,000 alone" in Gibson Dunn's bills.  The online legal research service "offers attorneys a plan with unlimited access to Delaware cases, statutes, and briefs at a flat monthly fee," according to Cohen. Granting those fees would effectively mean Cohen paying for "Gibson Dunn's overhead in maintaining a legal research account with Westlaw," the company said.

Cohen additionally took aim at what it described as the "high hourly rates billed by the attorneys at Gibson Dunn."  "Here, plaintiffs' attorneys have not provided any proof as to what their customary billing rates are for comparable matters," the brief said, highlighting one rate of up to $1,645 per hour.  "Nor have they provided any evidence as to each attorney's background and years of experience to support the respective claimed rates."  Cohen also protested what it said was the firms' request for reimbursement for "preparing and litigating" an unsuccessful motion to dismiss counterclaims lodged by the buyer in the litigation.

Roma and MCC said in court papers that an arbitration decision went in their favor, entitling them "to receive nearly all of the escrowed funds." Thus, they argued they are entitled to reimbursement for costs and expenses, especially since alleged legal posturing by the buyer led to a delay in escrow funds being turned over.  The Chancery Court confirmed the arbitration decision and the seller plaintiffs were awarded roughly $2.6 million plus additional interest and other costs, according to the motion, which added, "The fee award sought here is fair and reasonable in light of these positive results."