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Category: Fee Collection

Quinn Emanuel Defends Billing Practices, Expenses

May 5, 2021

A recent Law 360 story by Rachel Schart, “MiMedx Slams Quinn Emanuel Fees As 2 Other Firms Settle,” reports that MiMedx has accused Quinn Emanuel of seeking unreasonable fees, including for lawyers' luxury hotel stays and fine dining, as part of the cost of defending two former company executives who were convicted of securities fraud.  The allegation, in court papers, comes after the life sciences company settled claims with two other law firms seeking payment of fees as part of the same dispute.

Quinn Emanuel Urquhart & Sullivan LLP, Freshfields Bruckhaus Deringer LLP and Kobre & Kim LLP initially filed suit in New York state court on April 15 alleging MiMedx Group Inc. shirked its obligations to indemnify the firms' clients, company President William Taylor and ex-CEO Parker "Pete" Petit.  Both men were sentenced to a year in prison in February after being convicted of one of two counts each at trial.

Freshfields and Kobre & Kim said in court filings that they had settled their claims against MiMedx.  Without disclosing the terms, the firms wrote in similar notices that their "claims in this proceeding do not make, and never were intended to make, a charge of deception against MiMedx or its general counsel, Butch Hulse, and that the filed action in this matter was a good faith fee dispute, which now has been swiftly and amicably resolved."

But Quinn Emanuel has yet to drop its claims in the lawsuit, and MiMedx took aim at the law firm in an answer filed in a related Florida state court legal fee dispute with the former executives.  In response to the men's counterclaims seeking additional fees to appeal their convictions, MiMedx accused Quinn Emanuel of overbilling Petit and Taylor and then unfairly attempting to collect from the company.

"Quinn Emanuel will have to explain its billing and expense practices," MiMedx wrote.  "These include staffing its trial team with over ten professionals, mostly from out-of-town despite having a large New York office within a few miles of the courthouse; staying in a luxury boutique hotel; having meals catered by a Michelin-starred chef (and supplementing them with separate orders of crab legs and sushi to boot); and charging MiMedx tens if not hundreds of thousands of dollars on a 'last-minute' motion to adjourn the trial that the court found 'border[ed] on the frivolous.'"

MiMedx said Quinn Emanuel has refused to provide it with invoices for its expenses in the case, and that it and the other criminal defense firms have already been paid more than $18 million for their work defending the former executives.  MiMedx's counsel told Law360 that the company has indemnified its former executives where required, but that the law firms can't force it to pay unwarranted fees.  "The company has been reasonable.  It paid pursuant to the indemnity," said Louis M. Solomon of Reed Smith LLP.  "It always reserved the right to make sure that the fees were reasonable, and even now with the convictions in place, we're not obliged to advance any more costs."

Quinn Emanuel's in-house counsel defended the firm's billing practices to Law360.  "Quinn Emanuel tried this case during the pandemic and achieved an acquittal for its client on the most serious count," Marc Greenwald, who is representing the law firm in the New York case, said.  "Quinn Emanuel expects to get paid at the rates that MiMedx agreed, and our work was outstanding.  All the charges were appropriate and reasonable."

MiMedx lodged its Florida state court claims against Petit and Taylor in January seeking permission to stop indemnifying the former executives upon sentencing, as well as reimbursement for millions of dollars in already paid fees.  Petit and Taylor fired back with counterclaims soon after they were sentenced, arguing in April that the company must continue indemnifying them in the upcoming appeal.  Quinn Emanuel, Freshfields and Kobre & Kim filed their separate New York state court suit in April, alleging that MiMedx has violated its contractual duty to pay Petit and Taylor's criminal defense costs.

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.

Former Client Questions Law Firm’s Billing Rate in Fee Dispute

March 23, 2021

A recent Law 360 story by Nick Muscavage, “Coffee Co. Tries To Turn Up Heat on Sills Cummins in Fee Dispute,” reports that Sills Cummis & Gross PC is facing amended claims of legal malpractice in a years-long case for allegedly misleading a New Jersey-based coffee company about its fee rate.  The Newark-based law firm originally filed a complaint in New Jersey Superior Court against Two Rivers Coffee LLC in 2017 to collect on portions of an $85,181 legal bill the firm claims the coffee company owes for 262 days of work.

Two Rivers, however, responded by filing a malpractice counterclaim against Sills Cummis, alleging the firm regularly failed to follow the coffee company's instructions, failed to communicate properly with the company and inflated its fees.  On March 12, Two Rivers filed a motion seeking to amend its answer and bolster its counterclaims against Sills Cummis.  "From the outset, Sills did not honor these billing rates and, in its purported invoices, charged Two Rivers in excess of what its purported engagement letter allowed," Two Rivers claimed in its motion.

"Our bills for professional services are based on hourly billing rates.  A different billing rate is applicable to each attorney depending upon that attorney's experience and area of expertise," Sills Cummis explained in its engagement letter, according to an exhibit.  "The firm's hourly rates for members working on this matter will be $500 and $375 for associates and $125 for paralegals. These hourly rates change annually each October 1."

But Two Rivers claims it wasn't charged at the promised rates.  Sills' first purported invoice to Two Rivers, dated March 10, 2015, and covering January 2015, billed Two Rivers $595 and $525 per hour for two members and $465 per hour for an associate, according to the motion.  In March of that same year, Sills Cummis invoiced Two Rivers $525 for a member fee, according to the motion.  The alleged overbilling did not come to Two Rivers' attention until it was going through discovery, according to the motion.

The "overcharging scheme" involved Sills Cummis "invoicing Two Rivers at hourly rates in excess of the rates set forth in the purported engagement letter," Two Rivers claimed in its motion.  The alleged overbilling "is based on documents that have always been in Sills' control — its own purported engagement letter and its own purported invoices," the coffee company said.

Sills has always known, or at least should have known, what it agreed to charge and what it in fact did charge, Two Rivers contended.  Because the documents in question are in the possession of Sills Cummis, Two Rivers believes it will be difficult for the law firm to argue against the coffee company's claims.  Discovery, Two Rivers said, would have no impact on the files already in possession of the firm.

"This outcome is all the more fair when one considers that it is based on evidence that has always been in the possession of Sills, rather than in the possession of Two Rivers or a third party," Two Rivers claimed in its motion.  "There is no credible way for Sills to argue that this amendment constitutes any unfair surprise or prejudice to Sills.  To the contrary, it is more likely that Sills has known all along that it charged excessive hourly rates and chose to keep that knowledge to itself until Two Rivers brought it up."

Two Rivers is claiming Sills Cummis committed legal malpractice by willfully breaching its fiduciary duty and damaging the coffee company.  It is seeking compensatory and punitive damages against the law firm in amounts to be determined at trial.

Judge Orders Attorney Fee Dispute to Arbitration

March 9, 2021

A recent Law 360 story by Emma Whitford, “Atty Must Arbitrate Fee Dispute With Racehorse Trader,” reports that a California judge ordered an attorney to arbitrate her dispute with a U.K. racehorse auctioneer company, her former client, over fees allegedly due when she represented the company accusing a financier of failing to pay for a racehorse.  Attorney Diana Courteau of California claimed in her April complaint that Tattersalls Ltd., the racehorse company, failed to pay her $73,255.34 for the months of February and March 2020, after firing her that March.  The six-claim complaint also accused Tattersalls and Bracher Rawlins LLP, the company's English counsel, of fraud and intentional misrepresentation.

But Tattersalls and Bracher Rawlins pushed back with a motion to dismiss, pointing to an arbitration provision in their contract with Courteau and claiming that she failed to give them proper notice under the California Mandatory Fee Arbitration Act, which lays out rules for the handling of attorney-client fee disputes.  "Here, it is undisputed that [the] plaintiff did not provide the mandatory notice form to defendants," U.S. District Judge Dolly M. Gee ruled, adding that the case will be stayed while arbitration goes forward.

"Moreover," Judge Gee added, "the agreement between plaintiff and Tattersalls contains a broad arbitration provision governing the very dispute at issue."  Specifically, a "dispute over legal bills that alleges breach of contract and related claims."  Courteau had argued that Bracher Rawlins could not compel her to arbitrate because the firm is not a signatory to her agreement with Tattersalls.  But Judge Gee disagreed, saying that Bracher Rawlins will be part of the arbitration as an "agent" of Tattersalls.

It is "well settled that a nonsignatory may compel a signatory to arbitrate based on agency principles," Judge Gee wrote, adding that Bracher Rawlins "was only in a position to direct or authorize plaintiff to perform legal work for Tattersalls in its capacity as Tattersalls' agent."  The order is just the latest development in the litigious fallout of Tattersalls' working relationship with Courteau, who represented the company in various matters from 2011 until March of last year.

Last June, in the case Courteau worked for Tattersalls until they fired her, U.S. District Judge Karen S. Crawford ordered Courteau to pay $31,772.62 in sanctions to defendants Gerald Wiener and his entity Finance California Inc., court records show.  The sanctions covered attorney fees for a two-day deposition last January in which the court found that Courteau coached the witness, as well as the cost of preparing the sanctions motion, court records show.

Wiener and Finance California had also sought termination sanctions, a serious sanction that would have ended the case, for Courteau's alleged "abusive" and "hardball" tactics.  But Judge Crawford denied that motion, saying the "worst of this conduct has been addressed" and "monetary sanctions have been imposed which should be enough to deter future misconduct."  Courteau has yet to pay the sanctions, court records show.  Attorneys for Wiener filed a notice of lien in the instant suit on Jan. 15.

In a Feb. 4 declaration to the court, Courteau urged Judge Gee to proceed with a trial for her fee dispute or, in the alternative, send the case to "global mediation" along with the Wiener case, which is currently on appeal to the Ninth Circuit.  "Plaintiff is willing to stipulate (notwithstanding meritorious grounds for appeal) that ... the $31,772,62 (sanctions) can be paid from fees owed by defendants," Courteau wrote.

Year-End Fee Collection Remain Steady in COVID-19 Era

January 1, 2021

A recent Law.com story by Justin Henry, “Pandemic Be Damned, Year-End Collections Are Steady (So Far)” reports that despite the great anxiety that roiled the legal industry throughout 2020, fee collections at law firms have largely returned to pre-pandemic levels as the fourth quarter comes to a close, law firm leaders and industry observers said, thanks to the successful shift to remote work and a diversity of practice areas bringing in revenue.  As 2020 ends, many firms are now preserving resources to give themselves a head start in 2021.

The fourth quarter is always a high-pressure time to collect fees from clients, especially in a year defined by economic uncertainty.  But the legal industry had one of the most successful rebounds from the pandemic-fueled economic downturn that began in the spring, and the financial strain that many forecasted proved to be short-lived.

At many law firms, however, the results of 2020’s economic turmoil won’t be known until January, with much of collections coming in these last days of the year.  Asked to comment on the net impact of the COVID-19 pandemic on their firms’ bottom lines, many firm leaders said to call back in January.  “Our results depend on dollars in the door by a certain date and, not surprisingly, the last few weeks of the year are always important, but it’s always a little hard to predict,” said Tom Froehle, co-chair of Faegre Drinker Biddle & Reath, which formed in 2020 out of the combination of Faegre Baker Daniels and Drinker Biddle & Reath.

While instituting flexible fee arrangements has played an important role in firms maintaining close relationships with clients throughout the pandemic, firm leaders said for the most part they had returned to normal by the closing weeks of 2020, with the exception of a few more economically precarious practice areas.

G. Mark Thompson, president and CEO of Marshall Dennehey Warner Coleman & Goggin, said the “vast majority” of his firm’s clients that requested payment discounts and deferrals have returned to pre-COVID payment agreements. The firm’s hospital clients and municipal government clients were among those that asked for discounts and deferrals on their fee payments as a result of the pandemic and its financial impacts.

Thompson said while the firm’s hospital clients—which requested flexible fee arrangements due to a downturn in elective surgeries amid an inundation of COVID-19 patients—have returned to their pre-COVID payment rates, Marshall Dennehey’s base of municipal government clients haven’t yet returned to pre-COVID fee arrangements as a result of financial distress.  “That is going to remain a problem going forward,” Thompson said.  Thompson added that one of the ways Marshall Dennehey has braced itself for economic uncertainty is having a diversified set of practice areas.  “That’s given us a competitive advantage that we’re hoping to leverage and expand moving forward,” he said.

Brad Hildebrandt, chairman of Hildebrandt Consulting, said the majority of practice areas that struggled as a result of the pandemic-induced recession—like M&A work, business transactions and in-person litigation—have successfully rebounded by the fourth quarter as attorneys and their clients adapted to a virtual work environment.

The legal industry is historically one of the fastest to rebound from a recession, and this remained true in 2020, Hildebrandt said, due in large part to the reduction in expenses that came with the shift to remote work, combined with a diverse set of high-performing practice areas, like health care and bankruptcy.

“The way the large firms have performed is actually pretty remarkable,” Hildebrandt said.  “It turns out as the last quarter came about, many of the practices were showing a return, like M&A and private equity.  Most firms at the end of the year are going to have increased revenue or at least the same revenue, and profits are going to be very high.”  Some industry observers said firm leaders may be looking to hold onto partner distributions heading into 2021 so they can preserve cash flow into the first quarter, which is historically a lower-performing period—recession or not.

Jeff Lowe, global practice leader of legal search firm Major, Lindsey & Africa, said many firms are less concerned about end-of-year cash flow than they are about setting themselves up financially for a successful 2021.  “If you’ve already had a great year, it just puts pressure on your next year,” Lowe said.  “They would rather know they have accounts receivable coming in in January when it’s going to count toward next year.  It’s sort of like starting the new year with a head start.”