A recent Law 360 story by Dorothy Atkins, “Hagens Berman Must Forfeit $31M Fee Win, 9th Circuit Told” reports that an objector's counsel urged the Ninth Circuit to force Hagens Berman Sobol Shapiro LLP to forfeit or reduce a revised $31 million fee award for securing deals worth $205 million in multidistrict litigation over optical disk drive price-fixing, arguing that the law firm violated multiple professional rules of ethics.  During a hearing before a three-judge panel, objector Connor Erwin's counsel, Robert Clore of Bandas Law Firm PC, argued that Hagens Berman violated multiple California Rules of Professional Conduct in securing its eight-figure fee award before a trial court, including by never placing the disputed funds into a client trust account, despite class members' objections and appeals pending.

But U.S. Circuit Court Judges Morgan Christen and Carlos T. Bea asked how class members have been harmed by the firm's failure to hold the funds in a client trust account.  "What harm, what foul?" Judge Bea asked.  Clore replied that as a result, the class has been denied up to $600,000 in interest that would have been collected on the disputed money.  At least a portion of that interest should have gone back to the class when a Ninth Circuit panel vacated Hagens Berman's previous $52.8 million fee and expense award, the attorney said.

"Why should they be entitled to interest on fees that don't belong to them?" Clore asked the panel.  The trip to the Ninth Circuit is the latest chapter in a decade-old multidistrict litigation claiming that Samsung Electronics Co. Ltd., Toshiba Corp. and other disk drive makers participated in an industry-wide conspiracy to fix optical disk drive prices.

Hagens Berman beat out other firms for lead class counsel in 2010, and the firm later struck multimillion-dollar deals to resolve the disputes.  After U.S. District Judge Richard Seeborg took over the case from U.S. District Court Judge Vaughn Walker, Judge Seeborg awarded the law firm $47.8 million in attorney fees for securing the settlements.  But in May 2020, a pair of Ninth Circuit panels vacated the fee awards after Clore argued before the appellate court that Judge Seeborg erred by keeping Hagens Berman's initial proposal for lead class counsel under seal and not properly taking it into account in awarding fees, among other objections.

On remand, in July, Judge Seeborg awarded Hagens Berman a revised $31 million fee, finding that the firm was entitled to a 20% premium on top of the $25.9 million it would be allotted under the firm's interpretation of the fee grid in its initial class counsel proposal.  Judge Seeborg also awarded Erwin's counsel $1.5 million in fees in September for their work helping to convince the Ninth Circuit to throw out the initial fee award.

But Erwin again challenged the fee award, with Clore arguing before the appellate court that Hagens Berman took too long to return the fees after the previous panel vacated the award, and did not place the funds in a client trust account, as required by professional rules of conduct.  Clore added that the trial court also erred in miscalculating the "starting point" for setting reasonable attorney fees on remand by using a flat rate instead of the sliding scale specified in the firm's initial proposal, resulting in an adjusted $25.9 million for the firm.  That amount should be $22.2 million, he said.

In light of the alleged violations, Clore asked the Ninth Circuit to send a message that class counsel are not immune to the California state bar's professional rules, and require the law firm to either forfeit its fees, or at the very least reduce the fees to keep in line with the firm's initial $22.2 million fee proposal.  As support, Clore cited the Ninth Circuit's 2012 decision in Rodriguez v. Disner, which held that a court has "broad equitable powers to … require an attorney to disgorge fees already received" for a serious ethical violation.

But class counsel Shana E. Scarlett, of Hagens Berman Sobol Shapiro LLP, argued that $31 million in fees is justified given the length of litigation and how fiercely the litigation was fought.  She also argued that the judge properly awarded additional fees on top of the initial $25.9 million proposal based on his discretion and understanding of the case.

But Judge Bea asked why the trial judge used a flat rate instead of the sliding scale methodology specified in the firm's initial bid proposal.  "Why isn't Judge Seeborg wrong in using a flat basis rather than a sliding scale basis based on the schedule we have before us?" the judge asked the attorney.  Scarlett replied that the firm's initial bid proposal was just one part of what informed the trial judge's decision. But Judge Bea appeared skeptical.

"You're talking about extrinsic evidence that was used by Judge Seeborg to interpret the writing, which we have before us?" Judge Bea asked.  "What factual evidence was there?  Are you saying that the written document is ambiguous and requires factual findings interpreted?"  Scarlett replied that the initial proposal was clear that the fees should use a flat rate, and not a sliding scale, but Judge Seeborg "went further and made the finding that we intended to be flat rate structure."

A recent Law 360 story by Brian Dowling, “Lieff Cabraser Can’t Freeze $1M State St. Fee Cut Amid Appeal,” reports that Lieff Cabraser Heimann & Bernstein LLP failed to persuade a Massachusetts federal judge to freeze $1.1 million of its fee slated for repayment in the wake of an overbilling scandal connected to a $300 million settlement with State Street Corp.  The firm, one of three ordered to repay seven-figure sums to the settlement fund, had sought to keep the money in escrow as it asks the First Circuit to review Senior U.S. District Judge Mark L. Wolf's reallocations of the fee award.

Denying Lieff Cabraser's motion in a 57-page order, Judge Wolf said the firm isn't likely to succeed on appeal and also faces no threat of irreparable harm if the money isn't frozen.  Instead of facing the tough odds of potentially having to recoup distributed settlement funds from the class, Lieff Cabraser would get any increase ordered by the First Circuit from its co-counsel, Labaton Sucharow LLP and Thornton Law Firm LLP.

Labaton Sucharow and Thornton received the bulk of the blame for improprieties and overbilling practices and repaid much higher sums to the settlement fund when Judge Wolf slashed the fee award from $75 million to $60 million in February 2020.  The two firms did not appeal the reallocation but supported Lieff Cabraser's request for a stay, Judge Wolf noted.

"The repeated, egregious misconduct of Labaton and Thornton alone caused the court to decide that it was most appropriate to award $60,000,000," Judge Wolf said. "If the court had allocated an additional $1,140,000 to Lieff, it would have reduced the awards to Labaton and Thornton by that amount."

Judge Wolf disputed Lieff Cabraser's arguments that the court violated noticing requirements in sanctioning it with the lower fee award.  There was no sanction, Judge Wolf said, just the court taking into account "proven misconduct of Labaton and Thornton in deciding to make a new fee award."  The court explained that its review of the attorney overbilling referred to Lieff Cabraser's conduct as "deficient" rather than as "misconduct" delineating that the firm's shortcomings were not critical to the new lower fee award.

The underlying suit, filed in 2011, alleged that Boston-based State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade. State Street settled the claims in 2016 for $300 million.  Judge Wolf approved the initial $75 million fee in 2016 but vacated that order after allegations of double-billing surfaced in a 2016 Boston Globe report.  He appointed retired U.S. District Judge Gerald Rosen as a special master to investigate the fee.  The firms admitted to overstating their billing but contended the $75 million fee was still proper.

Judge Rosen in 2018 recommended the firms disgorge just over $10 million, but Judge Wolf's 160-page order in late February ruled that the cuts should be even deeper and took the firms to task in the process.  Also before Judge Wolf is a legal fight between Thornton and its liability insurer over whether the company, Continental Casualty, can avoid covering the firm's attorney fees stemming from the court-ordered overbilling probe.

A recent Texas Lawyer story by Angela Morris, “Court Lets Houston-Area Lawyer Keep $70,000 Fee, Despite Unethical Contract,” reports that a Houston-area attorney won’t have to pay back more than $70,000 in fees to two clients who argued the lawyer’s fee agreement was unconscionable, after Texas’ 14th Court of Appeals ruled that the clients’ defensive argument wouldn’t support a recovery.  But one of the justices on the three-judge panel disagreed, explaining that Bellaire lawyer Joe Alfred Izen Jr. had an unconscionable fee agreement with his clients, which breached the attorney’s ethical duties, and that it was right for the trial court to make him return the money.

“In Texas, attorneys are held to the highest standards of ethical conduct in their dealings with their clients.  As a result, attorneys must conduct their business with their clients with inveterate honesty and loyalty, and they must always keep the client’s best interest in mind,” said a concurring and dissenting opinion by Justice Jerry Zimmerer.  “The question of Izen’s fees must be viewed through that prism.”

Izen, who represented himself pro se in the appeal, didn’t immediately respond to a call seeking comment.  And Ralph Kraft, member in Kraft Lege Anseman in Lafayette, Louisiana, who represented Izen’s past clients Brian and Kimberly Laine, declined to comment.

Izen represented the Laines in a 2002 personal injury settlement agreement over Brian Laine’s injury at work, said the 31-page majority opinion by Justice Kevin Jewell, joined by Justice Bourliot.  His employer took care of him after the injury and initiated a settlement for two lump sum payments and a monthly annuity for 30 years, and then the Laines hired Izen to look over the settlement agreement.  The Laines also wanted Izen to research if they may have a claim against any third-party entities—but not to sue Brian Laine’s employer.

An attorney-client agreement between Izen and the Laines was for a 35% contingency fee of the settlement with the employer.  Izen testified at trial they paid him between $70,000 and $90,000 and eventually he expected nearly $229,000 total.  Izen wasn’t licensed to practice in Louisiana and he contracted with an attorney there to represent the Laines in litigation against a third-party entity.  However, Brian Laine eventually dismissed that litigation and he did not owe any contingent fee for it.

In 2007, Brian Laine terminated Izen’s representation because he didn’t need it anymore.  He also quit paying Izen 35% of his monthly annuity payments from the settlement with his employer.  In 2010, Izen sued the Laines alleging they still owed him 35% of the annuity payments.  In response, the Laines argued his fee agreement was unconscionable and filed counterclaims seeking the return of the fees they already paid him.

After a jury trial, the judge granted a directed verdict in favor of the Laines, ruling the fee agreement was unconscionable.  But Izen also got a favorable ruling dismissing the clients’ counterclaims because they weren’t filed within the four-year statute of limitations.  Later, the trial court ordered Izen to disgorge all his fees to the Laines and to pay prejudgment interest spanning back to 2002.  In the appeal, Izen attacked the notion that his attorney fee agreement was unconscionable.

The appellate court ruled that Izen’s work reviewing the Laines’ settlement agreement with Brian Laine’s employer, and going to a meeting where the parties signed the agreement, was representation with little risk or expense to Izen.  His work on litigation against the third-party entity did have some risk, that there would be no recovery—which did happen in the end.

The 14th Court rejected Izen’s “attempt to combine the two separate jobs he was hired to perform.”  He was insisting his 35% fee on the settlement wasn’t unconscionable because the money financed the third-party litigation.  “Any fees Izen collected under the guise of financing the litigation against the Louisiana third party defendants were collected under false pretenses in violation of an attorney’s duty of honesty and loyalty to his clients,” said the opinion.  “Izen is not entitled to any fee on the Louisiana third-party litigation because there was no recovery.”

The appellate court upheld a trial court ruling that said that the Laines should not have to pay Izen any more money under that agreement.  But it also determined that Izen shouldn’t have to pay back the fees the clients had previously paid him.

The clients didn’t file their counterclaims seeking fee forfeiture within the four-year statute of limitations, explained the ruling. It said they couldn’t get back the fees based on an affirmative defense that the agreement was unconscionable.  While the Laines’ defense did defeat Izen’s claims, it could not advance their own claims for relief, the ruling said.