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The NALFA

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Category: Fee / Rate Economics

NALFA Members Quoted in Bloomberg Story on Billing Rates

June 10, 2022

A recent Bloomberg Law story by Roy Strom, “Big Law Rates Topping $2,000 Leave Value ‘In Eye of Beholder’” quoted two NALFA members, John D. O'Connor of O'Connor & Associates in San Francisco and Jacqueline S. Vinaccia of Vanst Law LLP in San Diego, on a news story on hourly billing rates.  His story reads:

Some of the nation’s top law firms are charging more than $2,000 an hour, setting a new pinnacle after a two-year burst in demand.  Partners at Hogan Lovells and Latham & Watkins have crossed the threshold, according to court documents in bankruptcy cases filed within the past year.  Other firms came close to the mark, billing more than $1,900, according to the documents.  They include Kirkland & Ellis, Simpson Thacher & Bartlett, Boies Schiller Flexner, and Sidley Austin.

Simpson Thacher & Bartlett litigator Bryce Friedman, who helps big-name clients out of jams, especially when they’re accused of fraud, charges $1,965 every 60 minutes, according to a court document.  In need of a former acting US Solicitor General? Hogan Lovells partner Neal Katyal bills time at $2,465 an hour.  Want to hire famous litigator David Boies?  That’ll cost $1,950 an hour (at least).  Reuters was first to report their fees.

Eye-watering rates are nothing new for Big Law firms, which typically ask clients to pay higher prices at least once a year, regardless of broader market conditions.  “Value is in the eye of the beholder,” said John O’Connor, a San Francisco-based expert on legal fees.  “The perceived value of a good lawyer can reach into the multi-billions of dollars.”  Law firms have been more successful raising rates than most other businesses over the past 15 years.

Law firm rates rose by roughly 40 percent from 2007 to 2020, or just short of 3 percent per year, Thomson Reuters Peer Monitor data show.  US inflation rose by about 28% during that time.  The 100 largest law firms in the past two years achieved their largest rate increases in more than a decade, Peer Monitor says.  The rates surged more than 6% in 2020 and grew another 5.6% through November of last year.  Neither level had been breached since 2008.

The price hikes occurred during a once-in-a-decade surge in demand for law services, which propelled profits at firms to new levels.  Fourteen law firms reported average profits per equity partner in 2021 over $5 million, according to data from The American Lawyer.  That was up from six the previous year.

The highest-performing firms, where lawyers charge the highest prices, have outperformed their smaller peers.  Firms with leading practices in markets such as mergers and acquisitions, capital markets, and real estate were forced to turn away work at some points during the pandemic-fueled surge.  Firms receive relatively tepid pushback from their giant corporate clients, especially when advising on bet-the-company litigation or billion-dollar deals.

The portion of bills law firms collected—a sign of how willingly clients pay full-freight—rose during the previous two years after drifting lower following the Great Financial Crisis.  Collection rates last year breached 90% for the first time since 2009, Peer Monitor data show.  Professional rules prohibit lawyers from charging “unconscionable” or “unreasonable” rates. 

But that doesn’t preclude clients from paying any price they perceive as valuable, said Jacqueline Vinaccia, a San Diego-based lawyer who testifies on lawyer fee disputes.  Lawyers’ fees are usually only contested when they will be paid by a third party.

That happened recently with Hogan Lovells’ Katyal, whose nearly $2,500 an hour fee was contested in May by a US trustee overseeing a bankruptcy case involving a Johnson & Johnson unit facing claims its talc-based powders caused cancer.  The trustee, who protects the financial interests of bankruptcy estates, argued Katyal’s fee was more than $1,000 an hour higher than rates charged by lawyers in the same case at Jones Day and Skadden Arps Slate Meagher & Flom.  A hearing on the trustee’s objection is scheduled for next week.  Hogan Lovells did not respond to a request for comment on the objection.

Vinaccia said the firm’s options will be to reduce its fee, withdraw from the case, or argue the levy is reasonable, most likely based on Katyal’s extensive experience arguing appeals.  Still, the hourly rate shows just how valuable the most prestigious lawyers’ time can be—even compared to their highly compensated competitors.  “If the argument is that Jones Day and Skadden Arps are less expensive, then you’re already talking about the cream of the crop, the top-of-the-barrel law firms,” Vinaccia said.  “I can’t imagine a case in which I might argue those two firms are more reasonable than the rates I’m dealing with.”

USTP Balks at Hourly Rate in J&J’s Chapter 11 Bankruptcy

May 24, 2022

A recent Bloomberg Law story by James Nani, “DOJ Balks at J&J Unit’s Plan to Hire Katyal at $2500 an Hour” reports that the Department of Justice’s bankruptcy watchdog is opposing a bankrupt Johnson & Johnson unit’s proposal to retain former acting solicitor general Neal Katyal at nearly $2,500 an hour to work on its Chapter 11 case.

LTL Management LLC, which was created by the healthcare giant to house and limit its liability from its talc products, is proposing to retain Katyal, a partner at Hogan Lovells US LLP, at a rate as high as $2,465 an hour, the US Trustee said in its objection.   Hogan Lovells’ hourly rates for its partners are “significantly higher” than the rates of the seven other law firms LTL Management has retained, the US Trustee said.  LTL hasn’t shown the rates are reasonable or in the best interest of the bankruptcy estate, the Trustee said.   Katyal would act as special appellate litigation counsel for LTL, according to LTL’s application to hire Katyal.

Earlier this month, the U.S. Court of Appeals for the Third Circuit agreed to hear several appeals by asbestos victims who are trying to end LTL’s bankruptcy.  The Third Circuit’s review will include the New Jersey bankruptcy court’s decision earlier this year denying tort claimants’ motion to dismiss the Chapter 11 case.  The tort claimants argue LTL’s bankruptcy—which would address lawsuits from its talc product users who allege they developed cancer—was filed in bad faith.

LTL told the bankruptcy court it needs experienced counsel in connection with the appeals. Hogan Lovells “provides exceptional appellate litigation services,” LTL said.  In light of the appeal’s complexity and “anticipated intensity,” hiring Hogan Lovells is “appropriate and warranted,” LTL said.  The US Trustee argued that law firms LTL has already retained, such as Jones Day and Skadden Arps Slate Meager & Flom LLP, have helped the company and are familiar with the case.  But their hourly rates are lower, it added.

Seventh Circuit Tosses $11M Attorney Fee Award

May 20, 2022

A recent Law 360 story by Hailey Konnath, “Seventh Circ. Throws Out $11M Fee Award For Bernstein Litowitz” reports that the Seventh Circuit vacated an $11 million fee award for Bernstein Litowitz Berger & Grossmann LLP's work on a $45 million settlement between waste disposal company Stericycle and its shareholders, finding that the district court "did not give sufficient weight" to points raised in a class member's objection.  The three-judge panel said the Illinois federal court overseeing the case should've more seriously considered evidence of related fee agreements, all the work that Bernstein Litowitz inherited from earlier litigation against Stericycle and the early stage at which the settlement was reached.

"The cumulative effect of these issues leads us to conclude that the district court's analysis did not sufficiently 'reflect the market-based approach for determining fee awards that is required by our precedent,'" the Seventh Circuit said.  The panel added, "We vacate the fee award and remand for a fresh determination more in line with what an ex ante agreement would have produced."

Objector Mark Petri appealed a 25% cut that Bernstein Litowitz got from representing investors claiming that Stericycle falsely inflated its financial results through fraudulent pricing.  In particular, Petri argued that the attorney fees were potentially inflated by a pay-to-play scheme and the case never proceeded past the motion-to-dismiss stage.

In the underlying case, lead plaintiffs Public Employees' Retirement System of Mississippi and the Arkansas Teacher Retirement System had pointed to briefing in a study conducted by Nera Economic Consulting.  According to that study, for securities class action cases that settled between 2014 and 2018 in amounts ranging from $25 million to $100 million, the median attorney fee award was 25%, like the share awarded to Bernstein Litowitz.

Bernstein Litowitz asked the court to approve its $11 million fee request in June 2019, and the court gave its blessing in May 2020.  But the Seventh Circuit said that the district court's analysis was incomplete.  Notably, the court didn't address a 2016 retention agreement between the firm and the Mississippi attorney general, under which Bernstein Litowitz was authorized to represent the Mississippi fund and seek a percentage of the recovery achieved for the class as compensation.  That percentage, however, was supposed to be limited to the percentage corresponding to the fund's estimated individual recovery, the panel said.

At oral argument, Bernstein Litowitz had said that the sliding scale structure outlined in that agreement only applies to the amount recovered by the fund itself, not to the total amount recovered by the class.  The Seventh Circuit said that interpretation is "improbable, arbitrary, unreasonable and not consistent with a class representative's fiduciary duty to class members."

Additionally, the district court's assessment of the risk of non-payment also didn't give sufficient weight to prior litigation involving Stericycle, litigation that substantially reduced the risk of non-payment, the panel said.  The court had found that the risk of non-payment was "substantial," but that earlier litigation demonstrating Stericycle's billing practices and other settlements signaled that class counsel was not actually taking on much risk, the Seventh Circuit said.

And on top of that, the court didn't properly consider just how early on in the litigation the case was settled, according to the decision.  At the very least, the district court should've considered whether the preliminary stage of the litigation warranted a reduction in the requested fee, it said.  The Seventh Circuit also remarked that it wasn't convinced the settlement was a good outcome for the class, but that neither Petri nor anyone else was challenging that.

Judge Calls Out Hourly Rate Gender Disparity in Fee Award

April 25, 2022

A recent Law 360 story by Matthew Santoni, “Judge Calls Out Atty Gender Pay Gap in $760K Fee Award reports that Console Mattiacci Law LLC will collect almost $765,000 in fees for winning a $2.3 million age-bias suit against AT&T Mobility Services, after a Pennsylvania federal judge slightly trimmed the firm's requested hours and rates but noted that a less-experienced female shareholder deserved the same hourly rate as her older male co-counsel.

U.S. Magistrate Judge Timothy R. Rice noted the legal industry's gender pay gap in his opinion awarding Laura Mattiacci and Susan Saint-Antoine the same $700-per-hour rate as firm founder Stephen Console for their work in securing a jury verdict for Alison Ray, saying they hadn't shown why the court should have awarded Console the requested $900 per hour and the others $730 per hour.

"Saint-Antoine and Mattiacci are entitled to the same rate as fellow shareholder, Console, who served solely as a consultant on the case.  Historically, women in law earn less than their male counterparts, a discrepancy that may reflect hidden bias.  Saint-Antoine's experience and expertise on several of the pre-trial motions was critical in allowing the case to move to trial and Mattiacci's courtroom skills were pivotal to Ray's successful verdict," Judge Rice wrote.  "Attorneys of comparable skill and ability merit equal compensation without regard to gender or age."

The court's order trimmed Ray's request for $847,945 in fees to $764,825 by cutting the lead attorneys' hourly rates to the top level recommended by Community Legal Services, and also by cutting out hours spent on unsuccessful motions and work representing Ray in another plaintiff's age-discrimination case against AT&T.  The court awarded nearly $39,000 for costs, which AT&T did not contest.  Ray, a former sales director at AT&T Mobility Services, won $2.3 million in December 2021 after a jury found the company's "Workplace 2020" restructuring plan targeted older employees as "surplus," cut their positions and forced them to apply for different jobs if they wanted to keep working. Ray was 49 when she was laid off.

AT&T challenged many of the hours that Console Mattiacci said it had put into the case, but the judge generally supported charging for most of the work the attorneys had put in.  Factual distinctions between Ray's case and those of other AT&T employees that the firm represented in other cases meant that attorneys didn't get to reuse parts of the other employees' complaints, or recycle arguments and hours spent on their motion for summary judgment, Judge Rice said.  The attorneys' work on "mock trial" versions of the opening and closing arguments were also justified, Judge Rice said, even if the practice versions were done by another attorney on the case and had come before motions for summary judgment that could have precluded the need for trial.

"Mock trial preparation is an indispensable part of litigation.  Sharpening advocacy skills in advance of trial is as important as effective legal research and writing.  One cannot exist without the other in a courtroom. ... This is often overlooked or underestimated in fee litigation," Judge Rice wrote.  Although Ray's team took a risk in conducting the mock trial that early, he wrote, it worked in their favor because they ultimately prevailed over AT&T's motion for summary judgment, making the trial preparation necessary.

He did cut out an hour spent by a fifth attorney at the mock arguments, and cut down Console's time charged for the arguments down to an hour and a half to be consistent with the other attorneys on the case. He made other cuts for time spent on motions for protective orders or class treatment that were unsuccessful.  The attorneys' requested hourly rates were higher than what was recommended by CLS for typical Philadelphia-area lawyers with their experience, and the affidavits they submitted to support their higher request didn't convince Judge Rice, he said.

"Although Ray contends that the rates requested by Console, Mattiacci, and Saint-Antoine are the same or less than the regular rates charged for their services in non-contingent matters, she fails to present any evidence showing that any client has willingly agreed to pay such rates," the judge wrote.  And although both Console and Saint-Antoine would be worth up to $700 per hour on the CLS' recommended scale, Judge Rice praised Mattiacci's work on the case and said she'd earned more than what her experience alone would indicate.

"Although Mattiacci has been practicing law for fewer years than Console and Saint-Antoine and would warrant a rate of $530.00 based on her experience according to the CLS fee schedule, she is entitled to the same $700.00 rate as her fellow shareholder and partner given her expertise and skill as a trial lawyer," he wrote.  "Her exceptional advocacy skills helped to persuade the jury to award a significant verdict for Ray in a complex case. ... Even though the CLS fee schedule serves as a useful guide on setting hourly rates, its reference to experience should not serve as a cap that precludes exceptionally talented trial lawyers from receiving fair compensation simply because of age or gender."

Philip Morris Tells Florida High Court Hourly Rates Too High in Case

March 3, 2022

A recent Law 360 story by Carolina Bolado, “Philip Morris Asks Fla. High Court To Take Up Fee Award Case” reports that Philip Morris is urging the Florida Supreme Court to take up its appeal of a $3.2 million fee award to an Engle progeny plaintiff, arguing that the court improperly used rates from more expensive markets to calculate the fee award rather than the prevailing market rate in Jacksonville, where the case was filed.  In a brief, Philip Morris USA Inc. said a First District Court of Appeal decision affirming the fee award for plaintiff Elaine Jordan conflicts with the Florida Supreme Court's 1985 ruling in Florida Patient's Compensation Fund v. Rowe, which says fee awards must be based on the prevailing market rate for attorneys in that community.

The First District reasoned that because Engle progeny cases are unique, the relevant legal community is the community of lawyers who try these cases in Jacksonville, no matter where their offices are located.  The Engle progeny cases stem from the landmark Engle class action against several tobacco companies that led to a $145 billion verdict.  The Florida Supreme Court decertified the class in 2006 and overturned the verdict but allowed class members to file individual suits relying on the jury's findings that include conclusions that smoking causes certain diseases and that tobacco companies hid smoking's dangers.

But Philip Morris said the uniqueness of Engle litigation does not justify a departure from established fee-setting principles.  The tobacco giant cited a dissent from First District Judge Bradford Thomas noting that Engle cases are easier to prove because of the preclusive effect of the original Engle jury's findings.

"If accepted, that logic would allow use of out-of-town rates in every case involving an out-of-town lawyer, given that the case is necessarily pending in the local jurisdiction," Philip Morris said.  "That would effectively eliminate the entire principle from Rowe that bars non-local rates, as the trial of a case always occurs in the location where the case is pending."