A recent Law 360 story by Beverly Bank, “’Vague’ Billing Justifies 10% Cut in Atty Fees, Judge Says”, reports that a federal magistrate judge recommended slashing an Iron Workers' benefits funds' request for attorney fees in a case over an employer's unpaid contributions, saying there are "vague" billing entries from the plaintiffs' counsel as part of a $2.2 million judgment.

U.S. Magistrate Judge Kimberly G. Altman issued a report and recommendation, suggesting the district court cut a nearly $111,000 attorney fee request from Iron Workers Local No. 25's benefit funds by 10%.  The attorney fees dispute is connected with U.S. District Judge Nancy G. Edmunds' order, requiring Next Century Rebar LLC to pay more than $2.2 million in unpaid contributions with interest and liquidated damages.  The company filed a notice of appeal to the Sixth Circuit.

"Portions of the trustees' itemized hourly work are described insufficiently to prove that the work 'was performed with reasonable diligence and efficiency,'" Judge Altman said.  The judge said many of the funds' billing entries linked to an audit are "vague," necessitating a drop in proposed attorney fees from around $110,900 to roughly $99,800.  Judge Altman did not disturb the funds' request for more than $18,200 in costs.

The judge pointed to billing entries connected with an audit, saying some entries about the correspondence and emails with the auditor "provide the court with little information as to the necessity of the work."  The benefit funds requested around $110,900 in October, saying the plaintiffs' counsel spent 388.8 attorney hours in pursuing the case.

Next Century Rebar called billing entries linked to the attorney fees request "excessive, duplicative, and vague" as part of the company's Oct. 30 response. The company challenged the funds' bid for fees over review of the audit.  "Excessive review of the audit is ongoing throughout the time entries of multiple persons without any detail or reason for the excessive amount of time spent reviewing, re-reviewing, and again revisiting the audit report," Next Century Rebar said.

The company said the funds were seeking fees for clerical work that could have been undertaken by a legal clerk or assistant to the plaintiffs' attorneys.  Judge Altman found that some of Next Century Rebar's complaints about the clerical work entries were valid and warranted lower attorney fees.  "Next Century has highlighted instances where parts or all of the described work was clerical in nature and could have been handled by paralegals or other staff at much lower rates," the judge said.

The judge took on arguments from Next Century that the request related to audit costs of about $13,000 was "outrageous," saying the company didn't raise evidence to back up this claim.  Judge Altman said an affidavit "from an attorney that worked closely on this case and on the review of the audit" corroborated the cost of the audit.

A recent Law 360 story by Madison Arnold, “11^th Circ. Oks Lower Atty Fees in Food Not Bombs Case”, reports that the Eleventh Circuit upheld a decision to cut attorney fees from about $1.5 million to just under $600,000 in a civil rights case involving a group that shares food with homeless populations against the city of Fort Lauderdale.  A three-judge panel found that Fort Lauderdale Food Not Bombs was wrong in challenging both the reduction in its counsel's requested hourly rates and the reduction in the requested number of hours reasonably expended.

"We cannot conclude that the magistrate judge's findings with respect to the reasonable hourly rate are clearly erroneous," the panel wrote.  "The findings are supported by ample evidence, including the hourly rates either awarded to, or requested by, the appellants' attorneys in recent prior cases ... the expert opinion of the city's expert, and the awards to other attorneys in comparable cases in the Southern District of Florida."

Food Not Bombs is an all-volunteer movement, but not an organized nonprofit, that recovers food planned to be discarded and shares meals with the hungry, according to its website. It hosts weekly food sharing at Stranahan Park, a public park in Fort Lauderdale where people without homes congregate.  The city chapter and some of its members sued the city in January 2015, alleging that a zoning ordinance and park rule effectively banned them from engaging in First Amendment conduct.

They argued that sharing food to communicate a political message, which criticizes the money spent on war around the world, was expressive conduct.  After a drawn-out legal battle, a final judgment was finally entered in December 2021, finding that the way the city applied its park rule to deter expressive food sharing violated the movement's First Amendment rights.  Each of the five plaintiffs received a judgment against the city of $2,500 in addition to attorney fees.

Food Not Bombs sought $1,527,636 in attorney fees, arguing that its counsel needed substantial skill, experience and expertise in civil rights cases and had qualifications that showed that expertise.  A magistrate judge, however, found that the 2,505 of work hours Food Not Bombs' attorneys said they worked on the case should be reduced about 40% across the board.

The judge also decided that the hourly rate requested for each of the attorneys was higher than what they were awarded or requested in past cases.  For example, Kirsten Anderson and Jodi Siegel were awarded a blended rate of $375 per hour from the Middle District of Florida in 2021. In the Food Not Bombs case, Anderson requested a rate of $565, and Siegel asked for $785.  The magistrate judge eventually landed on $375 for Anderson and $500 for Siegel, as well as lower rates for the other attorneys. Those attorneys appealed to the Eleventh Circuit, citing their success as reason for a larger payout.

"Their combined legal skills convinced this court, twice, that their clients' food sharing with others for a political purpose is protected by the First Amendment, that the city's enforcement of a park rule to restrict their activities was unconstitutional, and that the district court erred in its summary judgment opinions," the attorneys argued.  They added that they "achieved not only what was sought at the complaint stage — a declaration, injunction and damages — but also obtained two precedential opinions from this circuit that will influence the law in this subject area for years to come."

However, the court found no error in the magistrate judge's decision, saying that in his findings of fact, the judge relied on the parties' experts' opinions, applicable law and rates awarded within the district, among other standards.  "The magistrate judge also relied on his own knowledge and experience, 'having considered the length, extent and novelty of the litigation involved in the instant case,' and on the prior awards to these attorneys for plaintiffs in other cases," the panel said.

A recent Law 360 story by Jeff Montgomery, “Pentwater Appeals $267M Atty Fee Award in Dell Case in Del.”, reports that a private equity investor in Dell Technologies Inc. is appealing a Chancery Court's record $266.7 million fee award to class counsel that secured a $1 billion settlement for stockholders who sued over a $23.9 billion stock swap in 2018.  Pentwater Capital Management filed notice of appeal without a transcript late Friday with the Delaware Supreme Court, challenging both the attorney fee award and a $50,000 incentive award granted to Steamfitters Local 449 Pension Plan, the lead plaintiff for the suit filed in November 2018.

Vice Chancellor J. Travis Laster set the fee at $266.7 million on July 31, trimming a request of $285 million.  He said in his July 31 decision and order that eight funds that had invested in Dell but were not part of the class suit, recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

Pentwater — holder of 1.6% of the Dell Class V tracking stock at issue in the Chancery Court suit — branded the fee award as massive and a potentially "dangerous" precedent. In a Chancery Court brief opposing the fee, Pentwater argued that "the requested fee in absolute and percentage terms is disproportionate to the value conferred on class members."

Settlement of the overall case prevented a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMware, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class had argued, were shortchanged by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

When the challenged conversion closed on Dec. 28, 2018, VMware stock closed at $158.38 per share, and Class V stockholders received just $104.27 per share, fueling objections that the Dell Class C stock to be received for Class V shares had been overvalued.

In his fee opinion, the vice chancellor noted that class attorneys provided hundreds of examples of contingent fee agreements to support their original request for $285 million.  However, he noted, none of the objectors provided examples, except for Pentwater, and that example was "not for a Delaware case."  Vice Chancellor Laster also observed in his July 31 decision that investment funds that had recommended a lower amount, including Pentwater and seven others, had "a strong economic motivation for seeking a lower fee award."

The vice chancellor's decision elaborated on the idea that the investment funds that didn't go to the trouble of suing had a financial motivation now to object.  Following a 10% fee trend in federal securities actions, he noted, would have given them an extra $49 million for the equity holders, rather than sharing it with the class.  Five law professors suggested in a friend-of-the-court brief that a 15% fee would be appropriate, which still would have added $35.78 million to the objectors' recovery, the vice chancellor's decision noted.

"Having sat back and done nothing, the objectors now claim that a fee award without a sizable reduction would 'not yield equitable results,'" the vice chancellor wrote in an August filing confirming the $266.7 million fee award.  "That assertion masks self-interest with an appeal to equity.  Wanting more money for yourself is understandable, but it is not grounds for a fee objection."

A recent Law 360 story by Rick Archer, “FTX Examiner Says $200M in Fees ‘Remarkable’ But Justified”, reports that the fee examiner in the FTX Chapter 11 case has told a Delaware bankruptcy judge that the professionals in the case have racked up more than $200 million in bills since November, a figure she said was "remarkable" but justified by the chaos created by the cryptocurrency giant's collapse.  In a report, fee examiner Katherine Stadler said the charges so far from the law firms and financial consultants retained by FTX and its unsecured creditors are for the most part justified by the professionals' scramble to deal with the "smoldering heap of wreckage" left by FTX.

"Without question, the fees incurred to date are remarkable, but so is the professionals' performance," Stadler said.  FTX filed for bankruptcy on Nov. 11 after weeks of turmoil caused by the failure of its FTT digital token, which led to a run on the bank as customers rushed to withdraw their cryptocurrency holdings from the platform.  Subsequent internal investigations revealed that about $65 billion in FTX assets were transferred to Alameda Research — a cryptocurrency hedge fund founded and controlled by former FTX CEO Sam Bankman-Fried — through a back door in the platform, leaving a shortfall in customer funds.

Stadler said the size of the case and the alleged role of management malfeasance in the collapse were both unremarkable.  "What makes these cases extraordinary, however, is the largely unregulated financial system in which the debtors (and other similar financial technology companies) operate, combined with their global scope, the complete absence of corporate records, and the non-existence of even the most basic corporate governance," she said.

As a result, the firms involved found themselves in an "'all-hands-on-deck' crisis," she said, resulting in missteps like deploying teams that later proved to be too large and retaining experts that ultimately were not needed, but nothing "wholly unreasonable in the moment."  "They did not have the luxury of carefully considering staffing decisions, developing the most efficient teams, or deploying resources with military precision," she said.

The report specifically dealt with the first 90 days of the case, during which 242 attorneys billed nearly 35,000 hours, Stadler said.  She reported that a total of about $88.8 million in fees and expenses had been billed through Jan. 31, including $42.1 million from FTX counsel Sullivan & Cromwell LLP and $28.5 million from its financial adviser, Alvarez & Marsal. Paul Hastings LLP, lead counsel for the unsecured creditors committee, billed $5.5 million. The committee's forensics investigation consultant, AlixPartners, billed $3.2 million.

Stadler recommended that a total of $85.1 million in fees and expenses be approved at the fee hearing scheduled for June 28.  She also recommended that a $2.4 million bill from Ernst & Young for tax services for FTX be deferred to the next fee application period, saying she had not completed her review, and said the other firms had stipulated to about $1.3 million in reductions of their bills.

A recent Bloomberg Law by Roy Strom, “Quinn Emanuel Justifies Hugh Fee With $384,000-Per-Hour Return,” reports that Quinn Emanuel has new ammunition in its fight for a $185 million fee award, saying in a filing this week that every hour its lawyers worked on the case generated about $384,000 in returns.  That figure, according to a Harvard Law professor the firm hired to analyze (pdf) the fee award, shows the firm’s work in the Obamacare case was perhaps the most efficient ever performed by attorneys in a large class-action.  Lawyers in 13 similarly sized class action cases generated about $10,000 in returns per hour on average, professor William Rubenstein said.

Does that figure show Quinn Emanuel lawyers were, as Rubenstein argued, “epically productive?”  Or does it prove they’re getting a windfall?  That’s the question the judge overseeing the fee award legal fight, Kathryn Davis, will have to consider.  

The fee fight comes after Quinn Emanuel won nearly $4 billion for health insurers who were stiffed by Congress when it decided not to pay them for selling new, risky policies mandated by Obamacare.  Quinn Emanuel filed the first case taking on the US government, but a separate challenge wound its way all to the Supreme Court, resulting in $12 billion in total payouts.

The firm’s clients won every dollar they sought.  But Quinn Emanuel’s lawyers worked relatively few hours on the case—9,630 hours, to be exact.  It’s the equivalent of fewer than five Big Law attorneys working for one year, hardly a massive undertaking.  In the 13 large class-actions Rubenstein compared to the case, no law firm had worked less than 37,000 hours.

Because Quinn Emanuel’s lawyers worked so few hours to generate such a huge reward, the case has teed up thorny questions about how lawyers’ work should be valued.  Do attorneys just sell their time? Or should courts reward the result lawyers achieve?

In the Quinn Emanuel case, technical considerations have also been in play.  The firm initially received 5% of the $3.7 billion award they won—roughly $185 million.  That’s the figure Quinn Emanuel told clients they’d ask a judge to pay them.  It’s worth noting that a 5% fee on a contingency case is significantly lower than the 33% or 40% lawyers often charge.  But that fee got tossed when some of the health insurers appealed to the Federal Circuit.  They argued Quinn Emanuel should be paid around $9 million.  The appeals court noted Quinn Emanuel told clients its award figure would be subject to a “lodestar crosscheck.”  The Federal Circuit said that hadn’t been done and sent the case back to Judge Davis to consider that analysis.

This is how Quinn Emanuel described a lodestar crosscheck to its clients: “a limitation on class counsel fees based on the number of hours actually worked on the case.”  The lodestar method applies a multiplier to the attorneys’ hourly bill as a reward for success.  It’s usually about 1.5 to 3 times the total bill in successful cases.  If Quinn Emanuel was charging its standard hourly rates, it says its lawyers would have been paid about $9.7 million for their work on the case.  That means the firm is seeking a multiplier of around 19. (Rubenstein says the lodestar is closer to 10 when applying the firm’s newer, higher hourly rates.)

Just like the $384,000 in value-generated-per-hour, a lodestar multiplier of 19 is a serious outlier.  All of this makes the judge’s task a difficult one.  Davis must decide whether to reward the firm for its most-efficient result, or compensate it for the relatively little time case took.

How We Got Here

These outlandish fee award figures made me wonder: What happened to create such a unique case?  Rubenstein’s $384,000 figure doesn’t just tell us something about the lawyers and the result they achieved.  It hints at an underlying fact pattern that must be devastating.  The idea of the “most efficient” litigation in class-action history roughly translates to “the least effort to convince a judge of the most damages.”  What happened that required such little legal work to produce such a huge reward?

The answer can only be described as an unusual and epic failure by Congress.  As the US government careened toward a shutdown in late 2014, Congress cobbled together a massive funding bill to avert disaster.  It included, of all things, a provision that limited the government from appropriating funds to pay subsidies promised to health insurers who participated in an Obamacare program known as “risk corridors.”

The program encouraged insurers to provide new health insurance plans to riskier patients by sharing profits and receiving subsidies from the government. In the end, the government racked up a bill of more than $12 billion.  Sen. Marco Rubio (R-FL) took credit for the provision, though other Republicans argued they were just as responsible, slamming what he called a “bailout” for insurers.

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