Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Fee Splitting / Sharing

Sixth Circuit Affirms Attorney Fees in CHS Qui Tam Actions

January 27, 2022

A recent Reuters story by Alison Frankel, “Whistleblower Lawyers Score Important Win in 6th Circuit’s Fee Ruling,” reports that in 2014, hospital operator Community Health Systems Inc agreed to pay nearly $100 million to settle False Claims Act allegations that it overbilled the government for healthcare services.  But that wasn't the end of the case.  There was still the matter of attorneys' fees -- a fight that has lasted seven years.

CHS’s settlement with the Justice Department resolved seven early stage qui tam lawsuits by private whistleblowers who assisted the government’s investigation into claims that the company charged in-patient rates for services that should have been billed at lower rates for outpatients.  Did lawyers for all of those whistleblowers deserved to be paid for their efforts?

The 6th U.S Circuit Court of Appeals ruled that they did, in a consolidated appeal of a 2020 trial court decision denying attorneys’ fees to lawyers for whistleblowers whose lawsuits were not the first to be filed against CHS.  6th Circuit judges Karen Moore, Eric Clay and Julia Gibbons concluded that nothing in the language of the False Claims Act or in the specific facts of this case excuses CHS from its obligation to pay attorneys’ fees to whistleblowers (also known, in the FCA context, as relators) who collected a share of the bounty from the government’s settlement.

“The FCA encourages and incentivizes citizens to prevent the defrauding of public funds,” Moore wrote in the unanimous appellate opinion.  “If multiple relators uncover multiple independent parts of the same complex scheme and the government uses the relators’ collective resources to investigate the fraud, it would be unfair to allow solely the first relator’s attorney to recover all the attorney fees because that relator discovered one part of the fraud first.”

Dave Garrison of Barrett Johnston Martin & Garrison, who argued at the 6th Circuit for one of the relators, said by email that the decision is “great precedent” for lawyers who represent whistleblowers.  “The 6th Circuit made clear that counsel for relators in False Claims Act cases, even when there are multiple cases, add value to the FCA’s goal of protecting taxpayers and deserve to be compensated,” Garrison said.

The False Claims Act includes a provision that permits successful relators to seek attorneys' fees from defendants.  CHS agreed to an attorneys' fee settlement with one of the first-to-file whistleblowers who was awarded a bounty from the government. (Other whistleblower lawyers received contingency fees from relators.)  But the hospital operator balked at paying fees to whistleblower lawyers whose clients were not directly awarded a bounty from CHS's settlement with the government.

It offered two primary arguments.  First, CHS argued, the statute does not permit attorneys’ fees for relators whose bounty awards did not come directly from the government but from a private agreement among whistleblowers.  And second, the hospital chain asserted, the False Claims Act’s bar on opportunistic follow-on litigation precludes attorneys’ fees for relators who were not the first to file qui tam lawsuits or who relied on already-public information in their complaints.

The trial court judge, U.S. District Judge Marvin Aspen, sitting in Nashville, Tennessee, sided with CHS in his 2020 decision. (That ruling followed a 2016 remand from the 6th Circuit involving the specific language of the settlement terms that permitted CHS to challenge relators’ fee requests.)  None of the whistleblowers litigating to obtain fees from CHS, Aspen said, was the first to file a lawsuit asserting relevant claims, so none was entitled to fees under the language of the False Claims Act.

The 6th Circuit, however, concluded that the attorneys’ fee provision of the statute does not actually require a whistleblower to be the first to file.  The plain language of the law, the appeals court said, imposes just two requirements for relators to seek attorneys’ fees: The government must have intervened in their case, and they must have received a payment from a settlement of their claim.

That conclusion, wrote 6th Circuit Judge Moore, is consistent with both the purpose of the False Claims Act and the real-world realities of litigating qui tam whistleblower cases.  “FCA lawsuits often involve the complex allocation of work between whistleblowers and their attorneys, who may have varying degrees of information about the case,” she wrote.  Private bounty-sharing agreements among relators, Moore said, allow the government to focus its attention on the merits of claims against defendants, rather than internal squabbling among plaintiffs and their lawyers.

Law Firm Objects to Fee Split in Discovery Dispute

December 1, 2021

A recent Law360 story by Lauren Berg, Buchanan Ingersoll Objects to Fee Split in Discovery Dispute,” reports that Buchanan Ingersoll & Rooney PC told a Pennsylvania federal judge that it shouldn't have to shoulder an equal portion of the fees owed to a special master in a contract dispute with a medical device company, saying its former client's discovery blunders caused unnecessary costs.  The special master's services were unnecessarily expanded when Best Medical International Inc. didn't follow discovery rules, ignored deadlines, didn't produce an adequate privilege log and made confusing productions, according to Buchanan Ingersoll's motion.

"Whether this was an intentional delay tactic or negligence is moot; the fact is, the special master was forced to perform the work Best Medical and its lawyers should have done," Buchanan Ingersoll said.  "There is no justification for Buchanan to be required to pay half of this expense."  The law firm said it wants Best Medical to pay 100% of the special master's fees and costs that were generated before June 24 because all the work done before that date was rendered useless by the company's "malfeasance."

The special master's fees generated after June 24 should also be reapportioned, from a 50/50 split to a 75/25 split for wasting the special master's time, Buchanan Ingersoll said.  Best Medical, which manufactures radiotherapy products, sued Buchanan Ingersoll in July 2020, alleging the firm overbilled it for patent litigation services, according to the complaint.  Buchanan Ingersoll denied the allegations and filed counterclaims in September 2020, saying it provided Best Medical with monthly billing estimates but that the company stopped paying its bills.

In its motion, Buchanan Ingersoll said a special master was appointed in the case in March after Best Medical didn't produce all relevant documents in a discovery request.  Best Medical argued that the missing documents were protected by attorney-client privilege, so the special master was tasked with reviewing the documents and evaluating the privilege claims, the motion states.  Buchanan Ingersoll said the fee split was set at 50/50 for the task of reviewing about 180 documents, which it estimated should have taken the special master three to four hours to complete.

For the work he did before June 24, the special master billed $7,346, for which Buchanan Ingersoll said it paid 50%, or $3,673.  For work done after June 24, the special master billed $25,144, for which the firm was responsible for 50%, or $12,572, according to the motion.  The firm said Best Medical should have to pay all the bill for the work before June 24 and should pay 75% of the bill for work after June 24 because of its improper conduct.

Article: Eleventh Circuit’s New Standard for Attorney Fees in ADA Cases...at Gas Stations

September 3, 2021

A recent article by David Raizman and Paul J. De Boe, “Eleventh Circuit of Appeals Creates New Standard for Standing in Title III Cases Against Gas Stations,” reports on a recent ruling on ADA litigation in the Eleventh Circuit Court of Appeals.  This article was posted with permission.  The article reads:

For years, Scott Dinin was one of South Florida’s most prolific filers of Title III of the Americans with Disabilities Act (ADA) cases.  His run ended two years ago, when, after obtaining default judgments against two gas stations on behalf of his client, Alexander Johnson, Dinin submitted a request for attorneys’ fees whose billing entries caught the attention of Judge Paul Huck of the U.S. District Court for the Southern District of Florida.  Judge Huck’s investigation into the matter brought to light a systematic practice of filing frivolous claims, knowingly misrepresenting the time counted as billable, making misrepresentations to the court, and improperly sharing attorneys’ fees with clients.  In his August 2019 order awarding extensive sanctions, Judge Huck described Dinin’s and Johnson’s operation as “an illicit joint enterprise … to dishonestly line their pockets with attorney’s fees from hapless defendants under the sanctimonious guise of serving the interests of the disabled community.”

Judge Huck’s sanctions included:

dismissal with prejudice of Johnson’s ADA and Florida Civil Rights Act claims;

disgorgement of improperly obtained settlement funds from 26 “gas pump cases”;

additional penalties of $59,900 against Dinin and $6,000 against Johnson; and

an injunction preventing Johnson and Dinin “from filing any future ADA complaints without first obtaining the court’s written permission.”

Judge Huck’s order corroborated and confirmed the suspicions of many in South Florida’s business and legal communities about questionable practices of some plaintiffs and their lawyers in Title III access litigation.  Johnson and Dinin appealed, and on August 17, 2021, the Eleventh Circuit Court of Appeals dismissed Dinin’s appeal and affirmed the district court’s order imposing sanctions on Johnson.

The Eleventh Circuit Dilutes Standing Requirements

While the court’s affirmance of sanctions has drawn the most interest, practitioners may want to note the court’s holding regarding standing in Title III cases brought against gas stations and similar Title III defendants that are not “destination-type establishments like hotels, hospitals, or restaurants.”  The court held that standing could be established without showing a “definite intention to visit” the specific establishment “in the future,” as would be required if the defendant were a supermarket or a “destination-type establishment.”  The court reasoned that gas stations are “visited on an as-needed basis, often based on convenience, proximity, or price on a given day,” and “cars are mobile and must be serviced wherever they happen to be at the time gas is needed.”  Therefore, standing exists if “[Johnson] regularly travels in the vicinity of the particular gas station.”

As the concurring opinion pointed out, the majority opinion did not cite any support for “water[ing] down the constitutional minimum for standing.”  All the same, practitioners may want to take note of this important holding when defending cases brought against gas stations or non-destination-type establishments.

David Raizman is nationally known for his disability rights practice, specifically for his work under Title III of the Americans with Disabilities Act.  In 2012, he was recognized by the Los Angeles Daily Journal as one of the top labor and employment attorneys in California and has been recognized multiple times as a Southern California Super Lawyer.

Paul De Boe is an associate attorney in the Miami office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.  His practice focuses in the area of employment litigation including claims of discrimination, harassment, retaliation, wage and hour, and family and medical leave law violations.  Mr. De Boe also counsels and defends clients in claims brought pursuant to Title III of the Americans with Disabilities Act involving brick and mortar locations as well as website accessibility, and state and federal consumer protection laws.

Article: 5 Reasons Lawyers Often Fail to Secure Litigation Funding

August 24, 2021

A recent Law 360 article by Charles Agee, “5 Reasons Lawyers Often Fail To Secure Litigation Funding,” reports on litigation funding.  This article was posted with permission.  The article reads:

It's no secret that parties seeking litigation funding face steep odds in securing a deal.  How steep?  According to my firm's research, more than 95% of commercial litigation funding deals presented to any particular funder never advance to closing.  Experience tells me one of the overarching reasons the litigation finance deal closure rate is so low is that lawyers and their clients drastically underestimate the challenges and nuances of obtaining this specialized form of financing.

For many, the downside of trying and failing to secure funding is simply that — not obtaining the funding.  So why not approach a few funders and see if one bites?  On the surface, this approach has appeal; in reality, it is fraught with hidden costs.  The litigation fundraising process can be extremely laborious, and the time sunk into an unsuccessful deal typically is not billable.  Each year, leading law firms squander millions of dollars in time alone seeking funding for deals that do not bear fruit.

Even more concerning, lawyers who are unsuccessful in obtaining funding for their clients almost always damage their credibility with the client.  The good news is that these challenges can be anticipated and, in many instances, overcome.  To overcome those challenges, however, it is important to also examine why so many parties fail to obtain litigation funding. Here are the top five reasons why.

1. Misunderstanding the Funders' Acceptance Standards

Funders reject the lion's share of deals that they are shown because most of them should never have been brought to the market in the first place.  My colleagues and I have seen that far too many lawyers and clients present litigation opportunities that make no sense to pursue, regardless of who is funding the case.  Nothing can be done to change the substance of the underlying matter, and short of committing fraud, you are not going to sneak into a funder's vault with a meritless deal.

The best — and only — advice for these weak opportunities is to avoid the litigation fundraising process altogether.  But we also see that funders also reject a significant number of matters that are meritorious and economically viable enough for experienced litigation counsel to be willing to risk their own legal fees on a successful outcome.

Why are these opportunities declined?  The reason — and it may not be a satisfactory one — is that a litigation funder's diligence process and investment criteria are generally more rigorous than that of most law firms.  Unless a lawyer has a great deal of experience with funding, this disparity can be jarring and more than a little ego-bruising, especially when clients or colleagues are watching.

To appreciate why the litigation funders' bar is set so high, it is helpful to consider the investment proposition from their perspective.  The funder must develop a high degree of confidence in a financially successful outcome of a legal dispute — usually involving complex subject matter — because it will only receive an investment return if the underlying matter resolves favorably.

As a purely passive investor, the funder also must structure the deal in a way that achieves alignment with both counsel and client, and often the economics of even the strongest of cases are insufficient to do so.  Further, unlike a venture capital fund that can accept high levels of losses because of their upside in successful investments, litigation funders' more modest returns are too low to subsidize VC-level loss rates.

Because most litigation funders are relatively new and have not yet established substantial track records, this dynamic fosters a stronger bias toward risk aversion within the industry.  A litigation funder's diligence process is designed to find reasons not to invest in an opportunity. It also tends to follow a leave-no-stone-unturned approach, which can be exhausting for the party seeking funding.  However, even the most discriminating funders' processes can be successfully navigated with proper preparation and analysis before approaching the funder.

What are the main challenges counsel will face in the litigation, and how will these be overcome? What is counsel's track record in similar matters? What level of financial risk is counsel prepared to assume?  These are just a few of the questions that parties should consider before approaching funders. Lawyers and their clients are well-served to anticipate these and other questions that a skeptical investor might ask, and be prepared with clear and thoughtful responses.

2. Failing to Approach the Most Suitable Funders for the Opportunity

Parties seeking funding often fail to approach the funders most likely to invest in their claim.  There are currently 46 active commercial litigation funders in the U.S., each with different funding criteria, risk appetites, structuring preferences and return profiles.  Most parties seeking funding only present their opportunity to a few of these funders. This is a mistake, because even the largest funders in the world are not configured to accommodate every potential type of deal.

Without adequate knowledge of the market, it is difficult to know which funders are most suitable for a particular deal. It is critical to know what a funder's investment criteria are, including preferred deal size, type of litigation, jurisdictions and stage of litigation, among others.  Too often, parties meet resistance from funders that were never a good fit for the opportunity and elect to abandon the fundraising process altogether.  If they had only identified the right audience, they might have been able to secure funding.

3. Inadequately Packaging the Presentation of the Opportunity

First impressions matter, especially in litigation finance.  Our conversations with funders inform that the largest litigation funding firms see more than 1,000 opportunities a year and don't have the bandwidth to wade through poorly packaged opportunities.  Still, parties often fail to spend the time necessary to appropriately present an opportunity. The failure to properly present an opportunity often is the difference between a yes and a no.

What are the most common deficiencies in litigation fundraising presentations?  Most lawyers are more than capable of presenting the legal merits of an opportunity; however, we have observed time and again that they tend to fall short in demonstrating a thorough approach to the economics, i.e., the damages model and the budget.  Lawyers and clients may also downplay or omit entirely a case's potential challenges, whereas a funder expects these downsides to be soberly acknowledged and addressed.

Another similar mistake is to leave too many analytical black boxes in the presentation, such as factual questions that could be investigated now but are proposed to be left for discovery, or assumptions underlying the damages model that have not been rigorously researched.  The negative impression left by these and many other deficiencies is difficult to overcome.  Parties seeking funding should prepare a thoughtful and complete presentation of their financing opportunities.

4. Lacking Awareness of Norms That Guide Negotiations With Funders

A common misconception is that litigation funding deals are easy to negotiate and that funding agreements are relatively uniform.  In reality, these deals have several peculiarities and are governed by particular legal and ethical parameters.  Even parties with experience in other types of financing or business dealings struggle to extend their acumen to litigation financing deals.

Indeed, the process is guided by certain industry norms that outsiders may not necessarily appreciate or even be aware of. Parties that neglect to understand these nuances run a considerable risk of derailing the litigation fundraising process, sometimes after many months have been spent.  Each funder approaches the investment diligence and documentation processes differently.

For instance, some will provide parties a term sheet and, after the term sheet is executed, proceed to deeper diligence and final deal documents.  Other funders might have a three-phase negotiation process where the party is expected to execute a term sheet, a letter of intent and then a litigation funding agreement. Parties should be prepared to negotiate with the funder at each phase of the process.

Prior to closing, the last document to be negotiated is the definitive litigation funding agreement, or similarly named instrument.  While no two funding agreements are identical, most agreements have certain types of provisions that are essential to the funder, given the contingent-repayment, no-control nature of the investment.  Parties seeking funding should understand that these types of provisions are nonnegotiable and that pressing too hard can sour an otherwise fruitful closing process.

5. Prematurely Agreeing to Exclusivity With a Funder

Perhaps the most critical decision in the litigation fundraising process involves granting exclusivity to a funder.  Once a term sheet has been negotiated, a funder will nearly always require a period of exclusivity — sometimes more than 60 days — to complete its diligence and documentation of the transaction. After granting exclusivity, you are largely at the funder's mercy.

Parties seeking funding almost universally misread the significance of obtaining a term sheet from a funder, mistakenly believing that the probability of closing is far higher than it actually is.  Depending on the funder and the extent of its preliminary due diligence, the term sheet can merely be a hope certificate describing what a transaction might look like. Terms may be retraded or, as is often the case, the funder declines to proceed with the deal following a deeper dive into the opportunity.

Selecting the wrong funder for exclusivity may also hamper a party's future prospects of securing a deal with another funder, if negotiations with the original funder stall.  Funders will often assume that the deal with the original funder stalled because of a fatal flaw in the deal.

In an industry that is already risk-averse by nature, this kind of red flag in the middle of a fundraising process is extraordinarily difficult to overcome.  The key to avoiding this mistake — aside from refusing to grant exclusivity — is to understand the approach, process and track record of any funder requesting exclusivity.

The party seeking funding should also assess the extent of the funder's preliminary diligence and the degree to which the funder grasps the key issues.  Of course, ensuring that all material facts have been disclosed to the funder prior to exclusivity also helps avoid surprises. But candor may not be enough to avoid this pitfall.  Exclusivity is a necessary evil in the litigation finance industry — for now — and parties seeking funding should be extremely judicious in granting it.

Conclusion

While securing litigation funding may seem daunting, there are ways to beat those odds and maximize the chances of securing funding.  Parties that approach the market in a thoughtful and informed manner have a much higher likelihood of success and of avoiding wasteful dead ends.  As the market continues to mature, funders should innovate and improve their processes to make the experience more predictable and user-friendly.  Until then, experience in the market and knowledge of the funders and their approaches will remain the key to improving the odds of obtaining litigation financing.

Charles Agee is managing partner at Westfleet Advisors.

Law Firm Wants Attorney Fee Dispute in Arbitration

August 18, 2021

A recent Law 360 story by Caroline Simson, “King & Spalding Says Fee Fight Must Be Arbitrated”, reports that King & Spalding is urging a Texas court to force a former client to arbitrate allegations that the firm fraudulently colluded with Burford Capital to maximize fees while representing him ​​in a treaty claim​ against Vietnam, pointing to an arbitration clause in the underlying fee agreement.  Fighting back against Trinh Vinh Binh's arguments earlier this month that the clause is inapplicable because the firm didn't sign the funding agreement with Burford, King & Spalding argued in a brief that the clause is broad enough to encompass the dispute.

Binh, who's accused the firm and two of its international arbitration partners in Houston of making a "mockery of the fiduciary obligations an attorney owes to their clients," told the court that the funding agreement doesn't contain any reference to King & Spalding.  In fact, the firm had already inked a deal with him that laid out all the terms of their relationship and did not include an arbitration clause, he said.

But the firm pointed in its brief to the wording of the clause, noting that it applies to "any controversy or claim" that is "relat[ed] to" the funding agreement.  The clause also applies to "any other transaction document," which includes a "counsel letter" through which Binh instructed the firm to distribute any arbitration proceeds in accordance with the funding agreement, according to the brief.  "Plaintiff cannot reasonably dispute that his claims 'relate to' the [funding agreement] and the counsel letter," according to the brief, which notes that Binh is seeking damages based on the firm's alleged failure to allocate the arbitration proceeds in compliance with the funding agreement.

"While plaintiff attempts to characterize these claims as arising out of the engagement agreement, that agreement does not address the allocation of arbitration proceeds," the firm continued. "The terms cited in the petition were set forth in the [funding agreement] and 'agreed to' by defendants through the counsel letter, bringing those claims squarely within the ambit of the [funding agreement]'s arbitration agreement."

Counsel for Binh declined to comment, saying they will file a response with the court.  Binh sued King & Spalding and two of its partners, Reggie R. Smith and Craig S. Miles, in June, alleging they made a "mockery of the fiduciary obligations an attorney owes to their clients" by "colluding" with litigation funder Burford to take more of the arbitration proceeds than Binh had agreed to.

The law firm had represented Binh in a treaty claim against Vietnam over the confiscation of certain real estate that ended in a $45 million award against the country in 2019.  In the arbitration, filed in 2015, Binh accused the country of improperly taking several valuable properties he says were worth an estimated $214 million.  Under their deal, the law firm agreed to hold back 30% of billings for fees and defer the payment of those amounts until work had concluded in the arbitration.

At the same time, Binh entered into a funding agreement with Burford Capital with a $4.678 million spending cap, according to the suit.  Binh claims that King & Spalding told him the firm could complete the arbitration work within that cap.  But by May 2016, the firm had already billed and been paid some $1.9 million, leaving about $1.8 million after initial costs and expenses had been paid out.  Binh alleges that at that point the firm, "motivated by securing continued, guaranteed immediate payment of their fees, colluded with Burford" to contrive a scheme to increase the amount potentially owed by Binh by increasing the cap on King & Spalding's legal fees and, consequently, increasing Burford's potential entitlement to an increased return.

Binh says that the way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more he was at risk of paying a so-called success return, to be paid if he prevailed in the arbitration.  The success return was to be split between King & Spalding and Burford based on the relative portion of their investments in the arbitration, Binh said.  Binh alleges that King & Spalding tried to make him agree to increase the cap on expenditures for legal fees — and potentially, provide more of a return for Burford — but that he refused.  Thereafter, Burford and the law firm allegedly executed a side agreement between themselves.

In addition to accusing King & Spalding of breaching its fiduciary duty, Binh's lawsuit includes claims for negligence if the overpayment of fees was due to a mistake, as well as claims of misrepresentation and fraud.  He also accuses the firm of negligence after the tribunal in the case against Vietnam rejected an expert report the firm provided stating that Binh's property was worth some $214 million.  The tribunal instead awarded $45.4 million.