A recent Law 360 story by Jack Karp, “Wachtell Wins Bid to Arbitrate X’s $90M Fee Dispute”, reports that a California state judge granted Wachtell Lipton Rosen & Katz's request to send to arbitration a dispute with X Corp. over $90 million in legal fees tied to the fight over Elon Musk's purchase of Twitter.  The master retention agreement between Wachtell and X, formerly called Twitter, clearly delegates all disputes over arbitrability issues to an arbitrator, Superior Court Judge Richard B. Ulmer said in minutes issued after a brief remote hearing at which neither party appeared for Wachtell's motion to compel arbitration.

"The master retention agreement only carves out actions 'enforcing claims for injunctive or equitable relief.'  It did not carve out any other issue or circumscribe the scope of the parties' broad delegation clause," the judge said in adopting the tentative order.  X sued the firm in July, accusing Wachtell of exploiting "lame duck fiduciaries" as it "ran up the tab" and earned a $90 million fee helping the company defeat Musk's effort to back out of a $44 billion deal to acquire the company.

The firm ultimately helped Twitter obtain an expedited trial that put pressure on Musk before he finally agreed to close the deal on its original terms.  Wachtell moved to compel arbitration of X's claims in September.  The arbitration clause in question delegates jurisdiction over what kinds of claims can be arbitrated to the arbitrator in two places, and uses language derived from a Ninth Circuit decision on the topic, undercutting X's claims that the issue was left unclear by the contract, Wachtell argued.

X pushed back in early October, arguing that it is seeking only equitable relief since it wants the court to void its closing-day letter agreement and any associated excess fee payment in addition to restitution or disgorgement of the fees charged by Wachtell.  X also sought attorney fees and pre- and post-judgment interest.

"Once this court has set aside the closing day letter agreement, X Corp. will recover its payment to Wachtell, less Wachtell's 'reasonable fee.'  What is 'reasonable' under the circumstances will necessarily encompass various considerations and equitable principles," it said.  That means the "sole method" for X to win relief in the case requires the "application of equitable principles" to determine Wachtell's reasonable compensation, it said.

But Wachtell countered that the rescission X is seeking is "an action in equity" only when the recovery sought by the plaintiff through rescission involves something other than the money paid by the plaintiff.  "Here, every dollar of the final fee that X Corp. seeks to recover from Wachtell Lipton is a dollar that Twitter paid. That is restitutionary disgorgement — which is legal relief," the firm said in its Oct. 10 motion to compel arbitration.

A recent Law 360 by Elliot Weld, “Spanish IT Provider Asks Court to Confirm $14M Award,” reports that a spanish information technology provider Amadeus IT Group asked an Atlanta federal court to confirm an arbitration award it was granted by the International Chamber of Commerce against technology firm Ebix, saying the court should reject Ebix's arguments that the award improperly includes attorney fees.  Amadeus said that the inclusion of attorney fees in the award was the only argument Ebix had advanced to challenge it, and that both parties had agreed to be bound by the rules of the ICC.

"Ebix's sole basis for challenging the arbitration award is the arbitral tribunal's award of attorney fees," a memorandum by Amadeus reads.  "Contrary to Ebix's argument, the tribunal did not exceed its scope or authority."  According to Amadeus, the parties entered into a global agreement in October 2019 for Amadeus to provide Ebix's Indian subsidiary EbixCash with access to the Amadeus Travel Platform, a software interface it provides to its clients, in the Asia-Pacific region.  As part of that agreement, Amadeus paid EbixCash $15 million that was repayable if EbixCash failed to produce international airline bookings in certain volumes within time frames depicted in the agreement, according to Amadeus.

EbixCash failed to meet the required numbers and Amadeus terminated the agreement and sought repayment in April 2020, the company said.  The parties entered arbitration after they were "unable to reach an amicable resolution," according to the petition.  Ebix argued in a response April 18 that the tribunal's inclusion of costs and fees in the final award was beyond the scope of its power.  Amadeus responded that in the 2019 agreement between the two companies, ICC rules were included that permit a tribunal to award fees.  Ebix also waived its right to challenge the fees when it failed to raise the issue during arbitration, Amadeus said.

Eleventh Circuit precedent dictates that courts defer to the decisions of a tribunal when the scope of an arbitration is in dispute, Amadeus said.  "Ebix cannot point to a clause limiting Amadeus' ability to recover fees because no such clause exists," Amadeus argued.  At minimum, the remainder of the final $14 million award excluding the legal costs is not contested, and the court should confirm that even if it finds the tribunal exceeded its own authority, Amadeus said.

"Ebix is opposing confirmation of the award solely for purposes of delay," the motion reads.  "The final award was issued well over a year ago, and Ebix is disputing only the fees and costs portion of the award.  Yet Ebix has yet to pay anything on the final award, including the undisputed principal amount."

Every year, NALFA conducts an hourly rate survey of civil litigation in the U.S.   Today, NALFA released the results from its 2021 hourly rate survey.  The survey results, published in The 2021 Litigation Hourly Rate Survey & Report, shows billing rate data on the very factors that correlate directly to hourly rates in litigation:

City / Geography
Years of Litigation Experience / Seniority
Position / Title
Practice Area / Complexity of Case
Law Firm / Law Office Size

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs’ litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  This is the nation’s largest and most comprehensive survey or study on hourly billing rates in litigation.

This is the second year NALFA has conducted this survey on billing rates.  The 2021 Litigation Hourly Rate Survey & Report contains new cities, additional categories, and more accurate variables.  These updated features allow us to capture new and more precise billing rate data.  Through our propriety email database, NALFA surveyed thousands of litigators from across the U.S.  Over 8,400 qualified litigators fully participated in this hourly rate survey.  This data-rich survey was designed to aid litigators in proving their lodestar rates in court and comparing their rates to their litigation peers.

The 2021 Litigation Hourly Rate Survey & Report is now available for purchase.  For more on this survey, email NALFA Executive Director Terry Jesse at terry@thenalfa.org or call us at (312) 907-7275.

A recent Reuters story by Mike Scarcella, “IMF Says It’s Immune From Legal Fee Fight -- Again,” reports that a lawyer for the International Monetary Fund told a federal appeals court that the organization is shielded from a case that seeks to have a judge hear a dispute over millions of dollars in legal fees.  Seyfarth Shaw's James Newland Jr, arguing for the IMF before a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit, asserted that the IMF has judicial immunity from the litigation and that the organization never "expressly waived" such immunity in a legal-services contract with one of its outside lawyers.  A lower court judge in March dismissed the lawsuit.

The plaintiff, Leonard A. Sacks & Associates, in 2017 filed an arbitration action against the IMF that questioned how much the organization had paid him to resolve a construction-related dispute with contractors who'd been hired for work on the IMF's office in Washington, D.C. Leonard Sacks said in court filings his work saved the IMF about $45 million.  Sacks contested in court an arbitrator's decision to award him about $39,000 in fees beyond the $2.36 million he had received in 2016.

Newland did not immediately return a message seeking comment.  A lawyer for Sacks, Donald Spence Jr of Spence & Becker, and Sacks did not immediately return messages seeking comment.  Sacks had a 20-year professional services relationship with the IMF.  He said in court filings that the IMF, without his input, had determined his fee for the legal services on the construction project would be $4.15 million.  Sacks said he asked for an accounting on the fees but did not receive one.  The IMF ended its contract with him in 2017, court filings show.

Spence, arguing for Sacks at the D.C. Circuit, said the courts should have a role in reviewing the arbitrator's fee award.  The contract at issue, Spence argued, referenced D.C. law and the American Arbitration Association rules, which permit lawsuits seeking to modify or vacate an award.  Sacks had a contractual right to a court's review, Spence told D.C. Circuit Judges Cornelia Pillard, Laurence Silberman and Karen Henderson.  "Without a remedy, the contract is essentially illusory," Spence wrote in a brief.

A recent article by Charles H. Dick, Jr., “Recovering Attorney Fees in Arbitration,” reports on recovering attorney fees in arbitration.  This article was posted with permission.  The article reads:

An accurate assessment of damages is crit­ical for case evaluation, and the cost of dispute resolution plays an important role in deciding to pursue claims.  Even strong liability cases can fail to make economic sense.  That is why a thorough case appraisal should thoughtfully consider the attorney fees to be incurred.  And equally important, an objective case valuation should assess the likelihood of recovering attor­ney fees.

The “American Rule,” which specifies that each party must bear its own attorney fees, is a lesson for law school’s first year, and though the rule has been slightly modified to encour­age certain litigation in the public interest, fee-shifting remains the exception rather than the rule.  Against this background, professional responsibility obliges counsel to keep clients informed about litigation economics (Cal. Rules Prof. Conduct, rule 1.4)—something critically important as a case approaches the in­evitable mediation.  Unfortunately, experience teaches that an exacting analysis of litigation cost and exposure to fee-shifting often is an afterthought, and that the development of case strategies, discovery plans, and tactical maneu­vers occurs without thoughtfully weighing the implications of the American Rule and its ex­ceptions.  This is a recurring issue in arbitration.

Perhaps litigators approach attorney fee recovery casually, thinking there will be ample time to deal with the question before a final judgment is entered.  Arbitration, however, is different.  The binding nature of arbitration makes appellate relief unlikely.  An arbitrator’s award of attorney fees is unlikely to be sec­ond-guessed by a court, even if there is no stat­utory or contractual basis for the award. (See Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 33; id. at p. 11 [“it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.  In reaffirming this general rule, we recognize there is a risk that the arbitrator will make a mistake.”].)  When it comes to recovering attor­ney fees in arbitration, counsel needs to get the issue correct from the beginning.

California has codified the American Rule in Code of Civil Procedure section 1021.  Con­tractual arrangements can modify the rule and provide for fee-shifting, but a careful study of the parties’ language is critical. (See Valley Hard­ware, LLC v. Souza (Nov. 20, 2015, D067076) 2015 Cal.App.Unpub. Lexis 8347 [affirming arbitrator fee award in face of inconsistent contract provisions].)  Contractual language inevitably varies: Some agreements provide for recovery of fees “when permitted by law”; some say fees “actually incurred” are recoverable; some limit attorney fees to a percentage of the damages awarded; some say the prevailing party “shall” recover fees, while others use the uncertain “may.” Civil Code section 1717 de­fers to the contracting parties, subject to minor tweaks that limit fees to a “reasonable” amount and require that fee recovery be reciprocal.

In addition to carefully scrutinizing con­tract language, one also needs to know the procedural rules that will be applied in arbi­tration.  For example, in a Financial Industry Regulatory Authority (FINRA) arbitration regarding the investment brokerage industry, the arbitral panel is directed to determine the “costs and expenses,” yet absent some statutory exception to the American Rule, fee-shifting still depends on the parties’ underlying agree­ment (see FINRA rule 12902(c)).  Unless the parties’ agreement forbids fee-shifting, the rules of the International Institute for Conflict Prevention and Resolution (CPR) authorize the arbitration tribunal to apportion costs for “legal representation and assistance … incurred by a party to such extent as the Tribunal may deem appropriate” (see CPR 2019 Adminis­tered Arbitration Rules, rule 19.1(d) & 19.2). Rule 24(g) of the JAMS Comprehensive Arbi­tration Rules & Procedures is the mirror image: “[T]he Arbitrator may allocate attorneys’ fees and expenses … if provided by the Parties’ Agreement or allowed by applicable law” (ac­cord, Uniform Arbitration Act, § 21).

If all parties request an award of attorney fees, rule 47(d)(ii) of the American Arbitra­tion Association’s Commercial Arbitration Rules and Mediation Procedures authorize an award of attorney fees even if the underlying agreement is silent on the issue.  Throwing in a boilerplate prayer for attorney fees and costs without considering the consequences can result in fee-shifting.  And during arbitration, even casual discourse about attorney fees can be a basis for fee-shifting, absent an express agreement to the contrary.  (Marik v. Univ. Vill. LLC (Oct. 3, 2013, B247171) 2013 Cal.App. Unpub. Lexis 7143 [brief asserting entitlement to recover fees provided basis for arbitrator’s fee award]; see Prudential-Bache Securities, Inc. v. Tanner (1st Cir. 1995) 72 F.3d 234, 242-243 [“costs and expenses” under New York Stock Exchange Rules interpreted to permit award of attorney fees when both sides to dispute requested attorney fee award].)

Counsel should be mindful of an arbitra­tor’s predisposition to produce an award that is “fair to all concerned,” and this may include fee-shifting as an exercise in equity. (See Co­hen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 877 [absent parties’ agreement limiting arbitrator power, award of attorney fees on basis of equity and conscience affirmed].)  Further, misconduct of counsel may be a reason to “sanction” a party by reducing an attorney fee award. (E.g., Karton v. Art Design & Const., Inc. (2021) 61 Cal.App.5th 734 [fees reduced for incivility of counsel].)  And consider JAMS Comprehensive Arbitration rule 24(g), which authorizes an arbitrator to consider noncompliance with discovery orders when awarding attorney fees.

Attorney fees incurred prosecuting or defending a complaint to compel arbitration may be recoverable, but the procedural posture of the civil court action will determine when fee-shifting may occur. (E.g., Otay River Const. v. San Diego Expressway (2008) 158 Cal.App.4th 796.)  Though there is authority to the contrary (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40 [allowing recovery of fees even though liability on claim awaited arbitration]), the better-reasoned view is expressed in Roberts v. Packard, Packard & Johnson (2013) 217 Cal. App.4th 822.  In that case, clients filed suit against their former lawyers, alleging breaches of fiduciary duty and conversion in connection with settlement of qui tam litigation.  The law firm’s motion to compel arbitration was grant­ed, and the trial court awarded the firm its fees as the prevailing party.  On appeal, the court was persuaded the phrase “an action” means an entire judicial proceeding; procedural steps in the course of a lawsuit, such as a motion to compel arbitration, are steps in the prosecution or defense of an action, but they are not the entirety of an action on a contract.  The Roberts case stands for the proposition only one side can “prevail” in a lawsuit, and fee-shifting had to await the arbitrator’s final determination of the clients’ professional liability claims. (Id. at p. 843.)

Civil Code section 1717 defines the “pre­vailing party” as the person who recovers the greater amount on a contract.  Yet, Hsu v. Ab­bara (1995) 9 Cal.4th 863, makes it clear this involves more than a mathematical calculation.  The “court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their liti­gation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.” (Id. at p. 876.)  Thus, it is possible for a party to prevail by achieving litigation objectives, even though an opponent may have obtained a favorable verdict on liability theories.  Generally, however, when a verdict on contract claims is good news for one party and bad news for another, a court is obligated to treat the happy litigant as the prevailing party.

The identity of a prevailing party becomes more complicated when results of an arbitra­tion are mixed. In this regard, Marina Pacific Homeowners Association v. Southern California Financial Corp. (2018) 20 Cal.App.5th 191, is instructive.  This case between a homeowners’ association and a finance institution exempli­fies litigation that produces some wins and some losses for both sides.  The case involved a claim by the homeowners that they did not owe monthly fees the financial institution contended amounted to $97 million over the life of a lease.  The trial court found against the homeowners and declared there was an obligation to make monthly payments.  But the court also found the monthly payment rate was only 40% of the financial institution’s demand.  On appeal, the court declined to consider settlement communications as being a reliable expression of a party’s litigation objectives and concluded the “substance” of the result was a $58 million loss for the defendant.  Invoking the decision in the Hsu case, the court con­cluded there was no simple, unqualified result pointing to either side as a prevailing party, and the trial court had acted within its discretion in denying recovery of attorney fees.

One lesson regarding “prevailing parties” is the need for caution in over-pleading one’s case. Some counsel cannot resist converting a straight-forward breach of contract action into a fraud case with overtones of unfair business practices and assorted tort claims.  Pleading multiple claims that eventually are discarded for want of proof can be dangerous, especially unsubstantiated allegations of fraud.  In De La Questa v. Benham (2011) 193 Cal.App.4th 1287, 1295, an appellate court acknowledged the practice of overstating one’s claims, which makes it more difficult to determine the victor.  In a case producing mixed results, unsupported claims may lead to an opponent’s recovery of fees.

Counsel in arbitration need to address fee-shifting with a laser focus, beginning with the preliminary hearing, which is the first op­portunity to meet the arbitrator and learn his or her preferences.  Arbitrators can be expected to employ the lodestar method recognized as acceptable by a long line of California cases (e.g., PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1094).  Several issues can be dis­cussed at the hearing: What procedures will the arbitrator use to deal with attorney fee and cost issues?  Will these matters be bifurcated until an interim or tentative award on the merits is de­livered? Does the arbitrator have requirements for form, style, and specificity of time records? Will “block billing” be accepted? If more than one law firm will be appearing for a party, the conference also is an opportunity to explain why and set the stage to defuse a later argument about duplicated efforts.

In a case with both contract and tort claims, counsel should consider keeping a separate re­cord of time spent on matters that may not be entitled to recovery of attorney fees.  Counsel should be prepared to demonstrate that time records were prepared contemporaneously with the work reported, since there often is a lack of daily time recordation, let alone contem­poraneous reporting.  The fee application also should explain how the litigation team was de­ployed and why individual tasks were assigned to team members.

Proving the reasonableness of time and rates ordinarily can be accomplished by declarations of counsel regarding the usual, customary, and regular timekeeping and billing practices of the law firm.  Resumes of the personnel involved and a summary of the work may be useful.  (See, e.g., Syers Properties III, Inc. v. Rankin (2014) 226 Cal.App.4th 691, 702.)  And this informa­tion can be supplemented by the opinions of other lawyers objectively knowledgeable about actual practices within the community.  Survey data often is available for firms in metropolitan areas, and those reports also carry credibility.  But counsel should be alert to differences between posted or rack rates and hourly rates actually realized, because there often is a ma­terial difference.  As with hotels and rental cars, there may be a significant disparity between the advertised rate and what people actually pay.

Nemecek & Cole v. Horn (2012) 208 Cal. App.4th 641 makes it clear that a calculation of “reasonable fees” does not hinge on what fees actually were paid.  In that case, defense counsel had been compensated on the basis of negotiat­ed insurance panel rates.  The arbitrator refused to be controlled by such rate structures and declined to use the Laffey Matrix employed by the United States Department of Justice in de­termining rates the federal government believes are reasonable.  Instead, the award of attorney fees was based on an independent assessment of what would be reasonable, and the appellate court affirmed confirmation of that award. (See Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1260 [awarding reasonable rate $50 greater than counsel’s regular rate].)

There are three important things to remember about recovering attorney fees in arbitration.  First, carefully study the parties’ agreement to understand the rights it extends and the limitations it imposes.  Second, avoid pleading unnecessary claims that make it seem the end result tips in favor of one’s opponent.  Third, vacating an erroneous fee award is unlikely, so make your best case regarding fee-shifting before the entry of a final award.

Charles H. Dick, Jr. is a neutral with JAMS, and he serves as a mediator and an individual arbitrator or member of multi-arbitrator panels in complex commercial matters, securities and investment disputes, professional liability cases, products liability issues, and other business-related controversies.

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