Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Fees & Fiduciary Duty

USTP Opposes Chapter 11 Fees for MTE Service Providers

August 20, 2021

A recent Law 360 story by Jeff Montgomery, “US Trustee Opposes Ch. 11 Fees For MTE Service Providers”, reports that the Office of the U.S. Trustee opposed a $2 million fee award for the ad hoc committee of service providers in MTE Holdings LLC's contentious Chapter 11 in Delaware, arguing that the committee failed to show how it benefited the estate.  Several other participants in MTE's case, including MTE itself, had also opposed the request, asserting that the committee failed to show that its efforts were for the benefit of any constituency "other than its own members."

No official committee of unsecured creditors was formed in the case, with the ad hoc group asserting rights under liens.  An insufficient number of creditors agreed to serve in a traditional unsecured creditor capacity, the trustee observed.  The debtors waded through complex disputes, the trustee wrote, including a push for the appointments of a Chapter 11 trustee and a new board, chief restructuring officer and other key figures, as well as the appointment of a mediator.

"There is nothing in the mediator motion, or in the ad hoc committee's motion for substantial contribution, that indicates that the ad hoc committee played a role in negotiating the appointment of a mediator," the trustee objection said, adding separately that "Creditors are presumed to act in their own interest until they satisfy the court that their efforts have transcended self-protection."  Committee members failed to show they acted beyond self-interest, the trustee wrote, or filed motions that duplicated those of the other groups in the case.

"Importantly, the motion fails to present any evidence that the ad hoc committee's actions permitted the reorganization to proceed with a minimum of litigation, keeping costs low and hastening the reorganization by, for example, ensuring that key parties were satisfied with the direction of the case," the trustee wrote.  MTE's own objection went further, arguing that "voicing support for work already done by other creditors or constituencies hardly rises to the lofty level of 'substantial contribution.'"

The committee presented a different picture in its motion, which included a request for more than $1 million in fees for its counsel from Potter Anderson & Corroon LLP.  "With no official committee of unsecured creditors appointed in these cases, the ad hoc committee stepped in and led the charge on behalf of all statutory lienholders," the group's motion said.  Its actions were said to have "ultimately resulted in the filing of a plan of reorganization, which benefited all interested parties and the debtors' estates."  A decision on the motion is pending.

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.

No Arbitration for Attorney-Client Fee Dispute

August 11, 2021

A recent Law 360 story by Caroline Simson, “No Arbitration For King & Spalding Client Fight, Court Hears”, reports that a Dutch citizen who accuses King & Spalding LLP of fraudulently colluding with Burford Capital to maximize fees ​​in a treaty claim​ against Vietnam​ is fighting the law firm's efforts to send the fee dispute to arbitration, arguing that an arbitration clause in the funding agreement is inapplicable.

Trinh Vinh Binh sued King & Spalding and two of its international arbitration partners in Houston, 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.

King & Spalding pressed a federal court in Houston last month to send the dispute with Binh to arbitration, citing an arbitration clause in the funding agreement and alleging that Binh excluded Burford from his suit in an attempt to skirt the clause.  The law firm claims that even though it is not a signatory to the funding agreement, the broad scope of the clause provides for arbitration of any dispute arising out of the pact.

But Binh argued that the clause governs disputes only between him and Burford, and not with any third parties. He said that the engagement agreement he signed with King & Spalding when he retained the firm for the Vietnam matter makes no mention of arbitration for disputes.  "Defendants are attorneys, and they certainly know how to draft an arbitration clause.  But the engagement agreement between Binh and defendants contains no arbitration clause," Binh's attorneys said. "Try as they might, defendants have not shown — and cannot show — that they may properly invoke the [funding agreement's] arbitration clause.  Binh therefore respectfully requests that this court deny defendants' motion."

King & Spalding had represented Binh in an arbitration matter filed against Vietnam in 2015, in which 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.  The way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more Binh was at risk of paying a so-called success return, to be paid if Binh 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 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.

Working Paper: Judicial Guide to Awarding Attorney Fees in Class Actions

March 7, 2021

A recent Fordham Law Review working paper by Brian T. Fitzpatrick, “A Fiduciary Judge’s Guide To Awarding Fees in Class Actions (pdf),” considers the fiduciary role of judges in awarding attorney fees in class action litigation.  This article was posted with permission.  Professor Fitzpatrick concludes his article:

If judges want to act as fiduciaries for absent class members like they say they do, then they should award attorneys’ fees in class actions the way that rational class members who cannot monitor their lawyers well would do so at the outset of the case.  Economic models suggest two ways to do this: (1) pay class counsel a fixed or escalating percentage of the recovery or (2) pay class counsel a percentage of the recovery plus a contingent lodestar.  Which method is better depends on whether it is easier to verify class counsel’s lodestar (which favors the contingent-lodestar-plus-percentage method) or to monitor against premature settlement (which favors the percentage method) as well as whether it is possible to run an auction to determine the market percentage for the contingent-lodestar-plus-percentage method.  The (albeit limited) data from sophisticated clients who hire lawyers on contingency shows that such clients overwhelmingly prefer to monitor against premature settlement, since they always choose the percentage method.  Whether the percentage should be fixed or escalating depends on how well clients can do this monitoring.  Data from sophisticated clients shows both that they choose to pay fixed one-third percentages or even higher escalating percentages based on litigation maturity just like unsophisticated clients do, and they do so even in the most enormous cases.  Unless judges believe they can monitor differently than sophisticated corporate clients can, judges acting as good fiduciaries should follow these practices as well.  This conclusion calls into question several fee practices commonly used by judges today: (1) presuming that class counsel should earn only 25 percent of any recovery, (2) reducing that percentage further if class counsel recovers more than $100 million, and (3) reducing that percentage even further if it exceeds class counsel’s lodestar by some multiple.

Brian T. Fitzpatrick is a professor of law at Vanderbilt University Law School in Nashville.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA