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Category: Fees & Fiduciary Duty

Article: Understanding Attorney Fee-Shifting to Mitigate Risk

December 5, 2023

A recent Business Insurance article by Iran Valentin and Allison Scott, “Perspectives: Understanding Attorney Fee Shifting to Mitigate Exposures”, reports on the importance of understanding attorney fee-shifting in litigation to mitigate risk.  This article was posted with permission.  The article reads:

The availability of attorneys fees is a significant concern to policyholders.  Without the potential to recover the fees, most dubious claims and suits related to employment law and consumer protection, for example, would not be pursued.  The potential of a fee recovery also drives up the cost of resultant litigation, settlements and awards.  Thus, a double-headed monster emerges: an increase in the number of claims and an increase in exposure, which can eventually drive up the costs of insurance.

An existential threat that exists for corporations is a “nuclear verdict,” or a runaway jury award.  These huge verdicts grew in the face of incessant legal advertising by plaintiffs attorneys and the resultant slanted narrative effectively desensitized potential jurors to the value of money and preemptively taints prospective jury pools.

Within this context, it is more important than ever for insurance professionals and defense counsel to understand the significance of attorney-fee shifting.  When crafting a defense strategy, many factors are considered, including the nature of the alleged loss, the profiles of the litigants, the reputation of the claimants’ counsel, recent jury verdicts and the jurisdiction.  Equally as important should be considering the effect of fee-shifting, to develop strategies to mitigate that exposure.

Remedial legislation

Basically, fee-shifting requires a losing party in litigation to pay a prevailing party’s attorneys fees.  It represents a departure from the “American Rule,” which generally provides that each party to a litigation will bear their own fees.  However, fee-shifting statutes have continued to grow, especially in the areas of employment and consumer protection, or so-called remedial legislation.

One of the purposes of remedial legislation is to introduce policies intended to benefit the public good, including anti-discrimination, anti-retaliation and consumer protection.  The policies enable fee-shifting provisions so alleged victims have access to competent legal representation.  It is not always the alleged victims who seek vindication, but rather lawyers who make a market in an area where attorneys fees are available.

Fee-shifting is sometimes a misnomer, as the availability of fees under enabling law is often limited to a prevailing plaintiff, as opposed to a prevailing defendant.  Under those laws, legislators seek to avoid the creation of a “chilling effect,” in dissuading potential plaintiffs and their lawyers from pursuing a claim.

Some laws allow for more traditional fee-shifting, by allowing prevailing defendants to recover defense fees for claims that lack merit or are brought in bad faith.  While a prevailing party may be awarded fees under a fee-shifting law, there is often attendant litigation over who constitutes a “prevailing party.”  Generally, a prevailing party is one who achieves a substantial proportion of the relief sought, whether or not that party actually obtains a verdict.  Courts have held that parties may not only prevail by judgment but also by compromise or settlement. 

In at least one jurisdiction, fee-shifting has also been made available in the professional liability context.  In New Jersey, the precedential 1996 case of Saffer v. Willoughby allowed a successful plaintiff to recover attorneys fees in prosecuting a legal malpractice action.  The New Jersey Supreme Court held that a negligent attorney is responsible for resulting legal fees and costs.  Interestingly, those fees were not considered fee-shifting, but “consequential damages” flowing from the attorney’s negligence.  New Jersey courts also allow recovery of fees by a third-party if the attorney intentionally breaches a recognized duty owed to a non-client, such as when serving as a fiduciary. 

The “common fund” and “substantial benefit” doctrines are also court-created fee-shifting mechanisms.  The common fund doctrine applies where litigation has created or preserved a common fund for the benefit of a group of people — such as a class action — and, accordingly, an attorney may be awarded attorneys fees out of that fund.  The substantial benefit doctrine applies if a judgment confers a substantial benefit on a defendant, such as in a corporate derivative action, which could lead to the payment by the defendant of the attorneys fees incurred by the plaintiff. 

Outside of the statutory and court-created fee-shifting framework, parties to a contract may agree to fee-shifting provisions.  Commercial contracts quite commonly contain default provisions that call for the payment of attorneys fees to a prevailing party in a dispute to enforce the terms of the agreement.

In most jurisdictions, attorneys fees that are awarded pursuant to a fee-shifting statute are calculated by setting a “lodestar,” which is the number of hours reasonably expended by an attorney multiplied by a reasonable hourly rate in the jurisdiction. Courts have the flexibility to adjust the lodestar considering certain factors, such as the results obtained by the attorney; the time and labor required to obtain that result; the attorney’s skill; the attorney’s customary fee; the amount of money involved in the claim; and awards in similar cases.

If the prevailing party has only achieved partial or limited success, the requested lodestar may be considered excessive and reduced.  Moreover, the attorney’s presentation of time billed must be set forth with sufficient detail, based on appropriate rates and in compliance with the jurisdiction’s ethical requirements.

Determining exposure

When a claim arises, insurance professionals and defense counsel should determine whether the policyholder is exposed to any court rule, statute, regulation or case law that allows fee-shifting or an award of attorneys fees.  They should also conduct an early assessment of liability and damages and consider early avenues to resolution to mitigate the exposure to fee-shifting.  Depending on the jurisdiction, defense counsel may be able to craft strategies designed to cabin the availability of attorneys fees, helping to drive resolution.  These are good faith strategies and methods employed during a case to drive resolution and also mitigate the exposure to attorneys fees. 

Often, a reasonable settlement curbing increased fees and costs is the second-best result outside of obtaining an early dismissal.  However, it is important to take care during settlement negotiations and the drafting of settlement agreements, releases and stipulations resolving litigation to account for attorneys fees and costs.  Lack of attention or poor drafting could result in unintended consequences, including the imposition of a fee award. 

When an adverse judgment calls for the imposition of an award of attorneys fees, strategies can still be employed to curb a disproportionately excessive fee claim, by relying on mitigation strategies employed at the outset designed to limit the recovery of fees; exposing the limited success of a claimant; exposing an adversary’s wastefulness during the dispute; questioning the proofs submitted in support of the fee claim; and otherwise contesting the reasonableness of the fee claim.

Iram Valentin is co-chair of the professional liability practice group in the Hackensack, New Jersey, office of Kaufman Dolowich LLP.   Allison Scott is an associate at the firm.

Miami Law Firm Fights for Coverage of Fee Dispute

September 21, 2023

A recent Law 360 story by Ganesh Setty, “Miami Law Firm Fights For Coverage Of Overbilling Claims”, reports that a Miami law firm's insurer cannot rely on an "ambiguous" fee dispute exclusion to totally avoid defending overbilling claims, the law firm told a Florida federal court, arguing that even if the exclusion applies, the underlying lawsuit it faces involves broader legal malpractice claims.  In a brief opposing James River Insurance Co.'s motion for summary judgment, Sheehe & Associates PA and three of its attorneys said that, despite the insurer's effort to construe the underlying action as an "overbilling scheme," at least two counts — breach of fiduciary duty and breach of oral contract — are still covered.

And the potential for coverage triggers an insurer's duty to defend an entire lawsuit, the firm noted.  According to court filings, James River issued a professional liability policy to Sheehe running from March 2020 to March 2021 that broadly provided coverage for wrongful acts in the performance or failure to perform "professional services."  The policy defined that term in part as services performed by an insured as a lawyer, arbitrator or trustee, along with other fiduciary roles performed in one's capacity as a lawyer.

In the underlying action, Frontline Insurance Co. accused Sheehe and the attorneys in state court of overbilling hours worked while handling first-party property claims, alleging that in some cases multiple attorneys for the firm individually billed Frontline more than 24 hours for a single day.  Frontline specifically lodged breach of fiduciary duty, negligent supervision, unfair trade practices, unjust enrichment, breach of oral contract, fraud and legal malpractice claims.

In denying coverage, James River argued that overbilling does not constitute professional services, pointing in part to a fee dispute exclusion that barred coverage for claims arising from the "rights or duties under any agreement including disputes over fees for services."

Highlighting an underlying allegation that Sheehe and the other attorneys failed to ensure their legal services were "reasonable and necessary and advanced the best interest of Frontline," the law firm said such a claim shows that Frontline is not just suing Sheehe for a billing dispute but its "strategic decisions," too.  "A claim for breach of fiduciary duty grounded in an attorney-client relationship is considered a malpractice action and subject to the same standards as a legal malpractice claim," Sheehe continued, adding that the same goes for the breach of oral contract claim.

As for the fee dispute exclusion itself, its use of "any agreement" renders its scope overly broad since all professional services in the policy stem from an attorney-client relationship in which an attorney agrees to appropriately represent their client's interests, the firm further argued.  "This exclusion precludes coverage for all agreements, including ones between attorneys and clients, rendering the coverage illusory if read as expansively as James River urges," it said.

For its part, James River further cited in its August motion for summary judgment a prior knowledge exclusion, which barred coverage for a professional services claim if "any insured" could have reasonably foreseen their conduct would give rise to a claim.  It also invoked a "gain of profit or advantage" exclusion barring coverage for any gain or profit an insured is not legally entitled to.

But the policy still covers claims following its retroactive date of March 2004, which was prior to Sheehe's representation of Frontline, the firm responded, adding that the audit Frontline commissioned was still ongoing at the time Sheehe's policy started coverage.  "As the audit included dates cited in the complaint late as March of 2020, there is no allegation in the underlying complaint that supports that Sheehe would or should know that a claim would arise," the firm said.  The gain of profit or advantage exclusion, meanwhile, does not extend to the breach of fiduciary duty and oral contract claims either, Sheehe said, noting both counts seek damages rather than repayment of fees.

Article: Twitter Fee Dispute Case Offers Crash Course in Billing Ethics

September 19, 2023

A recent Law 360 article by Lourdes Fuentes, “Twitter Legal Fees Suit Offers Crash Course in Billing Ethics”, reports on ethical lessons from the recent Twitter fee dispute litigation case.  This article was posted with permission.  The article reads:

Corp.'s case against law firm Wachtell Lipton Rosen & Katz, filed over Twitter's legal bill in connection with Elon Musk's $44 billion acquisition of the company, highlights the importance of following proper billing practices, which are governed not only by contract law but also by the higher standards imposed on lawyers by the rules of professional conduct.  The claims in X Corp. v. Wachtell Lipton Rosen & Katz, filed in early July in California's San Francisco County Superior Court, include restitution (unjust enrichment), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and violation of California Business and Professions Code, Section 17200.

The pleading contains a litany of facts but recounts a concise timeline. From when Wachtell was retained on June 21, 2022, to the Oct. 13 party held to celebrate the month-end closing of the deal at the original $44 billion price, only 114 days had elapsed.  In that time, Twitter received two invoices.  These invoices were included as exhibits to the complaint.  A review of the invoices reveals blank time entries, vague descriptions, irrelevant references and block billing, among other issues.  The invoices amount to close to $18 million.

To compound these perceived improprieties, the final fee statement then added an extra $72 million dollars to that tab.  This was a "success fee" that was referenced in the closing day letter agreement drafted by Wachtell and signed by Twitter's then-chief legal officer, Vijaya Gadde, allegedly hours before the closing sale of Twitter on Oct. 27.  Significantly, the success fee had not been outlined in the engagement letter.

While the validity of the claims will be decided in court, the suit spotlights vital legal billing practices and ethical considerations for attorneys and clients alike.  Even if Wachtell defeats X, the suit has put the reputation of the firm's billing practices at risk.  Moreover, the suit has put the reputation and ethics of individual attorneys at risk by disclosing the invoices at issue, tying timekeeper names to time entries.

Further, the answer to whether the $90 million is fair pay or windfall may not be based on the amount itself, but on whether the parties followed the rules of professional conduct governing attorney-client relationships.  By reexamining billing approaches in light of the Twitter fees case, law firms and clients can take away important lessons on proper billing practices.

The Relevant Rules

Client and lawyer can maintain a positive partnership that is founded on transparency and trust by following an ethical road map.

The claims in the complaint provide us with a good starting point.  They are based on common law tort, contract law and the American Bar Association's Model Rules of Professional Conduct, which have been similarly adopted to varying degrees in other states' jurisdictions.  These are:

    Section 6147 of the California Business and Professions Code, which addresses contingency fees;

    Rule 1.5 of both the California and New York Rules of Professional Conduct, which prohibit unreasonable or unconscionable fees;[6] and

    Rule 1.8 of both the California and New York Rules of Professional Conduct, which prohibit soliciting gifts from clients.

By keeping these rules — or their equivalent from your jurisdiction — top of mind, practitioners can avoid the appearance of impropriety. Though not mentioned in the complaint, I would also add ABA Rule 1.4, which deals with attorney-client communications, to this list.

8 Crucial Steps for Success Fees

Fees based on the outcome of a case, like the success fee in the Twitter case, are permissible, but they still need to be reasonable.  While the ABA rules do not specifically mention success fees, they state that a fee may be contingent on the outcome of the matter for which the service is rendered.  The rules do, however, state that:

A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined.  Success fees are common in transactional matters, but these are typically negotiated as part of an engagement letter.  They are structured to incentivize the law firm to achieve the best possible outcome for the client.  However, the exact nature and amount of these fees can vary and are a subject of negotiation between the parties.  As a result, it is crucial for both parties to follow these steps.

Transparency and Disclosure

All terms related to the success fee should be clearly stated in the engagement letter or contract.  This includes how the fee is calculated, when it is to be paid, and under what conditions it may be modified or waived.

Reasonableness of the Fee

All fees must be reasonable.  Look for guidance in ABA Rule 1.5 for factors that can be considered to determine reasonableness of a success fee. These can include:

    The novelty and difficulty of the case;

    The skill required to properly provide legal services;

    Comparable rates in your area for like services;

    The amount at issue and the results obtained;

    Time limitations imposed by the client or by the circumstances;

    The reputation, experience and ability of the lawyers performing the services; and

    Whether the fee is fixed or contingent.

Proportionality

The success fee should be proportional to the value provided by the law firm.  This could be in relation to the deal size, the complexity of the transaction or the level of risk involved.

Incentive Alignment

Make sure that the fee structure selected aligns the firm's incentives with the client's goals.  Otherwise, it could be considered a conflict of interest, among other ethical pitfalls.

Regulatory Compliance

Understand your state-specific rules or regulations that might apply.  For example, California's Section 6147 speaks to contingency fee agreements.  Research your jurisdiction's rules and regulations.  Remember, as well, that some jurisdictions may cap or ban certain types of fees.

Dispute Resolution

Include a clause specifying how any disputes over the success fee will be resolved, whether through arbitration, mediation or court proceedings.

Periodic Review

It may be prudent to include provisions for reviewing the success fee arrangement at various stages of the transaction.

Client Consent

Explicit, informed consent from the client is crucial, especially if the success fee arrangement is unconventional or complex.  It is important to note that all fees must not only be reasonable but also adequately explained to clients.  Circumventing clear documentation enables end-runs around billing safeguards in violation of ABA Rule 1.5 and violates Rule 1.4.

While a lawyer and client may renegotiate a fee agreement during an ongoing relationship, the lawyer typically carries the burden of establishing fairness of the new arrangement if it is ever challenged.  Fee agreements entered during the attorney-client relationship will get heightened scrutiny to avoid the appearance of undue influence or impropriety.

In the case of Twitter, the success fee was agreed upon allegedly hours before the closing of the deal.  Although Twitter's old board agreed to the fees, the circumstances in which this transpired could be perceived as unethical and improper because of the lateness of the agreement made by the parties to include a success fee.  Hence, in addition to challenging the fee as unreasonable, the lawsuit claims that, based on the facts leading to the closing day letter agreement, the success fee should be considered a gift, and hence a violation of ABA Rule 1.8.

10 Proper Billing Practices

The controversy highlighted in the Twitter fee case provides a valuable reminder of the heightened scrutiny in attorney-client relationships due to its fiduciary nature and the rules of professional conduct.  In addition to the steps specific to success fees outlined above, it is important to keep these broader billing best practices in mind.

Engagement

Always formalize the fee arrangement in a written agreement.  This holds true whether you are dealing with an hourly rate, a contingency fee or some other type of fee structure.  Any modifications to the engagement terms or fee structure should also be put in writing.

Transparency

Clearly outline how legal fees will be calculated, any percentages that may accrue in the case of a contingency fee and any other expenses that will be deducted from the recovery.

Client Communication

Keep the client informed about any developments.

Alternative Fee Arrangements

There is nothing wrong with exploring creative billing options that can benefit both parties, but ensure they are in line with ethical guidelines and are clearly outlined in the agreement.

Data-Driven Metrics

Consider using data-driven methods to establish fees, especially for alternative fee arrangements.  This adds an element of fairness and can help align incentives between client and lawyer.  Notably, today we have the benefit of using artificial intelligence to come up with creative data-based alternative fee arrangements.

Review and Oversight

Periodically review the billing practices to ensure compliance with your client guidelines.  Train your timekeepers in proper billing practices and client-specific billing guidelines.  This training should be done annually and while onboarding new personnel.

Regulations

Understand the rules governing fees and conflicts of interest.  Train your lawyers in the rules of professional conduct.  This training should be done annually and while onboarding new personnel.

Fiduciary Duty

Always act in the best interest of the client, keeping in mind the fiduciary nature of the attorney-client relationship.

Avoid Surprises

Be proactive to avoid sticker shock.  Discuss potential scenarios and outcomes openly with the client, so they know what to expect in terms of fees.

For example, one fact alleged in the complaint is that:

[I]n the middle of the board's final October 27 meeting, former Twitter general counsel Sean Edgett sent the chart of fees that the Twitter board was meeting to approve.  Upon seeing the magnitude of the fees being presented for the board's approval, one former Twitter director immediately exclaimed in an email reply to Edgett: "O My Freaking God."

Regular Invoicing

Provide detailed invoices that outline the work done, the time spent and the costs incurred.  This not only aids transparency but will also help in resolving any disputes that may arise.  Also remember, your time entries should be treated with as much care as any work product; they should be clear, concise, descriptive and grammatically correct.

By following this ethical road map, the parties will reduce the likelihood of disputes and misunderstandings and, also, maintain a good working relationship.

Conclusion

Whether you are the client or the lawyer, beware falling asleep at the wheel when it comes to new engagements, modifications to billing and billing practices generally.  To do so may risk legal action and your reputation.

Lourdes Fuentes is a seasoned litigator, Founder & Chair of Karta Legal LLC, law firm partner and CEO.  She has a law degree from the University of Pennsylvania and is also a certified Legal Project Manager and Lean Six Sigma Black Belt.  With decades in the field, her expertise lies in optimizing legal operations and promoting ethical billing.  Lourdes founded Karta Legal to tackle these specific challenges, offering tailored solutions that include innovative technology adoption and process improvement.  Her firm caters to a diverse range of clients—from Fortune 100 companies to specialized boutique law firms—ensuring they adhere to transparent and ethical billing practices.

DOL Says Fund ‘Bleeding’ Legal Fees From Baker Botts

July 20, 2023

A recent Law 360 story by Celeste Bott, “DOL Says Fund ‘Bleeding Money,’ Questions Baker Botts Bills”, reports that the U.S. Department of Labor has asked an Illinois federal judge to prevent trustees from entirely draining a multi-employer benefit fund — after the agency accused them of misappropriating more than $2.8 million in assets and seemingly approving "gargantuan" legal fees charged by Baker Botts LLP.

In a motion for a temporary restraining order and preliminary injunction, the department said that without court intervention, trustees John Fernandez and Gary Meyers will keep "bleeding money" from the United Employee Benefit Fund and leave nothing for the participants and beneficiaries.  The fund provides life insurance for at least 63 employer-sponsored plans.

The Labor Department says it has evidence that the trustees are approving or failing to scrutinize the funds' soaring expenditures toward legal fees and other costs that are rapidly depleting its assets, leading those assets to shrink from $22 million in December 2018 to roughly $12 million in April 2023, and then "dramatically less" as of this May, "to the point where there is a substantial risk that all of the fund's assets will be imminently and completely dissipated."

The agency says Fernandez and Meyers "appear to be turning a blind eye" to unreasonable legal fees, claiming to have received a letter in May from the fund's counsel, Christopher Rillo of Baker Botts, stating that the firm had billed the fund millions in fees, in part to defend against the Employee Retirement Income Security Act lawsuit, and was owed millions more, far exceeding initial estimates.

The suit, first brought by Labor Secretary Marty Walsh last February, alleges that the benefit fund and its trustees used more than $2.8 million to pay home foreclosure costs and make direct payments to themselves.  The complaint also alleges that L. Steven Platt, a real estate attorney, helped transfer $1.1 million from the fund through his companies Husker Properties LLC and Mount Rinderhorn Capital LLC to save a trustee's home from foreclosure in late 2016.  Platt later argued in a motion to dismiss that he was merely following orders from the trustees.

Fernandez and Meyers were both named in the suit, as are the law firm Robbins Salomon & Patt Ltd. and real estate attorney David Schwalb, who the Labor Department alleged conducted prohibited transactions with the fund in 2016 and 2017.  Now, emergency measures are warranted because of "alarming information" the department has learned about the fund's rapidly depleting assets, the department said.

"The $1.385 million the Secretary caused to be restored to the fund between August and November 2021 is likely spent, presenting the distinct possibility that there will be nothing left to make whole the participants harmed by the trustees' violations," the DOL said.  "In addition to the very real possibility that all plan assets will be dissipated before this litigation is resolved, the issue of attorney's fees is concerning because the trustees brazenly amended the fund's governing document to allow the fund to give themselves and defendant Platt indemnification agreements that require it to advance their legal fees, including fees to defend against the Secretary's claims against them for fiduciary violations."

The agency claims that it has asked Rillo of Baker Botts numerous times for information about the fund's assets and legal bills, but it was not until days before the May mediation that he shared those details.  "Fund counsel implies that his 'substantial attorney's fees' are justified by the possibility his firm will recover more money for the fund than the Secretary's enforcement action will," the department said.  "Beyond that, the litigation Rillo filed on behalf of the fund to recover losses from ERISA violations is duplicative of the Secretary's claims — a fact belied by the fund's failed attempt to consolidate its actions with the Secretary's."

Rillo has said there is no insurance coverage available to pay the fund's legal fees in defending the ERISA action, with those costs to defend the trustees coming directly from the fund they are accused of mismanaging, the DOL said.  "Thus, it appears that the trustees are permitting the fund to cash in participants' insurance policies to obtain funds to pay their own enormous legal fees, as well as the unreasonable fees charged to the fund by fund managers," it said.

The department wants an appointed fiduciary to take control of the fund, its assets and participating plans and make sure it complies with ERISA, conduct analysis on whether the legal fees paid since Rillo became the fund's counsel are lawful and prevent the fund from cashing in any life insurance policies except for the benefit of the fund's participants.

Twitter Claims Wachtell Ran Up $90M Legal Bill

July 7, 2023

A recent Law 360 story by Hailey Konnath, “Twitter Rips Wachtell’s $90M Fee Battling Musk To Close Sale”, reports that Twitter has accused Wachtell Lipton Rosen & Katz of exploiting "lame duck fiduciaries" as it "ran up the tab" and collected a "gargantuan" $90 million fee helping it defeat Elon Musk's effort to back out of his $44 billion acquisition, according to a lawsuit filed in San Francisco County court.  Twitter's new parent company, X Corp., said the firm violated its fiduciary and ethical obligations to the company, which had been "left unprotected by lame duck fiduciaries who had lost their motivation to act in Twitter's best interest" pending the $44 billion sale to Musk.  The company said the fee payment made to Wachtell was done under an "unenforceable contract" and must be voided.

Wachtell initially agreed to work on an hourly fee basis, but it later also solicited a "success fee" on top of its hourly billing, Twitter said in its complaint filed.  Wachtell's earlier invoices totaled $17.9 million, the company said.  "The $90 million fee collected from Twitter for a few months of work on a single matter represented nearly 10% of Wachtell's gross revenue in 2022, and over $1 million per Wachtell partner," according to the suit.

Twitter accused the firm of being at "the center of a spending spree" by Twitter's departing executives in the days and hours leading up to the deal's closing in October.  Those executives "ran up the tab at Twitter by, among other things, facilitating the improper payment of substantial gifts to preferred law firms like Wachtell," it said.  "Fully aware that nobody with an economic interest in Twitter's financial well-being was minding the store, Wachtell arranged to effectively line its pockets with funds from the company cash register while the keys were being handed over to the Musk parties," the complaint read.

Twitter hired Wachtell as part of the legal team that sued Musk in Delaware's Court of Chancery last year after the billionaire tried to back out of his promise to buy the company.  Ultimately, the firm helped Twitter obtain an expedited trial that put pressure on Musk before he finally agreed to close the deal on its original terms.  According to the complaint, Wachtell submitted "massive invoices" totaling millions of dollars in hourly billings from its partners, with "completely blank time entry descriptions."

Then, on the eve of the merger closing, the firm proposed to fundamentally alter its arrangement to secure additional compensation, Twitter said.  It did so "with the firm's work on the merger litigation in the Delaware Chancery Court already concluded, and without any foreseeable need for Twitter to utilize its services again," the company alleged.  Members of the departing Twitter board of directors had already signed their resignation letters when they met for the last time and signed off on the payment to the firm, Twitter said.

In the months since the Musk takeover, Twitter has been mired in controversy stemming from Musk's leadership.  A number of former workers who were laid off or resigned following the merger say the company has refused to pay them promised severance.  Twitter has also been accused of violating the Worker Adjustment and Retraining Notification Act and California's Private Attorneys General Act by failing to notify employees of layoffs.

On top of that, property owners have said Twitter stopped paying rent at its San Francisco and United Kingdom headquarters.  And former Twitter executives say the company owes them more than $1 million in legal expenses they've incurred responding to lawsuits and regulatory inquiries.