Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes


News Blog

Category: Fees in Escrow

Philadelphia Bar Clarifies Advancement of Attorney Fees

August 24, 2022

A recent Law 360 story by James Boyle, “Philly, Pa. Bar Clarify How Attys Can Handle Advance Fees” reports that Pennsylvania attorneys can deposit advance fees into their operating accounts as long as the client clearly consents, according to a new ethics opinion jointly released by the Pennsylvania and Philadelphia Bar associations.

The PBA's Legal Ethics and Professional Responsibility Committee issued the opinion with the Philadelphia Bar's Professional Guidance Committee.  The opinion was issued as a clarification to a PBA ethics opinion from 1995, which said nonrefundable retainers from a new client were permissible, but it must be accompanied by a clear written agreement or deposited into a client escrow account.

According to Sarah Sweeney, co-chair of the Philadelphia Bar's Professional Guidance Committee, attorneys were confused whether there was a difference between a retainer fee that is earned upon receipt and an advance payment for legal services.  The new opinion makes that distinction.

"The [two committees] worked together in an effort to provide some clarity on the proper handling of legal fees paid at the outset of an engagement," Sweeney said in a statement.  "Specifically, the Opinion distinguishes fees that are earned upon receipt from fees that are simply paid in advance, and concludes that the former may be deposited in the attorney's operating account."  In other words, fees that are not earned upon receipt are considered advance fees, which are typically placed into an escrow account and drawn upon by the attorney as they represent the client.

Under the newly issued opinion, if there is an informed, written consent from the client, that fee can be placed into the attorney's operating account.  Fees that are considered earned upon receipt can be deposited into the operating account, as long as the attorneys clearly inform clients of the fee agreements.

"Ethics opinions are one of the most valuable services that we provide as Philadelphia's premier trade association for attorneys," Philadelphia Bar Association Chancellor Wesley R. Payne IV said in a statement.  "We were happy to partner with the Pennsylvania Bar Association in providing valuable clarity for our community on a common practice management issue."

Former Client Fights Law Firm’s $1.9M Attorney Fee Lien

May 3, 2022

A recent Law 360 story by Matthew Santoni, “Ex-Client Fights Buchanan Ingersoll’s $1.9M Fee Lien” reports that a former client of Buchanan Ingersoll & Rooney PC has said the firm isn't entitled to $1.9 million from a settlement in a patent dispute, but it offered to put a smaller amount aside while the parties litigate whether the firm overcharged for its work.  Best Medical International Inc. opposed Buchanan Ingersoll's motion for an attorney's lien on its settlement with Varian Medical Systems Inc., arguing in a brief to a Pennsylvania federal court that its former firm wasn't as instrumental as it claimed in securing the settlement and couldn't seek fees for the work while the reasonableness of those fees was at the heart of the current lawsuit.

"BIR has produced no evidence whatsoever that any settlement discussions began because of the quality of or the quantity of BIR's work," Best's reply brief said.  "Settlement discussions which resulted in an actual settlement did not result until after a substantial amount of additional work was done by other law firms once BIR withdrew from, or were substituted as to, representation of BMI in the Varian case."  Best urged the federal court to deny Buchanan Ingersoll's motion to enforce the $1.9 million lien and offered to put $700,000 in escrow with the court "as a good faith gesture, and without admitting liability in any amount."

Best had sued Buchanan Ingersoll in July 2020, alleging the Pittsburgh-based firm had overcharged for representing the medical device maker in a pair of patent disputes, including the fight with Varian.  Best broke off its relationship with Buchanan Ingersoll in March 2020.  Best and Varian announced a settlement in Delaware federal court April 18, and Buchanan Ingersoll filed a motion with the Pennsylvania court to enforce a lien on the settlement proceeds April 26, expressing concern that its former client would spend or otherwise dispose of the funds before the firm could claim its share.

Although the law firm claimed its engagement contract with Best included a clause saying it would be governed by Virginia law, Best argued that the Federal Rules of Civil Procedure regarding liens superseded the choice of law provision and that the law of the state where the lien was brought should apply.  And under Pennsylvania law, Best claimed that Buchanan Ingersoll had failed to make the necessary showing that its work contributed substantially to the settlement it sought the lien against.

Buchanan Ingersoll said it did most of the work on the Varian case in Delaware and on six "inter partes review" challenges that Varian had filed with the U.S. Patent and Trademark Office.  But Best countered that more was done by the successor law firms, including a "substantial amount of discovery, the taking and defending of depositions, significant briefing and oral argument before the USPTO … and appeals of the IPR final decisions to and currently pending in the U.S. Court of Appeals for the Federal Circuit."

"It is this substantial work by others, not BIR, that ultimately led to the Varian case settlement more than two years after BIR's representation was terminated," Best's reply said.  Even if the court agreed with Buchanan Ingersoll that Virginia law applied, the firm had not given all parties to the settlement — including Varian — that state's required notice that a lien might be applied to the settlement proceeds, Best said.

Moreover, Best said that Virginia law required Buchanan Ingersoll to show that the fees it sought to recover were reasonable, and the current lawsuit contended that they were not.  Best cited the Virginia Supreme Court's 1997 ruling in Seyfarth Shaw Fairweather & Geraldson v. Lake Fairfax Seven Limited Partnership to support its argument.

"Similar to issues in the instant case, the issues in Seyfarth involved the law firm expending an unreasonable amount of time in the performance of legal services and, therefore, the total amount of legal fees charged was unreasonable," Best's reply said.  "Any fees recoverable must be reasonable and … the party claiming legal fees has the burden of proving prima facie that the fees are reasonable and necessary.  Clearly, BIR has not met its burden of proof, nor has there been any adjudication, that the fees in dispute allegedly owed BIR were reasonable and necessary."

Hagens Berman $31M Fee Objection Heads to Ninth Circuit

April 19, 2022

A recent Law 360 story by Dorothy Atkins, “Hagens Berman Must Forfeit $31M Fee Win, 9th Circuit Told” reports that an objector's counsel urged the Ninth Circuit to force Hagens Berman Sobol Shapiro LLP to forfeit or reduce a revised $31 million fee award for securing deals worth $205 million in multidistrict litigation over optical disk drive price-fixing, arguing that the law firm violated multiple professional rules of ethics.  During a hearing before a three-judge panel, objector Connor Erwin's counsel, Robert Clore of Bandas Law Firm PC, argued that Hagens Berman violated multiple California Rules of Professional Conduct in securing its eight-figure fee award before a trial court, including by never placing the disputed funds into a client trust account, despite class members' objections and appeals pending.

But U.S. Circuit Court Judges Morgan Christen and Carlos T. Bea asked how class members have been harmed by the firm's failure to hold the funds in a client trust account.  "What harm, what foul?" Judge Bea asked.  Clore replied that as a result, the class has been denied up to $600,000 in interest that would have been collected on the disputed money.  At least a portion of that interest should have gone back to the class when a Ninth Circuit panel vacated Hagens Berman's previous $52.8 million fee and expense award, the attorney said.

"Why should they be entitled to interest on fees that don't belong to them?" Clore asked the panel.  The trip to the Ninth Circuit is the latest chapter in a decade-old multidistrict litigation claiming that Samsung Electronics Co. Ltd., Toshiba Corp. and other disk drive makers participated in an industry-wide conspiracy to fix optical disk drive prices.

Hagens Berman beat out other firms for lead class counsel in 2010, and the firm later struck multimillion-dollar deals to resolve the disputes.  After U.S. District Judge Richard Seeborg took over the case from U.S. District Court Judge Vaughn Walker, Judge Seeborg awarded the law firm $47.8 million in attorney fees for securing the settlements.  But in May 2020, a pair of Ninth Circuit panels vacated the fee awards after Clore argued before the appellate court that Judge Seeborg erred by keeping Hagens Berman's initial proposal for lead class counsel under seal and not properly taking it into account in awarding fees, among other objections.

On remand, in July, Judge Seeborg awarded Hagens Berman a revised $31 million fee, finding that the firm was entitled to a 20% premium on top of the $25.9 million it would be allotted under the firm's interpretation of the fee grid in its initial class counsel proposal.  Judge Seeborg also awarded Erwin's counsel $1.5 million in fees in September for their work helping to convince the Ninth Circuit to throw out the initial fee award.

But Erwin again challenged the fee award, with Clore arguing before the appellate court that Hagens Berman took too long to return the fees after the previous panel vacated the award, and did not place the funds in a client trust account, as required by professional rules of conduct.  Clore added that the trial court also erred in miscalculating the "starting point" for setting reasonable attorney fees on remand by using a flat rate instead of the sliding scale specified in the firm's initial proposal, resulting in an adjusted $25.9 million for the firm.  That amount should be $22.2 million, he said.

In light of the alleged violations, Clore asked the Ninth Circuit to send a message that class counsel are not immune to the California state bar's professional rules, and require the law firm to either forfeit its fees, or at the very least reduce the fees to keep in line with the firm's initial $22.2 million fee proposal.  As support, Clore cited the Ninth Circuit's 2012 decision in Rodriguez v. Disner, which held that a court has "broad equitable powers to … require an attorney to disgorge fees already received" for a serious ethical violation.

But class counsel Shana E. Scarlett, of Hagens Berman Sobol Shapiro LLP, argued that $31 million in fees is justified given the length of litigation and how fiercely the litigation was fought.  She also argued that the judge properly awarded additional fees on top of the initial $25.9 million proposal based on his discretion and understanding of the case.

But Judge Bea asked why the trial judge used a flat rate instead of the sliding scale methodology specified in the firm's initial bid proposal.  "Why isn't Judge Seeborg wrong in using a flat basis rather than a sliding scale basis based on the schedule we have before us?" the judge asked the attorney.  Scarlett replied that the firm's initial bid proposal was just one part of what informed the trial judge's decision. But Judge Bea appeared skeptical.

"You're talking about extrinsic evidence that was used by Judge Seeborg to interpret the writing, which we have before us?" Judge Bea asked.  "What factual evidence was there?  Are you saying that the written document is ambiguous and requires factual findings interpreted?"  Scarlett replied that the initial proposal was clear that the fees should use a flat rate, and not a sliding scale, but Judge Seeborg "went further and made the finding that we intended to be flat rate structure."

Attorney Denied Bulk of $5.3M Fee Award in VA Suit

March 29, 2022

A recent Law 360 story by Jonathan Capriel, “Atty Denied ‘Lion Share’ of $5M Fee in Paralyzed Vet Suit” reports that the personal injury lawyer behind a $21 million win for a man paralyzed due to a botched surgery in a Veterans Affairs hospital won't keep the "lion's share" of a $5.3 million attorney fee award, a New York federal judge ruled, saying it was "inappropriate" to short his former law firm.

U.S. District Judge Frederick J. Scullin Jr. called attorney Robert B. Nichols' work "instrumental" in securing a multimillion-dollar award for veteran Charles Malmberg, who sued Syracuse VA Medical Center claiming a 2004 spinal operation left him significantly immobile.  But Nichols' assertion that his previous employer, the Office of Paul William Beltz based in Buffalo, is entitled to only a tenth of the award was far too small, the judge said.

"The Court finds that Mr. Nichols's work in bringing this matter to its conclusion weighs in favor of his receiving a larger than 50% share of the counsel fees," Judge Scullin said in his order.  "However, because so much of the work that Mr. Nichols conducted in this case was done on behalf of the Beltz Firm, the Court further finds that his request for 'the lion's share,' i.e., 90%, of the counsel fees is inappropriate."

The judge ordered that the Beltz firm should receive 40%, or $2.1 million. Nichols and his co-counsel Alan J. Pierce, an attorney at Hancock Estabrook LLP, are entitled to the remaining 60%, or nearly $3.2 million, of the counsel compensation.  While this money has been sitting in an escrow account since at least March 2021 as the two sides debated who deserved how much, the attorneys in this lawsuit, which was filed in 2006, have been waiting much longer to get paid.

In an April 2010 bench trial, Judge Scullin determined that the VA hospital had deviated from the accepted standard of care and committed medical malpractice, which caused Malmberg's injuries. Nichols, who was working at the Beltz firm throughout the litigation, left to start his own practice in January 2011 and took Malmberg as a client.  The judge awarded the veteran nearly $4.5 million in damages in 2012. Malmberg, whose medical condition had become worse, asked the court to increase the award amount to $15 million and later to $25 million, but the district court said no.

He appealed to the Second Circuit with co-counsel Pierce brought on board.  Ultimately, the panel agreed with Malmberg, saying Judge Scullin should have taken into account expert testimony that said the deteriorating nature of the veteran's condition wasn't obvious at the time of filing.  "Following two appeals to the Second Circuit, two remands, and various settlement negotiations, the parties ultimately stipulated to $21.5 million in damages for plaintiff," Judge Scullin said, summing up the case history.

About 25% of the award was set aside for attorney fees.  But there was a dispute between Nichols and his old firm.  During two months of mediation in 2021, Nichols and Pierce offered the Beltz firm only $540,000, or just over 10% of the fee, but Beltz claimed it was entitled to 60%.  Nichols and Pierce claimed that of the 1,880 hours spent on this case, the Beltz firm contributed only 185, or 10.1%.  On top of that, Nichols was the lead attorney the entire time when he was at Beltz.

Beltz rejected this, arguing, in part, that the nearly 1,700 hours they put into Malmberg's case should largely be ignored when calculating the two attorneys' share. The firm said that those hours were spent in appeal trying to fix a mess Nichols made at the start of the case.  He erroneously requested an "inadequate" amount in damages of just $6 million, Beltz said.  While both sides couldn't agree to their share, they did acknowledge that this situation was somewhat novel.

"The parties agree that there are no known cases in this Circuit in which an outgoing attorney left after the liability phase of trial and the incoming attorney managed the damages phase and appeals," the judge said.  Ultimately, the judge agreed that Nichols had messed up when requesting such a small amount of money at the onset of the case. Still, he didn't want to discount the work he did overall.  "Mr. Nichols was also instrumental in obtaining the highest possible damages judgment for plaintiff, despite his error in requesting only $6 million when he filed the complaint as part of The Beltz Firm in 2006," the judge said.

$5M Attorney Fee Dispute in Live Nation Injured Worker Case

January 31, 2022

A recent Law 360 story by Ivan Moreno, “Injured Live Nation Worker, Atty Take $5M Fee Spat to Court,” reports that an event worker who won a historic award from Live Nation over an accident that left him with severe brain injuries is embroiled in an acrimonious dispute over attorney fees with his lawyer, who is suing him in New York over a $5.5 million fee.  Mark Perez, whose $20 million award for pain and suffering is the largest ever in the state, denies agreeing to the 10% contingency fee for post-trial work by Benedict P. Morelli of Morelli Law Firm PLLC.

"Despite Morelli's efforts to strong-arm his client into agreeing to an enhanced contingency fee for the appeal, Mr. Perez never agreed," he said in response to Morelli's lawsuit, filed last week.  Morelli sued after one of Perez's lawyers started demanding the $5.5 million that Morelli is holding in escrow, according to court papers.

Morelli maintains he repeatedly made Perez aware of that fee throughout the appeals process.  Although Morelli acknowledged his client objected to the fee, he said Perez and his family "made clear that they wanted MLF, and nobody else, to handle the appeal."  But Perez said Morelli insisted on handling the appeals despite knowing he was not agreeing to the contingency fee.

Perez suffered catastrophic injuries in 2013 when a forklift operated by a Live Nation employee crashed into a booth Perez was setting up, sending the 30-year-old tumbling to the ground, where he suffered a fractured skull and traumatic brain injuries.  He now has frequent and severe seizures and will require around-the-clock care for the rest of his life, according to court documents.  Live Nation was found liable on summary judgment in 2016.  After a trial to determine damages, a jury awarded Perez $102 million in 2019.   That was reduced several times after appeals, and the case settled in September for $55 million, an amount that includes $20 million for pain and suffering.

Morelli's firm got $18.3 million in attorney fees, not counting the $5.5 million in dispute. Perez's share was $28.6 million.  "These amounts did not satisfy Morelli. He chose to help himself to an additional $5.5 million out of Mr. Perez's settlement funds," Perez said in the countersuit, insisting he was clear about his objection to the additional fees.

"Mr. Morelli, I don't expect anybody to work for free," Perez said in a 2020 phone call, according to his countersuit.  "I do believe you're entitled to have some money. Okay ... it's just not going to be 10%. End of story."  Morelli said during a call that he's confident he'll win the dispute over the $5.5 million, citing New York case law that permits charging a 10% contingency fee for appeal work.