Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Fees in Transactional Matters

NY Law Firm: Environmental Company Failed to Pay Legal Fees

November 15, 2022

A recent Law 360 story by Emily Lever, NY Firm Says Enviro Co. Failed To Pay Legal Fees” reports that Bochner IP PLLC sued environmental company Global Thermostat in New York state court over allegedly skipping out on a $102,000 bill for its work on intellectual property transactions aimed at fending off bankruptcy, saying Global Thermostat "never intended to pay" in full.

When Global Thermostat found itself at risk of bankruptcy, the company's co-founder agreed to grant it the use of her intellectual property, according to a complaint filed in New York Supreme Court.  Bochner handled the IP transactions, for which Global Thermostat paid the first few installments of the six-figure legal bill — a deliberate deception to create a false sense that Global Thermostat intended to and could pay the full bill, according to Bochner.

"Defendants successfully closed on the transactions and avoided bankruptcy, without having to fulfill their obligations to plaintiff," the complaint says.  Global Thermostat, a startup billing itself as being able to suck carbon dioxide out of the atmosphere and stop climate change, was co-founded in 2010 by Graciella Chichilnisky based on technologies she patented.

Global Thermostat PBC, Global Thermostat Operations LLC and Global Thermostat Licensing LLC sought new investors to save them from a possible bankruptcy, according to the complaint.  The companies paid Chichilnisky royalties for her technology, but potential investors insisted Chichilnisky transfer the patents to the companies as a condition of investment, according to the complaint.

Chichilnisky agreed, and the companies agreed to pay her legal fees in connection with the transfer of IP as compensation for the loss of royalties.  Bochner, a civil litigation and intellectual property firm, represented Chichilnisky in the transaction.  Bochner drafted a settlement that allowed the companies to avoid bankruptcy, according to the complaint.

Global Thermostat paid Bochner's first three invoices, which were each for $20,000, before the settlement closed.  But once the settlement was finalized Aug. 12, they stopped paying, leaving $102,679.25 worth of invoices unpaid, according to the complaint.  The companies "failed to disclose material information of their intent and/or ability to pay" to give Bochner the impression they would pay the full legal bill and to keep the firm working on the settlement that would preserve their business, according to Bochner.

"Defendants made these assertions and payments in order to induce plaintiff into believing it would be paid for all further work done in negotiating and finalizing the transactions," the complaint says.  Global Thermostat also ignored demands for payment from other firms that worked on the transaction, according to the complaint.

Houston Attorneys Sued for $5M Over Altered Fee Agreement

December 19, 2021

A recent Law360 story by Jessica Corso, “Houston Attorneys Sued for $5M Over Altered Fee Agreement,” reports that three Houston-based attorneys are being sued for around $5 million by a former client who claims that they deceived her into changing their fee agreement during a legal fight over her late father's will.  Caroline Allison sued Jorge Borunda, Nicholas Abaza and Michael Trevino in Harris County District Court on Nov. 9, arguing that the attorneys should return most of the money she paid them to represent her in a probate dispute involving the will of her father, who died in 2017.

Allison claims that she agreed in 2019 to hire the lawyers on an hourly basis but, a year later, they asked for a change to a contingency fee agreement whereby they would get 35% of any money or assets she collected from her father's estate.  According to the lawsuit, the lawyers made Allison believe that the case would go to trial and end up costing a lot of money.  In reality, they knew that her father's second wife, with whom Allison was fighting over the estate, was close to a settlement at the time they asked for the 35% fee, according to the lawsuit.

"By October of 2020, the lawyers determined that the estate was worth more than $18 million," according to the complaint. "Unsatisfied with their current arrangement with Caroline, and with dollar signs in their eyes, the lawyers set upon a course of conduct to fraudulently induce Caroline to change her agreement from an hourly rate to a contingency fee."  Six months after signing the new contingency agreement, the case settled, with Allison and her brother, who had also hired Borunda and Abaza, together receiving around $9.5 million, according to the lawsuit.

Allison claims that she ended up paying the lawyers $1.65 million more than she would have had she stuck to an hourly rate.  She is suing for that money back, plus treble damages she said she was owed under the Texas Deceptive Trade Practices Act.  She is alleging violations of the Texas law, as well as negligence, breach of fiduciary duty and fraud.

ISBA Mutual Can’t Drop Defense of Law Firm in Fee Dispute

December 14, 2021

A recent Law360 story by Emily Lever, “Ill. Bar Insurer Can’t Ditch Law Firm Defense in Fees Fight,” reports that the Illinois State Bar Association Mutual Insurance Company can't avoid defending a law firm accused of wrongfully pocketing attorney fees for its handling of an estate case, an Illinois appellate court ruled, saying the suit is covered by the firm's malpractice insurance.  The insurer has a duty to cover lawyer Alan E. Sohn and his firm in a dispute with Randy Sly, the executor of an estate Sohn represented in probate court, over $280,000 in legal fees, according to a three-judge panel of the First Judicial District of the Appellate Court of Illinois.  The court held that the money at issue is not just for fees — it's also a loss incurred by Sohn's alleged malpractice, meaning it can be understood as damages.

"Sly's injury is not a consequence of the fees charged, but a consequence of Sohn's allegedly negligent advice," Justice Mary Ellen Coghlan wrote on behalf of the panel.  Justices Aurelia Pucinski and Carl A. Walker concurred.  The court rejected ISBA Mutual's 2019 appeal, which argued that the suit against Sohn seeks repayment of attorney fees rather than damages, and therefore the issue is a billing dispute and not about the practice of law, so Sohn's insurance shouldn't have to foot the bill.

Sly is suing Sohn, claiming his former attorney gave him faulty legal advice on executing the estate of Linda Loessy, who died in 2012.  The Circuit Court of Cook County ruled that Sohn's work "resulted in little benefit" to Loessy's estate, which was "not a complicated estate to administer."  The court ruled that he should have been paid no more than $135,000 for his services and should return the excess, which amounted to $185,000, plus more than $95,000 in court fees incurred by a court-appointed guardian for Loessy's children in his action against Sohn.

Sohn's insurance, which was active throughout the course of case, covers "wrongful acts" related to the "rendering of or failure to render professional services," but excludes attorney fees, which ISBA Mutual argued let it off the hook for the $280,000.  A straightforward billing dispute would be "purely ministerial" and not sufficiently related to the practice of law to qualify for coverage, according to the panel, but this dispute is both about the fees billing and about the alleged misbehavior by which Sohn obtained the fees, the panel held, noting that the court-appointed guardian's filings say the payouts to Sohn "substantially reduced" the estate.

Gibson Dunn Under Fire for Billing Practices

September 23, 2021

A recent Law 360 story by Rose Krebs, “Gibson Dunn Under Fire For Billing in Landmark Theatres Suit,” reports that Gibson Dunn & Crutcher LLP and Ross Aronstam & Moritz LLP have been accused of problematic billing in a Delaware Chancery Court suit over a price adjustment dispute that followed the 2018 sale of Landmark Theatres to billionaire real estate developer's Charles S. Cohen's theatrical production and distribution company.

In a brief, Cohen Exhibition Company LLC told Vice Chancellor Paul A. Fioravanti Jr. that a request by Gibson Dunn and Ross Aronstam to have the buyer reimburse roughly $840,000 of the sellers' legal costs and expenses should be reduced by no less than about $396,000.  A lesser-than-sought amount should be awarded, in part, due to the firms' "failure to support the hourly billing rates" included in the fee motion, the brief says.

The sellers, Roma Landmark Theaters LLC and MCC Entertainment LLC, which are represented by the two law firms, told the court in August that buyer Cohen Exhibition Company should have to pay costs and expenses they incurred litigating a battle over post-closing adjustments that ended up being largely decided in their favor.

But Cohen raised issues with the billing.  "Both the Ross Aronstam and Gibson Dunn invoices contain significant redactions of time entries," Cohen said in Tuesday's filing.  "The redactions are particularly problematic insofar as they not only completely obscure the services performed ... but also because they even obscure the timekeeper and amount of time spent."  Cohen argues that due to the redacted information it is "completely impossible" for the court to assess the reasonableness of certain invoices.

The company also pointed to "excessively high charges for Westlaw research, in one month totaling over $20,000 alone" in Gibson Dunn's bills.  The online legal research service "offers attorneys a plan with unlimited access to Delaware cases, statutes, and briefs at a flat monthly fee," according to Cohen. Granting those fees would effectively mean Cohen paying for "Gibson Dunn's overhead in maintaining a legal research account with Westlaw," the company said.

Cohen additionally took aim at what it described as the "high hourly rates billed by the attorneys at Gibson Dunn."  "Here, plaintiffs' attorneys have not provided any proof as to what their customary billing rates are for comparable matters," the brief said, highlighting one rate of up to $1,645 per hour.  "Nor have they provided any evidence as to each attorney's background and years of experience to support the respective claimed rates."  Cohen also protested what it said was the firms' request for reimbursement for "preparing and litigating" an unsuccessful motion to dismiss counterclaims lodged by the buyer in the litigation.

Roma and MCC said in court papers that an arbitration decision went in their favor, entitling them "to receive nearly all of the escrowed funds." Thus, they argued they are entitled to reimbursement for costs and expenses, especially since alleged legal posturing by the buyer led to a delay in escrow funds being turned over.  The Chancery Court confirmed the arbitration decision and the seller plaintiffs were awarded roughly $2.6 million plus additional interest and other costs, according to the motion, which added, "The fee award sought here is fair and reasonable in light of these positive results."

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.