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Category: Fees in Transactional Matters

DOJ Filings Reveal Four-Figure Hourly Rates in FARA Matters

June 3, 2021

A recent NLJ story by Mike Scarcella, “New Covington Filings at DOJ Offer Fresh Peek at Fees and Rates” reports that Covington & Burling reported receiving more than $8 million in legal fees since October for legal services and other advocacy for the Moroccan state-owned phosphate rock miner OCP S.A., a longtime client, according to new filings submitted to the U.S. Justice Department.  Covington’s routine supplemental disclosure came as part of the law firm’s advocacy for OCP under the Foreign Agents Registration Act (FARA), which requires law firms, public relations consultants and lobbyists to register certain work for foreign government clients.

Registrants are required to file supplemental statements every six months that describe activity performed for the foreign principal and benefits derived from it, including the receipt of income.  The provision of in-court legal services broadly is not required to be registered under the foreign-agent law, which has seen newfound attention in recent years amid the ramped-up scrutiny of foreign influence in the U.S.  The Justice Department last year said in new guidance it narrowly views what it called “normal legal representation.”  Filings made under the foreign-agent law can provide a glimpse at rates and fees and other matters that law firms typically don’t widely advertise.

Many major U.S. firms have registered work under the foreign-agent law over the years.  Other Covington clients whose engagements were reported to the Justice Department have included the Embassy of the Republic of Korea in the United States; the government of Spain; New Zealand; and the Corporación Colombia Internacional.  The firm keeps close track on policy and enforcement changes in the foreign-agent unit at the DOJ and regularly issues client advisories.

Covington said in filings last year that it would perform policy work for OCP “including development of legislative and executive department messaging and communication strategies.”  The firm said it would also provide “assistance to OCP’s other advisors in developing communications and policy strategies related to OCP’s role in the U.S. fertilizer sector and the potential impact of tariffs on the U.S. agricultural community.”

The new supplemental disclosure showed fees related to that policy work, in addition to legal services that do not require foreign-agent registration.  Covington represents OCP in a proceeding at the International Trade Commission.  The overall amount disclosed was $8.09 million.

The FARA-registered work has included the firm’s assistance in what it described as “a public relations campaign regarding countervailing duty investigations by the U.S. government into phosphate fertilizer imports.” Components of that campaign include development of internal talking points at OCP; development of an engagement strategy with the customers of OCP; and “consulting on design and content of the www.StandwithUSFarmers.com website.”

Covington’s contract with OCP, publicly filed in October, showed the hourly rate for Bruce Wilson, a senior corporate and M&A lawyer, was $1,350.  The firm said then that junior associates were billing at $560 and the senior partners at $2,250.  Major firms tend to review and adjust rates at the start of the year.

A recently disclosed client contract between Covington and a public university in Oregon showed a range from $595 hourly for junior associates—a 6% uptick over the prior year—to $2,295 for senior partners, a 2% increase over 2020.  The contract, for a workplace culture investigation, showed former Obama-era U.S. Attorney General Eric Holder Jr. was billing at $2,295 and Nancy Kestenbaum, co-chair of the firm’s white-collar practice, was billing $1,445 hourly.

Six Flags Wants Insurer to Cover $2.89M in Attorney Fees

May 19, 2021

A recent Texas Lawyer story by Angela Morris, “Six Flags Wants Insurer Travelers Casualty to Cover $2.89 Million in Attorney Fees, reports that the Texas-based theme park filed new litigation seeking to force its insurance company to reimburse millions of dollars in attorney fees that it paid to some of the nation’s largest law firms—like Kirkland & Ellis and Perkins Coie.  In the new federal court lawsuit in Dallas, Six Flags Entertainment Corp. has alleged that its insurer, Travelers Casualty and Surety Co. of America, has wrongfully denied the park its insurance coverage for attorney fees and legal expenses.

Six Flags spent the money to defend itself from a probe by the U.S. Securities and Exchange Commission into its business dealings in China, and from a class action and shareholder litigation related to the China dealings.  Six Flags operates 26 parks in the U.S., Mexico and Canada, including four parks each in California and Texas, and two parks each in Georgia, New Jersey and New York, according to its website.

But COVID-19 has hit Six Flags hard: $82 million revenue in the first quarter of 2021 represents a 38% drop compared to the same time period in 2019, according to the company’s most recent performance report.  The park’s legal troubles started in February 2020 with the SEC subpoena, according to the complaint in Six Flags Entertainment Corp v. Travelers Casualty and Surety Co. of America, filed in the U.S. District Court for the Northern District of Texas.

Six Flags had to pay more than $2.5 million in fees to law firms Kirkland & Ellis, Lionbridge, Parker Lynch and Fayer Gipson to defend itself against the subpoena, which asked for information about a partnership with a Chinese real estate developer regarding Six Flags parks in China, and a negative $15 million revenue adjustment.  Insurance coverages for directors and officers and for organizational liability should have covered the company’s legal expenses, the complaint said.

Also in February 2020, two securities class-action complaints were filed against the company and two former executives over the same partnership and negative revenue adjustment.  Substantively the same allegations arose in shareholder derivative lawsuits in federal and state courts against the company, executives and board members, said the complaint.  Six Flags had to spend more than $290,000 in fees for lawyers at Perkins Coie to represent two company executives who were defendants in a class action, since there could be a conflict if the same attorneys represented the company and those individuals.

According to a search of federal court records on PACER, plaintiffs filed three shareholder derivative lawsuits that were consolidated into one case, and U.S. District Judge Mark Pittman on April 28 granted a motion to dismiss by Six Flags in the case, In Re Six Flags Entertainment Corp. Derivative Litigation. The defendants—Six Flags’ executives and board members—were represented by Kirkland & Ellis lawyers Jeremy Fielding of Dallas, and New York-based Daniel Cellucci, Sandra Goldstein and Stefan Atkinson.  Pittman on March 3 granted Six Flags’ motion to dismiss in a consolidated class action matter, according to an opinion and order in that case, Electrical Workers Pension Fund v. Six Flags Entertainment Corp.  Those defendants–Six Flags and two executives–had the same Kirkland & Ellis attorneys, said PACER.

In a different case—unrelated to the Chinese Six Flags parks–Six Flags had told its insurance company about a “crucial event matter” dealing with a potential proxy fight with a shareholder. Six Flags tapped Kirkland & Ellis to represent it, and the matter eventually reached an amicable agreement, said the complaint.  Six Flags incurred more than $100,000 in legal fees for this outcome, and the complaint alleged that Travelers has refused coverage.

Aside from these legal actions, the complaint alleged that at other times, Travelers has tried to recharacterize and reallocate legal fees and expenses, that should have been covered by insurance. It alleged the insurer looked to lessen exposure and to decrease policy benefits paid to Six Flags.

The theme park company is suing its insurer for breach of contract, violation of a Texas insurance law that requires prompt and fair payment of claims, and breach of the duty of good faith and fair dealing.  Six Flags has asked the court for a declaratory judgment that finds the Travelers policy should cover attorney fees and legal expenses.  In addition to recovering those amounts from Travelers, it wants to be paid back for the legal fees it is spending to sue the insurance company, said the complaint.

Former AG’s Hourly Rate: $2,295

April 16, 2021

A recent Law.com story by Mike Scarcella, “Covington’s Eric Holder Bills at $2.295 Hourly, New Legal Services Contract Shows,” reports that Covington & Burling partner Eric Holder Jr., the Obama administration’s first U.S. attorney general and a veteran Washington lawyer, is billing at $2,295 hourly, according to a contract the law firm signed with a public university to conduct an internal investigation about workplace culture.  Holder is Covington’s lead partner on the legal services engagement with Oregon Health & Science University.  The school announced its retention of Covington in late March to lead a “comprehensive, independent investigation of institutional harassment, discrimination, retaliation and racism.”

Covington and other firms have long been hired to conduct internal investigations at companies and other institutions, but in many instances the engagement letters, revealing rates and the scope of legal services, are not matters of public record.  ALM obtained Covington’s contract through a public records request.  Holder’s $2,295 billing rate puts him at the high end of hourly figures.  Billing at other elite firms such as Weil, Gotshal Manges and Kirkland & Ellis have recently approached $2,000.

“Mr. Holder and Covington have conducted examinations of workplace culture and issues related to equity, diversity and inclusion for corporations including Uber, Starbucks and Airbnb,” the university said in announcing the retention of the Washington-based law firm.  The announcement noted that “Holder and the Covington team are also currently assessing race, equity, inclusion and diversity policies and practices at Seattle Children’s Hospital.”

Holder is working with Covington partner Nancy Kestenbaum, co-chair of the firm’s white-collar defense and investigations practice group and a former member of the firm’s management committee. Kestenbaum is billing at $1,445 an hour, the law firm’s engagement letter said.  Covington said it agreed to discount its rates by 10%.

“Hourly rates for other lawyers range from $595 for junior associates to $2,295 for senior partners; and for legal assistants from $290 to $545,” the firm said in its engagement letter.  The firm said it reviews and adjusts rates yearly as of Jan. 1, “although there are circumstances in which we may adjust rates at other times.”  Part of the contract contained information that the university would not release.  The information pertained to clients Covington is advising on clinical trials being conducted at the university.

“As you recognize, we are a large law firm with multiple practices in multiple offices throughout the world, and we represent many different clients in many different industries, including clients who are competitors of each other and sometimes adversaries in legal matters,” Holder wrote.  “In taking on this representation, we commit that we will not represent any other client in any matter adverse to you that is substantially related to this matter.”

A private law firm charging a public client is not rare.  Public records show major U.S. law firms have charged local or state government clients to take a case to the U.S. Supreme Court.  Not every engagement, however, is charged. Some work is done pro bono.

Judge Wants Skadden Affidavit on Fees and Billing Practices

March 4, 2021

A recent Law 360 story by Jeff Montgomery, “Chancery Wants Skadden Affidavit in TransPerfect Fee Fight,” reports that Delaware's chancellor ordered Skadden to submit an affidavit attesting to the accuracy and reasonableness of custodian fees recently charged to TransPerfect Global Inc., saying it was in the interest of ending billing battles stemming from a rancorous court-ordered sale of the business.  Chancellor Andre G. Bouchard gave Skadden Arps Slate Meagher & Flom LLP and custodian Robert B. Pincus a week to submit the information after a half-day argument on three pending issues in the case.  Among them was a motion by Pincus for a discharge from his custodian's role with indemnification and nondisparagement protections, among other terms, opposed by TransPerfect and co-founder Philip R. Shawe.

Also at issue were claims by TransPerfect that Skadden had charged excessive and unsupportable fees on a range of matters, including "fees on fees" billings for Pincus' and Skadden's defense against fee claims, as well as a TransPerfect motion to block Pincus and Skadden from recovering fees for a contempt action.  While taking the overall issues, including Pincus' discharge, under advisement, the chancellor also directed Skadden to provide support in its affidavit for more than $200,000 in billings for what were alleged by TransPerfect to be "the administrative work" of sending a bill.

"Is it typical? I'm not aware of it happening," the chancellor said.  "I'm talking about [billing for] the actual generation of an invoice and, if you will, running that bill.  Give it thought.  If it's your position that it's ordinary and that it would be billed to a client ordinarily and permissibly, so attest" in the affidavit.  "If you want to carve that out. It might be prudent to do so."

Pincus was appointed custodian of TransPerfect after its two co-founders, Shawe and Elizabeth Elting, had a falling-out and could not agree on how to manage the company.  In May 2018, the Delaware Supreme Court affirmed the chancellor's February 2018 ruling that allowed Shawe to buy Elting's 50% stake in the company.  Chancellor Bouchard had also determined that Pincus' impartiality wasn't compromised by threats of litigation made against him by Elting or by Shawe's alleged interference in the sale process.

During the arguments, Jennifer C. Voss of Skadden, counsel to Pincus, said the expenses had been prompted by TransPerfect's and Shawe's actions, and were handled with the same diligence and efficiency as that given to all of Skadden's clients, at rates consistent with its practice.  "Mr. Shawe is an adjudicated serial litigator," Voss told the court while arguing for Pincus' discharge.  "Now, years out from closing [on the TransPerfect sale], he has filed a barrage of baseless, unprovoked attacks against Mr. Pincus and Skadden.  These attacks are meant to coerce Mr. Pincus. He has not succeeded, but they're also meant to harass him and his advisers."

Voss said TransPerfect and Shawe "weaponized access to billing statements" for a "punitive and protracted campaign of fee warfare," despite Pincus' right to recover costs as custodian and for litigation in disputes with TransPerfect and Shawe in the years after the sale.  Much of the dispute related to the custodian's authority to bill TransPerfect for the costs of responses to or defenses for challenges raised by the company and Shawe.

During the hearing, David B. Goldstein of Rabinowitz Boudin Standard Krinsky & Lieberman PC, counsel to Shawe, described the billing arrangements as a "fee merry-go-round," with filings by TransPerfect and Shawe generating billings from the custodian, objections to the bills and new bills for addressing the objections.  "The sale of TransPerfect Global closed almost three years ago," Goldstein said.  "At that point, TransPerfect had already been ordered to pay Skadden almost $13 million, and another $31 million to [Pincus'] handpicked advisers."

Fee and other disputes since then have pushed the total to $14 million for Skadden and $45 million for advisers, Goldstein said, with additional billings pending.  "Our position is these fees are really excessive," Goldstein said, arguing that the process appeared to have become a "billing frenzy" without end.  "I'm not telling the court or suggesting that Skadden should get zero," he said.  But "if they got nothing else, they would have gotten far more than a reasonable amount of fees."

Voss disputed TransPerfect's calculations of the billings and costs of the case, and said expenses had been driven by TransPerfect's and Shawe's frivolous arguments, haphazard and mistaken filings, and pressures for expedited court proceedings.  One billing alone, Voss noted, was answered with 100 pages of objections.

Article: The Right Retainer: Classic, Security or Advance-Payment?

February 7, 2021

A recent New York Law Journal article by Milton Williams and Christopher Dioguardi, “Retaining the ‘Right’ Retainer: Classic, Security or Advance-Payment?,” reports on different retainer types in New York.  This article was posted with permission.  The article reads:

This article evaluates which type of retainer agreement gives attorneys the best chance to preemptively shield their retainer fees before a client ends up in bankruptcy or the Department of Justice seizes and forfeits the client’s assets.

The scenario is this: A struggling business on the precipice of bankruptcy, or a criminal defendant whose property is subject to forfeiture, would like to hire you.  The prospective client has funds available to pay its legal fees, but what if you and/or the client expect that bankruptcy trustees or the Department of Justice will soon claim those funds for themselves?

At the outset of an engagement, an attorney can structure his or her retainer agreement to protect the retainer to the greatest extent possible in the event the client’s creditor comes knocking.  New York law recognizes three types of retainers: “classic,” “security,” and “advance payment.”  And under New York law, a retainer fee is shielded from attachment so long as the client does not retain an interest in the funds. See Gala Enterprises v. Hewlett Packard Co., 970 F. Supp. 212, 219 (S.D.N.Y. 1997).  For this reason, described in more detail below, it is the “advance payment” retainer agreement that will likely provide the most protection.

The ‘Classic’ Retainer

This type of retainer is typically a single, up-front payment to the lawyer simply for being available to the client—the attorney commits to future legal work for a specific period of time, regardless of inconvenience or workload constraints.  The classic retainer is not for legal services, and is therefore earned upon receipt, whether or not the attorney performs any services for the client (i.e., it is nonrefundable). See Agusta & Ross v. Trancamp Contr., 193 Misc.2d 781, 785-86 (N.Y. Civ. Ct. 2002) (general retainer compensates a lawyer for “agree[ing] implicitly to turn down other work opportunities that might interfere with his ability to perform the retainer-client’s needs” and “giv[ing] up the right to be retained by a host of clients whose interests might conflict with those of the retainer-client”).

Because the classic retainer is earned upon receipt and is nonrefundable, it without a doubt provides the most protection against would-be creditors.  However, the classic retainer is really only “classic” in the sense that it relates to antiquity.  Indeed, it is difficult to imagine a situation in the modern practice of law where a client would want to pay a classic retainer.  And attorneys would be remiss to draw up a nonrefundable classic retainer agreement unless certain specific conditions are met.

In general, under New York Rule of Professional Conduct 1.5(d)(4), “[a] lawyer shall not enter into an arrangement for, charge or collect … a nonrefundable retainer fee.” Further, under Rule 1.16(e), fees paid to a lawyer in advance for legal services are nonrefundable only to the extent they have been earned by the lawyer: “upon termination of representation, a lawyer shall promptly refund any part of a fee paid in advance that has not been earned.” See also Matter of Cooperman, 83 N.Y.2d 465, 471 (1994) (holding that nonrefundable retainer fee agreements clash with public policy and transgress the rules of professional conduct; affirming lower court decision that the use of nonrefundable fee arrangements warranted two-year suspension.); Gala Enterprises, 970 F. Supp. at 219 (narrowly construing the holding in Cooperman, and holding that only retainers with express non-refundability language are invalid per se).

The Security Retainer

While the classic retainer might offer the attorney the most security, the security retainer offers little defense against a client’s future creditors.  Typically, payments pursuant to a security retainer are placed in an escrow or trust account to be drawn upon only as the fee is earned.  In other words, the security retainer remains the property of the client until the attorney applies it to charges for services rendered.

So long as the client retains an interest in escrowed funds, the escrow account is attachable.  Under New York law, a security retainer may be attached so long as it is subject to the client’s “present or future control,” or is required to be returned to the client if not used to pay for services rendered. See, e.g., Lang v. State of New York, 258 A.D.2d 165, 171 (1st Dept. 1999); Potter v. MacLean, 75 A.D.3d 686, 687 (3d Dept. 2010) (defendant owed more than $20,000 in arrears on child support obligations and subsequently paid law firm a $15,000 retainer fee; the court found that the retainer fee, which was held in escrow, was subject to restraining order); M.M. v. T.M., 17 N.Y.S.3d 588, 599 (N.Y. Sup. Ct. 2015) (wife’s restraining notice against husband’s attorney’s security retainer was valid and enforceable); see also Pahlavi v. Laidlaw Holdings, 180 A.D.2d 595, 595-96 (1st Dept. 1992) (judgment debtor deposited $50,000 with his attorney after receipt of a restraining order and the court ordered his law firm to return them).

The Advance-Payment Retainer

Similar to the security retainer, the advance-payment retainer is a fee paid in advance for all or some of the services to be performed on a specific matter.  However, unlike a security retainer, ownership of the advance-payment retainer passes to the attorney immediately upon payment in exchange for the attorney’s promise to provide the legal services.  This type of retainer is likely the best way to ensure that the client has sufficient funds to pay for expected legal services.

Under an advance-payment retainer agreement, the law firm places the money into its operating account and may use the money as it chooses, subject only to the requirement that any unearned fee paid in advance be promptly refunded to the client upon termination of the relationship (recall Rule 1.16(e)).

A client’s contingent future interest in an advance-payment retainer, if any, that would be refunded if the firm’s services were prematurely terminated is not a sufficient basis for attachment. See Gala Enterprises, 970 F. Supp. at 219.  Therefore, the most secure option will likely be to require an advance payment for all services to be rendered, commonly referred to as a flat or fixed fee.  In other words, a creditor would not be able to seize such a retainer, even if part of the retainer may yet be refundable.  In Gala Enterprises, the court held that because a $150,000 flat fee as well as a $500,000 flat fee were subject to refund only if the legal services were prematurely terminated, the fees were therefore not attachable.

However, just because a client has paid an advance-payment retainer, does not mean that the retainer is untouchable.  Two specific possibilities come to mind.  First, Gala Enterprises illustrates that law firms might need to defend against fraudulent conveyance claims.  That being said, if the retainer is not excessive or unreasonable, the attorney is in a good position to defend against any such claims.  It goes without saying, when establishing a flat fee—or any fee for that matter—the fee must not be excessive. See Rule 1.5(a) (“[a] lawyer shall not make an agreement for, charge, or collect an excessive [] fee …”).

Second, attorneys of course must not accept funds that may have been obtained by fraud. See, e.g., S.E.C. v. Princeton Economic Intern. Ltd., 84 F. Supp. 2d 443 (S.D.N.Y. 2000) (lawyer who blindly accepts fees from client under circumstances that would cause reasonable lawyer to question client’s intent in paying fees accepts fees at his peril.).

Conclusion

In sum, we offer this advice:

  1. Review the Rules of Professional Conduct and case law cited herein, as well as the relevant New York State Bar Association ethics opinions, specifically: Ethics Opinion 570, June 7, 1985; Ethics Opinion 816, Oct. 25, 2007; Ethics Opinion 983, Oct. 8, 2013; and Ethics Opinion 1202, Dec. 2, 2020.
  1. Be transparent and direct with prospective clients regarding retainer agreements.
  2. A reasonable advance-payment retainer for all services to be rendered will give attorneys the most protection against future unknown creditors.
  3. Make clear in the retainer agreement that the client acknowledges and agrees that the advance-payment will become the law firm’s property upon receipt and will be deposited into the law firm’s operating account, not into an escrow account or a segregated bank account.
  4. Acknowledge in the retainer agreement that the client may be entitled to a refund of all or part of advance payment based on the value of the legal services performed prior to termination.

Milton Williams is a partner and Christopher Dioguardi is an associate at Walden Macht & Haran LLP in New York.