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Category: Fees & Privilege / Confidentaility

Article: Legal Bill Review Won’t Harm Your Relationship with Outside Counsel

September 8, 2023

A recent Law.com article by Suzanne Ganier of QuisLex, “Conventional Wisdom is Wrong: Legal Bill Review Won’t Harm Your Relationship with Outside Counsel”, reports on legal bill review.  This article was posted with permission.  The article reads:

Legal departments use various tools to manage spend and reduce costs, including shifting work from one law firm to another, moving from larger to smaller law firms, pulling more work in-house and employing more alternative legal service providers.  However, many legal departments aren’t employing one tool that can reduce costs immediately and support other tools to produce long-term cost containment: legal bill review.

Not using legal bill review as a primary tool for cost containment is like trying to build a house without a hammer; you may be able to do it, but it’s going to be a lot more difficult.  Most corporate legal departments recognize bill review will reduce outside counsel legal spend, as those partners don’t always comply with the department legal billing guidelines.  High outside counsel spend can have a domino effect across the legal department, resulting in smaller budgets for other needs including technology and headcount.

So why don’t more legal departments implement bill review?  The simple answer is relationships.  Many fear legal bill review will irreparably harm the rapport with long-time outside counsel who are often handling sensitive issues, high-stakes litigation and other issues of the utmost importance to the organization.

These relationships have often been nurtured over time, involving people that have worked together for many years.  And these relationships have hopefully resulted in success for all.  But corporate legal departments are part of businesses, which live and die by budgets, revenue and margins.  To remain competitive, they must stay hyper-focused on cost containment – in all areas, including the legal department.  For this reason, legal bill review doesn’t just make sense; it becomes a necessity not only to be fiscally responsible, but also to help the business maximize its competitiveness.  However, this fact doesn’t alleviate concerns about harming relationships with the department’s law firms.  That so many have considered and rejected or have discontinued legal bill review due to such concerns demonstrates their power.  So how do you solve this problem?

Acknowledge the Issue

First, recognize the problem.  In this context, acknowledge three things:

  1. Legal bill review is a cost containment necessity.
  2. Corporate legal departments are implementing legal bill review.
  3. The law firms they work with are going to be concerned that legal bill review means their bills will be unjustifiably reduced.

Corporate legal departments often don’t acknowledge one or all of these points.  Some believe they can reach cost containment goals through other means such as rate negotiations, discounts or e-billing (building that house without the hammer).  Others think if they advocate for the law firm under the guise of protecting the relationship, they can make legal bill review magically disappear.  Such thinking fails to admit the importance of cost containment, which can be harmful to the business.

Have the Conversation

Have a frank and open conversation about legal bill review with your outside counsel.  Go beyond discussing the nuts and bolts and talk to the firms about why bill review is necessary to meet the financial and strategic goals of the business.  Recognize the value of the relationship but focus on the fact that both the corporate legal department and the law firm are businesses and how it is in the best interest of both that the relationship be treated as a business as opposed to a personal one.  Acknowledge that with the implementation of legal bill review, the firm will undoubtedly see their invoices reduced for failure to comply with the legal billing guidelines.  But reassure the firm it will continue to get paid for its time and effort and will be further helped to acclimate to the process.

Be frank, open and transparent with each law firm, and they will return the favor.  Such conversations will not only ease the implementation of legal bill review, but they will also help to strengthen the relationship.

Show Them How to Do It 

There isn’t a class in law school called “Appropriate Legal Billing” (although some would argue there should be,) and there isn’t much training on this topic.  Even attorneys of long standing may not understand billing best practices and know how to comply with a client’s legal billing guidelines.  Frustrated counsel often wish their clients would give them more guidance.  Nothing will hurt a relationship faster than telling firms to change their behavior but not providing the details on how.  Providing firms with specific training on how to meet your expectations will further improve the relationship.  If law firms can see they aren’t being left to figure it out on their own, they will be more inclined to view legal bill review as a partnership, thereby strengthening that relationship.

Ask for Help

Most importantly, ask for help. Explain to the law firm why, as a valued partner, it’s being asked to do this.  People want to help; if you give them the opportunity, they will usually go out of their way to offer it.  Being honest about what your business needs and how firms can help meet those needs opens the door to that help and makes the relationship between law firms and the corporate legal department stronger.

It’s a cliché, but still true – change is never easy. But change doesn’t have to be painful.  While law firms are never going to celebrate legal bill review, it doesn’t have to harm the relationship between law firm and client and, perhaps, can even enhance it. 

Article: 5 Reasons Lawyers Often Fail to Secure Litigation Funding

August 24, 2021

A recent Law 360 article by Charles Agee, “5 Reasons Lawyers Often Fail To Secure Litigation Funding,” reports on litigation funding.  This article was posted with permission.  The article reads:

It's no secret that parties seeking litigation funding face steep odds in securing a deal.  How steep?  According to my firm's research, more than 95% of commercial litigation funding deals presented to any particular funder never advance to closing.  Experience tells me one of the overarching reasons the litigation finance deal closure rate is so low is that lawyers and their clients drastically underestimate the challenges and nuances of obtaining this specialized form of financing.

For many, the downside of trying and failing to secure funding is simply that — not obtaining the funding.  So why not approach a few funders and see if one bites?  On the surface, this approach has appeal; in reality, it is fraught with hidden costs.  The litigation fundraising process can be extremely laborious, and the time sunk into an unsuccessful deal typically is not billable.  Each year, leading law firms squander millions of dollars in time alone seeking funding for deals that do not bear fruit.

Even more concerning, lawyers who are unsuccessful in obtaining funding for their clients almost always damage their credibility with the client.  The good news is that these challenges can be anticipated and, in many instances, overcome.  To overcome those challenges, however, it is important to also examine why so many parties fail to obtain litigation funding. Here are the top five reasons why.

1. Misunderstanding the Funders' Acceptance Standards

Funders reject the lion's share of deals that they are shown because most of them should never have been brought to the market in the first place.  My colleagues and I have seen that far too many lawyers and clients present litigation opportunities that make no sense to pursue, regardless of who is funding the case.  Nothing can be done to change the substance of the underlying matter, and short of committing fraud, you are not going to sneak into a funder's vault with a meritless deal.

The best — and only — advice for these weak opportunities is to avoid the litigation fundraising process altogether.  But we also see that funders also reject a significant number of matters that are meritorious and economically viable enough for experienced litigation counsel to be willing to risk their own legal fees on a successful outcome.

Why are these opportunities declined?  The reason — and it may not be a satisfactory one — is that a litigation funder's diligence process and investment criteria are generally more rigorous than that of most law firms.  Unless a lawyer has a great deal of experience with funding, this disparity can be jarring and more than a little ego-bruising, especially when clients or colleagues are watching.

To appreciate why the litigation funders' bar is set so high, it is helpful to consider the investment proposition from their perspective.  The funder must develop a high degree of confidence in a financially successful outcome of a legal dispute — usually involving complex subject matter — because it will only receive an investment return if the underlying matter resolves favorably.

As a purely passive investor, the funder also must structure the deal in a way that achieves alignment with both counsel and client, and often the economics of even the strongest of cases are insufficient to do so.  Further, unlike a venture capital fund that can accept high levels of losses because of their upside in successful investments, litigation funders' more modest returns are too low to subsidize VC-level loss rates.

Because most litigation funders are relatively new and have not yet established substantial track records, this dynamic fosters a stronger bias toward risk aversion within the industry.  A litigation funder's diligence process is designed to find reasons not to invest in an opportunity. It also tends to follow a leave-no-stone-unturned approach, which can be exhausting for the party seeking funding.  However, even the most discriminating funders' processes can be successfully navigated with proper preparation and analysis before approaching the funder.

What are the main challenges counsel will face in the litigation, and how will these be overcome? What is counsel's track record in similar matters? What level of financial risk is counsel prepared to assume?  These are just a few of the questions that parties should consider before approaching funders. Lawyers and their clients are well-served to anticipate these and other questions that a skeptical investor might ask, and be prepared with clear and thoughtful responses.

2. Failing to Approach the Most Suitable Funders for the Opportunity

Parties seeking funding often fail to approach the funders most likely to invest in their claim.  There are currently 46 active commercial litigation funders in the U.S., each with different funding criteria, risk appetites, structuring preferences and return profiles.  Most parties seeking funding only present their opportunity to a few of these funders. This is a mistake, because even the largest funders in the world are not configured to accommodate every potential type of deal.

Without adequate knowledge of the market, it is difficult to know which funders are most suitable for a particular deal. It is critical to know what a funder's investment criteria are, including preferred deal size, type of litigation, jurisdictions and stage of litigation, among others.  Too often, parties meet resistance from funders that were never a good fit for the opportunity and elect to abandon the fundraising process altogether.  If they had only identified the right audience, they might have been able to secure funding.

3. Inadequately Packaging the Presentation of the Opportunity

First impressions matter, especially in litigation finance.  Our conversations with funders inform that the largest litigation funding firms see more than 1,000 opportunities a year and don't have the bandwidth to wade through poorly packaged opportunities.  Still, parties often fail to spend the time necessary to appropriately present an opportunity. The failure to properly present an opportunity often is the difference between a yes and a no.

What are the most common deficiencies in litigation fundraising presentations?  Most lawyers are more than capable of presenting the legal merits of an opportunity; however, we have observed time and again that they tend to fall short in demonstrating a thorough approach to the economics, i.e., the damages model and the budget.  Lawyers and clients may also downplay or omit entirely a case's potential challenges, whereas a funder expects these downsides to be soberly acknowledged and addressed.

Another similar mistake is to leave too many analytical black boxes in the presentation, such as factual questions that could be investigated now but are proposed to be left for discovery, or assumptions underlying the damages model that have not been rigorously researched.  The negative impression left by these and many other deficiencies is difficult to overcome.  Parties seeking funding should prepare a thoughtful and complete presentation of their financing opportunities.

4. Lacking Awareness of Norms That Guide Negotiations With Funders

A common misconception is that litigation funding deals are easy to negotiate and that funding agreements are relatively uniform.  In reality, these deals have several peculiarities and are governed by particular legal and ethical parameters.  Even parties with experience in other types of financing or business dealings struggle to extend their acumen to litigation financing deals.

Indeed, the process is guided by certain industry norms that outsiders may not necessarily appreciate or even be aware of. Parties that neglect to understand these nuances run a considerable risk of derailing the litigation fundraising process, sometimes after many months have been spent.  Each funder approaches the investment diligence and documentation processes differently.

For instance, some will provide parties a term sheet and, after the term sheet is executed, proceed to deeper diligence and final deal documents.  Other funders might have a three-phase negotiation process where the party is expected to execute a term sheet, a letter of intent and then a litigation funding agreement. Parties should be prepared to negotiate with the funder at each phase of the process.

Prior to closing, the last document to be negotiated is the definitive litigation funding agreement, or similarly named instrument.  While no two funding agreements are identical, most agreements have certain types of provisions that are essential to the funder, given the contingent-repayment, no-control nature of the investment.  Parties seeking funding should understand that these types of provisions are nonnegotiable and that pressing too hard can sour an otherwise fruitful closing process.

5. Prematurely Agreeing to Exclusivity With a Funder

Perhaps the most critical decision in the litigation fundraising process involves granting exclusivity to a funder.  Once a term sheet has been negotiated, a funder will nearly always require a period of exclusivity — sometimes more than 60 days — to complete its diligence and documentation of the transaction. After granting exclusivity, you are largely at the funder's mercy.

Parties seeking funding almost universally misread the significance of obtaining a term sheet from a funder, mistakenly believing that the probability of closing is far higher than it actually is.  Depending on the funder and the extent of its preliminary due diligence, the term sheet can merely be a hope certificate describing what a transaction might look like. Terms may be retraded or, as is often the case, the funder declines to proceed with the deal following a deeper dive into the opportunity.

Selecting the wrong funder for exclusivity may also hamper a party's future prospects of securing a deal with another funder, if negotiations with the original funder stall.  Funders will often assume that the deal with the original funder stalled because of a fatal flaw in the deal.

In an industry that is already risk-averse by nature, this kind of red flag in the middle of a fundraising process is extraordinarily difficult to overcome.  The key to avoiding this mistake — aside from refusing to grant exclusivity — is to understand the approach, process and track record of any funder requesting exclusivity.

The party seeking funding should also assess the extent of the funder's preliminary diligence and the degree to which the funder grasps the key issues.  Of course, ensuring that all material facts have been disclosed to the funder prior to exclusivity also helps avoid surprises. But candor may not be enough to avoid this pitfall.  Exclusivity is a necessary evil in the litigation finance industry — for now — and parties seeking funding should be extremely judicious in granting it.

Conclusion

While securing litigation funding may seem daunting, there are ways to beat those odds and maximize the chances of securing funding.  Parties that approach the market in a thoughtful and informed manner have a much higher likelihood of success and of avoiding wasteful dead ends.  As the market continues to mature, funders should innovate and improve their processes to make the experience more predictable and user-friendly.  Until then, experience in the market and knowledge of the funders and their approaches will remain the key to improving the odds of obtaining litigation financing.

Charles Agee is managing partner at Westfleet Advisors.

No Arbitration for Attorney-Client Fee Dispute

August 11, 2021

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

Trinh Vinh Binh sued King & Spalding and two of its international arbitration partners in Houston, Reggie R. Smith and Craig S. Miles, in June, alleging they made a "mockery of the fiduciary obligations an attorney owes to their clients" by "colluding" with litigation funder Burford to take more of the arbitration proceeds than Binh had agreed to.  The law firm had represented Binh in a treaty claim against Vietnam over the confiscation of certain real estate that ended in a $45 million award against the country in 2019.

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

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

King & Spalding had represented Binh in an arbitration matter filed against Vietnam in 2015, in which Binh accused the country of improperly taking several valuable properties he says were worth an estimated $214 million.  Under their deal, the law firm agreed to hold back 30% of billings for fees and defer the payment of those amounts until work had concluded in the arbitration.  At the same time, Binh entered into a funding agreement with Burford Capital with a $4.678 million spending cap, according to the suit.

Binh claims that King & Spalding told him the firm could complete the arbitration work within that cap.  But by May 2016, the firm had already billed and been paid some $1.9 million, leaving about $1.8 million after initial costs and expenses had been paid out.

Binh alleges that at that point the firm, "motivated by securing continued, guaranteed immediate payment of their fees, colluded with Burford" to contrive a scheme to increase the amount potentially owed by Binh by increasing the cap on King & Spalding's legal fees and, consequently, increasing Burford's potential entitlement to an increased return.  The way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more Binh was at risk of paying a so-called success return, to be paid if Binh prevailed in the arbitration.  The success return was to be split between King & Spalding and Burford based on the relative portion of their investments in the arbitration.

Binh alleges that King & Spalding tried to make him agree to increase the cap on expenditures for legal fees — and potentially, provide more of a return for Burford — but that he refused.  Thereafter, Burford and the law firm allegedly executed a side agreement between themselves.

In addition to accusing King & Spalding of breaching its fiduciary duty, Binh's lawsuit includes claims for negligence if the overpayment of fees was due to a mistake, as well as claims of misrepresentation and fraud.  He also accuses the firm of negligence after the tribunal in the case against Vietnam rejected an expert report the firm provided stating that Binh's property was worth some $214 million.  The tribunal instead awarded $45.4 million.

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.

Nelson Mullins Discloses Hourly Rates in Patent Fee Request

March 1, 2021

A recent Law.com story by Mike Scarcella, “Denied a Seal, Nelson Mullins Reveals Rates in Fee Petition in Patent Suit,” reports that, for at least the second time in the span of a year a federal trial judge refused to let a major U.S. law firm keep hourly rates and other billing-related information secret as part of an effort in court to squeeze legal fees from an opponent.

Denied its bid for secrecy, one of the firms, Nelson Mullins Riley & Scarborough, last week resubmitted its attorney fee petition fully unredacted in the U.S. District Court for the Western District of North Carolina.  The other firm, King & Spalding, abandoned an effort last year in Washington’s federal trial court after a judge said he would unseal supporting records showing hourly rates if the firm wanted to press its fee request.

Nelson Mullins sought $292,340 from a private plaintiff who filed patent claims against the motorsports company Simpson Performance Products and an engineer there.  The law firm won a key ruling in early February, but the court, just one day after the fee petition was filed, denied the request.  King & Spalding had sought $665,000 from the U.S. Department of Health and Human Services after successfully obtaining records in a federal Freedom of Information Act lawsuit.

Specific hourly billing rates and other internal records about fees generally are not things that law firms and lawyers are eager to discuss out in the open.  Indeed, both Nelson Mullins and King & Spalding had argued hourly rates and other billing documents were sensitive business records that should be kept confidential.  Still, information about billing often becomes public as a matter of routine in any number of settings, including in bankruptcy filings, certain types of litigation and in some law firm contracts with government clients.

A bankruptcy case in the U.S. District Court for the Northern District of Texas recently showed hourly rates for Kirkland & Ellis partners to be between $1,085 and $1,895, and associates’ hourly rates between $625 and $1,195.  In California, a federal judge last month ordered legal fees to be paid to a team from Gibson, Dunn & Crutcher that successfully represented Rachel Maddow as a defendant in a defamation case.  Gibson Dunn partner Theodore Boutrous Jr., prominent for his First Amendment advocacy, was shown as billing $1,525 hourly last year.

Nelson Mullins “asks the court to seal the amount of attorneys’ fees being requested—the very substance of the relief that it is seeking from the court—along with how it calculated the fees (counsel’s hourly rates and the time expended during their representation),” U.S. District Judge Kenneth Bell wrote in a Feb. 24 order.  “Thus, the effect of a request to seal this information is tantamount to a request to issue a secret order, as the court could not even grant much less fully discuss the merits of [the legal fee] request without disclosing the amount of fees requested along with counsel’s hourly fees, etc.”

In the King & Spalding matter, U.S. District Judge Amit Mehta said “the records that plaintiff asks to keep under seal go to the very heart of what is before the court: questions concerning the reasonableness of plaintiff’s counsel’s hourly rates and the reasonableness of the time they expended on this matter.”

Both judges declined the invitation to seal the law firms’ hourly rates and other records.  In the case involving King & Spalding, the firm dropped its move to get fees after Mehta said he would unseal rate information if the firm moved forward.  Those details remained sealed.  “Once a matter is brought before a court for resolution, it is no longer solely the parties’ case, but also the public’s case,” wrote Bell, a former McGuireWoods partner who’d spent more than 10 years in the firm’s Charlotte office before joining the bench in 2019.

Bell said that “except in very limited circumstances, the court’s business must be conducted openly, with public access guaranteed to instill confidence in the fairness of the proceedings and inform the public about the law.” He added: “[B]y choosing to seek attorneys’ fees in an open court, Simpson must necessarily disclose the amount of the award it seeks and the underlying basis for its fees.”  To “avoid any surprise,” Bell said he would allow Nelson Mullins to withdraw its motion for legal fees or refile it in an unredacted form.  That firm submitted 85 pages of arguments, declarations and billing records to back its request for fees.

“The rates charged by defendants’ counsel were well within, if not below, the range typically charged for complex litigation in North Carolina,” wrote Charlotte-based Nelson Mullins partner Craig Killen, who said he billed at $425 hourly for the case.  Another partner, Robert McWilliams, billed at $405 on the case.  Three associates billed at hourly rates between $320 and $345, according to the law firm’s motion for fees.

In arguing for fees, the Nelson Mullins team trumpeted the “unusual questions” raised during the patent litigation.  “This case was pending over two years and proceeded through the extended period of discovery,” Killen wrote in a court filing.  Nelson Mullins said its request for fees “is made with some reluctance because Simpson has no interest in ‘punishing’ an individual plaintiff.”  But, the law firm said in its court filing, “much of the expense incurred by the defense could have been avoided if plaintiff had not pressed unreasonable and objectively baseless positions.”

On the day after refusing to allow Nelson Mullins to file its billing records under seal, Bell, the trial judge, rejected the firm’s request.  “In the exercise of its discretion, the court does not find this case to be exceptional,” Bell wrote in an order last week.  “While the court determined that defendants were fully entitled to summary judgment (and to be clear does not intend by this decision to indicate that it has any uncertainty over that conclusion), defendants have not shown that plaintiff pursued her claims frivolously, for an improper purpose or in bad faith.”