A recent Law 360 by George Woolston, “NJ Firm Keeps Victory In Retainer Fee Billing Challenge,” reports that the New Jersey state appeals court has backed Arbus Maybruch & Goode LLC's win in an ex-client's suit alleging it failed to disclose the incremental billing structure of its retainer fee, reasoning in a published decision that the firm's bimonthly invoices showed the terms were spelled out.  A three-judge panel affirmed a Monmouth County trial judge's decision to award summary judgment to the firm on breach of contract claims against Daniel Cohen and his company Cohen Capital Management over $142,000 in unpaid attorney fees and costs.

Cohen challenged the lower court's decision, claiming that the New Jersey firm's fee and retainer agreements were illegal and unethical under the state's rules of professional conduct for attorneys, according to the opinion. Cohen argued that attorneys are required to include language defining what unit of incremental billing the attorneys planned to use in retainer agreements, despite hourly rates and initial deposits being otherwise clearly defined.  The firm had been billing Cohen in increments of one-tenth of an hour, according to the opinion.

In its review of two retainer agreements between the firm and Cohen and the relevant rules and case law, the panel found "no rule as rigorous as the one defendants urge us to adopt" and reached the same conclusion as the trial court — the firm's legal fees were reasonably presented and agreed to by the parties.

"The fees awarded here were based upon a reasonable hourly rate, as determined by the trial judge, who made detailed findings regarding the type of matter involved, the rates charged by other New Jersey attorneys possessing similar experience in like matters, and regional considerations regarding the amount billed," Judge Maritza Berdote Byrne wrote for the panel.  The panel also found Cohen's argument that he was not aware of the firm's incremental billing was not supported by the record in the case.

"Further, based upon the parties' course of dealing, where defendants availed themselves of AMG's legal services for more than two years without objecting to any invoices or raising the incremental billing issue, defendants' claim suggests an improper motive," Judge Berdote Byrne wrote.

Arbus Maybruch & Goode represented Cohen and his company for more than two years, starting in 2018, in a negligent construction suit as well as in a separate lawsuit against Cohen by a law firm seeking unpaid attorney fees, according to the appellate opinion.  In July 2020, the firm ended its representation of Cohen and a month later filed its breach of contract suit over the unpaid attorney fees.  According to the opinion, the first time Cohen argued that the agreements did not permit billing on an "incremental" basis was in its answer to the lawsuit, filed in Oct. 2020.

A recent Reuters article by Alison Frankel, “Appeals Court Will Decide If Lawyers Can Evade Common Fund Fees in Consolidated Cases,” reports on common fund fees in class actions and MDLs.  The story reads:

Can a plaintiffs lawyer who was a member of the steering committee in consolidated multidistrict litigation get out of paying common benefit fees for cases resolved outside of the MDL’s confines?  That’s the question that will be argued before the 9th U.S. Circuit Court of Appeals in a case arising from consolidated litigation over C.R. Bard Inc’s blood clot filter implants.  The 9th Circuit punted last year in a similar case addressing common fees in the Roundup MDL because the fee ruling on appeal was not a final order.

But assuming there are no jurisdictional problems in the Bard case – as both parties assured the appeals court in a joint supplemental brief filed earlier this month – the 9th Circuit will be just the third federal appeals court in the last decade to offer answers to vexing questions about the scope of MDL judges’ power to order fees in cases they do not oversee.

Common benefit fees, as you know, are intended to compensate MDL lead counsel who expend significant time and money to conduct discovery and litigate legal issues that affect all of the cases in the MDL.  The fees address what might otherwise be the problem of “free-riding” by lawyers trying to capitalize on the efforts of MDL leaders without paying for it.

There’s little doubt that MDL judges have the authority to order plaintiffs lawyers whose cases are part of the consolidated proceeding to turn over a share of their clients’ settlements to MDL leadership.  (In the Bard MDL, common benefit fees have been held back in an escrow account before ever reaching plaintiffs and their lawyers.)  But what about cases outside of the MDL, such as state-court lawsuits, claims that were settled before they were formally filed or cases filed after the closure of the MDL?  Can MDL judges require plaintiffs lawyers to pay common benefit fees in those cases?

Federal circuits have reached different conclusions.  In 2014, the 8th Circuit ruled in In re Genetically Modified Rice Litigation that the MDL judge did not have authority to order fees from plaintiffs’ lawyers in state-court GMO suits.  But in 2015’s In re Avandia, the 3rd Circuit ruled that MDL courts are entitled to enforce their own orders, so an MDL judge had authority to order a plaintiff’s firm that participated in the MDL to pay a common benefit fee on all of its settled cases.

Two highly-regarded MDL judges also recently diverged on the scope of their authority. U.S. District Judge Jesse Furman of Manhattan ruled in 2020’s In re: General Motors that his MDL orders required lawyers who had litigated before him to pay common benefit fees from settlements of unfiled cases.  But U.S. District Judge Vince Chhabria of San Francisco held in 2021’s In re: Roundup that his power to order fees was limited to cases within the MDL.

Like I said, this is a vexing issue.  The twist in the Bard case is that plaintiffs lawyer Ben Martin of Martin Baughman was appointed to the MDL’s steering committee at the very beginning of the case in 2015.  He and the lawyers at his firm settled about 200 cases in the MDL.  But they also settled an additional 300 or so cases that were never formally filed, were brought in state court, or were filed after U.S. District Judge David Campbell of Phoenix closed the Bard MDL.

Martin’s counsel, Howard Bashman of the indispensable How Appealing blog, told the 9^th Circuit that Campbell erred when he ruled in 2022 that all of Martin’s cases – and not just those settled within the MDL -- were subject to a fee holdback.  Bashman argued that MDL judges simply do not have a right, under their inherent case management power or common fund doctrine, to order fees in cases that are not before them.

In a phone interview, Bashman acknowledged the free rider problem, but said that the 9th Circuit must distinguish between the legitimate goal of deterring abusive case-filing by plaintiffs lawyers who want to avoid common benefit fees and the limited power of MDL judges to accomplish that end.  “Those are two different questions,” Bashman said. (He emphasized that Martin and his firm were not trying to avoid common benefit fees by settling cases outside of the MDL.)

The other lawyers on the Bard MDL steering committee, who are represented by Shannon Clark of Gallagher & Kennedy, assert that MDL judges have inherent power to assess fees on cases outside of their court.  But the lawyers' primary argument is that Martin and his firm agreed to common benefit fee holdbacks for all of their cases when Martin accepted an MDL leadership role, based on a participation agreement attached to a Campbell case management order. (Martin has also received common benefit fees under those orders.)  Clark, who did not respond to my email query, argued that Martin waived his right to challenge the fees by failing to object to Campbell’s orders.

Bashman told the 9th Circuit that there is no evidence Martin signed the relevant participation agreement.  And even if he did, Bashman said, the MDL judge is not entitled to exceed his authority by imposing an impermissible condition on Martin’s ability to represent his clients.

In some ways, the stakes in the Bard appeal are small. Martin’s briefing does not say precisely how much money has been held back but says his clients’ 2% share amounts to less than $1 million.  The overall holdback is 10%, so this fight seems to involve between $5 and $10 million.  On the other hand, common benefit fees affect every MDL, and surely total hundreds of millions of dollars across all of the consolidated multidistrict cases being litigated in U.S. court.

Moreover, Bashman said, the 9th Circuit panel – 9th Circuit judges John Owens and Bridget Bade and Judge Miller Baker of the U.S. Court of International Trade – might not be the last word on the fee question, regardless of who wins.  “This does seem like the kind of issue the U.S. Supreme Court would be interested in,” he said.

A recent Law 360 by Ganesh Setty, “11th Circ. Says No Attorney Fees for Cos. In Tossed Insurance Suit,” reports that a home builder and contractor accused of faulty stucco work can't seek attorney fees from their insurance company after a Florida federal court found the insurer lacked standing to litigate whether it had a duty to defend the companies, the Eleventh Circuit ruled.  Under the circuit's 1984 decision in Certain British Underwriters at Lloyds of London v. Jet Charter Serv. Inc. , statutory attorney fees are an element of damages and are therefore part of the merits of a case itself, U.S. Circuit Judge Elizabeth L. Branch wrote in the court's unpublished opinion.

Thus, when U.S. District Judge Timothy J. Corrigan tossed Southern-Owners Insurance Co.'s suit because it failed to meet the federal $75,000 amount-in-controversy threshold, the court lacked the subject-matter jurisdiction to hear any ensuing dispute over attorney fees, Judge Branch found. U.S. Circuit Judge Gerald Bard Tjoflat penned a separate concurrence, while U.S. Circuit Judge Britt C. Grant issued a dissent.

According to the decision, the dispute began in August 2013, when the home builder, Maronda Homes Inc. of Florida, sold a house to a couple who later complained of various construction defects related to the home's stucco installation. Maronda had hired JROD Plastering LLC to perform the installation, which held a commercial general liability policy with Southern-Owners that listed Maronda as an additional insured.

The insurer subsequently sued Maronda and JROD in Florida federal court seeking a declaration it had no coverage obligations over the alleged construction defects.  But Judge Corrigan dismissed the suit for lack of subject-matter jurisdiction, finding that the insurer failed to meet the $75,000 amount-in-controversy threshold for federal litigation.

Maronda and JROD sought attorney fees under the now-repealed Florida statute § 627.428, which allowed a court to award attorney fees to insureds who prevailed in coverage litigation against their insurer.  The district court further dismissed those motions, citing in part the Jet Charter decision.  In that case, the Eleventh Circuit ruled that "attorney's fees recovera[bl]e by statute are to be regarded as 'costs' only when made so by statute," and are otherwise "treated as an element of damages," according to excerpts included in Friday's decision.

Though the Eleventh Circuit in Prime Insurance Syndicate Inc. v. Soil Tech Distributors Inc. ruled the opposite way in 2008, finding that attorney fees are "collateral issues" within the court's purview even if the underlying case isn't, that decision was not published, Judge Branch noted.  And even if it were, circuit precedent holds that in the case of conflicting published panel decisions, the oldest one controls, she said.

"All in all, while some Florida courts have reached a different result than we did in Jet Charter, these decisions are too varied to constitute a definitive change in law," Judge Branch added in a footnote.  "As such, we decline to exercise our discretionary power to rewrite our circuit's precedent which means that we are bound to follow Jet Charter."

A recent Bloomberg Law by Roy Strom, “Quinn Emanuel Justifies Hugh Fee With $384,000-Per-Hour Return,” reports that Quinn Emanuel has new ammunition in its fight for a $185 million fee award, saying in a filing this week that every hour its lawyers worked on the case generated about $384,000 in returns.  That figure, according to a Harvard Law professor the firm hired to analyze (pdf) the fee award, shows the firm’s work in the Obamacare case was perhaps the most efficient ever performed by attorneys in a large class-action.  Lawyers in 13 similarly sized class action cases generated about $10,000 in returns per hour on average, professor William Rubenstein said.

Does that figure show Quinn Emanuel lawyers were, as Rubenstein argued, “epically productive?”  Or does it prove they’re getting a windfall?  That’s the question the judge overseeing the fee award legal fight, Kathryn Davis, will have to consider.  

The fee fight comes after Quinn Emanuel won nearly $4 billion for health insurers who were stiffed by Congress when it decided not to pay them for selling new, risky policies mandated by Obamacare.  Quinn Emanuel filed the first case taking on the US government, but a separate challenge wound its way all to the Supreme Court, resulting in $12 billion in total payouts.

The firm’s clients won every dollar they sought.  But Quinn Emanuel’s lawyers worked relatively few hours on the case—9,630 hours, to be exact.  It’s the equivalent of fewer than five Big Law attorneys working for one year, hardly a massive undertaking.  In the 13 large class-actions Rubenstein compared to the case, no law firm had worked less than 37,000 hours.

Because Quinn Emanuel’s lawyers worked so few hours to generate such a huge reward, the case has teed up thorny questions about how lawyers’ work should be valued.  Do attorneys just sell their time? Or should courts reward the result lawyers achieve?

In the Quinn Emanuel case, technical considerations have also been in play.  The firm initially received 5% of the $3.7 billion award they won—roughly $185 million.  That’s the figure Quinn Emanuel told clients they’d ask a judge to pay them.  It’s worth noting that a 5% fee on a contingency case is significantly lower than the 33% or 40% lawyers often charge.  But that fee got tossed when some of the health insurers appealed to the Federal Circuit.  They argued Quinn Emanuel should be paid around $9 million.  The appeals court noted Quinn Emanuel told clients its award figure would be subject to a “lodestar crosscheck.”  The Federal Circuit said that hadn’t been done and sent the case back to Judge Davis to consider that analysis.

This is how Quinn Emanuel described a lodestar crosscheck to its clients: “a limitation on class counsel fees based on the number of hours actually worked on the case.”  The lodestar method applies a multiplier to the attorneys’ hourly bill as a reward for success.  It’s usually about 1.5 to 3 times the total bill in successful cases.  If Quinn Emanuel was charging its standard hourly rates, it says its lawyers would have been paid about $9.7 million for their work on the case.  That means the firm is seeking a multiplier of around 19. (Rubenstein says the lodestar is closer to 10 when applying the firm’s newer, higher hourly rates.)

Just like the $384,000 in value-generated-per-hour, a lodestar multiplier of 19 is a serious outlier.  All of this makes the judge’s task a difficult one.  Davis must decide whether to reward the firm for its most-efficient result, or compensate it for the relatively little time case took.

How We Got Here

These outlandish fee award figures made me wonder: What happened to create such a unique case?  Rubenstein’s $384,000 figure doesn’t just tell us something about the lawyers and the result they achieved.  It hints at an underlying fact pattern that must be devastating.  The idea of the “most efficient” litigation in class-action history roughly translates to “the least effort to convince a judge of the most damages.”  What happened that required such little legal work to produce such a huge reward?

The answer can only be described as an unusual and epic failure by Congress.  As the US government careened toward a shutdown in late 2014, Congress cobbled together a massive funding bill to avert disaster.  It included, of all things, a provision that limited the government from appropriating funds to pay subsidies promised to health insurers who participated in an Obamacare program known as “risk corridors.”

The program encouraged insurers to provide new health insurance plans to riskier patients by sharing profits and receiving subsidies from the government. In the end, the government racked up a bill of more than $12 billion.  Sen. Marco Rubio (R-FL) took credit for the provision, though other Republicans argued they were just as responsible, slamming what he called a “bailout” for insurers.

A recent Law.com by Riley Brennan, “In Fee Fight, State Appeals Court Rejects Contractual Interpretation That Would Result in ‘Windfall’ to 1 Law Firm,” reports that, in a dispute over a contingency fee following a lateral move, the Kansas Court of Appeals ruled that the only reasonable interpretation of a law firm’s operating agreement with one of its now-former owners is the one that allows the firm to recover under the doctrine of quantum meruit.

The appeals court reversed and remanded a lower court’s grant of summary judgment to plaintiff Krigel & Krigel, instead siding with defendant Shank and Heinemann’s interpretation of its operating agreement with attorney Stephen Moore.  In an April 21 opinion, Judge Patrick McAnany for the Kansas Court of Appeals, ruled that the operating agreement between the Shank firm and Moore wasn’t a waiver of the firm’s right to recover in quantum meruit.

Moore originally worked at Shank, first as an associate, then later as one of three owners of the firm, according to the opinion.  Eventually, he left Shank to join Krigel.  On his exit, Moore took one of Shank’s contingent fee cases, representing client Trudi Shouse.  Shouse hired the Shank firm on a contingent fee basis to pursue her claim in an employment dispute.

According to the court, “She acknowledged in her engagement agreement with the firm that Shank would have an attorney’s lien against any award or settlement in the matter.”   Yet, two years later, Moore left Shank, taking the Shouse litigation with him.  Days later the Shouse employment litigation was settled, but Krigel refused to honor Shank’s attorney lien, according McAnany’s opinion.

Krigel sought a declaratory judgment against Shank, looking to invalidate its attorney lien claim, in an attempt to avoid sharing the contingent fee with Shank.  The firms then filed competing motions for summary judgment, with the district court entering judgment in favor of Krigel and against Shank.  This left Krigel entitled to retain the entire contingent fee from the Shouse litigation, excluding Shank, according the opinion.

But McAnany determined the district court had erred in this ruling.  “Shank represented Shouse for the majority of her case,” McAnany said.  ”It paid $2,401.68 in expenses, provided the staff needed to assist with the case, and paid the overhead costs that come with operating a law firm.  It also compensated Moore for the time he worked at the firm.  Interpreting the operating agreement as a waiver of quantum meruit recovery in the Shouse action would result in a windfall to Krigel, which has provided no consideration for the benefit.”

According to McAnany, there was “nothing in the operating agreement that could be construed as an express waiver by Shank of its right to relief through quantum meruit upon Shouse discharging Shank and retaining Krigel in its stead.” 

“Under such an arrangement, the departing senior attorney may be compensated for capital contributions to the firm and the attorney’s share of the tangible assets of the firm but not for any intangibles such as goodwill or for work in progress or a share in unrealized recoveries in pending cases.  Such an arrangement does not signal a disregard for the value of these intangibles for which a departing attorney realizes no monetary consideration,” McAnany wrote.  “Rather, the arrangement recognizes the importance of husbanding the value of these intangibles for the cultivation and development of new attorneys who will carry on the task of maintaining and expanding clients for the future health of the firm.  We fail to see how such an arrangement could ever be viewed as an abandonment of the firm’s right to seek relief through quantum meruit from clients who choose to take their legal business elsewhere.”

The district court’s interpretation of the operating agreement was also inconsistent with Shank’s actions and the concept of principal-agent relationships, according to McAnany.  “Shank took on Shouse’s case on a contingent fee basis and spelled out in the engagement agreement its right to an attorney’s lien against any recovery by Shouse if she went to another law firm,” McAnany wrote.  “And when Shouse left and Krigel settled the case, Shank asserted its attorney lien for the work done on the case before Shouse left.  None of this is consistent with waiver, but it is entirely consistent with the right to claim quantum meruit.”

The appeals court also rejected the district court’s interpretation of the agreement’s provision that valued contingency fee cases at zero.  “The district court believed that its interpretation of the operating agreement was reasonable because allowing quantum meruit in the Shouse case would allow Moore to make a quantum meruit claim in the cases that stayed at Shank and this was ‘[t]he result that the parties presumably sought to avoid when they set the contingency case book value at zero,’” McAnany said.  “Such an interpretation ignores the fact that Moore had no quantum meruit claim in cases he worked on while at Shank.  The clients were the clients of Shank and Moore was paid for his work on the firm’s clients through his compensation agreement with the firm.”  Likewise, the appeals court said Krigel’s interpretation of that provision of the operating agreement did not hold up to scrutiny when applied to different scenarios.

“[U]nder Krigel’s theory, death of one of the owners necessarily would trigger these same provisions of the operating agreement; and because the value of contingent fee matters would not be calculated in arriving at the value of the deceased owner’s equity in the firm, a contingent fee client—or all the firm’s contingent fee clients, for that matter—would be free to pick up and move to a different firm and, in the process, insulate the proceeds of any recovery in their cases from a claim under quantum meruit by Shank for legal work performed on their behalf,” McAnany determined.  “The same could be said of the other means by which an owner of the Shank firm could depart: an owner being expelled from the firm or being disbarred.  Such an outcome based on Krigel’s interpretation of the operating agreement would be an absolute absurdity.  Moreover, we cannot rewrite the operating agreement under the guise of construction in order to accommodate Krigel’s theory of waiver.”

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