A recent Law 360 by Emily Sawicki, “Co. Held in Contempt For Failing To Pay $1M Atty Fee,” reports that a New Jersey federal judge has issued a contempt order against an India-based supplement company for failing to pay discovery misconduct fees and blocked its legal counsel from withdrawing, a year after the company was ordered to pay more than $1 million to opposing counsel following patent infringement claims dating back to 2015.  U.S. District Judge Robert B. Kugler found Prakruti Products Pvt. Ltd. in civil contempt, citing the $994,803.29 in discovery misconduct fees Prakruti still owed to Sabinsa Corp.

Judge Kugler issued an order on April 12 giving Prakruti until April 18 to issue payment.  As of oral argument on May 1, Prakruti had paid just $8,671 of what had been more than $1 million in outstanding fees toward Sabinsa, in order for the plaintiff to pay back $878,548.56 in ArentFox Schiff LLP law firm fees, $15,120 in "Indian-law counsel fees," $96,750.50 in Saiber LLC law firm fees and $13,035.23 in costs.

Judge Kugler ordered the clerk of the District of New Jersey's Camden Vicinage to enter default against Prakruti on Sabinsa's claim that Prakruti violated a 2015 settlement agreement between the two entities, and converted a summary judgment briefing, set to take place in May, into a briefing on Prakruti's default judgment.

In his order, Judge Kugler specified that, although Prakruti's attorneys, Gregory A. Krauss and James T. Wilson of Davidson Berquist Jackson & Gowdey LLP and Jason B. Lattimore of the Law Office of Jason B. Lattimore, would not be permitted to withdraw, "Prakruti's attorneys are not held jointly or severally liable with Prakruti for the remainder of the discovery misconduct fees."

The three had filed a motion to withdraw from their representation on April 14 and Lattimore provided reasoning in a letter dated April 25, saying, "a conflict of interest has arisen between Prakruti, on the one hand, and its current counsel, on the other," citing a pro se, ex parte letter entered into the docket by a Prakruti company director.  "It appears that Prakruti intends to shift blame for its current predicament from itself to its counsel for their supposed failure to provide 'proper representation,'" Lattimore wrote of the company's letter.

The fee amount itself was a point of contention, after then-U.S. Magistrate Judge Karen M. Williams calculated an initial award of about $879,724 to the ArentFox Schiff lawyers in November 2021, recalculated to $878,548 by U.S. Magistrate Judge Sharon A. King, in April 2022.  The award stems from an underlying patent infringement case brought by New Jersey-based Sabinsa, which claimed Prakruti was violating its patent by selling a turmeric supplement.

During a "contentious" discovery process, Judge Williams found that "Prakruti had withheld certain information from Sabinsa and also spoliated pertinent evidence," according to court documents.  The judge sanctioned Prakruti with an adverse inference, finding that Sabinsa's legal efforts to prove Prakruti's misconduct warranted an award of attorney fees against Prakruti.

A recent Law 360 by Aaron West, “ABA Stresses Client Protections in New Prepaid Fees Guidance,” reports that a committee of the American Bar Association issued new guidance on the ethical obligations surrounding retainers and prepaid attorney fees, offering guardrails to protect clients from paying non-refundable fees for unearned legal work.  The opinion from the Standing Committee on Ethics and Professional Responsibility spells out how lawyers should handle advance non-contingent fees paid by clients for single-issue matters like divorce, defense of criminal charges and certain civil litigation, among others.

"[ABA Rule 1.15] requires that fees paid in advance must be held in a trust account until the services for which the fees will be paid are actually rendered, thereby allocating various risks to lawyer and client," the opinion says, referring to the flat fee rule at issue in the guidance.

According to the ABA's Formal Opinion 505, the problem it seeks to clarify stems from flat fees being classified as retainers, which are often nonrefundable. Attorneys shouldn't consider retainers as a "payment for the performance of services, but rather is compensation for the lawyer's promise of availability," according to the opinion.

"Given the rarity and unusual nature of a general retainer, and the fact that very few clients would actually need or benefit from one, the nature of the fee and lawyer's obligations and client's benefits under such an agreement must be explained clearly and in detail," the opinion states.  When it comes to handling upfront fees, the committee suggested that attorneys use "plain language."

"Instead of 'retainer' say 'advance' and explain that it is a 'deposit for fees,'" the opinion says.  "Explain that the sum deposited will be applied to the balance owed for work on the matter, and how and when this will happen."  The committee also stressed that "an advance fee paid by a client to a lawyer for legal services to be provided in the future cannot be non-refundable."

"Any unearned portion must be returned to the client," the opinion says. "Labeling a fee paid in advance for work to be done in the future as 'earned upon receipt' or 'nonrefundable' does not make it so."  The ethics committee periodically issues opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules to specific issues of legal practice, client-lawyer relationships and judicial behavior.

Although the ABA Model Rules provide guidance that U.S. legal jurisdictions can adopt, many states have their own rules that aren't necessarily in line with the ABA model.  In the case of ABA Rule 1.15, multiple jurisdictions have rules on the books that don't align with the new guidelines.

For instance, California and Oregon have their own model rules that clarify and outline how flat fees paid in advance of legal services should be deposited or labeled.  The ABA in its opinion acknowledges the jurisdictional discrepancy but also says that the approach "departs from the safekeeping policy of the Model Rules" and "creates unnecessary risks for the client."  While it's important to safeguard client payments from being considered non-refundable when an attorney hasn't yet earned them, too broad of an approach also risks preventing states from creating their own legal regulatory rules.

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

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

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

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

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

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

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

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

A recent Law360 story by Jeannie O’Sullivan, “Sills Cummis Accused of Overbilling in Rock Musician Suit,” reports that the former manager for Nile Rodgers has accused Sills Cummis & Gross PC of overbilling him in connection with contract claims against the musician and then abandoning the case, according to an amended complaint filed in New Jersey state court.  In a filing, Peter Herman said Sills Cummis and firm member Joseph B. Fiorenzo failed to honor negotiated bill corrections, charged "patently unreasonable fees" for unnecessary outside work and then withdrew from the matter, leaving him to fend for himself in court.

The firm has since demanded that the $315,000 settlement in the underlying matter be held in escrow to settle its claim against Herman for fees, according to the complaint, filed in Essex County Superior Court.  "As of the date of this complaint, Herman has received nothing of the settlement proceeds," the complaint said.  Herman hired Sills Cummis under a $20,000 retainer agreement that set forth hourly fees for the lawyers assigned to the case, according to the complaint.  Herman claimed he informed the firm that he only had $100,000 for legal fees.

The firm charged Herman "in excess of" $618,000 in connection with the civil matter and sought to collect on the whole amount, despite an agreement in which the parties had negotiated reductions, the complaint said.  The rates charged "far exceeded rates for similarly situated New Jersey based law firms," the complaint said.  Herman alleged that Fiorenzo informed him that the firm would no longer work on his file and would move to withdraw, forcing Herman "to negotiate directly with Nile Rodgers and accept a settlement far less than what was reasonable."  That settlement is now tied up in escrow, the complaint said.

The seven-count complaint says that the firm violated professional conduct rules requiring attorneys "to charge fair and reasonable fees and disbursements," and that the retainer agreement, which includes an arbitration clause, is "null, void and of no force and effect."  The fact that the settlement is escrowed constitutes a breach of the firm's agreement with Herman, and the firm's failure to cap its fees amounts to converting Herman's assets for its own benefit, the complaint says.

Herman also claimed that Fiorenzo made false statements "regarding his extensive experience and personal involvement" with the matter. The bills showed Fiorenzo "spent little time on the matter," the complaint said.  The complaint goes on to say that a conflict of interest arose when the defendants demanded Herman pay the fees or face a motion to withdraw.  Their service to Herman would be "materially affected by defendants' interest in their fee claim," the complaint said.  Herman wants compensatory and punitive damages, release of the escrow funds, and attorney fees and other costs. 

A recent Law 360 story by Celeste Bott, “Chicago Firm, Attys Spar Over Fees Ahead of Ex-Client’s Trial”, reports that Chicago law firm Wood Phillips and one of its former attorneys suing an ex-client for payment for their two decades of work in a patent case are embroiled in a contentious dispute over how potential recovery would be allocated between them, and the firm is asking an Illinois federal judge to weigh in on the applicability of its contingency fee agreements ahead of trial.

Wood Phillips Katz Clark & Mortimer and named partner John S. Mortimer are seeking to file either a pretrial motion to resolve whether the parties are bound by those agreements or, alternatively, to add a cross-claim against former Wood Phillips attorney Dean Monco for anticipatory breach of contract.

The case is set to go to trial early next year, as the firm and attorneys seek to be compensated for more than 20 years of work for carbon fiber manufacturer Zoltek Corp.  The firm and Mortimer argue, in their motion for leave to file, that it would be unfair and would create "chaos and confusion" to have the plaintiffs arguing amongst themselves at trial.

But U.S. District Judge Martha M. Pacold appeared skeptical of those proposed procedural avenues during a status hearing, pushing the parties to address how a Rule 16 pretrial motion could resolve a substantive issue such as the applicability of the firm agreements, how it would impact how the trial would be conducted and whether a potential cross-claim is premature given there's no recovery to divvy up yet.  The judge also questioned whether a cross-claim against Monco was fair given the late stage of the litigation.

Acknowledging that resolving the intra-plaintiff dispute could assist in a potential settlement, the judge said that there still needs to be a legal basis for resolving the issue, not just a practical one.  "I don't think I have a kind of free-ranging power, even if I wish I might, to just decide random stuff," Judge Pacold said.  "There has to be a legal basis and legal hook for really every issue that is teed up.  So I certainly understand all those practical considerations, there just has to be a legal framework for resolving it."

Lee Grossman, an attorney representing Mortimer and the firm, told the court the vehicle for the pretrial motion could entail a jury instruction telling jurors to conduct the recovery for Monco, Mortimer, and the firm based on the formula laid out in the firm agreements at issue.  As for whether a cross-claim is premature ahead of a potential recovery at trial, Monco has already stated in interrogatories that he doesn't intend to honor the firm fee agreements, Grossman said.

"One party has already said, 'I'm not going to follow that contract,'" Grossman said. "In the interest of judicial economy, or whatever economy is left, I don't think it's a practical way to go."  But Monco argued to the court that Wood Phillips has made multiple improper attempts to adjudicate an unfiled and disputed contract claim against any future quantum meruit recovery from Zoltek, and that his former employer can't use Rule 16 to skip the required steps of filing a pleading and then a motion for summary judgment.

Paul Vickrey of Vitale Vickrey Niro & Gasey LLP, representing Monco, said allowing that avenue would lead to a "sideshow" at trial and would only invite confusion and delay. The firm agreements have nothing to do with the elements for determining quantum meruit under Illinois law, Vickrey said, and the firm can later challenge the results in state court if they so choose.

The calculations laid out in the agreements at issue are "hotly disputed," said Patrick F. Solon, another attorney for Monco. The contract claim that the firm is now trying to pursue was never filed, and there's been no pleading, no answers and no discovery on the matter, he said.  But Grossman countered that the fee agreements have been a cornerstone in the yearslong case.  "There's no discovery needed on these agreements," he said.  "They've been talked about in this case from day one."

Also, before the judge is a conditional bid by Monco to disqualify Grossman as counsel. Monco contends that if the firm is allowed to pursue its claim for his "anticipatory breach" of firm agreements, "using Grossman as their counsel [...] would result in Grossman suing his own former client in this very action."  Judge Pacold didn't rule on the pending motions immediately, saying she would either issue a decision after reviewing the materials and arguments or schedule another hearing for further discussion.

According to the 2017 complaint, Zoltek had hired Monco and Mortimer in 1996 to represent the manufacturer in a lawsuit against the federal government alleging that the B-2 bomber, which was developed by aerospace company Northrop Grumman Corp., infringed its patented method to produce carbon fiber sheets that help military aircraft avoid being detected by radar. Japanese conglomerate Toray Industries Inc. acquired Zoltek in 2014.

The litigation, which proved "extremely contentious and difficult," lasted 20 years, with the attorneys spending almost 13,000 hours representing Zoltek, the firm said.  But after a July 2016 strategy meeting in St. Louis, which Monco and Mortimer said led to their termination as counsel, the manufacturer then allegedly refused to pay the attorneys for overdue legal bills.

The manufacturer eventually settled the previous litigation for $20 million, but Wood Phillips and the attorneys got nothing, according to the complaint.  In July 2019, an Illinois federal judge said Monco and Mortimer can't pursue fees out of that settlement and must instead raise their claims against the company, with whom they had the attorney-client relationship.

A recent Law 360 story by Nick Muscavage, “Zayat’s Bankruptcy Attys Want Out Over Unpaid Fees,” reports that the law firm representing thoroughbred race horse owner Ahmed Zayat in his...

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