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Category: UK / International

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.

AIG Unit Denied Attorney Fees in $7.2M Coverage Win

August 6, 2021

A recent Law 360 story by Ben Zigterman, “AIG Unit Denied Fees Following $7.2M Coverage Win”, reports that an AIG subsidiary has lost its New York federal court bid to have its reinsurer pay more than $300,000 in attorney fees, following a ruling last year that the reinsurer must cover $7.2 million of a $20 million payment to Dole Food Co. to settle pollution claims.  The Insurance Co. of the State of Pennsylvania had sought the fees from London-based reinsurer Equitas Insurance Ltd. under English law, but U.S. District Judge Laura Taylor Swain adopted a magistrate judge's recommendation that the fees are not permitted by New York law.

On U.S. Magistrate Judge Sarah L. Cave's recommendation last month, ICSOP said it wouldn't object in an effort to speed up Equitas' appeal of the $7.2 million judgment, which is now up to $8.4 million with prejudgment interest.  After ICSOP covered the $20 million settlement of claims over lingering petrochemical pollution at a Dole subsidiary's housing development in California, it asked Equitas to pay $7.2 million of that under two reinsurance policies it had with Equitas.  Judge Swain upheld that request last year under English law.

Because the case was decided under English law, ICSOP asked the court to also apply it to the insurer's attorney fees of about $348,000, as British courts generally require the losing party to pay them, according to the insurer's motion.  ICSOP also said that its attorney fees were "eminently reasonable" compared to the total judgment and that it paid discounted hourly rates of $566.40 and $380 to the two attorneys working on the case.

But while the reinsurance policies were interpreted under English law, Judge Cave found that the question of attorney fees is a procedural matter that should be interpreted under the procedures of the court where the suit was filed.  Under New York law, losing parties in a lawsuit don't pay attorney fees unless a law or contract states otherwise, which was not the case with these reinsurance policies, she said.

"While it may have been predictable that, because the reinsurance policies were sold in the London market, English law would govern their interpretation, the reinsurance policies do not dictate that litigation be brought in an English court, contain a fee-shifting provision, or provide that the English Rule would apply in a United States court in which the parties chose to litigate," Judge Cave wrote.

Judge Orders Attorney Fee Dispute to Arbitration

March 9, 2021

A recent Law 360 story by Emma Whitford, “Atty Must Arbitrate Fee Dispute With Racehorse Trader,” reports that a California judge ordered an attorney to arbitrate her dispute with a U.K. racehorse auctioneer company, her former client, over fees allegedly due when she represented the company accusing a financier of failing to pay for a racehorse.  Attorney Diana Courteau of California claimed in her April complaint that Tattersalls Ltd., the racehorse company, failed to pay her $73,255.34 for the months of February and March 2020, after firing her that March.  The six-claim complaint also accused Tattersalls and Bracher Rawlins LLP, the company's English counsel, of fraud and intentional misrepresentation.

But Tattersalls and Bracher Rawlins pushed back with a motion to dismiss, pointing to an arbitration provision in their contract with Courteau and claiming that she failed to give them proper notice under the California Mandatory Fee Arbitration Act, which lays out rules for the handling of attorney-client fee disputes.  "Here, it is undisputed that [the] plaintiff did not provide the mandatory notice form to defendants," U.S. District Judge Dolly M. Gee ruled, adding that the case will be stayed while arbitration goes forward.

"Moreover," Judge Gee added, "the agreement between plaintiff and Tattersalls contains a broad arbitration provision governing the very dispute at issue."  Specifically, a "dispute over legal bills that alleges breach of contract and related claims."  Courteau had argued that Bracher Rawlins could not compel her to arbitrate because the firm is not a signatory to her agreement with Tattersalls.  But Judge Gee disagreed, saying that Bracher Rawlins will be part of the arbitration as an "agent" of Tattersalls.

It is "well settled that a nonsignatory may compel a signatory to arbitrate based on agency principles," Judge Gee wrote, adding that Bracher Rawlins "was only in a position to direct or authorize plaintiff to perform legal work for Tattersalls in its capacity as Tattersalls' agent."  The order is just the latest development in the litigious fallout of Tattersalls' working relationship with Courteau, who represented the company in various matters from 2011 until March of last year.

Last June, in the case Courteau worked for Tattersalls until they fired her, U.S. District Judge Karen S. Crawford ordered Courteau to pay $31,772.62 in sanctions to defendants Gerald Wiener and his entity Finance California Inc., court records show.  The sanctions covered attorney fees for a two-day deposition last January in which the court found that Courteau coached the witness, as well as the cost of preparing the sanctions motion, court records show.

Wiener and Finance California had also sought termination sanctions, a serious sanction that would have ended the case, for Courteau's alleged "abusive" and "hardball" tactics.  But Judge Crawford denied that motion, saying the "worst of this conduct has been addressed" and "monetary sanctions have been imposed which should be enough to deter future misconduct."  Courteau has yet to pay the sanctions, court records show.  Attorneys for Wiener filed a notice of lien in the instant suit on Jan. 15.

In a Feb. 4 declaration to the court, Courteau urged Judge Gee to proceed with a trial for her fee dispute or, in the alternative, send the case to "global mediation" along with the Wiener case, which is currently on appeal to the Ninth Circuit.  "Plaintiff is willing to stipulate (notwithstanding meritorious grounds for appeal) that ... the $31,772,62 (sanctions) can be paid from fees owed by defendants," Courteau wrote.

Second Circuit: No Second Shot for Milberg in $12M Fee Dispute

February 9, 2021

A recent Law 360 story by Justin Wise, “2nd Circ. Says No 2nd Shot For Milberg in $12M Fee Dispute”, reports that the Second Circuit upheld a lower court's dismissal of Milberg Coleman Bryson Phillips Grossman PLLC predecessor Milberg LLP's pursuit of nearly $12 million in contingency fees from former clients, saying its petition failed to comply with a timing provision of federal arbitration law.  The decision came down in a long-running dispute between Milberg LLP, which has since merged with multiple firms, and clients it represented in Germany and Luxembourg in their suit for recovery on defaulted Argentine bonds.

The firm in 2019 sued in the Southern District of New York seeking to vacate an arbitration award that said it was entitled to only a fraction of a $11.9 million fee it claimed it earned for its work on the case.  However, the court dismissed the firm's effort over failing to adequately plead diversity of parties and for not serving proper notice of the petition within the three-month statute of limitations.  While a three-judge panel differed with the lower court on the subject of diversity, "nevertheless, we hold that Milberg failed to comply with the timing provisions of the Federal Arbitration Act."

An attorney for Milberg had previously argued in court that Hague Convention protocol made it impossible to serve notice to overseas adversaries within 90 days.  But the appeals court was not convinced, saying the firm did not "demonstrate diligence" when it came to the three-month deadline to warrant a "possible equitable extension."

"Milberg did not even notify opposing counsel of its petition to vacate the arbitral award until [the] three-month window closed, and only after opposing counsel stated it was not authorized to accept service did Milberg set the wheels in motion for service overseas," the panel wrote, citing the firm's after-hours attempt to serve notice on the day the statute of limitations expired.

Milberg had represented 10 Luxembourg and German retirement funds and two German individuals as they sought to enforce payment on defaulted Argentine bonds.  The clients stopped working with Milberg in 2016 and hired another firm before settling the dispute with Argentina for $162.3 million.  Court documents show that the settlement was similar to the terms Milberg had obtained before being discharged.

Milberg initiated arbitration seeking contingency fees in 2017, but a panel on Feb. 5, 2019, declined to award the firm what it sought. Milberg filed suit in court on May 6, 2019, and late that evening — the last day it could serve a notice for its motion — emailed counsel for their former clients asking whether it could accept service on their behalf.  The clients' counsel said it was not authorized to accept service, court documents show.

Legal Fees To Top £5M in Credit Suisse Espionage Suit

January 29, 2021

A recent Law 360 story by Christopher Crosby, “Legal Fees To Top £5M in Credit Suisse Espionage Suit,” reports that legal fees are expected to top more than £5 million ($6.9 million) as a former Credit Suisse employee heads to trial seeking £60.3 million from the lender after he was imprisoned in Romania on charges of espionage over his work.  Judge Roger ter Haar QC signed off the costs in a short judgment at the High Court, approving hourly rates of £780 for top-tier barristers and £515 for their lieutenants.

Credit Suisse had budgeted some £3.8 million in time and costs for defending itself against allegations by Vadim Benyatov that the bank is liable to cover his lost earnings and costs arising from his conviction in 2013 by Romanian authorities. He was sentenced to 10 years in prison on charges of espionage and establishing an organized criminal group.

Benyatov, meanwhile, has estimated spending in excess of £2.3 million for the lawsuit. But despite the complexity and "considerable skill" involved in the case the judge trimmed the bank's budget for costs nearer to £3.1 million and Benyatov's to £2.1 million.  There are "big issues" with the disparity between the two estimates, the judge told the court.

Most of the trimming — more than £300,000 — came from the Swiss bank's preparation and budget for trial, which is expected to begin in late April.  Benyatov, who ran the lender's emerging markets desk in Europe, inflated the size of the dispute to £60.3 million from £39 million in November, when Judge ter Haar said he could add 10 years onto his projected retirement age.

At the time, the former banker had also sought to amend his 2018 lawsuit against Credit Suisse Securities (Europe) Ltd.  He was prevented from adding claims that the bank breached its duty to undertake a risk assessment on work in Romania.

However the judge allowed him to claim loss over the Financial Conduct Authority's decision to revoke his authorization in 2013.  Judge ter Haar rejected the Swiss bank's attempt to strike out the allegations, saying in December that it had applied the wrong legal test.

The former director worked for the bank from around 2005 on the proposed privatization of a Romanian state-owned energy producer by an Italian company.  He alleges that Romanian officials were concerned about potential Russian influence in its energy sector and scrutinized him because of his Russian family name and birth place inside the former Soviet Union.

Benyatov also claims that the bank should have tipped off Romania's intelligence services about its business plans.  He said after he was arrested in 2006 that Credit Suisse paid for his legal expenses but failed to cover his "enormous losses."  The bank disputes Benyatov's claim for repayment, and has said there is no obligation for it to indemnify him simply because his work for the lender led to his arrest.

The case is Vadim Don Benyatov v. Credit Suisse Securities (Europe) Ltd., case number QB-2018-001043, in the Queen's Bench Division, the High Court of Justice of England and Wales.