Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Legal Malpractice

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.

Judge Slams Attorney For Waste in Deepwater MDL

August 2, 2021

A recent Law 360 story by Mike Curley, “Judge Slams Atty For ‘Shameful’ Waste in Deepwater MDL”, reports that a Louisiana federal judge has sanctioned a plaintiff attorney involved in a sprawling multidistrict litigation over the 2010 Deepwater Horizon spill, calling his multiple lawsuits, duplicative motions and other actions "a colossal waste of time" intended to harass others and get around the court's previous orders.  U.S. District Judge Carl Barbier also required Brian J. Donovan of The Donovan Law Group PLLC to post the sanction on his website.

In a scathing written opinion, Judge Barbier barred Donovan from filing any further suits against other plaintiff attorneys Stephen J. Herman of Herman Herman & Katz LLC and James P. Roy of Domengeaux Wright Roy & Edwards LLC, as well as Patrick A. Juneau of Juneau David APLC, claims administrator for the MDL's economic settlement.

"No party should have had to respond to any of these suits, and no court should have had to entertain them," Judge Barbier wrote. "Donovan has weaponized civil litigation to harass those with whom he disagrees.  His behavior has been a constant drain on judicial resources.  The waste Donovan creates is shameful and appalling."

Donovan had initially represented plaintiffs in a suit over the spill that was rolled into the MDL, but after some of his clients were denied claims, he sued other attorneys and Judge Barbier, saying Barbier should recuse himself over his past ownership of Halliburton Co. and Transocean Ltd. assets and that the other attorneys had colluded on the settlement to the detriment of class members and the benefit of BP PLC, which had operated the oil platform where an explosion started the spill.  Judge Barbier refused to recuse himself in November 2019 and scolded Donovan over his recusal motions but didn't levy sanctions at the time, instead referring his briefs, as well as Herman's opposition to the motion, to the clerk of the court to start a disciplinary proceeding against Donovan.

That suit, which named Herman as a defendant, was dismissed in March 2020, and Donovan filed two more, making the same allegations but adding the judge, Roy and Juneau as defendants, and both were voluntarily dismissed before Herman, Roy and Juneau moved for sanctions earlier this year, and at a hearing July 23, Judge Barbier granted the motions.

In the written order, Judge Barbier held little back, slamming Donovan's suits, as well as response briefs that came with more than 1,000 pages of exhibits, as repetitive and baseless, and attempts to harass those in the suit he disagreed with.  "Throughout the life of this MDL Donovan has inundated the court with wave after wave of motions that often do no more than repeat previous arguments," the judge wrote. "These practices have wasted the court's time and that of his opponents."

The judge further added that neither Donovan nor his clients have standing to assert many of the arguments he makes, as he's never argued that he or his clients are class members and his objections to the settlement are far too late.  "The fact that Donovan lacks standing to press his arguments makes every moment spent addressing them — whether by the parties, this court, or any other judicial body — a colossal waste of time," Judge Barbier wrote.

He added that it's "telling" that Donovan never sued BP, even though his filings point out that BP is liable for damages from the oil spill, and if he had he might have had a chance of recovering money for his clients, but instead he's only shown that his purpose in bringing the suits was to harass others.  Thus, Judge Barbier found it proper to block Donovan from filing yet another suit against Herman and the others over the same allegations, and further ordered Donovan to pay Herman's, Roy's and Juneau's attorney fees.

While Judge Barbier stopped short of fining Donovan for his behavior, he ordered Donovan to post a copy of the order on his website, as well as any other websites or blogs he owns, operates or maintains, and to provide the court with proof that he has given a copy of the order to his clients from his initial suit in the MDL.

Lack of Jurisdiction Dooms Billing Suit Against K&L Gates

June 7, 2021

A recent Law 360 story by Justin Wise, “Lack of Jurisdiction Dooms Billing Suit Against K&L Gates,” reports that a federal judge has dismissed a health center's lawsuit alleging K&L Gates LLP and one other firm engaged in deceptive billing practices during a South Carolina bankruptcy action, ruling the lawsuit is not sufficiently related to a bankruptcy matter to justify federal jurisdiction.

In a three-page order handed down, U.S. District Judge Jill N. Parrish rejected arguments from Chicora Life Center, a Utah-based subsidiary of Chicora Garden Holdings, that the court could hear the dispute since it arose and was related to Chicora Life's prior bankruptcy.  Federal courts only have jurisdiction over such cases when it can affect the administration of an estate, Judge Parrish wrote, something that's impossible in this matter since the bankruptcy proceeding was terminated in 2017.

"The outcome of this action cannot 'conceivably have any effect on the estate being administered in bankruptcy' because the bankruptcy proceedings terminated over two years before this action was filed," Judge Parrish wrote.  "In short, this court lacks jurisdiction because this lawsuit cannot have any impact 'on the handling and administration of the bankruptcy estate,' nor can it affect 'the estate of the debtor' in a closed bankruptcy case."

Douglas Durbano, a Utah lawyer and developer who manages Chicora Life and also served as counsel for Chicora Life in the current case, told Law360 that he'd seek to move forward with the claims in a different venue.  "The matter will be refiled in a court that does have jurisdiction," he said, adding that he's "studying" possible new venues based on the ruling and previous court admissions from the firms.

Chicora Life Center sued K&L Gates and South Carolina law firm McCarthy Reynolds & Penn LLC in August, alleging that its attorneys engaged in, among other things, fraudulent billing practices and malpractice during its representation in a South Carolina bankruptcy proceeding.  According to the lawsuit, K&L Gates used several tactics to increase its billing in the Chapter 11 proceeding against Charleston County over a lease termination dispute.  The billing practices resulted in about $1.6 million in fees between May and October 2016.

The health center also alleged that actions from K&L Gates and McCarthy Reynolds attorneys caused the bankruptcy court to approve a "cramdown" plan against its own interests.  The "cramdown" plan called for the county to purchase a Chicora Life property to satisfy its obligations to creditors, a scheme that it claimed led to a $3 million tax liability, according to Friday's ruling.

In a court filing this year, K&L Gates said it secured an "extremely favorable" settlement for Chicora Life where Charleston County agreed to purchase the property in question for $30 million.  It also said a fee examiner appointed by the bankruptcy court determined the firm was entitled to all of its requested fees.

Quinn Emanuel Defends Billing Practices, Expenses

May 5, 2021

A recent Law 360 story by Rachel Schart, “MiMedx Slams Quinn Emanuel Fees As 2 Other Firms Settle,” reports that MiMedx has accused Quinn Emanuel of seeking unreasonable fees, including for lawyers' luxury hotel stays and fine dining, as part of the cost of defending two former company executives who were convicted of securities fraud.  The allegation, in court papers, comes after the life sciences company settled claims with two other law firms seeking payment of fees as part of the same dispute.

Quinn Emanuel Urquhart & Sullivan LLP, Freshfields Bruckhaus Deringer LLP and Kobre & Kim LLP initially filed suit in New York state court on April 15 alleging MiMedx Group Inc. shirked its obligations to indemnify the firms' clients, company President William Taylor and ex-CEO Parker "Pete" Petit.  Both men were sentenced to a year in prison in February after being convicted of one of two counts each at trial.

Freshfields and Kobre & Kim said in court filings that they had settled their claims against MiMedx.  Without disclosing the terms, the firms wrote in similar notices that their "claims in this proceeding do not make, and never were intended to make, a charge of deception against MiMedx or its general counsel, Butch Hulse, and that the filed action in this matter was a good faith fee dispute, which now has been swiftly and amicably resolved."

But Quinn Emanuel has yet to drop its claims in the lawsuit, and MiMedx took aim at the law firm in an answer filed in a related Florida state court legal fee dispute with the former executives.  In response to the men's counterclaims seeking additional fees to appeal their convictions, MiMedx accused Quinn Emanuel of overbilling Petit and Taylor and then unfairly attempting to collect from the company.

"Quinn Emanuel will have to explain its billing and expense practices," MiMedx wrote.  "These include staffing its trial team with over ten professionals, mostly from out-of-town despite having a large New York office within a few miles of the courthouse; staying in a luxury boutique hotel; having meals catered by a Michelin-starred chef (and supplementing them with separate orders of crab legs and sushi to boot); and charging MiMedx tens if not hundreds of thousands of dollars on a 'last-minute' motion to adjourn the trial that the court found 'border[ed] on the frivolous.'"

MiMedx said Quinn Emanuel has refused to provide it with invoices for its expenses in the case, and that it and the other criminal defense firms have already been paid more than $18 million for their work defending the former executives.  MiMedx's counsel told Law360 that the company has indemnified its former executives where required, but that the law firms can't force it to pay unwarranted fees.  "The company has been reasonable.  It paid pursuant to the indemnity," said Louis M. Solomon of Reed Smith LLP.  "It always reserved the right to make sure that the fees were reasonable, and even now with the convictions in place, we're not obliged to advance any more costs."

Quinn Emanuel's in-house counsel defended the firm's billing practices to Law360.  "Quinn Emanuel tried this case during the pandemic and achieved an acquittal for its client on the most serious count," Marc Greenwald, who is representing the law firm in the New York case, said.  "Quinn Emanuel expects to get paid at the rates that MiMedx agreed, and our work was outstanding.  All the charges were appropriate and reasonable."

MiMedx lodged its Florida state court claims against Petit and Taylor in January seeking permission to stop indemnifying the former executives upon sentencing, as well as reimbursement for millions of dollars in already paid fees.  Petit and Taylor fired back with counterclaims soon after they were sentenced, arguing in April that the company must continue indemnifying them in the upcoming appeal.  Quinn Emanuel, Freshfields and Kobre & Kim filed their separate New York state court suit in April, alleging that MiMedx has violated its contractual duty to pay Petit and Taylor's criminal defense costs.

Under Economic Pressure, More Firms Sue Clients for Unpaid Fees

April 13, 2021

A recent Legal Intelligencer story by Justin Henry, “Under Economic Pressure, Large Firms May Increasing Sue Clients for Nonpayment,” reports that economic pressures accelerated by the COVID-19 pandemic have forced many law firms into difficult conversations with clients, as they aim to balance flexibility during an economic downturn with their own budgetary constraints. In some instances, the challenge is leading to lawsuits.  Over the last 12 months since the onset of the pandemic, Am Law 200 firms including Blank Rome, Buchanan Ingersoll & Rooney, Armstrong Teasdale and Baker McKenzie, among others, have sued clients for allegedly unpaid legal fees, court filings show.

Attorneys who represent law firms in collections disputes say firms are wary to sue clients over unpaid fees because it potentially leaves them vulnerable to counterclaims of legal malpractice.  They say law firms see litigation as a last resort, especially during an economic downturn when flexibility in collections can be key to maintaining solid client relationships.  But law firms are also on alert for exploitation by clients citing the economic tribulation of the last 12 months as a pretext to avoid costs, attorneys say.  Industry leaders also said a large portion of these claims by law firms don’t show up on the public record because the services contracts include an arbitration provision for settling fee disputes.

“As firms become billion-dollar-plus big businesses, they tend to be run more like big billion-dollar-plus businesses,” said Ronald Minkoff, a litigation group partner at Frankfurt Kurnit Klein & Selz, who represents law firms in fee collections disputes.  “If they feel that a client is taking advantage of them, they’re much more willing to call the client to account for that.”

Last summer, according to court filings, Buchanan found itself with $2.7 million in outstanding legal fees from Best Medical International, a medical device company that retained Buchanan for patent litigation against alleged infringers in which Buchanan was victorious.  The fee is now the subject of ongoing litigation in the U.S. District Court for the Western District of Pennsylvania.

“Our cash flow difficulties do indeed continue to make it difficult to pay the Buchanan legal bill which now approaches $2.8 million,” said James Brady, Best Medical’s in-house counsel, in a May 11, 2020, email to Buchanan CEO Joe Dougherty, that was included in court documents.  “We will do everything we can to achieve a reasonable settlement with Varian and Elekta so your firm can be fairly compensated.  We appreciate your willingness to continue the forbearance on any collection efforts and we are hopeful a successful plan will be forthcoming soon.”

Court documents also included a May 12 email reply, in which Dougherty told Brady the firm’s board is “growing impatient with my forbearance on initiating collection efforts.”  Dougherty added Buchanan “is not immune from cash flow challenges these days, and the $2.7 million owed is very significant to us.”  Buchanan has annual revenue around $300 million, according to the most recent ALM data for the firm.

Best Medical took the firm to court in July, alleging it had breached fiduciary duties by failing to provide monthly estimates as promised in their initial contract, which the firm denies.  Court records show Best Medical failed to pay monthly payments from Sept. 23, 2019, through Feb. 11, 2020, citing the opposing parties’ request to stay proceedings and postponing a potential settlement.  Buchanan declined to comment for this story.

Armstrong Teasdale on March 17 filed a complaint in the U.S. District Court for the Eastern District of Missouri against former clients, who the firm had represented in multiple lawsuits and in various arbitrations before the American Arbitration Association from October 2018 to October 2020. The suit alleges that the clients owe more than $3.5 million to the firm, plus a 9% annual interest rate.  That amount is equal to 2.3% of the firm’s 2020 revenue of $149.2 million.

In its complaint, Armstrong states the former clients paid legal bills invoiced through July 2019, but alleges that legal bills remain unpaid from then until September 2020, when the clients informed Armstrong they were retaining new counsel.  Armstrong Teasdale declined to comment for this story.  Blank Rome in a Jan. 8 complaint, filed in the Superior Court of the District of Columbia, claimed former clients Joseph Gurwicz and GR Ventures of New Jersey have outstanding legal fees for the firm’s services connected to preparing and filing a provisional patent application.

As of the date of filing, more than 100 invoices dated from Nov. 8, 2017, through Nov. 6, 2019, remain either partially or fully unpaid, the firm alleges.  Of the $485,563 in legal costs incurred by Blank Rome on behalf of their client, the firm claims $187,860.85 have yet to be paid in full.  In addition, Blank Rome said it’s owed an annual accrued interest rate of 6%, bumping the total amount of the firm’s claim to just over $211,000.

Last week the firm opted to withdraw from the case. Blank Rome declined to comment for this story.  In another case, related to a five-figure fee, Baker McKenzie sued former client Catherine Brentzel in June 2020 in D.C. Superior Court.  Last month, the court entered judgment in the amount of $77,325.88 in the law firm’s favor, court records show.

Minkoff said there had been a stigma attached to firms using the court to induce payments from clients, because it might signal poor client relationship management on the part of the law firm.  But that has taken a back seat in recent years due to revenue pressures and stagnant demand, which have been ramped up by the COVID-19 pandemic, he said.

“There were businesses and law firms who were affected by the pandemic in a negative way, and that increased the pressure in these situations,” Minkoff said.  “The Big Law numbers were not usually affected, particularly at the top levels, but the pressures that existed before the pandemic existed during the pandemic and will exist after the pandemic.”  Minkoff said the industry may be in for a rise in the volume of fee collections disputes between firms and their clients, mirroring the uptick that occurred in the mid-2010s.

“Partners are under pressure to bring in as much money as they can, and that has led to more aggressive behavior in terms of fee collections and those kinds of disputes,” Minkoff said.  He added that the rise in fee collections litigation coincides with firm protectionism in partnership agreements.

Expense-related pressures fall on the side of clients, who are sometimes surprised by high litigation fees and prefer to wait for a result to pay.  “The firms are more aggressive, they have more tools at their disposal to get paid, they’re more willing to litigate to get paid, especially if it’s a sort of one-off arrangement,” Minkoff said.  “Clients are faced with this kind of sticker shock.”

Akerman litigation partner Philip Touitou said law firms are even more focused on collections during the pandemic.  He said the crisis has “changed the dynamic” between clients struggling to make payments and law firms, who work to balance accommodations for struggling clients with their own financial pressures to make budget.  Touitou added that flexible fee structures are “here to stay” as law firms work to avoid potential fee disputes from the outset of a client engagement.

“I think the pandemic has only accelerated that effort,” Touitou said. He added that as firms reevaluate their costs after working remotely and cutting travel expenses to zero, they “may be in a better position to offer more flexible [fee] structures.”  “I think the benefits of law firm cost consciousness will work to the benefits of clients,” he said.