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Category: Legal Malpractice

Article: The Ethics of Crowdfunded Legal Fees

October 8, 2023

A recent Law 360 article by Hilary Gerzhoy and Julienne Pasichow, “Avoiding The Ethical Pitfalls of Crowdfunded Legal Fees”, reports on the ethics of crowdfunding for legal fees.  This article was posted with permission.  The article reads:

Within two days of being charged with manslaughter in the death of Jordan Neely, Daniel Penny had crowdfunded over $1.5 million to cover his legal fees.  Penny was charged with killing Neely, a Michael Jackson impersonator, on a New York City subway after placing him a fatal chokehold.  The case was widely covered and highly politicized.

Democrats, including Rep. Alexandria Ocasio-Cortez, D-N.Y., and New York Gov. Kathy Hochul, called for charges against Penny and justice for Neely's family.  Republicans, including Florida Gov. Ron DeSantis, Rep. Marjorie Taylor Greene, R-Ga., and Rep. Matt Gaetz, R-Fla., voiced their support for Penny.

Crowdfunding legal services is a relatively new phenomenon.  It's most often used to fund litigation involving individuals — as opposed to corporate entities — that implicates human rights issues, the environment and judicial review.

In one widely publicized case, two Yemeni refugees with valid immigrant visas were intercepted at Dulles International Airport, handcuffed and sent out of the country — the result of former President Donald Trump's temporary seven-country travel ban, which had been signed just a few hours earlier while the brothers were en route.  The crowdfunding campaign raised $36,600 in its first week.

While crowdfunding legal services provides a way for many to access lawyers when representation would otherwise be unaffordable, it also comes with a bevy of ethics risks.  This article will examine the key ethical rules governing crowd-sourced legal funds and the steps lawyers can take to mitigate their risk.

The Daniel Penny Case

In May, the Manhattan District Attorney's office charged Penny, a 24-year-old U.S. Marines veteran, with second-degree manslaughter after he killed Neely on a New York City subway earlier that month.  For more than three minutes, Penny placed Neely in a fatal chokehold leading to his death.  Penny claimed self-defense, stating that Neely was threatening passengers on the train.  It was later learned that Neely had been suffering from a mental health crisis and was experiencing homelessness at the time he was killed.  Penny was released on $100,000 bond.  On June 28, he appeared in court in Manhattan to plead not guilty.

The law firm representing Penny — Raiser & Kenniff PC — arranged for a fundraiser on the Christian crowdfunding site GiveSendGo to cover Penny's legal fees.  As of Sept. 29, the fundraiser has collected nearly $3 million.  How can Penny's legal team use those crowd-sourced funds? What restrictions are imposed by the ethics rules?

This article will examine the critical steps to ensure compliance with the American Bar Association's Model Rules of Professional Conduct, which are largely adopted in most jurisdictions.

Confidentiality Runs to the Client, Not the Funders

Perhaps the most fundamental feature of the lawyer-client relationship is the protection of client confidences.  Model Rule of Professional Conduct 1.6 prohibits a lawyer from revealing "information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted [under certain enumerated circumstances]."

A lawyer must make reasonable efforts to prevent inadvertent or unauthorized access to the information, a standard that is highly fact-dependent and considers the sensitivity of the information and the extent to which additional safeguards would enhance security versus hinder the representation.  Lawyers who organize fundraisers, manage crowdfunded donations and apply them toward legal fees must ensure that they neither represent nor imply that they will provide information about the representation to donors in exchange for donations.

It is best to obtain informed consent for any information that will be disclosed to donors and to steer clear of "providing specific information about how the funds will be used to effectuate the legal strategy," as articulated by the D.C. Bar in a 2018 ethics opinion.  To avoid any ambiguity, lawyers should note in the narrative section of the fundraiser that they will not provide any information about the objectives of the representation, actions taken, specific uses of the funds or developments in the case.

When donors fund a lawyer's representation of a client through crowd-sourcing, they must do so with the understanding that they will receive no information about the representation.  We recommend including the proposed narrative language for the fundraiser in the engagement letter signed by the client, which should also describe the fundraising arrangement and the fact that the collected funds will be applied to legal fees and expenses as they are earned or incurred.

There may be instances in which a client wants a lawyer to provide case updates to donors or specific individuals.  To do so, the lawyer must obtain informed consent from the client.  This requires that the lawyer explain the risks of disclosure to the client and have the client approve of the exact information to be disclosed.

Most importantly, the client must understand that disclosing privileged and confidential information about the representation to third parties will destroy the attorney-client privilege and prevent the lawyer from later claiming privilege over the disclosed information.  The same warning should also be given to a client who is managing the fundraiser themselves and wishes to disclose case information or updates to donors.

Crowd-sourced Funds Cannot Interfere with a Lawyer's Professional Independence

Before accepting crowd-sourced funds as payment for legal services, a lawyer must obtain informed consent from the client.  This is true regardless of whether the lawyer is self-administering the funds as they are earned or whether the client is paying the lawyer's invoices using crowd-sourced funds.  Lawyers should consider including relevant language providing for this arrangement in their engagement letter with the client.  Under the Model Rules, even if such an arrangement is in place, a lawyer may not, under any circumstances, allow the person or persons paying the lawyer's fees to "direct or regulate the lawyer's professional judgment in rendering such legal services."

While donors' generosity often enables a client to pursue legal claims or defenses where it would otherwise be financially impossible, donors cannot control how the fundraised money is used within the representation.  Only the client determines the objectives of the representation and whether to follow the lawyer's recommended strategy.

Ensuring that the narrative statement on the fundraising website contains language informing donors that they will not be permitted to exert control or influence over the objectives of the representation or the methods by which they are carried out — in addition to not being entitled to case information — may prove helpful in warding off donors who believe that their dollars earn them a say in the representation.  There may be situations in which the donors' interests differ from those of the client — for example, where donors may wish to minimize the amount spent on the representation to get more for less or avoid taking steps in the representation that may be costly.

In circumstances where the lawyer is aware of divergent interests between the donors and the client, the lawyer cannot accept the representation or continue the crowdfunded payment arrangement unless the lawyer is certain that they can exercise independent judgment and will not allow the donors to interfere with their professional decision making.

Be Circumspect About Trial Publicity

Crowdfunded cases are often those that are highly publicized, political and involve public figures. They tend to come with an increased public desire for publicity and insider information.  Many of these cases go to trial, which further extends the period in which the public remains interested and heightens public intrigue.

Model Rule 3.6 governs trial publicity and warns lawyers against making statements that are likely to prejudice the proceedings in any way.  This is all the more true in highly publicized cases, where a lawyer's statements about a case are likely to be widely disseminated.  While media attention on a case does not change lawyers' confidentiality obligations under Model Rule 1.6, Model Rule 3.6 provides that lawyers can provide concrete facts about the case if they are unlikely to cause prejudice.

Lawyers can reveal basic information about the claim at issue, people involved, public records, the existence of a pending investigation, the scheduling or results of litigation, and requests for help in obtaining evidence, and they can offer warnings of danger to an individual or to the public.  In criminal cases, lawyers can provide additional information to the public, including, among other things, information about the residence and occupation of the accused, and the location, time and place of the arrest.

Where a client has suffered prejudice due to recent bad publicity, the lawyer can make statements to mitigate that prejudice.  A lawyer should not speak publicly about a case, however, without the consent of their client after the client weighs the risks and benefits of such disclosures.

Treat Cowdfunded Legal Fees as Advanced Fees, Safeguarding Them in a Trust Account

The two most prominent ethics opinions to address crowdfunded legal fees, a 2015 Philadelphia Bar opinion and a 2018 D.C. Bar opinion, emphasize the importance of safeguarding crowdfunded fees in a trust account and not moving them over to an operating account until they are earned.

As the D.C. Bar opinion notes, because crowdfunding can "trigger areas of confusion that may not be present in a traditional client-self pay situation," lawyers should establish, in a written fee agreement, the rate of their fees, the scope of the representation and specific plans for crowdfunded money, such as the ownership of excess crowdfunds and responsibility for payment if the crowdfunds do not fully cover legal fees and expenses.

Critically, funds collected by a lawyer on a client's behalf through crowdfunding should be treated as advanced fees and placed in a trust account for the client.  In the crowdfunded legal fees context, lawyers need to be especially cognizant of their duty not to charge excessive fees under Rule 1.5.  For example, if a matter resolves quickly, a lawyer would be hard-pressed to claim all of the proceeds of the fundraiser as fees.

Conclusion

The crowdfunding of legal fees represents an exciting opportunity to provide access to legal services to those for whom it might be otherwise unattainable.  With a principled approach — paying special attention to your obligations to maintain confidentiality and your professional independence, and safeguarding funds in a trust account — you can protect yourself from ethics mishaps while serving a wider array of clients.

Hilary Gerzhoy is a partner and vice chair of the legal ethics and malpractice group at HWG LLP.  Julienne Pasichow is an associate at the firm.

Miami Law Firm Fights for Coverage of Fee Dispute

September 21, 2023

A recent Law 360 story by Ganesh Setty, “Miami Law Firm Fights For Coverage Of Overbilling Claims”, reports that a Miami law firm's insurer cannot rely on an "ambiguous" fee dispute exclusion to totally avoid defending overbilling claims, the law firm told a Florida federal court, arguing that even if the exclusion applies, the underlying lawsuit it faces involves broader legal malpractice claims.  In a brief opposing James River Insurance Co.'s motion for summary judgment, Sheehe & Associates PA and three of its attorneys said that, despite the insurer's effort to construe the underlying action as an "overbilling scheme," at least two counts — breach of fiduciary duty and breach of oral contract — are still covered.

And the potential for coverage triggers an insurer's duty to defend an entire lawsuit, the firm noted.  According to court filings, James River issued a professional liability policy to Sheehe running from March 2020 to March 2021 that broadly provided coverage for wrongful acts in the performance or failure to perform "professional services."  The policy defined that term in part as services performed by an insured as a lawyer, arbitrator or trustee, along with other fiduciary roles performed in one's capacity as a lawyer.

In the underlying action, Frontline Insurance Co. accused Sheehe and the attorneys in state court of overbilling hours worked while handling first-party property claims, alleging that in some cases multiple attorneys for the firm individually billed Frontline more than 24 hours for a single day.  Frontline specifically lodged breach of fiduciary duty, negligent supervision, unfair trade practices, unjust enrichment, breach of oral contract, fraud and legal malpractice claims.

In denying coverage, James River argued that overbilling does not constitute professional services, pointing in part to a fee dispute exclusion that barred coverage for claims arising from the "rights or duties under any agreement including disputes over fees for services."

Highlighting an underlying allegation that Sheehe and the other attorneys failed to ensure their legal services were "reasonable and necessary and advanced the best interest of Frontline," the law firm said such a claim shows that Frontline is not just suing Sheehe for a billing dispute but its "strategic decisions," too.  "A claim for breach of fiduciary duty grounded in an attorney-client relationship is considered a malpractice action and subject to the same standards as a legal malpractice claim," Sheehe continued, adding that the same goes for the breach of oral contract claim.

As for the fee dispute exclusion itself, its use of "any agreement" renders its scope overly broad since all professional services in the policy stem from an attorney-client relationship in which an attorney agrees to appropriately represent their client's interests, the firm further argued.  "This exclusion precludes coverage for all agreements, including ones between attorneys and clients, rendering the coverage illusory if read as expansively as James River urges," it said.

For its part, James River further cited in its August motion for summary judgment a prior knowledge exclusion, which barred coverage for a professional services claim if "any insured" could have reasonably foreseen their conduct would give rise to a claim.  It also invoked a "gain of profit or advantage" exclusion barring coverage for any gain or profit an insured is not legally entitled to.

But the policy still covers claims following its retroactive date of March 2004, which was prior to Sheehe's representation of Frontline, the firm responded, adding that the audit Frontline commissioned was still ongoing at the time Sheehe's policy started coverage.  "As the audit included dates cited in the complaint late as March of 2020, there is no allegation in the underlying complaint that supports that Sheehe would or should know that a claim would arise," the firm said.  The gain of profit or advantage exclusion, meanwhile, does not extend to the breach of fiduciary duty and oral contract claims either, Sheehe said, noting both counts seek damages rather than repayment of fees.

Article: Twitter Fee Dispute Case Offers Crash Course in Billing Ethics

September 19, 2023

A recent Law 360 article by Lourdes Fuentes, “Twitter Legal Fees Suit Offers Crash Course in Billing Ethics”, reports on ethical lessons from the recent Twitter fee dispute litigation case.  This article was posted with permission.  The article reads:

Corp.'s case against law firm Wachtell Lipton Rosen & Katz, filed over Twitter's legal bill in connection with Elon Musk's $44 billion acquisition of the company, highlights the importance of following proper billing practices, which are governed not only by contract law but also by the higher standards imposed on lawyers by the rules of professional conduct.  The claims in X Corp. v. Wachtell Lipton Rosen & Katz, filed in early July in California's San Francisco County Superior Court, include restitution (unjust enrichment), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and violation of California Business and Professions Code, Section 17200.

The pleading contains a litany of facts but recounts a concise timeline. From when Wachtell was retained on June 21, 2022, to the Oct. 13 party held to celebrate the month-end closing of the deal at the original $44 billion price, only 114 days had elapsed.  In that time, Twitter received two invoices.  These invoices were included as exhibits to the complaint.  A review of the invoices reveals blank time entries, vague descriptions, irrelevant references and block billing, among other issues.  The invoices amount to close to $18 million.

To compound these perceived improprieties, the final fee statement then added an extra $72 million dollars to that tab.  This was a "success fee" that was referenced in the closing day letter agreement drafted by Wachtell and signed by Twitter's then-chief legal officer, Vijaya Gadde, allegedly hours before the closing sale of Twitter on Oct. 27.  Significantly, the success fee had not been outlined in the engagement letter.

While the validity of the claims will be decided in court, the suit spotlights vital legal billing practices and ethical considerations for attorneys and clients alike.  Even if Wachtell defeats X, the suit has put the reputation of the firm's billing practices at risk.  Moreover, the suit has put the reputation and ethics of individual attorneys at risk by disclosing the invoices at issue, tying timekeeper names to time entries.

Further, the answer to whether the $90 million is fair pay or windfall may not be based on the amount itself, but on whether the parties followed the rules of professional conduct governing attorney-client relationships.  By reexamining billing approaches in light of the Twitter fees case, law firms and clients can take away important lessons on proper billing practices.

The Relevant Rules

Client and lawyer can maintain a positive partnership that is founded on transparency and trust by following an ethical road map.

The claims in the complaint provide us with a good starting point.  They are based on common law tort, contract law and the American Bar Association's Model Rules of Professional Conduct, which have been similarly adopted to varying degrees in other states' jurisdictions.  These are:

    Section 6147 of the California Business and Professions Code, which addresses contingency fees;

    Rule 1.5 of both the California and New York Rules of Professional Conduct, which prohibit unreasonable or unconscionable fees;[6] and

    Rule 1.8 of both the California and New York Rules of Professional Conduct, which prohibit soliciting gifts from clients.

By keeping these rules — or their equivalent from your jurisdiction — top of mind, practitioners can avoid the appearance of impropriety. Though not mentioned in the complaint, I would also add ABA Rule 1.4, which deals with attorney-client communications, to this list.

8 Crucial Steps for Success Fees

Fees based on the outcome of a case, like the success fee in the Twitter case, are permissible, but they still need to be reasonable.  While the ABA rules do not specifically mention success fees, they state that a fee may be contingent on the outcome of the matter for which the service is rendered.  The rules do, however, state that:

A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined.  Success fees are common in transactional matters, but these are typically negotiated as part of an engagement letter.  They are structured to incentivize the law firm to achieve the best possible outcome for the client.  However, the exact nature and amount of these fees can vary and are a subject of negotiation between the parties.  As a result, it is crucial for both parties to follow these steps.

Transparency and Disclosure

All terms related to the success fee should be clearly stated in the engagement letter or contract.  This includes how the fee is calculated, when it is to be paid, and under what conditions it may be modified or waived.

Reasonableness of the Fee

All fees must be reasonable.  Look for guidance in ABA Rule 1.5 for factors that can be considered to determine reasonableness of a success fee. These can include:

    The novelty and difficulty of the case;

    The skill required to properly provide legal services;

    Comparable rates in your area for like services;

    The amount at issue and the results obtained;

    Time limitations imposed by the client or by the circumstances;

    The reputation, experience and ability of the lawyers performing the services; and

    Whether the fee is fixed or contingent.

Proportionality

The success fee should be proportional to the value provided by the law firm.  This could be in relation to the deal size, the complexity of the transaction or the level of risk involved.

Incentive Alignment

Make sure that the fee structure selected aligns the firm's incentives with the client's goals.  Otherwise, it could be considered a conflict of interest, among other ethical pitfalls.

Regulatory Compliance

Understand your state-specific rules or regulations that might apply.  For example, California's Section 6147 speaks to contingency fee agreements.  Research your jurisdiction's rules and regulations.  Remember, as well, that some jurisdictions may cap or ban certain types of fees.

Dispute Resolution

Include a clause specifying how any disputes over the success fee will be resolved, whether through arbitration, mediation or court proceedings.

Periodic Review

It may be prudent to include provisions for reviewing the success fee arrangement at various stages of the transaction.

Client Consent

Explicit, informed consent from the client is crucial, especially if the success fee arrangement is unconventional or complex.  It is important to note that all fees must not only be reasonable but also adequately explained to clients.  Circumventing clear documentation enables end-runs around billing safeguards in violation of ABA Rule 1.5 and violates Rule 1.4.

While a lawyer and client may renegotiate a fee agreement during an ongoing relationship, the lawyer typically carries the burden of establishing fairness of the new arrangement if it is ever challenged.  Fee agreements entered during the attorney-client relationship will get heightened scrutiny to avoid the appearance of undue influence or impropriety.

In the case of Twitter, the success fee was agreed upon allegedly hours before the closing of the deal.  Although Twitter's old board agreed to the fees, the circumstances in which this transpired could be perceived as unethical and improper because of the lateness of the agreement made by the parties to include a success fee.  Hence, in addition to challenging the fee as unreasonable, the lawsuit claims that, based on the facts leading to the closing day letter agreement, the success fee should be considered a gift, and hence a violation of ABA Rule 1.8.

10 Proper Billing Practices

The controversy highlighted in the Twitter fee case provides a valuable reminder of the heightened scrutiny in attorney-client relationships due to its fiduciary nature and the rules of professional conduct.  In addition to the steps specific to success fees outlined above, it is important to keep these broader billing best practices in mind.

Engagement

Always formalize the fee arrangement in a written agreement.  This holds true whether you are dealing with an hourly rate, a contingency fee or some other type of fee structure.  Any modifications to the engagement terms or fee structure should also be put in writing.

Transparency

Clearly outline how legal fees will be calculated, any percentages that may accrue in the case of a contingency fee and any other expenses that will be deducted from the recovery.

Client Communication

Keep the client informed about any developments.

Alternative Fee Arrangements

There is nothing wrong with exploring creative billing options that can benefit both parties, but ensure they are in line with ethical guidelines and are clearly outlined in the agreement.

Data-Driven Metrics

Consider using data-driven methods to establish fees, especially for alternative fee arrangements.  This adds an element of fairness and can help align incentives between client and lawyer.  Notably, today we have the benefit of using artificial intelligence to come up with creative data-based alternative fee arrangements.

Review and Oversight

Periodically review the billing practices to ensure compliance with your client guidelines.  Train your timekeepers in proper billing practices and client-specific billing guidelines.  This training should be done annually and while onboarding new personnel.

Regulations

Understand the rules governing fees and conflicts of interest.  Train your lawyers in the rules of professional conduct.  This training should be done annually and while onboarding new personnel.

Fiduciary Duty

Always act in the best interest of the client, keeping in mind the fiduciary nature of the attorney-client relationship.

Avoid Surprises

Be proactive to avoid sticker shock.  Discuss potential scenarios and outcomes openly with the client, so they know what to expect in terms of fees.

For example, one fact alleged in the complaint is that:

[I]n the middle of the board's final October 27 meeting, former Twitter general counsel Sean Edgett sent the chart of fees that the Twitter board was meeting to approve.  Upon seeing the magnitude of the fees being presented for the board's approval, one former Twitter director immediately exclaimed in an email reply to Edgett: "O My Freaking God."

Regular Invoicing

Provide detailed invoices that outline the work done, the time spent and the costs incurred.  This not only aids transparency but will also help in resolving any disputes that may arise.  Also remember, your time entries should be treated with as much care as any work product; they should be clear, concise, descriptive and grammatically correct.

By following this ethical road map, the parties will reduce the likelihood of disputes and misunderstandings and, also, maintain a good working relationship.

Conclusion

Whether you are the client or the lawyer, beware falling asleep at the wheel when it comes to new engagements, modifications to billing and billing practices generally.  To do so may risk legal action and your reputation.

Lourdes Fuentes is a seasoned litigator, Founder & Chair of Karta Legal LLC, law firm partner and CEO.  She has a law degree from the University of Pennsylvania and is also a certified Legal Project Manager and Lean Six Sigma Black Belt.  With decades in the field, her expertise lies in optimizing legal operations and promoting ethical billing.  Lourdes founded Karta Legal to tackle these specific challenges, offering tailored solutions that include innovative technology adoption and process improvement.  Her firm caters to a diverse range of clients—from Fortune 100 companies to specialized boutique law firms—ensuring they adhere to transparent and ethical billing practices.

Former Client Owes $1M in Unpaid Legal Bills, Jury Finds

July 25, 2023

A recent Law 360 story by Brian Steele, “Ex-Client Owes McCarter & English $1M For Bills, Jury Finds”, reports that McCarter & English LLP won a clean sweep of a multiparty verdict in Hartford federal court when a jury awarded the law firm more than $1 million in its suit against a former client, which failed to pay a batch of legal bills after an adverse outcome in a trade secrets case in Kentucky.

A 10-person jury found that the California-based dietary supplement company Jarrow Formulas Inc. breached its contract with the law firm when it withheld payment on five invoices after the Kentucky federal trial ended in 2019, along with unrelated bills for intellectual property work.  Jarrow countersued, claiming that the bills were improperly inflated by undisclosed rate hikes and that McCarter & English botched the trade secrets suit, but the jury rejected each of the counterclaims.

The firm, which has offices in Hartford and Stamford, Connecticut, also should be awarded prejudgment interest and does not have to pay Jarrow anything, the verdict said.  The jury determined that Jarrow's breach of contract was willful and malicious, while McCarter & English's billing practices were the product of fair dealing.  After the courtroom deputy polled the jury, U.S. District Judge Michael P. Shea praised jurors for their punctuality and attentiveness throughout the trial.  "I can't remember a better jury that I've had," the judge said.

Caudill Seed & Warehouse Co. Inc. sued Jarrow in Kentucky in 2013 for misappropriation of trade secrets, and Jarrow was ordered to pay $2.4 million for willful and malicious misappropriation in July 2019.  A judge later added more damages and attorney fees.  Company founder and namesake Jarrow Rogovin testified in the Hartford case that he decided to fire McCarter & English and refused to pay outstanding bills, for which the firm quickly sued in the District of Connecticut.  Jarrow's insurer declined to provide coverage for McCarter & English's bills in the Kentucky case.  The firm's second amended complaint alleged that Jarrow owed $2.04 million.

Judge Shea had already granted partial summary judgment to McCarter & English and nearly $1 million in damages based on disbursements and the original hourly attorney rates before they rose, but left open the possibility of Jarrow receiving a refund after trial.  That ruling in March 2021 noted that rates rose early on in the Kentucky case, but Jarrow paid the bills for six years.

The jury's verdict awarded McCarter & English another $1,057,173.93, and the judge asked the parties for briefs on the issues of prejudgment interest and punitive damages.  The jury found in favor of the firm on Jarrow's claim under the Connecticut Unfair Trade Practices Act and on its legal malpractice claim, which sprung from McCarter & English's decision not to call Rogovin to testify live during the trial in Kentucky.

Rogovin first hired McCarter & English partner Mark D. Giarratana when the attorney worked at a different firm in 1996, and they maintained a professional relationship and friendship for 23 years, according to trial testimony from each.  Giarratana said Rogovin paid all the Kentucky bills without complaint until after the verdict, while Rogovin said he did not read them thoroughly and failed to notice when the rates rose.

Client Didn’t Notice Billing Rate Hikes, Jury Hears

July 14, 2023

A recent Law 360 story by Brian Steele, “McCarter & English Client Didn’t Notice Rate Hikes, Jury Hears”, reports that a dietary supplement company founder battling McCarter & English LLP over a $2 million legal bill admitted to a Connecticut federal jury that he didn't thoroughly read the firm's invoices, but also refuted the firm's claim that he was verbally informed about the rate hikes at the heart of his counterclaim. 

On the third day of testimony in a Hartford trial, Jarrow Formulas Inc. owner Jarrow Rogovin said that he was responsible for reviewing and approving payment on the company's legal bills, including those that were generated after Caudill Seed & Warehouse Co. filed a lawsuit in Kentucky in 2013 for misappropriation of trade secrets.  But he said that he did not read those monthly bills past the first page, with one exception, because the thought of the legal action and its potentially devastating consequences made him "sick."

"I didn't do a good job" reviewing the bills before paying them, Rogovin said. He added that he did not notice when rates for two partners rose months after the start of the case, or that prior bills were reissued with higher rates.

McCarter & English, which has offices in Hartford and Stamford, is seeking more than $2 million in unpaid legal bills, mostly from the final five invoices related to the lawsuit filed in Kentucky federal court.  Jarrow countersued for allegedly improper billing practices and claimed that its attorneys botched the case, which ended in 2019 with an adverse verdict for Jarrow and $2.4 million in damages.

Rogovin, a Los Angeles resident, testified that several of the legal team's decisions caused his namesake company to lose the lawsuit and he "repeatedly" conveyed his concerns to McCarter & English attorneys, including partner Mark D. Giarratana.  He said the attorneys declined to pursue certain third-party subpoenas and depose the owner of the plaintiff, Caudill, about a disputed claim that it had spent $5 million and 23 years on research and development related to a broccoli-based product at issue in the case.

"They didn't do their job. They committed malpractice," Rogovin said, prompting U.S. District Judge Michael Shea to instruct the jury that only an expert witness can draw that conclusion.  Judge Shea said the testimony could be used to illustrate Rogovin's state of mind when deciding not to pay outstanding bills after the trial.

On direct examination, defense attorney James E. Heavey asked if Rogovin conducted a line-by-line review of legal bills before authorizing payment.  Rogovin said no, and that he was the only one at Jarrow responsible for reviewing the relevant bills when they came in.  "I looked at the front, the amount of money, and I was sick to my stomach about what was going on," he said when asked about his review process during cross-examination.  "I read the front, I saw what it was and I signed off."

Giarratana previously testified that the firm accidentally billed for his and fellow partner Eric Grondahl's services at the start of the case at an outdated rate, and when he discovered the mistake, the firm reissued three out of five monthly invoices.  But the firm also submitted all five invoices, showing the higher rate, to Jarrow's insurer as part of a failed effort to secure coverage.  Rogovin said that the attempt to obtain payment from the insurer at the higher rate was "unethical" and Jarrow did not know about it.  If he had been aware, Rogovin said, he would have been "very disapproving."

McCarter & English chief financial officer Jacqueline Bosma testified Monday that when the firm reissued the bills to Jarrow, it applied a credit for payment that had been received on one invoice already, according to a review of accounting records.  She said the reissued bills were paid at discounts near the end of the fiscal year.  She was hired as a controller at the firm in 2016.

When the rates rose, they were then frozen for the length of the lawsuit in accordance with Giarratana's policy, even when, Bosma said, the standard rate for each attorney continued to climb.  The freeze allowed Jarrow to save more than $500,000 on fees for Giarratana and Grondahl, she said, and even though attorney Thomas J. Rechen's rate rose in 2016 when the firm noticed it was charging an outdated figure, it also froze, amounting to a total savings to Jarrow of more than $200,000.  Heavey said there was no evidence that Jarrow agreed to the rate increases, but Bosma reiterated Giarratana's prior testimony that paying 70 of the bills without complaint signified an agreement.

Rogovin testified that he was not aware of a credit and the company never received a refund.  He said that he "probably had some kind of vague idea" of what the attorneys were charging per hour, but he did not know that the rates rose several months into the trial, or that McCarter reissued the previous months' bills at higher rates for Giarratana and Grondahl.  Rogovin denied Giarratana's testimony that he had told Rogovin of the rate changes in three phone calls.

"What would be the point of telling me three times?" Rogovin said. "If it were three times, I'd certainly remember it."  He said that if he had known the rates were going up, he would not have agreed to pay them and would have sought advice from the company's CFO.

Rogovin said that since he first retained Giarratana in 1996, when Giarratana worked for a different firm, he had only caught two errors on his legal bills, and one of them appeared on the first page.  Defense attorneys showed that on at least one bill related to the Kentucky litigation, the attorneys' hourly rates were shown on page 32.

Under questioning from plaintiffs' attorney Louis R. Pepe, Rogovin said he found an error on one bill related to the Kentucky case when he noticed that a particular line item described work on a separate legal matter McCarter & English was handling.  Pepe said the only way he could have noticed the error on page 5 was by conducting a line-by-line review, allegedly contradicting his prior testimony.  Rogovin disagreed that he had contradicted himself on the stand or in his deposition, but Judge Shea stopped him from reading the transcript of his deposition out loud and Pepe moved on.

Pepe asserted that there was a decades-long "pattern and practice" whereby Giarratana and ultimately other McCarter partners' rates would rise without prior written notice, Rogovin and Giarratana would not discuss it, and Rogovin would simply settle up, sometimes with a discount if the bills were still outstanding as the end of the fiscal year approached.

Rogovin said he founded Jarrow in 1977 and the company started manufacturing its own product lines in 2002.  He and Giarratana signed an engagement letter in 1996 that notified Rogovin that hourly rates could rise "from time to time," and Rogovin said that he read and understood that letter.  Even though Giarratana's standard rate climbed over the years and he moved firms, landing at McCarter & English through a merger in 2003, Rogovin said they did not sign a new written agreement that contemplated fees.