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Category: Lodestar Multiplier

Article: What is a Legal Fee Audit?

October 7, 2021

A recent article by Jacqueline Vinaccia of Vanst Law LLP in San Diego “What is a Legal Fee Audit?,” reports on legal fee audits.  This article was posted with permission.  The article reads:

Attorneys usually bill clients by the hour, in six minute increments (because those six minutes equal one tenth of an hour: 0.1).  Those hours are multiplied by the attorney’s hourly rate to determine the attorney’s fee.  There is another aspect of attorney billing that is not as well known, but equally important — legal fee auditing.  During an audit, a legal fee auditor reviews billing records to determine if hourly billing errors or inefficiencies occurred, and deducts unreasonable or unnecessary fees and costs.

Both the law and legal ethics restrict attorneys from billing clients fees that are unreasonable or unnecessary to the advancement of the client’s legal objectives.  This can include analysis of the reasonableness of the billing rate charged by attorneys.  Legal fee audits are used by consumers of legal services, including businesses, large insurance companies, cities, public and governmental agencies, and individual clients.  Legal fee audits can be necessary when there is a dispute between an attorney and client; when the losing party in a lawsuit is required to pay all or part of the prevailing party’s legal fees in litigation; when an insurance company is required to pay a portion of legal fees, or when some issues in a lawsuit allow recovery of  attorneys’ fees and when other issues do not (an allocation of fees). 

In an audit, the auditor interviews the client, and reviews invoices sent to the client in conjunction with legal case materials to identify all fees and costs reasonable and necessary to the advancement of the client’s legal objectives, and potentially deduct those that are not.  The auditor also reviews all invoices to identify any potential accounting errors and assure that time and expenses are billed accurately.  The auditor may also be asked to determine if the rate charged by the attorney is appropriate.

The legal fee auditor can be an invaluable asset to parties in deciding whether to file or settle a lawsuit, and to the courts charged with issuing attorneys’ fee awards.  The court is unlikely to take the time to review individual invoice entries to perform a proper allocation of recoverable and non-recoverable fees leaving the parties with the court’s “best approximation” of what the allocation should be.  The fee audit provides the court and the parties with the basis for which to allocate and appropriately award reasonable and necessary fees. 

Audits are considered a litigation best practice and a risk management tool and can save clients substantial amounts of money in unnecessary fees.  It has been my experience, over the past two decades of fee auditing, that early fee auditing can identify and correct areas of concern in billing practices and avoid larger disputes in litigation later.  In many cases, I have assisted clients and counsel in reaching agreement on proper billing practices and setting litigation cost expectations. 

In other cases, I have been asked by both plaintiffs and defendants to review attorneys’ fees and costs incurred and provide the parties and the court with my expert opinion regarding the total attorneys’ fees and costs were reasonably and necessarily incurred to pursue the client's legal objectives.  While the court does not always agree with my analysis of fees and costs incurred, it is usually assisted in its decision by the presentation of the audit report and presentation of expert testimony on the issues.

Jacqueline Vinaccia is a San Diego trial attorney, litigator, and national fee auditor expert, and a partner at Vanst Law LLP.  Her practice focuses on business and real estate litigation, general tort liability, insurance litigation and coverage, construction disputes, toxic torts, and municipal litigation.  Her attorney fee analyses have been cited by the U.S. District Court for Northern California and Western Washington, several California Superior Courts, as well as various other state courts and arbitrators throughout the United States.  She has published and presented extensively on the topic of attorney fee invoicing, including presentations to the National Association of Legal Fee Association (NALFA), and is considered one of the nation’s top fee experts by NALFA.

Quinn Emanuel Gets $185M in Attorney Fees in $3.7B ACA Win

September 16, 2021

A recent Law 360 story by Dave Simpson, “Quinn Emanuel Gets $185M Fee From $3.7B Win in ACA Suits,” reports that a U.S. Court of Federal Claims judge granted Quinn Emanuel Urquhart & Sullivan LLP's request for $185 million in fees stemming from two class actions against the federal government over so-called risk corridor payments under the Affordable Care Act, which resulted in a nearly $3.7 billion total win.  Judge Kathryn C. Davis said that despite the "at times hyperbolic" motions for fees, the law firm did show "foresight" in focusing on a successful legal theory months before other parties jumped on that bandwagon.  She granted its request for 5% of the winnings.

"At the end of the day, what is more important is that class counsel's legal theory resulted in a huge award to the classes here," Judge Davis said.  Quinn Emanuel was the first firm in the country to file a lawsuit on behalf of a qualified health plan insurer accusing the federal government of unlawfully reneging on a commitment to shield ACA insurers from heavy financial losses.

Health Republic Insurance Co. sued the government in 2016 and in July 2020 won a judgment for $1.9 billion alongside a subclass of insurers.  Common Ground Healthcare Cooperative sued the government in 2017 over similar claims and won a $1.7 billion judgment.  Those cases set off a firestorm of parallel litigation across the country, alleging similar claims.  Two of those cases ended up at the U.S. Supreme Court.  In April 2020, the justices reversed Congress' denial of $12 billion in "risk corridor" funding, which the ACA dangled as an incentive for insurers during the law's first three years of operation.

While Quinn Emanuel didn't work on those cases directly, the firm argued in its request for fees in July 2020 that the Supreme Court "adopted the exact legal theory Quinn Emanuel set forth in the initial Health Republic complaint and which it advocated at every step."  But in August 2020, objectors like Kaiser Foundation Health Plan Inc., UnitedHealthcare Insurance Co. and others argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

They said that Quinn Emanuel had little to do with the litigation that ended up at the Supreme Court, and argued that the firm was trying to walk away with an award that would work out to an hourly rate of $18,000 per attorney.  Class members signed on to the suit with a guarantee that the proposed 5% fee award would be subject to a lodestar cross-check, the motion said, which the firm had eschewed.

Quinn Emanuel shot back in September 2020 that the $8.8 million award proposed would discourage attorneys in the future from taking on similarly ambitious cases.  The percentage model, which the insurers agreed to when choosing to join the class instead of pursuing individual claims, is favored by the courts for exactly this reason, the firm said.  According to the firm, despite the dozens of companies signing on to the fee objection, most of them Kaiser or United entities, almost 90% of the class members have not objected.

Judge Davis sided with the firm.  "These are not cases in which class counsel merely rode the coattails of other innovative litigators," she said.  The 5% fee is well below market value, and the objectors propose what would amount to a .22% fee, she said.  Further, the firm allocated 10,000 billable hours and might not have been paid for any of it had the outcome gone differently, the judge said.

Article: New Attorney Fee Law May Be Boon To Florida Property Insurers

September 1, 2021

A recent article by Christine Renella and William Zieden-Weber, “New Fla. Atty Fee Law May Be Boon To Property Insurers,” reports a new law in Florida that amends Florida's attorney fees statutes, Sections 626.9373 and 627.428 of the Florida Statutes, as they apply to property insurance disputes.  This article was posted with permission.  The article reads:

Florida S.B. 76, designed to curb first-party property insurance litigation in Florida, took effect on July 1.  While the bill addresses several critical property insurance topics including roof-surface reimbursement schedules, regulation of contractors, proper notice, the right to inspect, and determination of whether abatement is applicable, the crown jewel of the bill amends Florida's infamous attorney fees statutes, Sections 626.9373 and 627.428 of the Florida Statutes, as they apply to property insurance disputes.

Background to Florida Attorney Fees Statutes

In most jurisdictions in the U.S., each party to insurance litigation pays its own attorney, regardless of the outcome of the litigation.  In fact, a court may only award attorney fees to the prevailing side if authorized by statute or agreement of the parties to the litigation.

Florida, however, is one of the minority jurisdictions that has allowed an insured to recover his or her own attorney fees if the insured prosecutes a lawsuit to enforce an insurance policy for more than a hundred years.  Florida has kept some version of this law on the books since 1893, and it reads in pertinent part as follows, with the underlined text added by S.B. 76:

Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the suit in which the recovery is had.  In a suit arising under a residential or commercial property insurance policy not brought by an assignee, the amount of reasonable attorney fees shall be awarded only as provided in s. 57.105 or s. 627.70152.

The Florida Supreme Court has historically supported the need for fee and cost reimbursement in the realm of insurance litigation as being deeply rooted in public policy.  The court has given the Legislature deference in this area of the law, recognizing its sentiment on how essential it is to level the playing field between the economically advantaged insurance companies and the individual citizen.  However, practicing Florida attorneys have seen a perversion of this intent play out in recent years.  In first-party coverage disputes specifically, an insured would often file a lawsuit in instances in which the dispute was simply over the scope of damages.

This created a situation in which, as long as an insured prevailed in its lawsuit with a judgment greater than any amount of the insurance proceeds originally paid by the insurer — even $1 — the insured would be entitled to attorney fees.  As such, insureds were often able to leverage larger settlements using the attorney fees statutes.

Section 627.70152 Notice Requirement

Florida's new legislation effectively puts an end to the attorney fees statutes as they pertain to property insurance, which historically established a strong presumption that using a "lodestar fee" to compensate attorneys for property insurance claims was considered sufficient and reasonable.  This presumption is only rebutted in rare and exceptional circumstances with evidence that competent counsel could not have been retained in a reasonable manner.

Instead, S.B. 76 creates a new statute, Section 627.70152, which establishes a scheme for attorney fees structured around a presuit notice requirement.  Now that S.B. 76 has passed, the path to attorney fees for an insured is less certain, and insurers are hopeful that the vast number of suits filed against insurers in Florida every year will decrease.  Specifically, the burden has essentially shifted to an insured to prove entitlement through the imposition of a judgment between 20%-50% higher than the presuit settlement offer in order to obtain fees.

Additionally, the notice requirement provides an additional hurdle for insureds in that a suit may not be filed prior to the issuance of a written notice of intent.  Specifically, the notice statute imposes a notice requirement on claimants, stating that as a condition precedent to filing suit under a property insurance policy, a claimant must provide the insurer with written notice of intent to initiate litigation.  Under the notice statute, this notice must be served by certified mail, return receipt requested, or electronic delivery at least 10 days before filing suit, but may not be served before the insurer has made a coverage determination under Section 627.70131.

The immediate effect of the statute is the prohibition of suit prior to a coverage determination being issued.  This alone will lead to less litigation as insurer's often file suit before the conclusion of the investigation of a claim and issuance of a coverage determination.  Additionally, the statute requires that each notice include the following information: (1) that the notice is being provided pursuant to this section; (2) the alleged acts or omissions of the insurer giving rise to the action;and (3) that the notice has been provided to the insured if represented by an attorney.

In cases in which the notice is provided following a denial of coverage, the notice must include an estimate of damages.  In cases in which the notice is provided following something other than a denial of coverage, the notice must include the disputed amount of damages and a presuit settlement demand itemizing damages, attorneys fees and costs.  The online form used to submit the notice can be found on the civil remedy and required legal notices webpage of Florida's Division of Consumer Services.

The additional information required per the statute including the disputed amount of damage and presuit settlement demand in cases other than a denial of coverage will provide insurers with the requisite information necessary to evaluate the claim prior to suit being filed.  Prior to the imposition of the statute, insureds were able to file suit at anytime without having ever provided insurers with supporting documentation that in many cases would obviate the need for suit altogether. However, after July 1, insurers are in a position to address disputed damages in an attempt to avoid lawsuits.

In response to the notice, an insurer is now required to respond in writing within 10 days.  Specifically, in the response to a notice regarding denial of coverage, the insurer must either (1) accept coverage, (2) deny coverage, or (3) assert the right to reinspect the property within 14 business days.  Conversely, in the response to a notice regarding something other than denial of coverage, the insurer must respond by making a settlement offer or requiring the insured to participate in an appraisal process.

As a check and balance on the presuit process, the notice statute allows a court to dismiss without prejudice any suit in which the claimant failed to provide notice or the presuit period did not properly conclude, again reducing the amount of frivolous lawsuits that insurers are forced to defend.  If a claimant commences an action in a Florida court based upon or including the same claim against the same adverse party that such insured has previously voluntarily dismissed, then the court may order the insured to pay the attorney fees and costs of the adverse party resulting from the action that had previously been voluntarily dismissed.

Finally, the notice statute states that the notice and other documentation is admissible as evidence in a civil action or an alternative dispute resolution proceeding.  The notice and submissions requirements do not limit the evidence of attorney fees, damages or loss that may be offered at trial.  They also do not relieve any obligation that an insured or assignee has to give notice under any other provision of law.  While the notice statute imposes more stringent requirements on policyholders, the effect in practice will likely be a dramatic reduction in the amount of suits filed.  Accordingly, litigation costs for insurers will decrease, while meritorious suits are likely take less time to filter through the courts.

Section 627.70152 Attorney Fees Scheme

Most importantly, the notice statute sets a forth a new scheme for calculating the amount of attorney fees allowed to be awarded, which is based on the difference between the amount ultimately obtained by an insured compared to the amount originally in dispute.  That difference can then result in three distinct scenarios:

  1. The claimant does not recover attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer by the insurer is less than 20% of the amount in dispute during the presuit notice period, a claimant may not be awarded attorney fees under Sections 626.9373 and 627.428.
  2. The claimant recovers 20%-50% in attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer by the insurer is between 20%-50% of the amount in dispute during the presuit notice period, a claimant may recover the same percentage of attorneys fees under Sections 626.9373 and 627.428.
  3. The claimant recovers all attorney fees — when the difference between the amount obtained by the insured and the presuit settlement offer is greater than 50% of the amount in dispute at the presuit during the presuit notice period, a claimant the full amount of attorney fees under Sections 626.9373 and 627.428.

With the applicability of fees now based on this mathematical formula, courts will have considerably less discretion to order payment of attorney fees and costs, and insureds will be less inclined to race to the courthouse.  Many Florida practitioners hope that the notice statute will tip the scales in favor of a more balanced scheme for the imposition of attorney fees and costs.  While previously insureds were able to recover fees upon the rendition of a judgment alone, now insureds will be forced to show entitlement through the imposition of a judgment at least 20% higher than the amount in dispute during the notice period.

Conclusion

In conclusion, the notice statute is expected to bring much needed change to the landscape of property insurance litigation in Florida by adding some semblance of balance to a historically hostile environment for property insurers.

Eighth Circuit Tosses $1 FLSA Attorney Fee Award

August 19, 2021

A recent Law 360 story by Max Kutner, “8th Circ. Axes $1 Atty Fee Award in FLSA Case”, reports that counsel for workers who settled overtime claims against a pipe manufacturer are set to get more attorney fees after the Eighth Circuit ruled that an Arkansas federal court's award of a single dollar was wrong, finding the judge hadn't made the required calculations.  In its opinion, a split three-judge panel vacated the fees award and remanded the Fair Labor Standards Act case against Welspun Pipes Inc. and related entities, saying that regardless of any concerns about attorney conduct, the lower court hadn't done necessary calculations when slashing the requested $96,000 to $1.

The lower court hadn't calculated the lodestar, which is the number of hours counsel worked times the prevailing hourly rate, the majority said.  The lower court had properly determined the prevailing rate at the attorneys' firm, but it hadn't multiplied the rate by the reasonable number of hours worked, the judges said.  "Without any reference to the lodestar amount, the district court said it awarded $1 because it could not award any less," the majority said.  "Without a supporting rationale based on the lodestar calculation and reduction, this was [an] error."

Under circuit precedent, a district court must calculate the lodestar in an FLSA settlement, the majority said.  When the lodestar is determined, "it is unlikely that a $1 attorneys' fee is reasonable," given that the counsel obtained a nearly $270,000 payout for the workers, the judges said.  Even the $25,000 fee award the lower court said it would approve if the $1 amount was shot down on appeal was not based on a lodestar calculation, the majority said.  The opinion added that any reduction to the award because of a party's conduct should come after the court determines the lodestar.

But the majority pushed back against the workers' argument that the district judge had also wrongly denied an earlier settlement motion on the grounds that the parties had not negotiated the wage claim settlement and attorney fees separately.  The lower court had said circuit precedent required the separate negotiations.  "There is sufficient evidence in the record for the district court to have determined that the wage claim and the attorneys' fees were not separately negotiated," the majority said.  The opinion cited emails showing the parties at certain points discussed the amounts as a single lump sum, among other factors.

The panel also denied the workers' request to reassign the district judge, saying they hadn't shown the judge was incapable of determining appropriate attorney fees due to a clear bias against them.  In a dissenting opinion, U.S. Circuit Judge Steven M. Colloton said the lower court had been right to issue the $1 award due to attorney conduct when negotiating the wage claim amount and the fee amount.  The focus on the lodestar issue is "misplaced," Judge Colloton said. "The whole point of the district courts' order is that the lodestar amount of fees was immaterial on this record, because counsel's egregious conduct warranted an award of a de minimis fee, if any at all."

The dispute stems from a proposed class and collective action that workers Anthony Vines and Dominique Lewis filed in August 2018.  They alleged that Welspun shorted manufacturing plant workers on overtime pay by not factoring bonuses and other incentives into the rate calculations, in violation of the FLSA and Arkansas law.  The two sides reached a settlement in which Welspun agreed to pay $211,666 to an initial class and an additional amount to a subsequent class.  The company also agreed to pay Sanford Law Firm $89,000 in fees and costs for the first class and an additional fee for the second class.

But in September 2019, the district judge partly denied the request, saying the court couldn't determine whether the deal was reasonable because information was missing.  In March 2020, the parties filed a new agreement, under which the first class would still get $211,666, the second class would get $57,673 and counsel would get $96,000 in fees and costs.  But the judge again denied the request, saying that the parties had failed to negotiate the wage claim and attorney fees separately.  Then that May, the two sides asked for final approval for only the wage claim, and the judge granted it.

The parties then asked for the $96,000 in attorney fees.  But in June 2020, the judge awarded just $1, citing the firm's "incorrigible" billing practices, such as "random increases" in hourly rates and rates that seemed "arbitrary and … unreliable."

Class Counsel Defend Fee Request in Subaru Windshield

August 13, 2021

A recent Law 360 story by Jeannie O’Sullivan, “Subaru Windshield Class Counsel Defend $515K Fee Bid”, reports that Glancy Prongay & Murray LLP and Greenstone Law PC sought to justify their $515,000 counsel fee request for representing a class of Subaru drivers plagued by crack-prone windshields, telling a New Jersey federal court that all they're asking for is the going rate for attorneys in the region of their caliber.  In a brief, the firms made their case for wanting to charge $850 for senior partners down to $225 for paralegals, pointing to other cases in which courts gave the green light for the same rates.  U.S. District Judge Renee Marie Bumb had questioned the fee ask in June when she gave her final approval to a deal that provides extended warranties and a reimbursement program.

"Class Counsel's hourly rates have been approved by courts in this district and are within the range of rates approved by the courts in this district for attorneys of comparable experience and skill," the firms told Judge Bumb in their brief.  The firms pointed to counsel fee rates approved in securities class actions such as Li et al. v. Aeterna Zentaris Inc. et al. in June and Sun v. Han et al. in March 2018, both in New Jersey federal court.

The firms emphasized that, because they agreed to cap the fees at $515,000, the overall lodestar was reduced by 40% to $464,520.65.  As result, when divided by the 1,219 hours of work performed, the blended hourly rate turns out to be $381, according to the brief.  The number of hours is likewise justifiable, according to the firms.  Judge Bumb had wondered about the amount of time class counsel actually spent on the Subaru case, given that the settlement deal was modeled on Subaru's pre-litigation offer to extend the warranties.

Although modeled on a prior market action, the firms said, "it took skill and tenacity to vet the appropriateness of that action and meaningfully further extend the duration of the relief from five years to eight years" for a 60% increase.  Class counsel also improved the relief by implementing safeguards in the deal to ensure consumers with valid claims weren't rejected, according to the brief.  The firms went to say that the total hours billed, which spanned 3.5 years, was also reasonable.

The brief detailed the coordination and effort involved in the investigation, the drafting of three complaints spanning two districts, discovery, general case management, motion practice and mediation.  The task also involved communicating with more than 100 class members, according to the brief.  The hours spent were comparable to those approved in automobile defect class settlement deals involving Volkswagen, Volvo, Honda, Hyundai and Toyota, the brief said.

Class counsel is likewise entitled to its $50,479.35 request to cover costs and expenses, the firms said, noting that courts have approved things like "photocopying expenses, telephone and facsimile charges, postage, messenger and express mail charges, witness fees, filing fees, expert costs, computer-assisted research," among others.  The firms said $28,331.08 of that figure is reimbursement for expert expenses.