A recent Law.com story by Adolfo Pesquera, “3 Lawyers? One’s Enough, Court Rules in Insurer’s Fight Over Attorney Fees”, reports that a Texas state district court was found to have erred in denying an insurer’s summary judgment motion in an attorney fees dispute, where plaintiffs alleged more than one attorney was needed to avoid a “potential” conflict of interest.

The Ninth District Court of Appeals reversed a ruling of the Montgomery County 457th District Court in a case where a government entity and two elected officials depended on a Directors and Officers policy from Mid-Continent Casualty Co. to provide for their defense when a losing candidate filed suit alleging election irregularities.

Insurer Right to Control Defense

The reversal hinged on Mid-Continent’s right under the policy to control the defense, and whether there was an actual conflict of interest that the insurer formally recognized.  In the underlying suit, third-place candidate Edgar Clayton sued Harris County Municipal Utility District No. 400 and the two candidates who placed ahead of him, Ann Marie Wright and Cheryl Smith.

The court ultimately dismissed the lawsuit with prejudice, but the parties disagreed about how many lawyers the insurer should provide the district.  James Stilwell of Stilwell, Earl & Apostolakis, based in The Woodlands, Texas, and acting for the district responded to Mid-Continent’s letter agreeing to defend but preserving its reservation of rights.  Stilwell told Mid-Continent that was a “possibility of a conflict of interest in representation regarding Mid-Continent’s desire to have a single attorney represent all three defendants.”

Stilwell and the district were informed by a claims adjuster for Mid-Continent that it was the opinion of coverage attorney Brent Cooper of Cooper & Scully that Mid-Continent had the right to select defense counsel “because the facts to be adjudicated are not necessarily the same facts that control coverage,” and the Houston attorney Britt Harris had been retained by Mid-Continent as their counsel.

Instead, Stilwell’s subsequent correspondence informed Mid-Continent that the elected officials would be represented by Houston-area attorneys and Bruce Tough and Kenna Seiler, and the district by its general counsel, Chris Skinner of Schwartz, Page & Harding.

Conflict of Interest?

Stilwell asserted the potential conflict had to do with Wright and Clayton having run on the same slate against Smith, as well as the district’s desire to defend the election through trial, whereas the individual directors possibly wanting a do-over or settlement.

Mid-Continent attorney Mark Lewis cut a check made out to the district for $4,290 in attorney fees, which covered the period up to Mid-Continent’s offer to assume the defense.  Stilwell, in a pre-suit demand letter asked for attorney fees of $151,750 for the Clayton suit defense, plus $5,600 attorney fees for defending the wrongful denial.

Referring to the Texas Disciplinary Rules of Professional Conduct, the Ninth District court noted a lawyer may only represent multiple clients if he reasonably believes each client will not be materially affected, and each client consents after full disclosure of possible adverse consequences of common representation.

The deposition testimony and affidavit generally averred that the defendants discussed material conflicts at a board meeting and would not waive those conflicts, and they requested separate counsel, the opinion stated.  Nevertheless, the Ninth District held that the district’s “arguments are without merit.”

“We note that the information on which appellees rely falls outside the eight-corners of the pleadings and the insurance policy,” the court said.  In addition, the court said Stilwell’s responses to Mid-Continent referred only to “potential” conflicts, but never stipulating actual conflicts.

“We conclude that Clayton’s petition did not allege facts that would necessitate separate counsel. Clayton does not allege anything in his petition that would make the interests of Wright, Smith, or MUD 400 adverse to the interests of each other,” the court said.

A recent Law 360 story by Hope Patti, “Insurer Says It Controls Defense in Fox’s Asbestos Injury Row,” reports that Twentieth Century Fox must allow an AIG unit to select defense counsel in an underlying asbestos injury suit, the insurer told a California federal court, saying it has a right to control the defense of a suit that it has agreed to cover.  National Union Fire Insurance Co. of Pittsburgh, Pa., said in a complaint that Twentieth Century Fox Film Corp. has retained a law firm that lacks experience in handling asbestos litigation and "charges considerably more than what is reasonable for defense of these lawsuits in the jurisdiction in which they are filed."

The insurer is also seeking a declaration that Fox Television Studios Inc., which was named in one of three underlying asbestos suits at issue, is not an insured under National Union's policies.  According to the insurer, Twentieth Century Fox hired Newmeyer & Dillion LLP to review potential insurance coverage after the company was named in the underlying asbestos suits filed in Los Angeles County Superior Court.  The firm then tendered the suits to National Union in September.

National Union said it agreed to defend Twentieth Century Fox, subject to a reservation of rights, under three primary liability policies issued by the insurer in the 1980s but declined to defend Fox Television.  Twentieth Century Fox "has refused to permit National Union to assign defense counsel even though National Union has the right to control the defense, including selection of defense counsel," the insurer said.  The insurer also asserted that invoices from Newmeyer & Dillion reflect time performing tasks other than defending the asbestos suits, as well as work that is not necessary to the defense of Twentieth Century Fox.

"Newmeyer Dillion includes in its invoices amounts that are block billed, contain vague descriptions as to the work performed, reflect duplication of efforts, include administrative tasks and are not reasonable or necessary to the defense of the asbestos lawsuits," the insurer said.  As such, National Union is seeking a declaration that it is only required to pay reasonable and necessary defense costs along with reimbursement from Twentieth Century Fox for amounts that the insurer has overpaid or had no obligation to pay.  "In addition, National Union seeks an order confirming it has no duty to defend Fox Television and an order requiring [Twentieth Century Fox] to reimburse any amounts National Union paid on Fox Television's behalf," the insurer said.

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.

A recent Law 360 story by Eli Flesch, “Harvard Sues Insurer For Legal Fees in Affirmative Action Suit,” reports that Harvard University sued Zurich American Insurance Co. for excess coverage of costs it incurred fighting a lawsuit challenging its affirmative action policies, saying the insurer wrongly denied coverage on the basis that it didn't get a timely notice of the suit.  The Ivy League school told a Massachusetts federal court that Zurich was ducking its obligation under a $15 million excess insurance policy to pay for legal fees connected to allegations that it has engaged in illegal racial balancing to the detriment of Asian American applicants.  Harvard defeated the underlying suit in two lower courts but still faces a government investigation and a potential U.S. Supreme Court fight.

In an 11-page complaint, one of Harvard's governing boards told the court that it had already maxed out its $25 million coverage limit under its policy with AIG unit National Union Fire Insurance Co. of Pittsburgh.  The university said it would continue to accrue legal fees because of a pending U.S. Department of Justice inquiry and the writ of certiorari that could bring the Title VI allegations of discrimination to the Supreme Court.

Harvard said it provided notice to Zurich of its claim in May 2017, far before its coverage under the AIG policy had been exhausted.  Despite that, the university said, Zurich denied its claim in October 2017 on the basis of "purported" late notice.  The insurer told Harvard in several letters that it would have been entitled to coverage under the policy had timely notice been given, according to the complaint.

But Harvard argued that the Zurich policy, which carried much the same terms as the AIG policy, required the university to tender notice of the claim "as soon as practicable," which it did.  Moreover, Zurich personnel were well aware of the discrimination suit, the university said, pointing out the considerable media attention drawn by the allegations.  The university is seeking a declaration of coverage and a finding of breach of contract.

The underlying suit, brought by Students for Fair Admissions, claimed that Harvard violated Title VI of the Civil Rights Act.  The group lost its case in 2018 after a closely watched three-week bench trial, a finding that the First Circuit upheld in November.  In June, the U.S. Supreme Court signaled it might take up the landmark challenge to Harvard's affirmative action admissions policy when it invited President Joe Biden's administration to weigh in on whether the school's race-conscious system is legal.

A recent Law 360 story by Pete Brush, “Effort By NHL Insurers to DQ Skadden, Proskauer Rejected”, reports that a New York judge declined to disqualify Skadden Arps Slate Meagher & Flom LLP and Proskauer Rose LLP from representing the NHL in its effort to recover tens of millions of dollars of legal fees from insurers for concussion litigation, finding no conflict between the firms and hockey.

During a video hearing, New York Supreme Court Justice Melissa A. Crane turned aside a motion by Chubb and other insurers to remove the BigLaw firms from a dispute over who will be on the hook for what insurers say are $92 million of legal bills associated with an underlying $19 million concussion settlement.  I'm denying the motion.  The interests of the NHL and Skadden are aligned and the underlying case is over," Judge Crane said.

The NHL sued insurers including TIG Insurance, Chubb and Zurich last year, alleging a refusal to fund fees stemming from litigation over retired hockey players' claims that they endured long-term injuries.  The suit seeks damages and interest for an alleged breach of duty under policies dating back to 1974.  The suit says only about 25% of fee requests have been paid.

The defendant insurers dispute liability and, in a 2021 motion, some claim that "Skadden and Proskauer's fees and expenses for the underlying litigation were, in large part, unreasonable and unnecessary."  In a later filing, they say fees and expenses have thus far totaled $92 million.  The law firms counter that the insurers are using a meritless disqualification bid as a "ploy" to further their effort to angle for a "lowball" settlement.

During brief argument counsel for the insurers, Andrew Poplinger, said the firms are unable to be "objective" about their own billing practices.  Counsel for Skadden, Lawrence Spiegel, said insurers are engaging in "gamesmanship," with a "borderline frivolous" motion.

Judge Crane rejected the insurers' contention that lawyers from the firms cannot be permitted to act as witnesses in a case that centers on "reasonableness and necessity of their own legal fees."  The judge found not only that the NHL has waived the conflict, but also that different groups of lawyers will be at work on the fee case than were at work in the underlying concussion litigation.  "You're just going to add more fees if we switch it up now," Judge Crane also observed.

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