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Category: Unpaid Fees

Insurer Overpaid Policyholder’s Attorney Fees, Judge Finds

August 25, 2021

A recent Law 360 story by Daphne Zhang, “Insurer Overpaid For Policyholder’s Legal Bills, Judge Finds,” reports that a New York federal judge said that an insurer's decision to stop paying a GoPro accessory maker's attorney fees was reasonable, finding the policyholder's defense counsel billed administrative work at partner rates and logged excessive working hours.  U.S. District Judge Mae D'Agostino denied 360Heros Inc.'s motion for summary judgment against Main Street America Assurance Co., saying the carrier's payment of more than $2 million in attorney fees fully satisfied its defense obligations.

The judge sided with Main Street in finding that 360Hero's defense counsel, Gauntlett & Associates, repeatedly charged "unreasonable and excessive" legal fees in an underlying patent infringement suit with GoPro.  The camera company sued 360Heros alleging the harness maker used its copyrighted pictures and infringed two of its trademarks.  The suit was settled in May 2018. 360Heros sued Main Street in 2017 after the insurer stopped paying for its defense costs.

"Based on Gauntlett's repeated practice of billing excessive, redundant or otherwise unnecessary hours the court finds that a 15% reduction in Gauntlett's fees is warranted," the judge said.  According to the order, a Main Street attorney found in 2017 that the insurer overpaid for defense costs after retroactively reviewing the payment history.  Main Street subsequently stopped paying the policyholder's legal bills, which 360Hero claimed violated its insurance policy.  "The amount of unpaid fees is significantly less than the amount that the court finds were reasonably expended," Judge D'Agostino found, saying that Main Street was fully entitled not to pay because the defense counsel overcharged on legal bills.

Some of Gauntlett's invoices were billed without any tasks designated to a paralegal, the judge pointed out, and the firm repeatedly charged administrative work at partner rates. Gauntlett also charged full rates for travel, which should have been billed at half of their hourly rates, Judge D'Agostino said.  "For travel to a one-day out-of-town settlement conference, [one Gauntlett attorney] billed for $418.48 in meals," she said.

Law Firm Wants Attorney Fee Dispute in Arbitration

August 18, 2021

A recent Law 360 story by Caroline Simson, “King & Spalding Says Fee Fight Must Be Arbitrated”, reports that King & Spalding is urging a Texas court to force a former client to arbitrate allegations that the firm fraudulently colluded with Burford Capital to maximize fees while representing him ​​in a treaty claim​ against Vietnam, pointing to an arbitration clause in the underlying fee agreement.  Fighting back against Trinh Vinh Binh's arguments earlier this month that the clause is inapplicable because the firm didn't sign the funding agreement with Burford, King & Spalding argued in a brief that the clause is broad enough to encompass the dispute.

Binh, who's accused the firm and two of its international arbitration partners in Houston of making a "mockery of the fiduciary obligations an attorney owes to their clients," told the court that the funding agreement doesn't contain any reference to King & Spalding.  In fact, the firm had already inked a deal with him that laid out all the terms of their relationship and did not include an arbitration clause, he said.

But the firm pointed in its brief to the wording of the clause, noting that it applies to "any controversy or claim" that is "relat[ed] to" the funding agreement.  The clause also applies to "any other transaction document," which includes a "counsel letter" through which Binh instructed the firm to distribute any arbitration proceeds in accordance with the funding agreement, according to the brief.  "Plaintiff cannot reasonably dispute that his claims 'relate to' the [funding agreement] and the counsel letter," according to the brief, which notes that Binh is seeking damages based on the firm's alleged failure to allocate the arbitration proceeds in compliance with the funding agreement.

"While plaintiff attempts to characterize these claims as arising out of the engagement agreement, that agreement does not address the allocation of arbitration proceeds," the firm continued. "The terms cited in the petition were set forth in the [funding agreement] and 'agreed to' by defendants through the counsel letter, bringing those claims squarely within the ambit of the [funding agreement]'s arbitration agreement."

Counsel for Binh declined to comment, saying they will file a response with the court.  Binh sued King & Spalding and two of its partners, 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.  In the arbitration, filed in 2015, 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.

Binh says that the way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more he was at risk of paying a so-called success return, to be paid if he 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 said.  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.

Insurers Fail to Disqualify Law Firms in Recovery of Attorney Fees

August 10, 2021

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.

Law Firms Spar Over Attorney Fees Ahead of Trial

August 4, 2021

A recent Law 360 story by Celeste Bott, “Chicago Firm, Attys Spar Over Fees Ahead of Ex-Client’s Trial”, reports that Chicago law firm Wood Phillips and one of its former attorneys suing an ex-client for payment for their two decades of work in a patent case are embroiled in a contentious dispute over how potential recovery would be allocated between them, and the firm is asking an Illinois federal judge to weigh in on the applicability of its contingency fee agreements ahead of trial.

Wood Phillips Katz Clark & Mortimer and named partner John S. Mortimer are seeking to file either a pretrial motion to resolve whether the parties are bound by those agreements or, alternatively, to add a cross-claim against former Wood Phillips attorney Dean Monco for anticipatory breach of contract.

The case is set to go to trial early next year, as the firm and attorneys seek to be compensated for more than 20 years of work for carbon fiber manufacturer Zoltek Corp.  The firm and Mortimer argue, in their motion for leave to file, that it would be unfair and would create "chaos and confusion" to have the plaintiffs arguing amongst themselves at trial.

But U.S. District Judge Martha M. Pacold appeared skeptical of those proposed procedural avenues during a status hearing, pushing the parties to address how a Rule 16 pretrial motion could resolve a substantive issue such as the applicability of the firm agreements, how it would impact how the trial would be conducted and whether a potential cross-claim is premature given there's no recovery to divvy up yet.  The judge also questioned whether a cross-claim against Monco was fair given the late stage of the litigation.

Acknowledging that resolving the intra-plaintiff dispute could assist in a potential settlement, the judge said that there still needs to be a legal basis for resolving the issue, not just a practical one.  "I don't think I have a kind of free-ranging power, even if I wish I might, to just decide random stuff," Judge Pacold said.  "There has to be a legal basis and legal hook for really every issue that is teed up.  So I certainly understand all those practical considerations, there just has to be a legal framework for resolving it."

Lee Grossman, an attorney representing Mortimer and the firm, told the court the vehicle for the pretrial motion could entail a jury instruction telling jurors to conduct the recovery for Monco, Mortimer, and the firm based on the formula laid out in the firm agreements at issue.  As for whether a cross-claim is premature ahead of a potential recovery at trial, Monco has already stated in interrogatories that he doesn't intend to honor the firm fee agreements, Grossman said.

"One party has already said, 'I'm not going to follow that contract,'" Grossman said. "In the interest of judicial economy, or whatever economy is left, I don't think it's a practical way to go."  But Monco argued to the court that Wood Phillips has made multiple improper attempts to adjudicate an unfiled and disputed contract claim against any future quantum meruit recovery from Zoltek, and that his former employer can't use Rule 16 to skip the required steps of filing a pleading and then a motion for summary judgment.

Paul Vickrey of Vitale Vickrey Niro & Gasey LLP, representing Monco, said allowing that avenue would lead to a "sideshow" at trial and would only invite confusion and delay. The firm agreements have nothing to do with the elements for determining quantum meruit under Illinois law, Vickrey said, and the firm can later challenge the results in state court if they so choose.

The calculations laid out in the agreements at issue are "hotly disputed," said Patrick F. Solon, another attorney for Monco. The contract claim that the firm is now trying to pursue was never filed, and there's been no pleading, no answers and no discovery on the matter, he said.  But Grossman countered that the fee agreements have been a cornerstone in the yearslong case.  "There's no discovery needed on these agreements," he said.  "They've been talked about in this case from day one."

Also, before the judge is a conditional bid by Monco to disqualify Grossman as counsel. Monco contends that if the firm is allowed to pursue its claim for his "anticipatory breach" of firm agreements, "using Grossman as their counsel [...] would result in Grossman suing his own former client in this very action."  Judge Pacold didn't rule on the pending motions immediately, saying she would either issue a decision after reviewing the materials and arguments or schedule another hearing for further discussion.

According to the 2017 complaint, Zoltek had hired Monco and Mortimer in 1996 to represent the manufacturer in a lawsuit against the federal government alleging that the B-2 bomber, which was developed by aerospace company Northrop Grumman Corp., infringed its patented method to produce carbon fiber sheets that help military aircraft avoid being detected by radar. Japanese conglomerate Toray Industries Inc. acquired Zoltek in 2014.

The litigation, which proved "extremely contentious and difficult," lasted 20 years, with the attorneys spending almost 13,000 hours representing Zoltek, the firm said.  But after a July 2016 strategy meeting in St. Louis, which Monco and Mortimer said led to their termination as counsel, the manufacturer then allegedly refused to pay the attorneys for overdue legal bills.

The manufacturer eventually settled the previous litigation for $20 million, but Wood Phillips and the attorneys got nothing, according to the complaint.  In July 2019, an Illinois federal judge said Monco and Mortimer can't pursue fees out of that settlement and must instead raise their claims against the company, with whom they had the attorney-client relationship.

Bankruptcy Court Denies Professional Fees to Law Firm

July 30, 2021

A recent Law 360 story by Rose Krebs, “Ashby & Geddes’ Appeal in Del. Bankruptcy Fee Row Tossed,” reports that a Delaware federal judge denied Ashby & Geddes PA's bid to force a lender to fund a roughly $980,000 carve-out reserve to pay professional fees in the now-closed bankruptcy case of life sciences company NeuroproteXeon Inc.  In a memorandum opinion, U.S. District Court Judge Maryellen Noreika said that she does not have jurisdiction to decide a cross-appeal mounted by Ashby & Geddes, former counsel to NeuroproteXeon in its Delaware bankruptcy case, related to a dispute over whether the lender should have been required to fund the carve-out for professional fees.

The judge rejected Ashby & Geddes' contention that she should weigh in on an August order issued by U.S. Bankruptcy Court Judge Mary F. Walrath, which the firm contended did not direct debtor-in-possession lender JMB Capital Partners Lending LLC to fund the carve-out as it should have per a financing agreement.  "As the [August] order cannot be considered final, and interlocutory review is not warranted, the court lacks jurisdiction over the cross-appeal, and it will be dismissed," the opinion said.

The firm incurred roughly $400,000 in fees while serving as the debtors' counsel during the bankruptcy case, according to court filings.  NeuroproteXeon, a pharmaceutical company that also develops medical devices and life sciences technologies, and its affiliates filed for Chapter 11 in late 2019 amid a liquidity crisis and with plans to sell its assets.  The debtors' had little unsecured debt and owed a $250,000 bridge loan that JMB provided to help the company fund operations as it prepared for bankruptcy, according to court filings.

JMB also provided up to $5 million in post-petition financing to fund operations during the Chapter 11 case, according to court filings.  Under a final DIP order, the lender was granted first-priority liens on the debtors' assets, subject to the terms of a carve-out being set aside to pay U.S. Trustee fees and professional fees, according to the opinion.  In January 2020, JMB notified the debtors of a default on the DIP agreement because a stalking horse bidder had not been selected by a required date, the opinion said.  As of that time, "the aggregate amount set forth in the budget for allowed professional fees plus budgeted U.S. Trustee fees" and other fees was about $980,000, an amount JMB did not contest, the ruling said.