Thursday, July 20, 2017

No Laughing Man: Unjust Enrichment Claims Reinstated

The District of Columbia Court of Appeals reinstated unjust enrichment claims against an international law firm, holding that the trial court erred in concluding the claims were time-barred as a matter of law.

We summarize the facts as they are stated in appellant‟s complaint. Appellees Kilpatrick Townsend, an international law firm, and Gingold, a sole practitioner, represented the Native American plaintiffs in Cobell v. Salazar, a class action lawsuit against the United States Department of the Interior for mismanagement of trust funds. In December 2009, the Cobell plaintiffs and the plaintiffs in a separate class action lawsuit against the United States Department of Agriculture concerning past discrimination against black farmers, Pigford v. Vilsack, reached a joint settlement agreement with the Government. Appellant, who was then President of the National Black Farmers Association, became involved in Pigford by lobbying for minority farmers who had missed an earlier filing deadline to be compensated under a consent decree. A second lawsuit was filed on behalf of these late-filers, and through the efforts of appellant and many others, was eventually combined with the other Cobell and Pigford litigants into a joint settlement agreement. The settlement agreement compensating the Cobell and Pigford plaintiffs required funding by a congressional appropriation. 

On March 5, 2010, John Loving, a government relations advisor at Kilpatrick Townsend, contacted appellant and requested his assistance in lobbying for the passage of the Claims Resolution Act (CRA), the funding bill for the Cobell and Pigford plaintiffs. Mr. Loving “asked [appellant] to use his extensive contacts . . . to drum up the necessary support for the . . . legislation.” Appellant and Mr. Loving did not discuss appellant‟s fees or any specific tasks to be performed. Appellant also spoke with Geoffrey Rempel, an accountant the Cobell plaintiffs hired, in order to coordinate lobbying efforts.

Soon thereafter, on June 1, 2010, appellant met Messrs. Rempel and Gingold for lunch at the Laughing Man Tavern, a pub in the District of Columbia. Appellant‟s complaint states that:

 [During that lunch at the Laughing Man Tavern, appellant] specifically told both Defendant Gingold and Mr. Rempel that he expected to be paid for this efforts to secure funding for the Cobell settlement. In response, Defendant Gingold encouraged [appellant] to continue working with and for Defendants. Defendant Gingold never indicated to [appellant] at any time at the restaurant, or at any subsequent time thereafter, that [appellant] would not be compensated for his efforts. . . . Every time [appellant] raised issues of compensation or the amount of such compensation, Defendant Gingold always indicated to him that compensation should not concern him — clearly indicating to [appellant] that payment would be forthcoming. Indeed, according to Defendant Gingold, the issue of payment was not whether [appellant] would be compensated, but when Eloise Cobell would focus on the amount of compensation for him. (emphasis omitted).

After the lunch meeting, appellant continued to lobby for passage of the CRA, which President Obama signed into law on December 8, 2010. The complaint alleged no further communications between appellant and appellees after the bill was signed.

The statute of limitations issues are for the jury on remand

At an appropriate point during those proceedings, and unless other developments arise that obviate the need to do so, the trial court shall have the jury make findings of fact as to the time after appellant last rendered services by which he should reasonably be deemed to have demanded payment for his services, plus the reasonable time thereafter within which appellees should have responded to said demand, and thus determine when appellant‟s cause of action for unjust enrichment accrued. The trial court can then
determine whether appellant filed his complaint within the applicable limitations period for unjust enrichment claims.

Thus the holding

we (1) affirm the trial court‟s dismissal of appellant‟s claim for breach of an implied-in-fact contract against Gingold as time-barred; (2) affirm the trial court‟s determination that appellant failed to state a claim for breach of an implied-in-fact contract against Kilpatrick Townsend; (3) vacate the trial court‟s dismissal of appellant‟s claims for unjust enrichment against both appellees as time-barred; and (5) remand for further proceedings consistent with this opinion.

Judge McLeese would reinstate and remand on all the asserted claims.

Cision PR Newswire covered the litigation by carrying a statement from Appellant's counsel. (Mike Frisch)

July 20, 2017 in Billable Hours | Permalink | Comments (0)

Tuesday, July 18, 2017

Agreement Created Fee Shift

An opinion of the Maryland Court of Appeals is summarized in the court's headnote

Maryland follows the common law American Rule, which states that, generally, a prevailing party is not awarded attorney’s fees. Maryland law draws a distinction between the recovery of attorney’s fees incurred in defending against a third-party claim and those expended in prosecuting a claim against the indemnitor.

There are four exceptions to the American Rule where a prevailing party may be awarded attorney’s fees, including that the parties have an agreement to that effect. The scope of
indemnification is a matter of contract interpretation, where a court looks to the terms of the contract to decide whether the parties agreed expressly that attorney’s fees would be  recoverable in a first-party action.

The contract between the parties in this case, specifically Article 19, provides expressly for the payment of “attorney’s fees;” and it ties payment of those fees expressly to an action for “breach” of the contract. Therefore, the Easement Agreement contains sufficient language to authorize first-party fee shifting, and subsequently White Flint is entitled to recover attorney’s fees.

The dispute involves a construction project in the heart of downtown Bethesda. White Flint - which leased to a restaurant and children's dance studio - sought and secured indemnification for damage caused in building over their properties.

Bainbridge, an entity formed by the Bainbridge Companies to manage the construction and operation of a new 17-story high rise apartment building in Bethesda, owns the property immediately adjacent to 4904 and 4909 Fairmont Avenue (“the Fairmont Properties”). Located on the Fairmont Properties were two one-story concrete buildings owned by White Flint that were leased to a restaurant and a children’s dance studio. Bainbridge engaged sub-contractor Turner to build the 17-story apartment building on its property for an estimated cost of $45,000,000. The construction project required excavation of a 50-foot-deep hole on the property, to be held open by steel cables protruding under and onto White Flint’s property to prevent soil and sub-surface structures from moving toward or into the excavation area. Bainbridge sought an easement from White Flint for access to the space “under, over, across and on the Fairmont Properties.” Bainbridge also wanted additional easements to swing a crane and extend scaffolding above the Fairmont properties.

During the Project’s excavation stage, White Flint’s experts detected damage to White Flint’s Property, alerted Bainbridge to the damage, and asked for assurances that the damage would be remedied. White Flint claimed that Bainbridge and its contractors did not drill the holes properly for the steel beams, resulting in soil loss beneath the Fairmont Properties, and that pile-drivers were used instead of drills to install the steel beams, in contravention of the express language of the Agreement. White Flint complained that the use of the pile-driver caused the buildings to shake, causing additional damage and soil movement underneath the buildings. By February 2012, the owner of the children’s dance studio on White Flint’s property reported seeing numerous cracks in the walls, that she feared a roof collapse on her students, and that many parents would not bring their children to class until she received assurances by Montgomery County that the building was safe. 

As you might imagine, litigation ensued.

Holding

The Agreement here is closer to the surety contract in Atlantic than the truck rental lease in Nova Research. Bainbridge and White Flint designed the agreement to ensure that Bainbridge, and not White Flint, carried all of the risk from the construction work; otherwise, White Flint had no incentive to support Bainbridge’s plans. Thus, the parties designed Article 19 to ensure that White Flint would be made whole if Bainbridge breached the agreement, which supports first-party fee shifting...

We hold that the Agreement contains express provisions that authorized first-party fee shifting, and subsequently White Flint is entitled to attorney’s fees.

Judge Raker authored the opinion. (Mike Frisch)

 

July 18, 2017 in Billable Hours | Permalink | Comments (0)

Monday, July 10, 2017

Vermont Opines On Legal Fees In Structured Settlement Payout

The Vermont Supreme Court reversed  a trial court's denial of  legal fees in a structured settlement payout

Petitioner Stevens Law Office appeals a trial court decision denying assignment of a future structured settlement payment from a fund administered by Symetra Assigned Benefits Service Company for legal services rendered by petitioner on behalf of beneficiary Shane Larock. We reverse and remand so that the trial court can conduct the best interest analysis required by statute before determining whether to deny or approve assignment of a structured settlement payment.

Shane Larock retained petitioner to represent him in a child in need of care or supervision (CHINS) proceeding which he expected to follow the birth of his daughter in early 2016. As payment, petitioner asked Larock for a $16,000 nonrefundable retainer which would be paid through assignment of that sum from a $125,000 structured settlement payment due to Larock in 2022. Under this arrangement, the structured settlement payment issuer, Symetra Assigned Benefits Service Company, would pay petitioner $16,000 directly when the 2022 periodic payment became due under the original terms of the settlement. Larock agreed to the fee arrangement and the assignment.

The trial court asked Bar Counsel to opine on the ethics of the nonrefundable retainer and denied enforcement.

The court looked to state law on structured settlements

As structured settlements became more prevalent during the late twentieth century, a new industry arose dedicated to trading in future periodic structured settlement payments. In this secondary market, beneficiaries due future payments through a structured settlement—payees—trade some or all of their future-payment rights to a third party in exchange for a discounted presently payable lump sum. Beginning with Illinois in 1997, a perceived need to protect settlement beneficiaries in these transactions, which have come to be called “factoring transactions,” precipitated a wave of state legislation governing this secondary market. Hindert & Ulman, supra, at 20...

The takeaway from the preceding discussion is that a trial court must engage in the best-interest analysis called for by state and federal statute before either approving or denying a transfer of future structured settlement payment rights. Neither state nor federal statute distinguishes between a transfer of the kind at issue here and a true factoring transaction, wherein a payee transfers future payment rights to a third party in return for a discounted lump sum presently payable to the payee. Thus, the same best-interest analysis is required before approving a factoring transaction or a transfer such as the one here—wherein payee Larock would directly transfer a portion of his future payment rights to petitioner without changing the future payment date and in exchange for legal representation.

The case was remanded for the application of the above factors. (Mike Frisch)

July 10, 2017 in Billable Hours | Permalink | Comments (0)

Tuesday, May 30, 2017

"Steep Overbilling Ought To Come At A Steep Price"

The United States Court of Appeals for the District of Columbia Circuit remanded a dispute over fee-shifting in a case where a law firm that collected on student loans got sued

In order to pursue a Master’s degree in Computer Graphics, Demetra Baylor (“Appellant”) took out six student loans. Several years after her graduation, Mitchell Rubenstein & Associates, P.C. (“Appellee”) came calling to collect. At the heart of this case are a number of inconsistencies in letters that Appellee sent Appellant over the course of several months regarding her loans and the amounts that she owed on them, as well as Appellee’s failure to direct all of its communications to Appellant’s attorney after she retained counsel. In response, Appellant filed suit on December 17, 2013, alleging that Appellee had violated the Fair Debt Collection Practices Act (“FDCPA”), the District of Columbia Consumer Protections Procedures Act (“CPPA”), and the District of Columbia Debt Collection Law (“DCDCL”), statutes which target abusive debt collection and improper trade practices. See 15 U.S.C. § 1692(e); D.C. CODE §§ 28-3904, -3814.

Over the course of the next few years, the parties engaged in what the District Court termed a “particularly striking expenditure of effort and resources,” generating “excessive, repetitive, and unnecessarily sharp pleadings.” Order, Dkt. No. 41, at 2. Nonetheless, all of Appellant’s statutory claims were eventually resolved. Appellant accepted Appellee’s offer of judgment regarding her FDCPA claim and the District Court, with the aid of a Magistrate Judge, determined the attorney’s fees to which she was entitled for this success. Appellee, meanwhile, prevailed in its Motion to Dismiss all of Appellant’s CPPA claims and some of her DCDCL claims, the remainder of which were rejected when the District Court subsequently granted Appellee’s Motion for Summary Judgment.

A number of orders from this “clutter[ed]…docket” are challenged on appeal. Id. First, the parties dispute the District Court’s decision to adopt a Magistrate Judge’s recommendation that Appellant receive approximately twenty percent of the attorney’s fees that she requested. Second, Appellant asserts that the District Court erred in finding that Appellee’s conduct does not fall within the aegis of the CPPA. Third, Appellant also contends that the District Court abused its discretion in failing to credit her objections to a different Magistrate Judge’s denial of her Motion to Compel the disclosure of communications between Appellee and an agent of Appellant’s creditor on the grounds that these documents were protected by attorney-client privilege. Appellant additionally disputes the District Court’s refusal to award her attorney’s fees for her efforts in litigating this issue. Finally, Appellant argues that the District Court improperly granted Appellee’s Motion for Summary Judgment on her DCDCL claims. On this last point, Appellant contends that the District Court failed to appropriately account for evidence demonstrating that Appellee had “willfully violated” the DCDCL and was therefore subject to liability under the statute.

We do not reach the question of whether the District Court abused its discretion in awarding Appellant only a percentage of the attorney’s fees she sought in connection with her FDCPA claim. In addressing this issue, the District Court relied on the standard set forth in Local Civil Rule 72.2 in finding that the Magistrate Judge’s proposed disposition was not “clearly erroneous or contrary to law.” This was error. Federal Rules of Civil Procedure 54(d)(2)(D) and 72(b)(3) foreclose the District Court from using a “clearly erroneous or contrary to law” standard when evaluating a Magistrate Judge’s proposed disposition of a fee request. The correct standard of review is de novo. We therefore reverse and remand to allow the trial judge to reconsider this matter in the first instance applying de novo review to assess the Magistrate Judge’s recommendation. We affirm all of the remaining Orders challenged on appeal.

Circuit Judge Henderson concurred with harsh words over the fee request

It is a time-honored bargaining tactic: make an unreasonable opening offer in an effort to “anchor” the ensuing give-and - take to an artificially high (or low) range of prices. Russell Korobkin, Aspirations and Settlement, 88 CORNELL L. REV. 1, 32 (2002). Even if the offer has no basis in reality and is rejected out of hand, it may for psychological reasons yield an artificially high (or low) final price. Id. at 32 & nn.151-53 (citing evidence that people “often begin [a negotiation] with a reference value . . . and then adjust from that point to arrive at their final determination,” even if starting point does “not bear a rational relationship to the item subject to valuation”). That may be fine for selling a car or conducting a business negotiation. But a request for attorney’s fees is not a negotiation.

Federal fee-shifting statutes typically authorize the recovery of a reasonable attorney’s fee. If a party seeks more than that—making an excessive demand in hopes that the award, although short of the demand, will be artificially high— a district court can impose a sanction to deter future violations and to protect the integrity of its proceedings. In particular, the court has discretion to deny an award altogether or “impose a lesser sanction, such as awarding a fee below what a ‘reasonable’ fee would have been.” Envtl. Defense Fund, Inc. v. Reilly, 1 F.3d 1254, 1258 (D.C. Cir. 1993).

I say all this because Radi Dennis, counsel for plaintiff Demetra Baylor, made what I consider a grossly excessive fee request. In Baylor’s name, Dennis sought a total of $221,155 for her work on Baylor’s $1,001 settlement and on the fee request itself.  The $221,155 demand was more than five times the $41,990 that a magistrate judge determined to be reasonable. Reviewing for clear error, the district court overruled objections from both sides and awarded Baylor $41,990. The Court today holds, and I agree, that a remand is in order because the district court erred by not reviewing the magistrate’s recommendation de novo. The Court is careful not to dictate the outcome on remand, and rightly so because of the district court’s discretion in fee matters, I write separately only because, on reviewing the fee order, I am uncertain whether the district court recognizes just how broad its discretion is. On the extreme facts of this case—and because Dennis is a repeat offender, see Jones v. Dufek, 830 F.3d 523, 529 & n.6 (D.C. Cir. 2016) (affirming denial of excessive fee request Dennis made on behalf of another client)—I believe the court’s discretion includes awarding a fee substantially below an otherwise reasonable one. (citations to record omitted)...

Indeed, I do not think it would be an abuse of discretion to award Dennis the same amount she won for Baylor: $1,001. Steep overbilling ought to come at a steep price.

Senior Judge Edwards authored the opinion. (Mike Frisch)

May 30, 2017 in Billable Hours | Permalink | Comments (1)

Tuesday, April 4, 2017

A Dollar Is Enough For 18 Months Of Representation

An unpublished decision of the North Carolina Court of Appeals

The Law Firm of Michael A. DeMayo (“Plaintiff”) appeals from the trial court’s 7 April 2016 order awarding it one dollar in attorneys’ fees from Schwaba Law Firm (“Defendant”) as a result of Plaintiff’s legal services rendered on behalf of a client of Defendant’s. On appeal, Plaintiff argues that the trial court erred in determining that the value of Plaintiff’s services was only one dollar. After careful review, we affirm.

The client retained plaintiff to represent him in a personal injury case on a 1/3 contingency basis. The retainer further provided:

The fee agreement further provided that in the event Beaver terminated his contract with Plaintiff after an insurance carrier had made an offer of settlement, Beaver “would be responsible for 95% of Plaintiff’s award had a settlement been reached.”

Notably (practice pointer here), the plaintiff did not keep track of hours devoted to the case

[Client] Beaver’s case was assigned to Wendy Davis, a paralegal working for Plaintiff, and her work was supervised by Michael A. DeMayo, an attorney. Plaintiff’s employees worked on Beaver’s case from December 2011 to June 2013. Although Plaintiff did not keep a record of the amount of time each attorney or paralegal spoke to or contacted the client, Beaver’s file “had 232 ‘touches’ [representing] the number of times the file was handled for any purpose.”

The client rejected a settlement offer of $85,000 and terminated plaintiff's services. 

He retained defendant and accepted $100,000 in settlement.

Plaintiff demanded 95% pursuant to the retainer agreement. Defendant refused to pay anything. 

Litigation ensued

In the present case, Plaintiff argues that the trial court erred in awarding Plaintiff only one dollar...

Plaintiff’s sole argument is that the trial court erred in calculating the amount of fees to which it was entitled based on the theory of quantum meruit. However, Plaintiff does not argue that the trial court failed to properly articulate the factors set out in Guess. Nor does it contend that any specific finding of fact made by the trial court was unsupported by competent evidence. Instead, Plaintiff makes a blanket assertion that the trial court “ignored competent evidence of record upon which it could have assigned a value to Plaintiff’s services based upon a percentage allocation of the contingency fee.”...

Of particular significance is Plaintiff’s failure to specifically challenge Finding of Fact No. 38. In that finding — as quoted above — the trial court determined that Plaintiff had “offered this Court no means to determine an amount of award pursuant to quantum meruit.”

Thus, in light of the fact that the trial court used the appropriate factors in evaluating Plaintiff’s quantum meruit claim and that Plaintiff has failed to specifically challenge any of the court’s findings of fact, we cannot say that the trial court abused its discretion in awarding Plaintiff the sum of one dollar.

(Mike Frisch)

April 4, 2017 in Billable Hours | Permalink | Comments (0)

Wednesday, March 29, 2017

The Burdens Of Law Firm Leadership

The Louisiana Attorney Disciplinary Board recommends a one-year suspension of an attorney who engaged in billing falsehoods over a three-year period.

As a member of a law firm, the Respondent generally billed on an hourly basis but on rare occasions had the opportunity to work on some cases on a contingency basis. The firm policy was to set hourly billing targets for attorneys with the firm at 1800 billable hours annually. Meeting or exceeding the annual billing targets established by the firm were factors taken into consideration for annual salary increases, bonuses, and/or promotion within the firm. 

From in or around 2012 through November 7, 2015, the Respondent internally recorded time entries and created receivables that were in part false and/or inflated. The Respondent self-reported his misconduct to the Office of Disciplinary Counsel by correspondence dated November 25, 2015. The Respondent’s law firm also reported Respondent’s conduct to ODC pursuant to the provisions of Rule 8.3(a).

The law firm reported to the Office of Disciplinary Counsel that its internal investigation was able to conclusively demonstrate that the Respondent submitted 428 entries which were classified as “certainly false” and an additional 220 entries that were “ reasonably certain to be false or inflated”. The Respondent’s conduct reflects violations of Rule 8.4(c) (conduct involving dishonesty, fraud, deceit and misrepresentation), and Rule 8.4(a) (violating or attempting to violate the Rules of Professional Conduct).

The attorney joined his firm in 1998 and rose to a leadership position.

The hearing committee was somewhat sympathetic

Finding Respondent’s testimony to be credible, it determined that Respondent engaged in misconduct due to his concerns that his accurate billable hour numbers were not commensurate with his leadership position within the firm, rather than any desire for direct financial gain. He submitted false and inflated billing for the purpose of making himself look good to enhance his opportunities for leadership positions and to ultimately become managing partner of the firm. As a member of the Board of Directors, the Respondent saw first-hand and on a monthly basis the extraordinary billable time and business dollars generated by key leaders of the firm. When his practice began to decline, Respondent gave in to his own internal pressures. He began to submit time on a dismissed contingency fee matter, and eventually on six other matters, in an effort to make himself look better “on paper” each month.

The Respondent received a discretionary bonus from the firm’s compensation committee for 2012, 2013, and 2014. While the testimony established that the legitimate hours billed by Respondent met and exceeded his billing targets in each of these years, he nonetheless fabricated billing entries.  The parties stipulated that due to his many contributions at the firm during that time period, the firm hypothesized that it was highly likely that Respondent would have received all or some of those merit bonuses even without the false inflation of his billable hours.  Still, the Committee recognized that testimony from firm members also supported the conclusion that the full amounts of the merit bonuses may not have been paid to the Respondent had his hours been accurately recorded.

He receives credit for time served on an interim suspension.

Pamela Carter concurred with reservations

One year suspension is inadequate in this matter where lawyer dishonesty is clear and unequivocal. There was continual intent on the part of Mr. Wallace for a period of three years. The firm’s investigation and conclusions that Mr. Wallace’s false entries were “reasonably certain” to be of a false nature is very telling. It is my opinion that the Board’s recommendation should also require that Mr. Wallace apply for reinstatement. There is no question that Mr. Wallace’s dishonesty was purposeful, calculated, done knowingly and intentional. Mr. Wallace deliberately inflated the amount of time recorded for the purpose of presenting to clients bills which reflected undisclosed premiums. Not discussed is the information in the record regarding Mr. Wallace’s violation of his supervisory duties, as a member of the firm (partner), and as a billing partner, even though the factual record is replete with evidence that he violated these rules. Mr. Wallace served as the firm's hiring partner, and was the head of recruiting.

Linda Bizzarro dissented

I don't believe a suspension of one year is sufficient to address the admitted, multiple instances of misconduct in this matter. Considering the number of false or inflated billing entries (428 confirmed, 200 "reasonably certain" to be false), the length of time Respondent repeated the intentional misconduct (3 years), and the amount of money involved in the scheme ($91,544 in false billing, $85,000 of bonus money voluntarily renounced), a one year suspension is inadequate. In my opinion the Board should adopt the Hearing Committee's sanction recommendation of one year and one day, which would require the Respondent to apply for reinstatement.

(Mike Frisch)

March 29, 2017 in Bar Discipline & Process, Billable Hours, Law Firms | Permalink | Comments (0)

Friday, March 24, 2017

No Right For Firms To Accept Outside Investments

An opinion issued today by the United States Court of Appeals for the Second Circuit

Plaintiffs‐Appellants Jacoby & Meyers, LLP, a limited liability law partnership,  and Jacoby & Meyers USA II, PLLC, a related professional limited liability company  (together, “plaintiffs” or “the J&M Firms”), challenge the constitutionality of a collection  of New York regulations and laws that together prevent for‐profit law firms from  accepting capital investment from non‐lawyers. The J&M Firms allege that, if they were allowed to accept outside investment, they would be able to—and would—improve their infrastructure and efficiency and as a result reduce their fees and serve more clients, including clients who might otherwise be unable to afford their services. By impeding them from reaching this goal, the J&M Firms contend, the state has unconstitutionally infringed their rights as lawyers to associate with clients and to access the courts—rights that are grounded, they argue, in the First Amendment. The District Court (Kaplan, J.) dismissed the complaint, concluding that the J&M Firms failed to state a claim for violation of any constitutional right and that, even if such rights as they claim were to be recognized, the challenged regulations withstand scrutiny because they are rationally related to a legitimate state interest. We agree that under prevailing law the J&M Firms do not enjoy a First Amendment right to association or petition as representatives of their clients’ interests; and that, even if they do allege some plausible entitlement, the challenged regulations do not impermissibly infringe upon any such rights. We therefore AFFIRM the District Court’s judgment.  

Through a set of prohibitions of long standing in New York and similar to those widely prevalent in the fifty states and the District of Columbia, the State of New York prohibits non‐attorneys from investing in law firms. See generally N.Y. State Bar Ass’n, Report of the Task Force on Nonlawyer Ownership, reprinted at 76 Alb. L. Rev. 865 (2013) (“NYSBA Report”). The prohibition is generally seen as helping to ensure the independence and ethical conduct of lawyers. See id. at 876‐77. Plaintiffs‐Appellants  Jacoby & Meyers, LLP, a limited liability partnership (the “LLP”), and Jacoby & Meyers USA II, PLLC, a related professional limited liability company (the “PLLC”; together,  “plaintiffs” or the “J&M Firms”) bring a putative class action challenging New York’s rules, regulations, and statutes prohibiting such investments. The infusions of additional capital that the regulations now prevent, they declare, would enable the J&M Firms to improve the quality of the legal services that they offer and at the same time to reduce their fees, expanding their ability to serve needy clients. They assert that, were they able to do so, they would act on that ability in the interests of such potential clients. Because the laws currently restrict their ability to accomplish those goals, they maintain, he state regime unlawfully interferes with their rights as lawyers to associate with clients and to access the courts—rights they see as grounded in the First Amendment.

Circuit Judge Susan Carney affirmed the district court disposition. (Mike Frisch)

March 24, 2017 in Billable Hours, Law & Business, Law Firms | Permalink | Comments (0)

Friday, March 10, 2017

Unethical Agreement Enforceable Against Attorney In D.C.

A memorandum opinion issued by Judge John Bates of the United States District Court for the District of Columbia denies a defendant attorney's motion to dismiss and addresses an unresolved issue of D.C. law with respect to fee-sharing agreements with non-attorneys

Allan Gerson, the defendant and an attorney, contracted with Zvi Shtauber, the plaintiff, for Shtauber to provide services to assist Gerson in a lawsuit. Their contract specified a fee-sharing arrangement, where Gerson would share with Shtauber a portion of any contingency fee he earned from the lawsuit. Shtauber alleges that Gerson failed to pay, and now sues for enforcement of that contract, or alternatively for recovery in quantum meruit, and for a declaratory judgment that he is entitled to a portion of Gerson’s fees in the future. Gerson moves to dismiss, arguing that the contract is unenforceable as contrary to public policy because a fee-sharing contract between a lawyer and a non lawyer violates the D.C. Rules of Professional Conduct, and that Shtauber cannot pursue a claim for quantum meruit when there is a contract between the parties. The Court will deny Gerson’s motion.

The court notes that many facts were not in dispute

In 2004, Gerson explored the possibility of suing Arab Bank and other financial institutions “on behalf of victims of genocide and terrorism in Israel and in territories administered by the Palestinian Authority.” Id. Gerson hired Shtauber to assist in the lawsuit. Id. ¶ 6. Shtauber, a resident of Israel, has experience in relevant fields of national security and has served as both the Foreign Policy Advisor to the Israeli Prime Minister and as Israel’s Ambassador to the United Kingdom. Id. Shtauber connected Gerson to an Israeli attorney, David Mena, to help litigate the case against Arab Bank, and provided additional “consulting services” in connection with Gerson’s suit. Id. ¶ 7. 

As to fee sharing

Gerson argues that the fee sharing arrangement is forbidden by the D.C. Rules of Professional Conduct (“Rules”) in effect at the time, and therefore is unenforceable as against public policy. Shtauber responds that the Agreement is not contrary to the Rules, but even if it is, it’s still enforceable.

The Agreement was signed in 2005. At the time, Rule 5.4(a) of the D.C. Rules of Professional Conduct stated: “A lawyer or law firm shall not share legal fees with a nonlawyer” and then provided four exceptions.  See also D.C. Code § 11-2501 (attorneys admitted to the D.C. bar are subject to the Rules). The first two exceptions concern payments to an attorney’s estate after death. The third exception states a “lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit sharing arrangement.” Rule 5.4(a)(3). The fourth states that fee sharing “is permitted in a partnership or other form of organization” that meets specified requirements, as laid out in Rule 5.4(b), for a nonlawyer to exercise managerial authority over the firm or have a financial interest in the firm. Id. 5.4(a)(4)...

Rule 5.4(a) clearly prohibits the fee sharing arrangement described here. The Agreement between Shtauber and Gerson states that “Dr. Shtauber’s fees under this Agreement shall be 20% of any and all contingent legal fees” due to the Gerson Group for claimants referred to them by Mena. Agreement ¶ 4. In addition to this arrangement being forbidden by the plain language of Rule 5.4(a), the D.C. Bar has issued an ethics opinion explicitly stating that “[a] payment by a lawyer to another person for the referral of legal business, which is contingent on the lawyer’s receipt of fees from the referred legal business and is tied to the amount of those fees” constitutes fee sharing that is prohibited by Rule 5.4(a). See D.C. Legal Ethics Op. 286 (1998). This does not describe the exact situation here: Shtauber is not being paid directly for referring clients, rather he is being paid a contingent fee with respect to clients referred to Gerson by another attorney, Mena. Nonetheless, Shtauber is being paid “for the referral of legal business” (through an intermediary) that is “contingent on [Gerson’s] receipt of fees from the referred legal business and is tied to the amount of those fees.” Thus the Agreement is likely covered by Ethics Opinion 286, in addition to being forbidden by the plain language Rule 5.4(a).

But the agreement is enforceable

This case raises an open question of District of Columbia law. In light of existing D.C. Court of Appeals precedent, this Court believes that although the Agreement violates the D.C. Rules of Professional Conduct, it is nonetheless enforceable in this particular instance. Moreover Shtauber may seek recovery in quantum meruit as an alternative to damages on the contract. 

The Bar ethics opinion cited is linked here. (Mike Frisch)

March 10, 2017 in Bar Discipline & Process, Billable Hours, Current Affairs | Permalink | Comments (0)

Friday, March 3, 2017

Once Extended, "Professional Courtesy" Enforced In Fee Suit

The Massachusetts Supreme Judicial Court has held that a law firm suing for fees cannot collect waived "professional courtesy credits"

This appeal arises from a fee dispute between a law firm and its former clients. The plaintiff law firm, BourgeoisWhite, LLP, brought this action against the defendants, Sterling Lion, LLC, and its owner, David G. Massad, alleging breach of contract and unjust enrichment following the plaintiff's representation of the defendants in an employment dispute. The judge granted the plaintiff's motion for summary judgment, determining that the plaintiff was owed the $83,681.84 amount sought in the complaint, including $29,944.45 in "professional courtesy credits" that the plaintiff extended and then rescinded, plus prejudgment interest.  We conclude that the undisputed facts establish that the $29,944.45 in credits was written off by the plaintiff law firm and thus waived. Summary judgment therefore should have been granted in favor of the defendants with respect to the credits. We further conclude that the defendants have failed to identify any factual disputes as to the reasonableness of the remaining fees, because they rely solely on unsupported and conclusory assertions about the representation. We therefore remand for the entry of summary judgment in favor of the plaintiff in the amount of the fees sought, less the credits.

Reasoning

...reversal of the professional courtesy credits in this case would not comport with the "highly fiduciary" nature of the lawyer-client relationship. Malonis, 442 Mass. at 692. This type of belated attempt by a fiduciary to claw back fees that were previously "written off" would not be fair and equitable to the client -- the party for whom the relationship exists. 15 See Goldman v. Kane, 3 Mass. App. Ct. 336, 342 (1975) (attorney who made advantageous loan to client "breached his fiduciary duty," because "fundamental unfairness" of loan was "self-evident"); Beatty, 31 Mass. App. Ct. at 612-613 ($721,888 "premium" billing inconsistent with agreement to bill on hourly basis and violated fiduciary duty owed to client). We therefore conclude that the defendants, not the plaintiff, should have been granted summary judgment with respect to the $29,944.45 in credits.

As to the other bills

Summary judgment was, however, properly granted for the plaintiff on the issue of the reasonableness of the remaining fees. The defendants have failed to raise a genuine issue of material fact with respect to the reasonableness of those fees. The defendants argue that they were billed for duplicative and "legally unsound" motions, and that the trial was over staffed. Our review of the record indicates that the allegedly duplicative motions predate the contested bills by nearly a year. The defendants do not identify which motions are "legally unsound," and we are provided no explanation for why the trial was over staffed, given the complexity of the case and the amount in controversy. More is required for appellate argument.

Chief Justice Kafker authored the opinion. (Mike Frisch)

March 3, 2017 in Billable Hours, Clients | Permalink | Comments (0)

Friday, February 17, 2017

No Lien On Property Not Owned By Former Client

The North Dakota Supreme Court rejected the assertion of an attorneys' lien because the former client had no interest in the subject real property.

DeWayne Johnston, individually, and as registered agent of Johnston Law Office, P.C., appeals from a judgment invalidating a notice of attorney lien recorded against Johnston's former client and ordering Johnston Law Office and Johnston, individually, to pay $1,330 in costs and attorney fees. We modify the judgment to relieve Johnston of personal liability and affirm the judgment as modified.

Wayne and Janel Nusviken acquired real property from Johnston's former client Barbara McDermott on October 2, 2013. On October 8, 2013, Johnston recorded a "notice of attorney lien" against McDermott. The notice of attorney lien included the legal description of Nusviken's property and stated McDermott owed Johnston nearly $66,000 in attorney's fees relating to Johnston's representation of McDermott in earlier matters unrelated to the sale of the property.

The Nusvikens petitioned the district court to invalidate the notice of attorney lien, arguing McDermott no longer owned any interest in the property. The court issued an order to show cause directing Johnston to appear and show why the notice of attorney lien should not be declared void. At the hearing, Johnston argued the notice of attorney lien was not a nonconsensual common-law lien but a valid attorney's lien under N.D.C.C. § 35-20-08, and therefore, the court did not have jurisdiction to invalidate the lien. In response Nusviken's attorney stated the notice of attorney lien was invalid because McDermott no longer had an interest in the property and no attorney-client relationship existed between Johnston and the Nusvikens. The court concluded the purported lien was a nonconsensual common-law lien and not a valid attorney's lien because it failed to satisfy the statutory requirements for an attorney's lien under N.D.C.C. § 35-20-08. The court invalidated the lien and ordered the Johnston Law Office and Johnston, individually, to pay the Nusvikens $1,330 in costs and attorney's fees.

No lien on thee

We agree with the district court's analysis. The notice of attorney lien recorded by Johnston against McDermott referenced two cases in which Johnston represented McDermott. Johnston did not submit any evidence indicating a judgment was awarded in favor of McDermott or that she was due any money in those cases. McDermott no longer had an interest in the real property when Johnston recorded the notice of attorney lien, nor did Johnston represent McDermott in the land sale to the Nusvikens. Johnston appears to argue it had a valid attorney's lien simply because the document is titled "notice of attorney's lien." As the district court noted, however, the document on its face failed to meet the requirements of N.D.C.C. § 35-20-08. The district court did not err by invalidating Johnston's "notice of attorney lien."

Johnston argues the district court lacked jurisdiction because under N.D.C.C. § 35-35-05(1) only those who have property subject to nonconsensual common-law lien may petition the court to invalidate the lien. Johnston also argues that before entering the order to show cause the court was required to make a finding that the Nusvikens were subject to a nonconsensual common-law lien...

Here, there was no attorney-client relationship between Johnston and the Nusvikens. We decline to extend Amundson to an attorney's improper or unethical actions toward parties who are not clients. We therefore modify the judgment to relieve DeWayne Johnston of personal liability.

(Mike Frisch)

February 17, 2017 in Billable Hours, Clients | Permalink | Comments (0)

Thursday, February 9, 2017

Fees Rules Are Shield Not Sword

The New York Court of Appeals resolved a dispute among attorneys over fees in a case involving an $8 million settlement

In February 2009, Menkes engaged Manheimer to act as co-counsel and provide advice in the action.  Their written agreement provided that Manheimer would receive 20% of net attorneys' fees if the case settled before trial and 25% once jury selection commenced. Neither attorney informed the clients of Manheimer's involvement, although Manheimer believed Menkes had done so.

The co-counsel relationship fell apart

In August 2009, Menkes wrote to Manheimer unilaterally discharging him and advising him that his portion of the fees would be determined on a quantum meruit basis. Manheimer did not respond to Menkes; he did no further work on the case.

The court here affirmed the Appellate Division for the First Department.

Holding

We conclude that Menkes's agreements with Manheimer are enforceable and entitle Manheimer to 20% of net attorneys' fees. Menkes's attempt to use the ethical rules as a sword to render unenforceable, as between the two attorneys, the agreements with Manheimer that she herself drafted is unavailing. Her failure to inform her clients of Manheimer's retention, while a serious ethical violation, does not allow her to avoid otherwise enforceable contracts under the circumstances of this case (see Samuel v Druckman & Sinel, LLP, 12 NY3d 205, 210 [2009]). As we have previously stated, "it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on 'ethical' grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits" (Benjamin v Koeppel, 85 NY2d549, 556 [1995] [citation omitted]). This is particularly true here, where Menkes and Manheimer both failed to inform the clients about Manheimer's retention, Menkes led Manheimer to believe that the clients were so informed, and the clients themselves were not adversely affected by the ethical breach.

The court applied general contract principles in allocation of fees. (Mike Frisch) 

February 9, 2017 in Billable Hours, Current Affairs, Economics | Permalink | Comments (0)

Friday, February 3, 2017

Freezing Funds In Vermont

The Vermont Supreme Court affirmed an attachment brought against a criminal defendant by the estates of two men (an ex-boyfriend and his son) suing her for wrongful death

This interlocutory appeal presents the question of whether the Sixth Amendment right to assistance of counsel is violated when the plaintiff in a civil wrongful death action attaches funds the defendant intends to use for her legal defense to homicide charges stemming from the death at issue in the civil case. Defendant appeals a trial court decision permitting such an attachment. We affirm.

The relevant facts are as follows. Defendant is charged with aggravated murder and two counts of murder in the second degree in the deaths of two men. Her trial is pending and a private law firm represents her in that matter. Plaintiff is the estate of one of the deceased men, which pursuant to 14 V.S.A. § 1492 has brought a wrongful death action on behalf of the next of kin. In its filing, plaintiff obtained an attachment freezing defendant’s assets, including the retainer she provided for her criminal defense.

In response, defendant filed a motion arguing that a recent U.S. Supreme Court case, Luis v. United States, __ U.S. __, 136 S. Ct. 1083 (2016), held that the Sixth Amendment to the U.S. Constitution prohibited the attachment of untainted funds a defendant wished to use to hire counsel of choice as legal representation in a criminal matter. Plaintiff, unsurprisingly, read Luis differently and argued that the Sixth Amendment prohibited only a prosecutor from attaching untainted funds to be used for criminal legal defense. Following a hearing on defendant’s motion, the trial court issued a written decision finding that, though defendant’s arguments were persuasive, Luis was inapplicable to the attachment obtained in this suit. The court read Luis for the proposition that “[t]he evil the Sixth Amendment seeks to guard against is a prosecutor civilly seizing a defendant’s money to prevent him or her from hiring an attorney. Not the court’s issuance of an attachment on funds by any creditor, where the defendant also prefers to use the money to hire a lawyer.”

After an extended effort to read the Luis precedent, the court majority holds

While we acknowledge the scope of the Sixth Amendment right to provide defendant a lawyer of her choice, if she can fund such a choice, we cannot conclude that our decision in this case will have a significant effect on the caseloads of public defenders or impair the quality of representation defendant or others would receive. As we discussed above, we see no justification for the victim to subsidize the legal costs of defendant in defending her criminal case.

Justice Robinson dissents

The majority’s approach here would give a credit card company seeking to collect a past due obligation the ability to freeze funds in a lawyer’s trust account to secure a potential judgment, while frustrating a criminal defendant’s Sixth Amendment right to counsel. How would a lawyer ever know whether a criminal defendant client’s retainer would remain available to pay for the lawyer’s representation? By eschewing a balancing test altogether, the majority avoids grappling with the severe consequences of its position with respect to a fundamental constitutional commitment...

It’s true that this ruling may limit the ability of crime victims, or any other potential civil creditor with claims against a criminal defendant, to secure potential civil judgments in their favor from the untainted assets of the defendant. Parties seeking to attach untainted assets in civil court face numerous obstacles to their ability to secure potential future judgments. They cannot attach a debtor’s homestead up to a limit of $125,000 in value, 27 V.S.A. § 101; a debtor’s interest in a motor vehicle up to $2500, 12 V.S.A. § 2740(1); or a debtor’s professional or trade books or tools up to $5000 in value, 12 V.S.A. § 2740(2). Insurance payments of various sorts, 8 V.S.A. §§ 3706-3709, unemployment compensation benefits, 21 V.S.A. § 1367, and veteran’s benefits, 38 U.S.C. § 5301, are all exempt from trustee process or attachment.   Like the statutory exemptions, defendant’s Sixth Amendment rights operate in effect as an additional exemption; defendant’s funds, whether held in her own bank account or deposited in her lawyer’s trust account, are exempt from attachment to the extent they are necessary to pay for legal fees by the lawyer of her choice. Civil litigants seeking security for potential future judgments may be burdened by this exemption, like all the others. But the weight of defendant’s constitutional claim is no less strong than these statutory exemptions.

For these reasons, I would reverse the trial court. I would treat funds reasonably necessary for defendant’s criminal defense by a lawyer of her choice whom she can afford to pay as exempt from the court’s attachment, and would authorize attachment of those funds only to the extent that they are not reasonably necessary to her criminal defense.

Justice Eaton joins the dissent.

The New York Daily News reported on the crimes. (Mike Frisch)

February 3, 2017 in Billable Hours | Permalink | Comments (0)

Wednesday, February 1, 2017

Fee Awarded In Indian Trust Fund Litigation

 An interesting decision yesterday in a notable case by Magistrate Judge G. Michael Harvey of the United States District Court for the District of Columbia

Herein the Court will close what may be the final major dispute in two decades of hard-fought litigation. Plaintiffs, Native Americans whose lands were held in trust by the Department of the Interior, sought to remedy a century of wasteful trust mismanagement. They obtained a stunning victory which brought about trust reform and a significant recovery for the plaintiff class. Helping them in their quest was a team of attorneys whose dedication and tenacity deserve high commendation. One of those attorneys was Mark Brown. After this case settled in 2009, Plaintiffs’ counsel moved for an award of attorney’s fees and costs. Brown was omitted from the motion, as were the hours he spent litigating this matter. He now petitions this Court for his share of the fee award.

The opinion paints a picture of co-counsel working relationships in the Cobell litigation that ran the gamut from strained to toxic.

Brown also had a strained relationship with the Special Master appointed by Judge Royce Lamberth that was not helped by his asking the Special Master whether he suffered from "early onset Alzheimer's."

Then there was the "crying fish" footnote.

In another instance, Brown assisted in drafting a brief in support of a motion for attorney’s fees made to the Special Master. In one of the brief’s footnotes, Brown included a picture of a crying fish. This image was intended to lampoon the government for its complaints that class counsel’s fees were excessive. [Co-counsel] Gingold told Brown to remove the picture before filing the brief, but Brown insisted that it be included. Brown counters that Gingold “specifically asked it to be left in.”  The image was left in. Gingold testified that the Special Master became quite upset upon seeing the image. In his decision on the motion for fees, the Special Master noted the presence of a “fish shedding a tear” in Plaintiffs’ brief. He ultimately deducted 75% of all the time spent preparing the brief. (record citations omitted)

Eventually, the plaintiff's team concluded that life was better without Brown.

The circumstances and cause of his departure were the focus of this fee dispute.

The court

Plaintiffs argue that, if Brown withdrew from the litigation, it was unjustified, and if he did not withdraw, he was terminated for cause. Cobell F&C at 46 ¶ 10, 49 ¶ 17. As discussed above, either finding would eliminate Brown’s recovery entirely under District of Columbia law. Brown responds that he did not withdraw, but rather was terminated without cause, and therefore is entitled to recovery of his fees. Brown Reply at 77 ¶ 7.

The Court ultimately sides with Brown and finds that he is entitled to an award of reasonable fees for his work on this case, although the undersigned does not adopt his reasoning to reach this conclusion. Despite Brown’s belief to the contrary, the Court finds that he withdrew from the Cobell litigation in January 2006. Further, although the terms of Brown’s engagement letter with the Plaintiffs do not make a withdrawing attorney’s compensation contingent on his or her departure being for good cause, the Court in any event finds that Brown was justified in leaving the Cobell team when he did. His withdrawal also did not result in any prejudice to his clients who were ably represented by a veritable army of attorneys at the time of his departure. Nor, under the unique facts of this case, did it represent a clear and serious violation of any ethical duty he owed to Plaintiffs. He is therefore entitled to an award of reasonable fees.

On that score, however, Brown’s petition for more than $5 million in fees is lacking. The billing rate he seeks is in excess of that stipulated in his engagement letters with Plaintiffs. Further, significant cuts are in order to the hours he presents, given that his time records are larded with many hours that were either previously compensated or deemed unreasonable by a judicial officer, or reflect unnecessary work or clerical tasks not reasonably billed at an attorney’s rate. Most importantly, an overall reduction of his time is in order because he did not exercise billing judgment when he reviewed his records prior to submitting them to the Court. After all deductions are applied, the Court concludes that Brown should be awarded $2,878,612.52 for his work representing the plaintiff class prior to his withdrawal.

As to good cause to withdraw

 The Court finds that Brown’s withdrawal met this standard. While the conduct of all parties leading up to Brown’s departure in January 2006 is deserving of some reproach, on balance the evidence shows that Brown’s withdrawal was not unjustified. By that time, the relationship between Brown and his co-counsel was irretrievably broken. Further, following Brown’s May 2005 suspension, the record supports Brown’s contention that he was "frozen out" of work on the case. Brown Ex. 14; Brown Reply at 33 ¶ 59. For the next six months, Brown had little or nothing to do. 4/20 P.M. Tr. 145:5–9; 4/21 Tr. 33:11–34:19. He sought assignments from those few individuals with whom Gingold allowed him to work, but, after a few projects, that work dried up as well. 4/21 Tr. 31:25–32:19. Plaintiffs claim that Brown may have received more work had he repeatedly requested it. 4/22 Tr. 211:20–212:2. It is undisputed, however, that he asked for work, and received little to none. This is not surprising; it is a fair inference from the record that, fol-lowing lead class counsel Gingold’s suspending him from working with anyone but a few attorneys, Brown was effectively persona non grata on the Cobell team. There was clearly much work to be done during that period on behalf of the Plaintiffs, and Brown was willing to do it—indeed, it was never Plaintiffs’ complaint that Brown was not hard working on their behalf. Nevertheless, no assignments were forthcoming.

The court further concluded that Brown's withdrawal sufficiently complied with his ethical obligations under Rule 1.16.  

There is no evidence in the record that Brown’s absence had any material adverse effect on Plaintiffs or their claims.

Indeed, Brown was a divisive figure on the Cobell team. Far from prejudicial, his departure was viewed as advantageous by Plaintiffs’ other counsel, and thus it indirectly benefited the plaintiff class. Gingold testified that suspending Brown “eliminated the risk of harm” to the trial team since he was perceived as source of friction on the Cobell team. Certainly, Brown’s co-counsel were not unhappy to see him go. However long after January 2006 it took them to realize that he was not returning from California, none of them felt inclined to question the change in his status. The litigation proceeded to its successful conclusion undisturbed by his absence. (citations to record omitted)

These facts distinguish the cases cited by Plaintiffs in which the withdrawing attorneys were found to be in violation of their professional obligations. In each of those cases, the attorneys knowingly left their clients in the lurch without other representation...

Indeed, on this point, the zeal with which Plaintiffs’ counsel seeks to expose Brown’s purported ethical lapses would be more persuasive if the end result served something other than their own financial gain. Again, under the unique facts of this case, every dollar not awarded to Brown will pass not to Brown’s clients but to his former colleagues at Kilpatrick Stockton...

 Rule 1.16 was designed as a shield to protect an unwary client when an attorney withdrawals, not as a sword to financially benefit the client’s other counsel.

While the Court does not condone the failure of a withdrawing attorney to put either his client or the Court on proper notice prior to his withdrawal, nevertheless, based on the peculiar facts of this case, the Court finds that any such lapse here is not a sufficient basis to deny Brown the compensation he earned in the six years prior.

Thanks to a reader for sending this to us. (Mike Frisch) 

February 1, 2017 in Billable Hours | Permalink | Comments (0)

Tuesday, January 3, 2017

Katten Muchin Prevails In Charging Lien Litigation

The Delaware Supreme Court has ruled in favor of the Katten Muchin law firm in a case involving application of the law of charging liens.

The case was a complex fight over the client's ouster from a family business

Martha reacted to her ouster by, among other things, litigating. She first retained plaintiff Katten Muchin Rosenman LLP to represent her in a § 220 books and records request of the Sutherland Lumber Companies.  Although Martha and Katten disagree over whether they entered into a written fee agreement, the parties agree that Katten was not providing its services on a contingency fee basis and was instead entitled to fees on an hourly rate basis and to reimbursement of its expenses.   Indeed, Katten sent Martha monthly invoices based on hourly billing, which Martha paid for several years.

In 2006, Martha, with Katten as her counsel, filed a derivative and double derivative action against Perry, Todd, and Mark alleging, among other things, that Perry‘s and Todd‘s employment agreements with the Sutherland Lumber Companies were a result of self dealing...

Some benefits were realized with respect to the employment agreements at issue but 

By 2011, [client] Martha accrued $766,166.75 in unpaid attorney‘s fees for services that Katten provided in this litigation between 2009 and 2011. In the spring of 2011, Katten withdrew as counsel. One of Martha‘s attorneys from Katten, Stewart Kusper, left the firm and continued to represent her.

After Martha‘s litigation concluded in 2012—without her securing any additional relief on behalf of the Sutherland Lumber Companies—she sought an award of attorney‘s fees from the Sutherland Lumber Companies for all of her fees arising from the § 220 action and from overcoming the special litigation committee‘s investigation and recommendation to terminate the litigation, plus $25,000 in fees for defending against the summary judgment argument aimed at the employment agreement claim. In total, Martha asked for $1.4 million in attorney‘s fees and, in doing so, she used Katten‘s invoices that detailed the services it provided to her and its expenses incurred on her behalf while it represented her as a reasonable basis for the fees she should be awarded.  Indeed, in Martha‘s petition for an award of attorney‘s fees, she argued that the $1.4 million in attorney‘s fees she incurred from Katten were "fair and reasonable."

...Relying on Katten‘s invoices, the Court of Chancery awarded Martha $275,000 in fees for the minor benefits that she obtained on behalf of the Sutherland Lumber Companies in 2007 when, as a result of Martha‘s and Katten‘s efforts, the Sutherland Lumber Companies amended Perry‘s and Todd‘s employment agreements.

The firm intervened and asserted a lien on the fee award.

The court here reversed the Court of Chancery

Although Delaware does not have a statute governing charging liens, Delaware has a long lineage of cases recognizing charging liens as a matter of common law.  Two recent Delaware cases address charging liens.   In Doroshow,  this Court confirmed that Delaware recognizes the long-standing common law right of charging liens. In Zutrau, the Court of Chancery adopted the definition provided by Corpis Juris Secundum that a charging lien is "an equitable right to have costs advanced and attorney‘s fees secured by the judgment entered in the suit wherein the costs were advanced and the fee earned." Today, we also endorse that definition of a charging lien.

Here, the modifications to Perry‘s and Todd‘s employment agreements— which are the basis for Court of Chancery‘s fee award—were adopted as a result of Martha‘s and Katten‘s efforts in the derivative and double-derivative action. Furthermore, Katten‘s unpaid fees arose from the same litigation that produced the benefits for the Sutherland Lumber Companies and which led to the Court of Chancery‘s award of attorney‘s fees. Therefore, based on our definition of a charging lien, Katten is entitled to a lien on the entire fee award of $275,000. The historical rationale for a charging lien—to promote justice and equity by compensating the attorney for her efforts and thus encouraging attorneys to provide legal services to clients—also supports this conclusion.

In its decision, the Court of Chancery seemed to read Doroshow as standing for a rule that an attorney may only seek a charging lien for fees the attorney incurred that were directly connected to her client‘s recovery. The Court of Chancery cited Doroshow‘s finding that, because the law firm in that case represented its client on a contingent fee basis, it was entitled to a charging lien because "the law firm had not been compensated before its work produced the funds." The Court of Chancery reasoned that because Katten had already been paid for the services that led to the benefits for the Sutherland Lumber Companies, it was not entitled to a charging lien. But, Doroshow dealt with a charging lien based on a contingency fee, and we held that the law firm was entitled to its agreed 40% contingent fee. Our decision in Doroshow did not limit the scope of charging liens in general. Rather, Doroshow demonstrates the application of this equitable right to a particular type of fee arrangement, and one fundamentally different than the one between Martha and Katten.

Here, Katten billed Martha regularly for its services based on the amount of time Katten‘s attorneys spent on the case and the attorneys‘ hourly rates. Katten billed Martha for approximately $3.5 million, of which Martha paid roughly $2.7 million. That Katten‘s services underlying the unpaid fees did not result in any benefit to the Sutherland Lumber Companies does not matter. In the case of hourly billing, unlike with a contingency fee, the total amount that the client is required to pay her lawyer is not based on the client‘s recovery. In Zutrau, the Court of Chancery considered the scope of a charging lien in the context of hourly billing and explained that "[i]t is no secret that litigation is expensive and that the costs of prosecution easily can exceed the recovery." The Court of Chancery found, "that the cost of prosecution conceivably could exceed the recovery does not excuse Zutrau from paying those fees." If, as here, an attorney has unpaid fees that are greater than the client‘s recovery, the attorney is entitled to a charging lien on the entire recovery. Moreover, the client remains obligated to pay her attorney any remaining unpaid fees. Martha was required to pay Katten its reasonable fees in accordance with their agreement whether she won or lost. Because Martha did not pay Katten for all of its services stemming from the litigation in which Katten produced the only benefits, Katten is entitled to the equitable right of a charging lien on the entire $275,000 fee award. Finding otherwise would lead to an inequitable result where attorneys with a claim for unpaid fees from litigation— where work had been billed on an hourly basis—could use the equitable right of a charging lien only to recover fees relating to the services that were directly connected to the litigation‘s beneficial results.

Like other contracts, contracts for the provision of legal services create incentives for parties, including clients. When a party, such as Martha, agrees to pay hourly fees to prosecute a complex case, she is assuring her counsel that it will not suffer the commercial damage of uncompensated services if it presses her claims as aggressively as she demands and as the law permits. To permit a client who is a party to such an agreement to escape a charging lien as if she made a strict contingency fee agreement limiting fees to a percentage of recovery is to judicially rewrite the contract at the expense of the attorney and to undermine the traditional purpose of a charging lien.

(Mike Frisch)

January 3, 2017 in Billable Hours, Clients, Current Affairs, Hot Topics | Permalink | Comments (0)

Tuesday, December 13, 2016

Interesting Decision

A law firm is entitled to prejudgment interest on its judgment against a former client, according to a decision of the New York Appellate Division for the First Judicial Department

The addition of prejudgment interest to plaintiff's award for unpaid legal fees under quantum meruit was mandatory (see CPLR 5001; Ash & Miller v Freedman , 114 AD2d 823 [1st Dept 1985]). Moreover, where plaintiff was required to seek permission to withdraw, it was required to continue to zealously represent defendants until the court granted its motion to withdraw (Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.16[d], [e]). Therefore, it was incorrect for the JHO to refuse to consider any value for plaintiff's work from the time it moved by order to show cause to withdraw. This is particularly true where plaintiff sought, but was denied, an adjournment of the trial date, and the court took six months to grant the application.

(Mike Frisch)

December 13, 2016 in Billable Hours, Clients | Permalink | Comments (0)

Friday, July 29, 2016

Unauthorized Practice Draws Fine, Injunction

Correction: I erroneously reported that the subject of this order was a Florida attorney. I am advised that she is not licensed to practice law.

A Florida resident engaged in unauthorized practice in Ohio and has been fined and enjoined for the misconduct by the Ohio Supreme Court.

The three-count complaint alleged that Catalfina, who is not licensed to practice law in Ohio, engaged in the unauthorized practice of law by holding herself out to three individuals as an Ohio attorney. Catalfina initially sought and was granted leave to retain counsel and file an answer. However, to date she has not filed an answer or retained counsel. Following numerous attempts to engage Catalfina, relator filed a motion for default judgment on July 1, 2014, but Catalfina again failed to respond...

Catalfina has never been licensed to practice law in Ohio. We have previously held that “one who purports to negotiate legal claims on behalf of another and advises persons of their legal rights * * * engages in the practice of law.” Cleveland Bar Assn. v. Henley, 95 Ohio St.3d 91, 92, 766 N.E.2d 130 (2002). Also, representing that one is authorized to practice law in Ohio without such authorization, by directly or indirectly creating the misimpression of that authority through manipulation of credentials and strategic silence, constitutes the unauthorized practice of law. Casey at ¶ 11, citing Cleveland Bar Assn. v. Misch, 82 Ohio St.3d 256, 261, 695 N.E.2d 244 (1998). Thus, by purporting to negotiate Social Security disability claims on behalf of Lisa Kellett, accepting money to do so, and holding herself out as an attorney to Kellett, Catalfina engaged in the unauthorized practice of law. And by holding herself out as an attorney to Jason Gall, indicating that she would represent him in his divorce and collecting $150 from him purportedly for filing fees, Catalfina engaged in the unauthorized practice of law.

Sanction

Kelly Catalfina is enjoined from engaging in the unauthorized practice of law, including performing legal services or directly or indirectly holding herself out to be authorized to perform legal services in the state of Ohio. We also impose a civil penalty against Catalfina in the amount of $6,000—$3,000 for each of the Kellett and Gall matters. Costs are taxed to Catalfina.

(Mike Frisch)

July 29, 2016 in Bar Discipline & Process, Billable Hours | Permalink | Comments (0)

Thursday, July 28, 2016

Court Has Authority To Require Arbitration Of Attorney Fees

The District of Columbia Court of Appeals rejected an attack on its rule compelling arbitration of attorney-client fee disputes.

It is well established that this court has statutory and inherent authority to regulate all aspects of the District of Columbia Bar. See Sitcov, supra, 885 A.2d at 295, 297. [Attorney] Ms. Stuart attempts to challenge this court’s inherent authority to regulate the Bar by highlighting D.C. Code § 11-1322 of the Court Reform Act — a section that discusses arbitration, but is unrelated to the subject of managing the District of Columbia Bar. However, what is more relevant to this court’s power to promulgate Rule XIII, is the language in the Court Reform Act that gives this court the express authority to “make such rules as it deems proper respecting the examination, qualification, and admission of persons to membership in its bar, and their censure, suspension, and expulsion.” D.C. Code § 11-2501 (a) (2012 Repl.) (emphasis added); see also D.C. Code § 11-2502 (2012 Repl.).

The reasonableness of an attorney’s fee is a disciplinary matter subject to censure, suspension, and expulsion, and thus a matter to be regulated by this court. See, e.g., In re Martin, 67 A.3d 1032, 1035 (D.C. 2013) (issuing an eighteen month suspension for, inter alia, charging a grossly unreasonable fee); see also D.C. R. Prof. Cond. 1.5 (a) (“A lawyer’s fee shall be reasonable”). It follows that the method of disputing attorney’s fees is also subject to regulation by this court given that a dispute over attorney’s fees may lead to censure, suspension, or expulsion should an attorney’s fee be deemed unreasonable...

Moreover, “clients are at a significant disadvantage in litigating” attorneyclient fee disputes, and Rule XIII “protects their ability to present meritorious claims and defenses, and . . . thereby fosters public confidence in the bar.” BiotechPharma, supra, 98 A.3d at 997. Accordingly, the language “make such rules as it deems proper” in the Court Reform Act establishes the inherent authority to regulate attorney-client fee agreements, and this court created Rule XIII because it deemed it proper to mandate arbitration in order to ensure a fair process for resolving disputes over attorney’s fees.

The mandatory arbitration provision is Constitutional

Ms. Stuart argues that by preventing lawyers from accessing the judicial system for fee disputes, Rule XIII denies them the First Amendment right of “access to the courts” and equal protection under the Constitution. However, lawyers are not a protected class under the Constitution, and as we stated in BiotechPharma, it is a privilege, not a right, to practice law and that privilege must be regulated for the protection of clients. Id. at 997. This critical goal would be defeated if arbitration of fee disputes was voluntary for attorneys, as Ms. Stuart argues it should be. Our holding, with respect to Ms. Stuart’s First Amendment equal access to the courts argument, is consistent with the court’s holding in BiotechPharma that Rule XIII does not violate an attorney’s Seventh Amendment right to a jury trial for fee disputes with clients. Id. at 995.

The order denying the attorney's motion to vacate the arbitration award was affirmed. (Mike Frisch)

July 28, 2016 in Bar Discipline & Process, Billable Hours | Permalink | Comments (0)

Wednesday, July 13, 2016

"An Aggressive, Rambling, And Colorfully- Worded Assault"

The Rhode Island Supreme Court has affirmed the award of attorney's fees in a bitter and ongoing domestic case.

This case marks the second round of a bitter and protracted divorce dispute between the plaintiff, John J. Tworog (John), and his now-former wife, the defendant, Dolores M. Tworog (Dolores). Before this Court once again, John, who appears pro se, appeals from an order awarding Dolores attorneys’ fees, which were assessed in connection with a contempt finding that was affirmed by this Court in Tworog v. Tworog, 45 A.3d 1194, 1200 (R.I. 2012) (Tworog I); a judgment awarding Dolores $69,000, plus statutory interest and costs; and the denial of his motion for a new trial.

Notably

Before this Court, John—a former member of the Rhode Island bar—cites multiple grievances with respect to the handling of his case in the Family Court and to the opinion of this Court in Tworog I. The papers John filed with this Court consisted primarily of an aggressive, rambling, and colorfully-worded assault on the character of one of the Family Court justices who presided over his case, as well as on Dolores, her adult son, and her attorney. The assignments of error were muddled and difficult to untangle, and the papers contained multiple passing references to purported error that were not developed in any meaningful way.

It is not the function of the Supreme Court to decipher arguments that a party has failed to develop lucidly on its own...

Our careful review of the record reveals that the trial justice based the award of attorneys’ fees on the finding of contempt that was affirmed by this Court in Tworog I.  Dolores presented expert testimony regarding the reasonableness of her attorney’s billing rate and the hours he spent on the case, and, in John’s own motion for attorneys’ fees, John “adopt[ed] the hours proposed by [Dolores’s attorney]” as the number of hours he expended representing himself on the matter. In light of the ample evidence that existed in support of the reasonableness of the award, the Family Court justice did not abuse his discretion.

This earlier opinion in the litigation notes that the plaintiff filed for divorce on Valentine's Day. (Mike Frisch)

July 13, 2016 in Billable Hours | Permalink | Comments (0)

Monday, July 11, 2016

Firm Liable For Unpaid Court Reporter Fee

The Connecticut Appellate Court upheld judgment against a law firm LLC but not an individual attorney in an action brought by a court reporting services for non-payment of its bill for three depositions in a federal court action.

The court expressed concern over the defendant attorney's reliance on purported New York law

Perhaps more troubling than the lack of legal analysis is the apparent mischaracterization of New York law. According to the defendants, in all judicial departments of the Appellate Division of the New York Supreme Court, with the exception of the First Department, the law is that the client is responsible for court reporting costs unless those costs are specifically acknowledged and assumed by the attorney. In the First Department, the defendants state that the responsibility for payment lies with the attorney unless disclaimed. The case relied on by the defendants, however, in support of their proposition that, in all but the First Department, an attorney’s client generally is responsible for paying for court reporting services, Sullivan v. Greene & Zinner, P.C., 283 App. Div. 2d 420, 723 N.Y.S.2d 869 (2001), is no longer good law. Its holding has been superseded by New York General Business Law § 399-cc (McKinney 2012), which is now the applicable law in all New York jurisdictions. Section 399-cc provides in relevant part: ‘‘Notwithstanding any other provision of law to the contrary, when an attorney of record orders or requests either orally or in writing that a stenographic record be made of any judicial proceeding, deposition, statement or interview of a party in a proceeding or of a witness related to such proceeding, it shall be the responsibility of such attorney to pay for the services and the costs of such record except where . . . the attorney expressly disclaims responsibility for payment of the stenographic service or record in writing at the time the attorney orders or requests that the record be made.’’ (Emphasis added.) As previously discussed, the court found that the defendants failed expressly to disclaim responsibility for payment at the time services were requested. Accordingly, even if the court had applied New York law as the defendants requested, it is unlikely to have altered the court’s decision in this case.

But only the firm is liable

Our review of the record and the findings of the trial court reveals no evidence indicating that [attorney] Lovejoy acted in his individual capacity rather than as a member of the law firm. Although each of the deposition notices was signed by Lovejoy, his signature appears after the name of the law firm, which is identified as the entity representing Ensign Yachts and, therefore, the law firm noticing the deposition. Accordingly, to the extent that the deposition notice represents an offer to enter into a contractual agreement, the evidence tended to show that offer was extended to the plaintiff by the law firm, not by Lovejoy individually. The court in its decision makes no factual findings on which it could have imposed individual liability. The court’s decision is completely silent as to whether the court believed that Lovejoy had acted in such a way as to suggest he was contracting in his individual capacity or that it was appropriate under the facts of this case to somehow ‘‘pierce the corporate veil.’’ The plaintiff states that Lovejoy is a sole practitioner and that he and the law firm are ‘‘one and the same.’’ That fact alone, however, simply cannot support the imposition of individual liability in contravention of § 34-133. Because there appears to be insufficient evidence to support the court’s decision to hold Lovejoy personally liable for acts taken on behalf of his law firm, that decision cannot stand.

(Mike Frisch)

July 11, 2016 in Billable Hours, Current Affairs | Permalink | Comments (0)

Wednesday, July 6, 2016

Celeste Holm's Husband Loses Malpractice Counterclaim

Experience teaches us that a typical response when a lawyer sues a former client for an unpaid fee is a counterclaim for legal malpractice.

That counterclaim effort failed in a case before the the New York Appellate Division for the First Judicial Department.

The representation was of a client married to Celeste Holm, recounted in this New York Times story. 

The court here

Plaintiff law firm Gallet Dreyer & Berkey represented defendant Basile in connection with the December 21, 2009 settlement of a Surrogate's Court action brought in 2004 by his spouse, Celeste Holm, to revoke an irrevocable trust that she created in 2002. In this action brought by the law firm against Basile to recover outstanding legal fees, Basile has counterclaimed for attorney malpractice, taking the position that due to poor advice, factual omissions, and misinformation, he was persuaded to sign the stipulation in Holm's action to revoke her trust, which stipulation caused him (and Holm) to forfeit valuable assets and the right to pursue valuable claims without their receiving any corresponding benefit.

To sustain a cause of action alleging legal malpractice, a plaintiff must establish not only that the defendant "failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession," but also that "the attorney's breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages" (Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d 40, 49 [internal quotation marks omitted]). "An attorney's conduct or inaction is the proximate cause of a plaintiff's damages if but for the attorney's negligence the plaintiff would have succeeded on the merits of the underlying action, or would not have sustained actual and ascertainable damages" (id. at 50 [*2][internal quotation marks and citation omitted]). "[M]ere speculation of a loss resulting from an attorney's alleged omissions . . . is insufficient to sustain a claim for legal malpractice" (Markard v Bloom, 4 AD3d 128, 129 [1st Dept 2004], lv denied 2 NY3d 706 [2004]).

As a signatory to the settlement, Basile certainly had the right to be fully informed of the facts and provided with appropriate advice by his attorney before agreeing to its terms, and we cannot conclude as a matter of law on this record that the law firm's advice to Basile was complete and free of incorrect information. However, nothing in Basile's submissions shows that but for that claimed negligence, he "would not have sustained actual and ascertainable damages" (Nomura, 26 NY3d at 50 [internal quotation marks omitted]).

The irrevocable trust was created and funded with Holm's assets before Basile's marriage to Holm. Basile had no current interest in the trust's assets at the time of the settlement; he had, at best, a potential interest in those assets if the trust were to be set aside and the assets became part of Holm's estate, entitling Basile to an elective share. Similarly, the claims addressed in the stipulation regarding other, non-trust assets also concerned property that belonged to Holm alone, and Basile had no present possessory right to them. Notwithstanding Basile's residuary interest in Holm's eventual estate, and the possibility that if Holm reacquired property that was previously transferred she would gift him a present interest, he had no established right to make any disposition of that property, or to claim ownership of any portion of that property, while she was alive. His lack of a present possessory interest in the property at issue severely restricts any rights to claim that the law firm's alleged failures proximately caused him to experience a financial loss in relation to those properties.

More importantly, Basile has not presented an evidentiary showing supporting a claim to "actual and ascertainable damages," as Nomura requires (26 NY3d at 50 [internal quotation marks omitted]). In cases presenting a valid claim of legal malpractice, the claimed "actual and ascertainable damages" have been clearly calculable (see e.g. Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438 [2007]). In contrast, summary judgment dismissing the legal malpractice claim has been granted where the asserted damages are vague, unclear, or speculative (see Bellinson Law, LLC v Iannucci, 102 AD3d 563, 563 [1st Dept 2013]). Here, Basile essentially speculates that the information he lacked would have provided him with better leverage in negotiations, but he fails to show exactly how, if counsel had properly informed and advised him, the outcome of the litigation would have been more favorable to him. This is particularly so since the settlement netted him a distribution in excess of $2,000,000, as compared to the $25,000 he would have received under the trust alone, in the absence of the stipulation. The submissions simply do not justify a conclusion that Basile would have achieved a more favorable result in the absence of counsel's claimed mistakes.

Plaintiff's motion for summary judgment dismissing the counterclaim and third-party complaint brought against it by defendant Frank Basile was therefore properly granted.

Vanity Fair published this story after Ms. Holm's passing. (Mike Frisch)

July 6, 2016 in Billable Hours, Clients | Permalink | Comments (0)