Litigation Management & Attorney Fee Analysis Blog : Attorney Fee Analysis & Litigation Management Lawyer : Barger & Wolen Law Firm : Litigation Management, Legal Fees, Billing Guidelines

On April 13, 2009, the law firm of Weil, Gotchal & Manges filed an application for legal fees in the Lehman Brothers bankruptcy case seeking a total of $55.1 million for professional services rendered over the 5 month and 15 day period from September 15, 2008, through January 31, 2009.

Justification for the fees is set forth in an Application filed in support which, amongst other things, proclaimed, in a somewhat dramatic fashion:

As Lehman’s employees rushed out of Lehman’s offices with boxes and suitcases filled with their belongings, WGM attorneys rushed in.

During this time the Weil Gotchal lawyers clocked a total of 100,296 hours on Lehman-related work as counsel for Lehman Brother, the debtor in possession. While most firms in today’s economy are facing a shortage of billable hours, Weil Gotshal is apparently not.

A review of the petition provides some interesting observations:

• Collectively the firm’s timekeepers (partners, associates, paralegals etc) averaged more than 700 billed hours per day, seven days per week.
• Billing rates of at least 15 Weil Gotshal timekeepers were in excess of $1,000.00 per hour.
• More than 19 attorneys billed at legal rates in between $900 and $975 per hour.
• 68 other lawyers billed at legal rates between $800 and $890 per hour.
• Recent 2009 bar admittees were billing at rates as high as $415 per hour.
• Harvey R. Miller, the head of the firm’s restructuring practice, billed 794.8 hours at the rate of $950 an hour for a total of $755,060 for his fees alone during this 5 month period.
• One Corporate associate, licensed in 2008, billed at $560 per hour and had his billing rate increased to $650 per hour during this same 5 month period.

 The Application for fees was submitted to the Court on April 13, 2009, and will be reviewed by the Trustee in Bankruptcy. All objections were required to be filed by May 6, 2009. To date there has been no ruling on the issue of Weil Gotshal’s fees.

Surprisingly there has been an absence of objections filed to date. The sole objection filed thus far is from a retired Arizona school teacher, Ms. Edith S. Hall, who had purchased $50,000 of Lehman’s AA-rated corporate bonds in 2005 for their security value, which, at the time she believed to be a “conservative investment”.

Ms. Hall has asked the court to carefully review the fees of Weil Gotshal to which she has objected on the grounds that their fee request was “exorbitant”. She also told the court that “when the economy is in crisis and executive bonuses are being questioned, I feel these fees are excessive and should be capped.”  Other potential objectors have, thus far, been suspiciously silent.

Weil isn’t the only firm seeking significant fees from Lehman’s Chapter 11 case. Milbank Tweed Hadley McCloy, which is advising Lehman’s official committee of unsecured creditors, is now seeking $12.1 million in fees for the period through the end of January.

Lazard, Lehman’s investment banker, is also asking for $6.6 million in fees.

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Tags: Reasonably and Necessarily Incurred

Steep declines in corporate revenue have shareholders and CFOs knocking at the doors of their company’s general counsel demanding drastic reductions in legal budgets. Despite the decline in revenue, litigation has not seen a similar recession. Fees and costs associated with major and systemic litigation continue to grow, and so do the pressures on in‑house counsel to manage and contain these expenses. Faced with mandatory 35% reductions in legal budgets, general counsel continue to search for ways to accomplish those reductions while still meeting the challenges of successfully handling big stakes litigation.

Ensuring that legal fees and costs bear some reasonable relation to the inherent risks and litigation objectives of the company is among the more difficult tasks which now confront general counsel. In the past, when cost may not have been a major factor, many clients continued to retain “blue chip” law firms and allow their retained counsel to employ “scorched earth” tactics and leave no stone unturned. 

Today, legal fee expense and associated litigation costs are a paramount issue and containment of those litigation expenses requires a strategic, focused and disciplined effort. Because of this, many of the mega law firms, whose hourly rates and litigation staffing practices have not been cost‑efficient, are seeing new litigation assignments go to medium‑sized law firms whose hourly rates and trial‑focused litigation practices are better tailored to the economic demands in the current financial pinch.

A recent article in the National Law Journal corroborates this. It indicates that many general counsel have reported that their legal budgets are being constrained and they have to be more judicious about which law firms they chose. Partners at big law firms, eager to hang on to cash‑strapped clients and attract more clients in this belt‑tightening environment, are jumping to smaller firms where they can lower their billing rates and encounter fewer conflicts of interest.

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Tags: Articles

A client hired an attorney to represent him in a case.  The client signed an engagement letter to pay the attorney $200.00 per hour and further agreed to hourly billing rates for the attorney's staff.  The attorney and client negotiated a $10,000 retainer, later reduced the retainer, by agreement, to $5,000.   At the case's conclusion, attorney billed client for $35,304 after crediting the client the $5,000 retainer paid.   Client paid only $5,000 on the outstanding balance.

After failing to collect all of his fees, the attorney sued the client for nonpayment.  The client argued that because the written contract did not explicitly state whether the parties had agreed to an open account or a flat, maximum fee, the contract was ambiguous and therefore, a fact issue existed regarding the contract terms.  The trial court disagreed and granted summary judgment for the attorney, but a Texas Court of Appeals held that the parole evidence could be admitted to raise a fact issue and reversed the trial court's decision. 

Recently, the Supreme Court of Texas in Sacks v. Haden ___ S.W.3d ___ (Tex. July 11, 2008), a per curium decision, reversed the appellate court and reinstated the trial court's judgment.  

The issue was framed by the Court at the outset of the opinion:

The question in this case is whether a written attorney’s fee agreement that specifies only hourly fee rates may be modified by evidence of an oral capping agreement. We hold that it may not because parol evidence cannot modify a written agreement absent ambiguity. Accordingly, we reverse the court of appeals’ judgment and reinstate the trial court’s judgment.

Here is the critical passage in the court's opinion:

The plain language of the engagement letter demonstrates that Haden agreed to pay Sacks an hourly fee, and that no cap on fees was set. Haden argues that a fee agreement must specifically state that hourly fees will accrue without limit in order for the agreement to be unambiguous and enforceable. But the lack of such explicit language is irrelevant if the agreement can be reasonably interpreted only one way.  We have never held that an open-ended hourly fee agreement will be enforced only if it expressly states there is no cap on fees, and we decline to do so now. If a contract is unambiguous, the parole evidence rule precludes consideration of evidence of prior or contemporaneous agreements unless an exception to the parole evidence rule applies.

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Tags: Hourly Billing

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Tags: Hourly Billing

"Flat Fee" Arrangements and "Non-Refundable" Legal Fees:    With the billable hour coming under closer scrutiny, flat fee arrangements are again being explored by corporate general counsel.  Currently the ethics of such arrangements are being questioned.   A review of a 1999 Arizona State Bar Ethics Opinion allowing flat and non-refundable fees may provide some insight into the answers to those ethical questions.  [See Arizona Ethics Opinion #99-02: Fees; Retainer Fees; Fee Agreements; Retainer Agreements]

The opinion is significant in that it contains an historical review of similar such fees and principles which also might be applicable to an analysis or today's more popular "fixed fee" arrangements.  It also explores the basis of a disapproval of these fees by  state courts in other jurisdictions starting with the New York case of In Re Cooperman  83 N.Y.2d at 476, 633 N.E.2d at 1079 in which the New York Court of Appeals imposed an absolute ban on such arrangements.

       The arguments set forth in this Arizona ethical opinion also provide a persuasive legal analysis of why the Fixed or Flat fee arraignments might also be prohibited by an outright ban on non-refundable legal fees. 

       More frequently, today's sophisticated clients are demanding that their attorneys consider fixed or flat fee arrangements.   Because of the popularity with such fixed fee arrangements with more institutional clients, it would be problematic to ban such fixed fee arrangements. As noted in the opinion, many states and the federal courts allow non-refundable fees, so long as they are not either "unconscionable" or "excessive".

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Tags: Hourly Billing, fixed fees, flat fees

The 9th Circuit has recently overturned an attorneys' fee award of $200,000 by the District Court in a civil rights case, holding that the District Court failed to consider the level of success obtained by the plaintiff in that matter.  See Ian McCowan v. City of Fontana 550 F3d 918 (2008)

In that case McCowan had been arrested and "tased" by officers of the Fontana police department who had mistakenly believed that he was in possession of illegal drugs.  After his release, he sued the officers and the City of Fontana for civil rights violations in the U.S. District Court for the Central District of California alleging the use of excessive force, the making of an arrest without probable cause and deliberate indifference on the part of the city of Fontana.

McCowan prevailed on only one of his nine claims and recovered only $20,000 in damages after seeking damages in excess of $75,000.  The District Court's award of $200,000 in legal fees and costs was appealed to the 9th Circuit and was overturned.

The 9th Circuit, applying the LODESTAR method of analysis, held that the reasonableness of a civil rights attorney fee award in a 42 USCA 1988 case is determined primarily by reference to the "level of success" achieved by the plaintiff.  It further held that civil rights attorney fees must be "adjusted downward" where the plaintiff has obtained limited success on his pleaded claims and the redult does not confer a meaningful public benefit.  The 9th circuit reversed after finding that McCowan's lawsuit did not confer a benefit to the public since the claims were brought against two officers and not the entire police department and settlement did not result in a change in any policy of the police department.

The 9th Circuit remanded the case to the District Court for reconsideration of the fee issue consistent with the 9th Circuit's opinion.  

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Tags: Attorneys' Fees Dispute, Civil Rights Fees, Cumis, Lodestar