Litigation Management & Attorney Fee Analysis Blog

Will the protracted litigation between tobacco manufactures and the State of California finally be coming to an end?

David J. McMahon — Mon, 17 Jun 2013 09:36:00 -0800

The State of California engaged in lengthy and protracted litigation with numerous tobacco manufacturers concerning their marketing activities and advertising in the State of California. In the Consolidated Tobacco Cases, the court of appeal rendered a decision concerning the award of attorney fees which may bring that litigation to its final conclusion.

In 1998, Reynolds Tobacco (“Reynolds”) and other tobacco manufacturers entered into a settlement agreement with the state, in an attempt to finally resolve claims related to the advertising of tobacco products.

The trial court approved the settlement and the parties entered into a stipulated consent decree. This too was entered as an order of the court. The decree permanently enjoined Reynolds from using cartoons in its marketing campaigns. Subsequently, the state moved to enforce the consent decree, alleging Reynolds violated the consent decree in a subsequent advertising campaign.

The court refused to grant the state’s request for an injunction however. The court concluded that Reynolds had discontinued the advertisement, and for that reason alone the requested injunction was not necessary. After further protracted litigation, the lower court awarded the state almost $3 million in contractual attorney fees under Civil Code Section 1717. The basis for the fee award was the court found that the state was a prevailing party in an action to enforce the consent decree. Reynolds appealed, arguing there was no basis for the award of attorney fees.

The court of appeal affirmed, referencing Civil Code Section 1717. Under that statute, the prevailing party in a contract containing a fee provision can be awarded fees. The prevailing party is the one “who received the greater relief in the action on the contract.” Reynolds argued that the state did not obtain the necessary relief because the trial court denied the state’s subsequent request for injunctive relief. The court noted, however, that the lack of injunctive relief did not automatically require the trial court to reject the fee petition.

The court of appeal concluded that, because the state’s main litigation objective was to stop the use of cartoons in advertising, and because it largely achieved that objective, it was a prevailing party. On that basis, the attorney fee award was affirmed by the court of appeal.

Civil Rights Act Violations Entitles Non Profit Group to Fee Award

David J. McMahon — Fri, 14 Jun 2013 09:45:38 -0800

In Higher Taste Inc. v. City of Tacoma the Ninth Circuit Court of Appeals awarded fees to a non‑profit religious organization arising from a civil rights dispute. The non‑profit sold T‑shirts adorned with a religious/spiritual message along the walkway to a public zoo.

The public entity who owned the zoo subsequently banned the sale of all merchandise along the walkways leading to the zoo’s entrance. The non‑profit sued the public entity.

The organization alleged civil rights violations and also sought an injunction to maintain the status quo. The district court granted the non‑profit a preliminary injunction. The parties then reached a settlement and the non‑profit moved for attorney fees on the ground that they were the prevailing party in the litigation. The lower court rejected the fee award in its entirety.

The Ninth Circuit reversed the denial of the fee petition. The court noted that for purposes of the applicable civil rights statutes (42 U.S.C. Section 1988(b)), the plaintiff is entitled to attorney fees when actual relief on the merits of his claim “materially alters” the parties’ legal relationship in a way that benefits the plaintiff.

The Ninth Circuit noted that the preliminary injunction was granted on a finding that the non‑profit was likely to succeed in the litigation. The Ninth Circuit reasoned that because this in turn led to a “settlement” of the controversy, that settlement paved the way for a finding that the non‑profit was a prevailing party under controlling law. The court concluded that the lower court erred in declining to award reasonable fees.

Unsuccessful Litigant Still Wins Fees Under Vaccine Injury Act

David J. McMahon — Fri, 07 Jun 2013 15:58:45 -0800

In Sebelius v. Cloer, the United States Supreme Court decided a closely watched attorney fee case arising under the National Childhood Vaccine Injury Act of 1986 (“the Act”). That Act established a no‑fault compensation system to speed compensation to any injured parties.

In Sebelius, the Court concluded that so long as the claimant’s petition was filed in “good faith and with a reasonable basis,” attorney fees were proper, even to a losing party. The Plaintiff received a hepatitis immunization. Shortly thereafter, the Plaintiff began to experience symptoms that ultimately led to multiple sclerosis (“MS”). Subsequently, the Plaintiff alleged a link between her MS diagnosis and the vaccine.

The Plaintiff then filed a claim for compensation under the Act. The Act requires claims to be adjudicated before a Special Master.

After hearing the matter, the Special Master concluded that the Plaintiff’s filing was untimely as the claim was filed after the three year period set forth in the Act. The Federal Circuit agreed with the Special Master that the claim was not timely. Nonetheless, the Plaintiff sought attorney fees, and the Federal Circuit ultimately found she was entitled to recover reasonable fees.

On appeal, the Supreme Court affirmed the fee award. The Court noted that a court may award attorney fees and costs incurred by a claimant in any proceeding brought under the Act, even for an unsuccessful petition. A fee award is proper so long as the petition was brought in “good faith” and there was a “reasonable basis” for the claim. On that basis, the Court affirmed the grant of fees to the claimant.

When Does an Insurer Forfeit Its Right to Claim Fees Were Unreasonable or Unnecessary?

Gary A. Bresee — Wed, 05 Jun 2013 09:06:26 -0800

J.R. Marketing LLC v. The Hartford Cas. Ins. Co., A133750 (May 17, 2013)(unpublished), was just recently decided by the California Court of Appeal for the First District. This is a fascinating case from an insurance perspective, with Cumis counsel issues, attorneys' fees claims, Buss allocation of fees between matters and waivers of Civil Code Section 2860 protections. This case has it all.

A carrier issued two CGL policies, and when the insured tendered their defense of a lawsuit under the policies the carrier initially denied a duty to defend, claiming the occurrences took place prior to the policy periods. After the insureds filed a lawsuit against their insurer, the carrier agreed to defend under a reservation of rights, but declined to provide and pay for independent counsel, or Cumis counsel, pursuant to the California Supreme Court decision in San Diego Fed. Credit Union v. Cumis Ins. Society Inc. (1984) 162 Cal.App.3d 358.

When the court granted the insureds’ motion for summary adjudication, it held that the carrier not only had a duty to defend, but also had a duty to retain independent Cumis counsel. The carrier then paid over $15 million in fees and costs incurred by Cumis counsel, but in an effort to seek reimbursement of certain fees, the carrier then filed a cross-complaint against the Cumis firm for reimbursement of fees incurred in unrelated, uncovered matters, fees incurred for uninsured entities, pre-tender fees and any unnecessary and unreasonable fees.

The Court of Appeal first recognized that certain protections were normally available to the carrier under Civil Code Section 2860, including a provision limiting the hourly rates paid to independent counsel, and the right to arbitrate the fee issues. But the carrier was deemed to have forfeited those 2860 protections due to its refusal to accept tender of the defense.

Secondly, the Court recognized that an insurer may very well have a right of reimbursement under Buss v. Superior Court, (1997)16 Cal.4 35, but the novel question before the Court was, “from whom?”

Reasoning that due to the important policies created by 2860, the court held that the breach of 2860 meant that the carrier lost all right to control the defense, and that consequently the carrier should not be able to obtain the same result by seeking reimbursement from the firm after the fact. The insured was left to negotiate the fee arrangement with the firm on its own, and otherwise control the defense of the action, so the carrier was not allowed to seek reimbursement in a direct action against the firm.

But the Court also limited its holding to the facts of the case, explicitly stating that the decision did not apply to carriers seeking reimbursement from the insureds directly, and did not apply to those situations where the carrier may be claiming that independent counsel utilized fraudulent billing practices.

Litigation: Drafting and Implementing Effective Litigation Management Guidelines

Barger & Wolen LLP — Tue, 04 Jun 2013 09:17:45 -0800

David McMahon wrote an article, Litigation: Drafting And Implementing Effective Litigation Management Guidelines, published in Inside Counsel on May 30, 2013, that stresses the importance of drafting and putting into practice effective litigation management guidelines.

As McMahon outlines in his article, litigation management guidelines "supplement the judgment of counsel by enabling the client to exercise the right and duty to control the costs of litigation while at the same time allowing counsel to have a voice in the strategic direction of the handling of the matter.”

McMahon also discusses how important it is to have billing guidelines in order to manage costs and address clients' concerns about billable hours. He notes that most billing guidelines prohibit billing for actions performed for more than one client at the same time, known as “double billing,” require notice of staff changes, require the attorney to get advance notice from a client when performing certain types of work and mandate effective use of technology, among other things.

"In general terms, billing guidelines memorialize the economic relationship between the client and retained counsel,” he wrote. “These guidelines tend to cover the costs of handling the defense and attempt to prevent exposure to the client to what might be perceived as unreasonable or unnecessary fees.”

Billing guideline can help to foster communication between attorney and client, according to McMahon.

It is imperative that in-house counsel put into place clear, concise and express billing guidelines to govern outside counsel billing practices, particularly in major litigation,” he added. “In-house counsel should require your counsel and every member of his or her team to read them and acknowledge the rules.”

Related litigation management articles: Litigation: How to Get Paid On Time, Inside Counsel, May 16, 2013.

HP Inkjet Printer Litigation: Fee Award Fails to Comply With Provisions of the Class Action Fairness Act

David J. McMahon — Tue, 28 May 2013 14:34:32 -0800

In In re: HP Inkjet Printer Litigation, 2013 DJDAR 6149 (2013) the Ninth Circuit Court of Appeals reversed the approval of an attorney's fee award. The Ninth Circuit concluded that the fee award did not comply with the provisions of the Class Action Fairness Act (CAFA). Specifically, the Ninth Circuit found that the district court awarded fees that were “attributable” to the coupon relief offered in the settlement, but failed to first calculate the redemption value of the coupons as required by applicable law.

Plaintiffs filed three class actions alleging that HP engaged in unfair business practices relating to the use of ink cartridges. HP reached a settlement with the consumers, who purchased inkjet printers. The district court approved the settlement, which provided for coupons for the class members as well as injunctive relief. In addition, the district court approved an award of attorney fees of $1.5 million and a significant award of costs.

The district court reviewed the fee request and awarded lodestar fees based on its conclusion that the settlement value to the class was $1.5 million. Recognizing that it would be improper to award fees that were higher than the class benefit, the court ordered HP to pay a reduced lodestar of $1.5 million down from a potential of $7 million in fees. Two class members objected, contending the reduced fee award still violated the provisions of CAFA.

The Ninth Circuit reversed the lower court’s decision on fees. The Ninth Circuit noted that under CAFA, when a settlement provides for coupon relief, the court must first calculate the redemption value of the coupon, as a prerequisite to considering the claim for attorney fees. As such, the Ninth Circuit concluded that under the provisions of CAFA, the district court was required to first calculate the redemption value of the e-credits in making its determination of attorney fees.

Because the record did not reflect such an analysis, the Ninth Circuit remanded the case to the District Court to make a determination consistent with the required analysis under CAFA.

Court Interprets Settlement Agreement to Allow For Fee Recovery

David J. McMahon — Tue, 28 May 2013 10:40:19 -0800

In Khavarian Enterprises Inc. v. Commline Inc.,2013 DJDAR 6107 (2013) the California Court of Appeal for the Second Appellate District overruled the trial courts denial of a fee claim arising out of a settlement agreement.

The court of appeal concluded that parties to a settlement agreement can validly specify that one party is a potentially prevailing party. The court also stated that the “prevailing party” issue can be reserved by the parties for later determination by the trial court.

The Plaintiff filed an action for trade secret misappropriation against several defendants, seeking damages, restitution and injunctive relief.

After almost two years of litigation that parties engaged in mediation, and entered into a settlement agreement that specifically reserved the issue of whether the Plaintiff was entitled to recover attorney fees and to file a cost bill. The parties filed a notice of settlement and the action was dismissed.

The Plaintiff, then filed a memorandum of costs and a motion for attorney fees. After a hearing, the trial court denied the motion for attorney fees and also struck the Plaintiffs memorandum of costs. The trial court concluded that the Plaintiff was not the prevailing party in the litigation. The trial concluded that the settlement precluded an award of fees as the “matter was resolved in a settlement.”

The Court of Appeal reversed noting that when interpreting a settlement agreement, the court’s goal is to objectively determine the mutual intention of the parties from the provisions contained in the agreement. In this case the court focused on the parties’ objective intent from the terms of the contract. The court concluded that the Plaintiff’s potential entitlement to fees was specifically reserved for further handling. The trial court’s decision to deny the Plaintiff’s motion for attorney fees and costs was reversed on that basis.

Five-Day Extension For Mailing Applies To Deadline To File Timely Cost Bill

David J. McMahon — Wed, 22 May 2013 08:46:29 -0800

In Nevis Homes LLC v. CW Roofing Inc., 2013 DJDAR 6187(2013) the California Court of Appeal for the Second Appellate District decided a procedural issue pertaining filing a memorandum of costs. The court clarified the rules and stated that no statute or rule of court specifically exempts cost memoranda from the five-day extension rule for pleadings served by mail under California Code of Civil Procedure section 1013(a).

An association filed a lawsuit against a builder alleging defects in construction. The builder filed a cross action against a roofing company, one of the subcontractors on the project. The homeowners’ association later settled with the builder, and the builder soon thereafter settled with the roofer.

After dismissal of the cross-complaint against the roofer, the builder mailed a notice of dismissal. However, counsel for the roofer did not file the cost bill until 19 days after the notice of dismissal was entered.

The builder moved to strike the cost bill as untimely, arguing that the cost bill should have been filed within 15 days after the dismissal with no extension for mailing. The trial court granted the motion to tax costs in its entirety.

The Court of Appeal noted that California Rules of Court Rule 3.1700(a)(1) provides that a party who claims costs, must serve and file a memorandum of costs within 15 days after the date of service of written notice of entry of judgment.

The court also noted that Code of Civil Procedure Section 1013 provides an extension of five days for cases of service by mail.

The builder argued that costs memoranda were exempt from the five-day mailing extension pointing out that any reference to CCP§1013 was “conspicuously absent” from Rule 3.1700.

However, the court of appeal could find no statute or rule of court which specified that the normal five-day extension for service by mail did not apply to a memorandum of costs.

On that basis the court of appeal clarified the rule and stated that the five-day extension under CCP§1013(a) was fully applicable.

Defense Cost Analysis in Complex Environmental Fee Claims

David J. McMahon — Mon, 20 May 2013 09:32:44 -0800

By David J. McMahon & Jeevan Subbiah

Introduction

Many of our litigation management audits involve complex environmental cleanup cases. In these cases, it is important to first evaluate the underlying matter, including the fact patterns of the various lawsuits, in relation to the contested coverage provisions. Then we examine the manner in which the tendered fees and expenses were incurred, including the legal and consultant work performed. Many of our audits involve excess liability indemnity policies with large self insured retentions often in excess of $30 million. Subject to the terms and conditions of the policies, the insurer typically has no payment obligation until and unless the self insured retention is appropriately exhausted by the appropriate payment of covered claims. The insurers obligation arises for expenses in excess of the policy’s self insured retention.

Evaluation of the Policy

It is important to thoroughly evaluate the definition of "Defense Costs" when reviewing the applicable policy language. In addition, the policies may also contain exclusions for property damage which is owned, occupied by or rented to the insured. These claims need to be carefully evaluated.

An insurer may find it beneficial to hire an independent consultant or expert to assist in the review of the insured’s fee and cost claim. We can analyze the back-up submitted by the insured, including information contained in databases which may have been submitted in support of insured’s claim. In addition, we can review any independent investigation of the facts and circumstances concerning the underlying incident.

Burden of Proof is on the Insured

Generally, the burden is on the insured to demonstrate that a loss falls under the coverage provisions of the insurance contract. (“The burden is on the insured to prove that a loss falls within the policy’s coverage”; “An insured seeking to recover for a loss under an insurance policy has the burden of proving that a loss occurred and also that the loss was a covered event within the terms of the policy.”).

When part of the loss is covered under a policy and part is not, the insured typically has the burden of proving the proper allocation.

Reviewing Costs

In our audits, we often find that many questionable costs require further investigation. For example:

Inefficient and Unreasonable Cleanups – The environmental cleanup conducted by the insured and the insured’s contractors may have been conducted in an inefficient manner, resulting in potentially unreasonable costs. We can review the total dollar amount expended in comparison to the work performed in other similar environmental cases to see if inefficiencies exist.
Work Conducted by Specific Contractors - Specific contractors (vendors) may need particular scrutiny. For example, environmental remediation work performed by a particular vendor may need to be validated in detail and distinguished from other work. Also, specific work may be excluded by the policy (such as work conducted on a right of way) or may be covered under the primary coverage obtained by the insured.
Community Information – Our review of underlying documents related to the matter may result in finding a document, such as a letter from a neighbor or community member, that highlights the inefficient nature of the environmental cleanup. In addition, the insured may cleanup property that was not impacted by the event or was not in the immediate vicinity. Such “aggressive” cleanup work may have been done for “public relations purposes” to ward off potential lawsuits. If so, this work may not be covered by the policy since it may not be a covered defense cost. In addition, contractors sometimes overcharge for inefficient work.
Vendor Documentation - The documentation submitted by the insured in support of the charges for environmental remediation contractors may be deficient and the insured may fail to meet its burden of establishing that these particular charges are covered by the policy. Often a review of one contractor will result in findings that are equally applicable to the other contractors.
Charges Previously Submitted to First Party Insurers – A review of the invoices may also show that the charges were previously submitted to the insured's first party insurers before submission to the liability carrier. This may be an attempt to “double dip” on recoverable costs or fees.

The examples set forth above are just a few illustrations of the potential unreasonable costs and activities that may be identified from a careful analysis of the bills and supporting documentation.

Conclusion

After reviewing all the foregoing, including the applicable correspondence relating to the claim, we often are able to reach conclusions on whether the expenses are reasonable and were necessarily incurred as required by the applicable policy provisions. We can also determine whether a portion of the expenses were also incurred for activities which are excluded from coverage. We can quantify this amount in both our charts and report. These documents may provide support for negotiation, settlement or the insured to submit additional information for review.

Please feel free to contact us if you have questions about the protocol referenced above.

Last Minute Amendment By Counsel To Augment Fee Claim Rejected By Court

David J. McMahon — Wed, 15 May 2013 12:38:17 -0800

In Duchrow v. Forrest, 2013 DJAR 5534 (2013) the California Court of Appeal for the Second Appellate District decided a unique fee claim arising in a procedural context.

An attorney, the Plaintiff, retained counsel to sue her employer for employment‑related claims. Under the retainer agreement, the Plaintiff and the lawyer agreed that the lawyer would be compensated on an alternative fee arrangement involving both hourly rates and on a contingency fee basis.

At the beginning of the trial, Plaintiff’s counsel moved to withdraw from the case. The Plaintiff did not oppose that request and the court granted the motion to withdraw. The Plaintiff apparently could not find another attorney to represent her. The case was subsequently dismissed.

After the dismissal was entered, counsel sued the Plaintiff for breach of the retainer agreement, alleging he was entitled to approximately $40,000 in fees. Near the end of a week long trial, the lawyer then filed a motion to amend the complaint, increasing the amount of fees at issue to over $300,000. Counsel claimed the new sum was valid as it represented compensation for additional work on the file. The trial court granted the motion to amend and the jury awarded the lawyer $140,057 in fees.

The Plaintiff filed an appeal and the Court of Appeal reversed the trial court’s decision under Code of Civil Procedure Section 473(a)(1).

The court noted that a trial Judge has discretion to determine whether to grant an amended complaint. Despite the discretion, the court of appeal also noted that a trial court must still consider mitigating factors, such as untimely presentation of the amendment. The court of appeal noted that unexplained lengthy delay in seeking the amendment is a valid reason for denying a motion for leave to amend.

The court of appeal concluded that the lawyer should have included the true amount sought in the original complaint or should have sought leave to amend at an earlier date, not during trial. The panel stated that the delay in seeking the amendment deprived the Defendant of the ability to prepare for trial and the motion should have been denied on that basis alone.

Sanctions Are Issued Where Court Determines That Special Motion To Strike Was Filed For Improper Purpose

David J. McMahon — Tue, 14 May 2013 07:28:51 -0800

In Kleveland v. Siegel & Wolensky LLP, 2013 DAR 4961(2013) the California Courts of Appeal for the Fourth Appellate District affirmed the denial of a special motion to strike and the award of costs and attorney fees as sanctions arising out of family trust litigation.

The Plaintiff filed a malicious prosecution suit against a law firm. The case was hotly contested and resulted in years of litigation and multiple appeals.

After the contentious litigation, one party (the “Plaintiff”) filed a malicious prosecution complaint. The “Defendant,” a law firm, filed a special motion to strike under California Code of Civil Procedure §425.16 in response to the complaint. CCP §425.16 is commonly referred to as the anti‑SLAPP statute.

The trial court concluded that the Plaintiff’s complaint had merit and that the Plaintiff would likely prevail. Thus, it denied the law firm’s special motion to strike under CCP §425.16. The trial court also awarded the Plaintiff attorney fees and costs as sanctions concluding that the special motion to strike had been filed for improper purposes.

The court of appeal affirmed the lower court decision. The court of appeal concluded that the law firm’s anti-SLAPP petition did arise from valid first amendment activity. However, the court of appeal also concluded that the Plaintiff was likely to prevail on the merits and that the petition was filed with the purpose of forcing a settlement, which the court of appeal found to be an improper tactic. On that basis, the court of appeal concluded that the appeal was not meritorious and that sanctions were properly granted.

Auditing Billing Practices

Barger & Wolen LLP — Wed, 03 Apr 2013 14:30:45 -0800

David McMahon wrote an article published in The Recorder on March 29, 2013, about qualitative litigation management audits, which seek to determine whether the litigation bills are reasonable and necessary.

According to McMahon's article, a qualitative litigation management audit looks at the strategy, staffing and overall approach utilized in the case and is intended to ensure that attorneys hired for litigation and other legal work operate “in a goal-directed, streamlined and thus cost-effective manner.

To this end, we typically review the available work product, including the pleadings, motions, discovery requests and correspondence to identify wasteful practices, improper staffing and to identify opportunities to increase efficiency,” McMahon wrote.

In his article, McMahon notes a number of factors including the filing of unnecessary motions, needlessly aggressive letters to opposing counsel and staff management issues that tend to drive up the cost of litigation.

A PDF of the article will be available shortly.

Another Lawyer Disbarred Over Fen-Phen Class Action Settlement

Gary A. Bresee — Tue, 26 Mar 2013 12:16:27 -0800

The Kentucky Supreme Court disbarred a Cincinatti class action lawyer for his role in the notorious $200 million class action settlement concerning the diet drug Fen-Phen.

But he was not the first. According to this article, several lawyers and even a judge were similarly disbarred, and two of those lawyers were convicted on federal charges and remain behind bars.

Unfortunately, the general public tends to assume that a few bad apples spoil the whole bunch. And so it goes. The general reputation of lawyers continues to suffer.

Recorded Witness Statements Subject to Qualified Work Product Protection

David J. McMahon — Tue, 26 Mar 2013 09:55:09 -0800

By David McMahon and Brendan Mullan

The California Supreme Court recently held that work product protection applies to recordings of witness interviews conducted by attorneys or their agents and information concerning the identity of those witnesses in Coito v. Superior Court.

The Coito decision changed the landscape in California regarding the application of the work production doctrine to witness statements and witness identities.

Work product is codified in California under Civil Code §§ 2018.010 et. seq. Absolute work product is afforded to writings and recordings that reflect an “attorney’s impressions, conclusions, opinions or legal research or theories.” Civ. Code § 2018.030(a).

Qualified work product protection is afforded to all other work product. Qualified work product is “not discoverable unless the court determines that denial of discovery will unfairly prejudice the party seeking discovery in preparing that party’s claim or defense or will result in prejudice.” Civ. Code § 2018.030(b).

Now in California, witness statements obtained as a result of interviews conducted by an attorney, or by an attorney’s agent at the attorney’s behest, constitutes work product under Civ. Code § 2018.030. Coito, 54 Cal. 4th at 494. Whether the statements are entitled to absolute or qualified work product is determined on a case by case basis. Id. at 496.

The witness statements may be entitled to absolute protection if the attorney resisting discovery can show that disclosure would reveal the attorney’s “impressions, conclusions, opinions, or legal research or theories.” Even if the attorney cannot make that preliminary showing, the statements are entitled to qualified work product protection as a matter or law. Id. The statements may be subject to discovery only if the party seeking discovery can show that “denial of discovery will unfairly prejudice him in preparing his claim or will result in an injustice.” Id.

To that extent, the Coito decision disapproved prior decisional law set forth in Fellows v. Superior Court, 108 Cal. App. 3d 55 (1980); People v. Williams, 93 Cal. App. 3d 40 (1979); Rodriguez v. McDonald Douglas Corp., 87 Cal. App. 3d 626 (1978); Kadlebach v. Amaral, 31 Cal. App. 3d 814 (1973); Greyhound Corp. v. Superior Court, 56 Cal. 2d 355 (1961); and Nacht & Lewis Architects, Inc. v. Superior Court, 47 Cal. App. 4th 214 (1996).

The Coito decision is also notable for its holding regarding the identity of witness statements and its effect on Form Interrogatory 12.3.

Form Interrogatory 12.3 seeks the contact information for any individual the defense counsel has obtained a written or recorded statement. The Coito court held that 12.3 generally must still be answered but the identity of witnesses from whom counsel has obtained statements may be entitled to work product protection upon a preliminary showing by the attorney resisting discovery that the information sought is entitled to work product protection. However, statements independently prepared by witness are not subject to protection.

The decision is important from a litigation management standpoint. Now, it is clear that witness interviews can be delegated to lower billing-rate investigators and that work product protections will still apply.

On Profitability of Alternative Fee Arrangements

Gary A. Bresee — Thu, 21 Mar 2013 12:36:41 -0800

A good anlaysis of the profitability of alternative fee arrangements:

http://adverselling.typepad.com/how_law_firms_sell/2013/02/how-profitable-are-alternative-fee-arrangements-part-2-of-2.html

Startups - Deferred Payment Models for Legal Fees

David J. McMahon — Thu, 07 Mar 2013 16:32:38 -0800

By David McMahon & Jeevan Subbiah

In our “Startup Blog” series, How to Select New Counsel and Manage Legal Fees, we have been discussing the early stages of how to hire a lawyer for your startup. You should be aware that there are different payment methods available for legal fees. In this post we are going to focus deeper on deferred payment models.

One startup executive told us his story of shopping for legal counsel. He was so surprised and startled when a law firm offered him deferred billing that he decided to look for a different firm. He questioned the law firm’s motives since his startup was very capable of paying for its legal work. He wondered if the law firm was taking advantage of him and trying to make more money off of his company. Deferred payment models, including deferred billing, are not a deceptive practice and some startups should consider this alternative fee arrangement.

New Markets for Lawyers & Affordable Services for Startups

Deferred payment models provide startups access to legal services when they may not have the capital to afford legal services. Some startups require extensive legal work (such as complex intellectual property issues) before the startup has raised funds or is profitable. Deferred payment models also give lawyers access to a broader base of clients, and allow them to develop relationships with growing companies. There are a few deferred payment models that we will now discuss below.

Deferred Billing

A deferred billing model provides legal services with payment being deferred until a future date. The date could be a few months, or potentially longer. The fees may also increase or accrue interest as time passes. One advantage of deferred billing is that a startup does not have to give up any equity to a law firm. Also, law firms do not risk offending a startup by trying to gain an equity position.

Revenue Percentage Model

Some startups, such as social media companies, have relatively low costs. Therefore, they may be able to participate in a revenue percentage model and pay a monthly legal fee. Through the use of this model, a law firm will take a fixed percentage of the startup’s monthly revenue until the legal bill is fully paid.

Liquidity Event Model

Some law firms use a liquidity event model with startups. In this model, monthly legal invoices are issued but the startup does not pay legal fees until a liquidity event occurs (such as adequate financing is raised, a grant is secured, a buyout takes place or IPO is finalized). This model allows a startup to not pay legal fees until it has capital. However, this type of model may put pressure on a startup. Some startups have a long term view focused on product development without a big financial payoff in the near future (beyond monthly costs and salary). A liquidity event model may push the startup towards raising or taking money, resulting in a potential loss of strategic and operational control.

Equity Position

Another deferred payment model is an equity position. In this model, the law firm provides legal services in exchange for a percentage ownership of equity in the startup during the early stages of the company. Some startups may see the advantages of this model while others may view it as just “one more hand in their cookie jar” with another party receiving equity in their startup. This model can be especially risky for some law firms since they do not receive any monthly income from the startup and they risk receiving no future payment at all. Generally the equity position can be realized (cashed out) by the law firm during a buyout or IPO.

Venture or Incubator Model

Some startup groups and communities such as incubators, universities, non‑profit cooperatives, innovation and technical centers, startup boot camps and accelerators may participate in a deferred payment model where basic legal and business services are freely provided to a group of startups by a law firm. In this model the law firm is able to decide which startups have the best ideas that the law firm wants to support and invest in long term. The selected startups would have to give the law firm an equity position in the startup for continued long term legal services.

Compliance with State and Federal Securities Laws and American Bar Association (ABA) Model Rules

It is important to ensure that any deferred payment model involving equity comply with both state and federal securities laws as well as American Bar Association (ABA) Model Rules. ABA Rules 1.5, 1.7(b) and 1.8(a) generally deal with legal fees being reasonable, fully disclosed in writing to the client in a way that can be understood, and the client being given time to consult with independent counsel on the transaction. There are differing viewpoints on whether taking an equity position in a startup is completely ethical and free from conflict of interest.

Next Post – Retainer Fees

In the next blog post we will discuss retainer fees, including tips on negotiating the terms of the retainer and their basic structure.

Court Denies Attorneys' Fees in Herbalife Estate Case

Peter Felsenfeld — Thu, 07 Mar 2013 16:06:42 -0800

A San Francisco appeals court has rejected a law firm’s attempt to recover $3 million billed on a trust matter on the grounds that the work did not benefit the estate.

As reported in the Daily Journal on February 28, 2013, the fee dispute arose in connection with ongoing litigation over the $350 million estate of Herbalife Ltd. founder Mark R. Hughes. The law firm Mitchell, Silberberg & Knupp LLP sought the contested $3 million, which was on top of more than $3 million it had already been paid, for work performed on behalf of Hughes’s former wife, Suzan Hughes.

The trial court previously denied recovery of the additional fees, holding that Suzan hired the firm out of personal animosity towards the trustees rather than for the benefit of the estate. Specifically, the firm attempted to remove the trustees and halt a tax deal that the trustees had implemented.

As reported in the Daily Journal, the 1^st District Court of Appeal in San Francisco affirmed that decision on Wednesday. Writing for the panel, Justice Martin J. Jenkins stated that the lower court’s findings were supported by substantial evidence “that petitioner’s litigation incentives were, for the most part, of no essential benefit to the guardianship.”

The decision angered Mitchell attorneys. The court “got it completely wrong,” Mitchell attorney Hillel Chodos, who performed much of the work at issue, told the Daily Journal. “The idea that what we were doing was not in [Suzan’s son’s] interest came from the trustees who think it is inappropriate to sue them,” he said.

The ruling indicates that, at a minimum, attorneys taking on a trust case must carefully consider whether their activities will benefit the trust if they want the estate to pay their bills. This is not always an easy call to make.

Hiring Legal Counsel & Initial Litigation Management for Startups

David J. McMahon — Tue, 05 Mar 2013 09:07:57 -0800

By David McMahon & Jeevan Subbiah

This is a follow up in our series, How to Select New Counsel and Manage Legal Fees, related to litigation management for startup companies to help ease the frustration and confusion of hiring and managing legal counsel for the first time. As you may recall, previously we have discussed typical legal needs for a startup, tips for selecting an attorney, big and small firm size, and crowdfunding and The Jobs Act.

The initial stages of litigation management become important as you close in on hiring counsel. Early litigation management can include negotiating a billing rate appropriate for your legal needs, determining whether your work can be billed at an hourly or project rate, considering deferred billing and regularly reviewing your legal billing for inconsistencies and excessive charges. As we have noted earlier in this series, legal billing is changing drastically due to the challenging economy. Many common billing practices, such as billing clients for routine overhead costs, such as utilities, copy services, library maintenance and rent, are considered excessive. You may want to discuss these types of costs in advance with your lawyer. In addition, you should consider having your legal counsel managed either by a dedicated person internally or by a third party law firm.

Discussing Rates, Staffing and Overall Fees with Your Attorney

Attorney billing rates generally vary from $200 to $1,000 dollars per hour depending on location, complexity of the work, and the time and resources needed to complete the work. In addition, law firms are known for often charging different rates to different clients. Your funding (bootstrapped, seed or VC) may strongly influence the capabilities and cost of the counsel you hire. Discuss billing rates, deferred billing, alternative billing and retainer fees as applicable during your initial consultation. Utilize billing rate surveys and talk to a few firms. In the present economic climate, many firms may be willing to lower their rates in order to work with your startup. You may also save money by finding a partner at a small firm with prior big firm experience who is now charging a much lower billing rate.

Other Ways to Keep Fees Down

Project staffing can limit casework to lower billers such as junior attorneys and paralegals. Keep in mind that a lower rate does not always result in savings. An inexperienced lawyer could take twice as long to work on a project as a lawyer with extensive experience. Other options for savings include reducing the formal reports prepared by your attorney and receiving information in an informal manner (conferences, bullet point lists, etc.). Also, you may be able to reduce the time counsel spends drafting certain documents or charts by collecting basic records or information from counsel and preparing some documents yourself. We will discuss costs (expenses), legal fee billing guidelines and billing entries in future posts.

Where to Research Firms and Rates – Rate Surveys

There are many places you can research law firms and billing rates. The LexisNexis Zimmerman's Research Guide lists many databases and rate surveys. Rate surveys list various common billing rates by geographical region or by practice area. Many news articles also provide excerpts from rate surveys. Below we note a few commonly used rate surveys:

Laffey Matrix
Real Rate Report by CT TyMetrix
Law Firm Billing Survey by The National Law Journal
Survey of Law Firm Economics by ALM Legal Intelligence
Report of the Economic Survey by the American Intellectual Property Law Association (AIPLA)
State rate surveys, such as the Oregon State Bar Hourly Rate Survey

Alternative Fee Arrangements

Most law firms bill by the hour. However, some firms are starting to work with alternative fee arrangements (AFAs) including project billing, fixed fees, and bonus arrangements in an effort to manage projects more efficiently.

Hourly Rate or Project Rate?

Hiring a lawyer at a project rate may help you avoid surprise legal bills. Some firms may have startup packages for work such as entity formation, basic contracts, financing documents, employee agreements, trademarks, and patents. Make sure to discuss whether there are additional or hidden fees for any related follow up work such as filings or additional document preparation with counsel in a proactive manner.

Is Your Lawyer An Efficient Project Manager?

Many law firms are learning from the business world how to scope out projects and use software tools to manage projects. Be sure to address possible obstacles, and detail staffing and key milestones in your budget and project agreement. Discuss how to regularly communicate the status of a project including using a project tasklist. It is also crucial to talk about “scope creep” and the boundary of the project.

The “10% Discount”

Many law firms will offer a “10% Discount” per invoice for ongoing legal work with a client. Some firms may increase their rates, negating the supposed discount. You should research and discuss the benefit of this type of discount.

Next Post - Deferred Billing

Startups may be interested in deferring their billing for various reasons. Some law firms will work with startups and defer billing until anticipated funding from an investor occurs or a round of financing is complete. We will discuss this further in our next post.

Judicial Economy Implications: Ninth Circuit Sends District Judges Back To School On Calculation Of Attorney Fee Awards

David J. McMahon — Mon, 04 Mar 2013 10:19:58 -0800

My partner, Gary Bresee, recently blogged on the recent Ninth Circuit decision in Padgett v. Loventhal, 2013 DAR 1933 (2013).

As Gary noted, in that case, the US Court of Appeals for the Ninth Circuit overruled the decision of trial judge James Ware, and remanded the case for further consideration. Judge Ware made significant reductions in the fees requested by the plaintiffs in a civil rights case without detailed explanation or computation of the reasons for reducing the attorney fee claim. The panel was critical of the reduction as the district judge slashed the fees and costs without any detailed description or supporting calculations for the reductions ordered.

The Ninth Circuit reversed the decision of the trial judge, noting that district courts must give reasons for declining to award costs and for reducing costs based on a partial victory.

Another key take away issue from the Ninth Circuit’s decision relates to public policy considerations relating to judicial economy. Judge Ware recently retired. Now a new judge will have to be assigned to the case to clarify the award and the basis therefore. A properly documented decision would have alleviated these additional burdens and costs.

Is It Prejudgment Or Postjudgment Interest? The Conclusion Can Make A Difference

David J. McMahon — Wed, 20 Feb 2013 08:44:12 -0800

In Lucky United Properties Investments Inc. v. Lee, 2013 DAR 1614 (2013), the California Court of Appeal for the First Appellate District decided when interest begins to accrue on an award of prejudgment interest in the attorney fee context. The ultimate holding in the case is that interest on a prejudgment award of attorney fees accrues upon the entry of judgment. A different rule is applicable for postjudgment interest.

The case arose from complex and lengthy litigation. Initially, the plaintiff filed a malicious prosecution complaint against the defendant arising from a lawsuit over real property. The defendant responded by filing a cross‑complaint for malicious prosecution against the plaintiff.

Both parties subsequently filed special motions to strike under the anti‑SLAPP statute. The trial court granted specific relief and also awarded the plaintiff’s attorney costs and attorney fees in connection with the anti‑SLAPP motion. The plaintiff and the defendant continued to litigate the proper fees which were the subject of the award. The litigation continued on for several years. (See prior discussion of the case here.)

The trial court issued an order containing a computation of the interest the defendant owed to the plaintiff based on outstanding judgments. The plaintiff’s attorney challenged the trial court’s calculation, arguing that the trial court had miscalculated the appropriate amount of interest owed on the attorney fee award.

The court of appeal reversed the trial court’s decision. The court reiterated that if costs are established by a judgment, but the full amount of the award is later ascertained, the court clerk enters the costs on the judgment after the amount is determined.

Based on the foregoing, interest will typically accrue on the prejudgment costs and attorney fees portion of the judgment upon the entry of the judgment.