Insist that class counsel’s attorneys’ fees be handled separately from the negotiation of relief to the class — and then don’t roll over for those fees the way defendants usually do. “They [Starbucks' lawyers] contend that the $4.2 million request is ‘breathtakingly inflated,’ considering that class counsel managed to win certification of only one of 13 alleged subclasses [in a West Coast wage-hour class action].” [Alison Frankel, Reuters]
The Washington Post splashes an investigative story about the tax lien business, in which outsiders buy up delinquent municipal property tax liens sometimes amounting to mere hundreds of dollars, then roll in lawyers’ fees and costs that can push up the bill into many thousands, eventuating in the foreclosure of family homes. The narrative is less than clear about exactly how the process works, and even leaves the impression that a tax lien purchaser owed, say, $6,000 can walk away with all the proceeds from the foreclosure of a $197,000 house without having to hand any of it over to mortgage holders, let alone the original owner. And some of the solutions offered (let’s not allow lien foreclosures on elderly people!) would have unintended consequences that are also, to be polite, underexplained. Still, enough of the story is there that an important general principle comes through: it’s dangerous for the law to put opportunistic actors in a position to run up $450/hour legal fees pursuing adversarial process that might not actually have been needed to vindicate their interests.
“At the risk of losing their homes if they didn’t, scores of Colorado homeowners struggling to avoid foreclosure in the past year were each forced to pay hundreds of dollars in lawyer charges for phantom court cases against them, a Denver Post investigation has found.” In 126 of the episodes, the paper reports, no foreclosure lawsuit was actually filed. Related reporting on allegations against Colorado foreclosure law firms here, here, etc.
Along with the Colorado attorney general, various other law enforcers both state and federal are scrutinizing the billing practices of creditors’ law firms looking for evidence that they’ve been evading the fee and cost reimbursement limits for foreclosures that Fannie Mae, Freddie Mac and FHA prescribe on loans they own, guarantee or insure. [Paul Jackson, Housing Wire via Funnell]
Here’s why: it turns out that many of the major law firms responsible for managing foreclosures for the GSEs also have a controlling interest in the ancillary service firms that generate the variable fees that appear as “costs” on the lawyer’s bill. Many law firms either outright own, or their partners have a significant interest in, the company that is posting and publishing notices; or they may own or have an interest in the company that manages process of service, as well.
Such arrangements are not illegal, but could land the firms and mortgage servicers in hot water if it develops that they have connived at fee padding by the ancillary firms. (& welcome Above the Law readers). More: Heather Draper, Denver Business Journal (and thanks for quote).
In April, an extensive New York Times investigation by Sharon Lafreniere confirmed and extended what writers associated with the late Andrew Breitbart had been charging for more than two years: the so-called Pigford settlement, in which the U.S. Department of Agriculture agreed to make payments to persons charging racial bias in agriculture programs, is riddled with fraud. If you thought this might stand in the way of a payday for plaintiff’s lawyers in the case, you’re wrong: U.S. District Judge Paul Friedman has just approved a payout of $90.8 million to the lawyers, over objections. That represents the maximum (7.4 percent) of what was being asked for: “The deal set out a fee range between 4.1 percent and 7.4 percent.” [BLT]
Law firm DLA Piper has now settled an overbilling dispute with a dissatisfied client, while decrying “e-mail humor.” [NYT DealBook, earlier]
Although our system is (alas) set up to make it very difficult for defendants to recover legal fees from losing plaintiffs, it is not too surprising that this case would be an exception given a judge’s scathing findings against the plaintiffs’ conduct — not to mention the recent agreement by the ASPCA, one of the animal rights groups, to pay the Ringling owner $9.3 million. [ABA Journal]
Extraordinary emails bolster a client’s case that mega-law firm DLA Piper wasn’t holding its legal billings to a needed minimum. [New York Times "DealBook"]
We told you the Kentucky fen-phen scandal — which we’ve been covering since 2005 — was serious. Now it’s resulted in the permanent revocation of the Kentucky license to practice of famed “Master of Disaster” tort specialist Stanley Chesley, whose office is across the river in Cincinnati, Ohio. Two lawyers who directly represented fen-phen clients in Kentucky, “Shirley Cunningham Jr. and William Gallion, are serving prison sentences for bilking clients out of $94 million in settlement money.” While Chesley did not represent Cunningham’s or Gallion’s clients, and denied holding any legal responsibility toward them, he accepted a $20 million fee, far in excess of negotiated sums, for representing the lawyers themselves in the settlement that brought in the cash, a sum that “was unreasonable, especially in light of his professed ignorance and lack of responsibility for any aspect of the litigation except showing up at the mediation and going through the motions of announcing the agreement,” the Kentucky Supreme Court concluded. Chesley participated in the diversion of the pilfered funds into a trust (pleasantly named “Kentucky Fund for Healthy Living“) intended to conceal the skimming, and helped orchestrate the lawyers’ cover-up. Wrote the court: “The vast amount of evidence compiled and presented in this matter demonstrates convincingly that respondent knowingly participated in a scheme to skim millions of dollars in excess attorney’s fees from unknowing clients.” [ABA Journal; court order, PDF; Louisville Courier-Journal; Daniel Fisher, Forbes; David Lat, Above the Law]
“Four law firms that submitted a “grossly inflated” $2.7 million fee request after winning $12,500 for their client should go away empty-handed, a federal judge has ruled. Eastern District Judge Joanna Seybert, sitting in Central Islip, condemned the fee application submitted by real estate investor Robert Toussie’s attorneys, including $2.65 million for Chadbourne & Parke, as ‘outrageously excessive’ and done in ‘bad faith.’” [NYLJ]
“A federal judge in Philadelphia has done what every judge in a class action should do: She required each law firm involved in a $25 million antitrust settlement to document exactly how much time they spent on the case, and how much they expect to be paid for their work.” [Daniel Fisher, Forbes]
Peeking under the Hood, cont’d: Mississippi has finally passed sunshine legislation exposing to public scrutiny dealings of its attorney general with outside law firms, which can make large sums in contingency arrangements representing the state [Maggie Haberman, Politico] Not exactly unrelatedly, a Mississippi court has ruled that a settlement of the state’s case against MCI can’t funnel $14 million separately to private lawyers representing Hood on the theory that it was just a side payment and never represented public funds [YallPolitics, earlier on now-disbarred lead private lawyer in case]
“The Cook County Board on Tuesday agreed to pay more than $1 million in taxpayer money to settle a federal lawsuit brought by female County Jail inmates who said their civil rights were violated during repeated weekend lockdowns at the massive detention facility. The bulk of the settlement — $850,000 — will go to attorneys who represented the four inmates in the nine-year court case. Two inmates won federal judgments totaling $143,000, and the county opted to pay two others $5,000 to end the suit. … In addition to the $1 million settlement, the county spent at least $732,144 over the years to pay an outside firm to defend it against the suit, according to county records.” The plaintiffs had failed in a bid for class action status. [Chicago Tribune]
According to what seems to be the sense of many in the Florida legal profession, doctors and their patients should not have the right to enter enforceable arbitration agreements before the fact to resolve disputes, but lawyers and their clients should have the right to enter enforceable agreements before the fact to limit liability for excessive charging of legal fees. Thanks for clarifying! [White Coat, scroll; earlier]
Jenna Greene reports in the National Law Journal (reg) on the Judgment Fund, an obscure entity within the federal government that last year paid to settle more than 5,000 lawsuits against federal agencies. For the most part, its payouts are not subtracted from agency budgets, and overall dollar figures tend to be dominated by a few special situations such as (most recently) lawsuits by utilities over alleged Energy Department breach of contract for nuclear fuel storage, and by Indian tribes against the Department of the Interior and Department of Agriculture over financial mismanagement and alleged discrimination. A smaller, but controversial, category of payouts that has attracted Congressional attention consists of settlements with “cause” organizations such as environmentalists that sue to force policy change.
“The strange thing is the lack of transparency,” said Walter Olson, a senior fellow at the Cato Institute’s Center for Constitutional Studies. “Settlements deserve scrutiny.…There’s no reason why as a public process there shouldn’t be fine-grained disclosure.”
In April, Rep. Darrell Issa (R-Calif.) introduced the Judgment Fund Transparency Act of 2011, which would require Treasury (unless barred by a court order or law) to make public the names of plaintiffs and counsel, plus a brief description of the facts that gave rise to the payments and a breakdown of principal and attorney fees.
However, Greene reports, the Issa measure has attracted no co-sponsors and is stuck in House Judiciary with no apparent plans for action.