Today the Sixth Circuit refused to vacate an arbitration award on the ground that a lawyer-arbitrator failed to disclose prior relationships with a lawyer representing one of the parties.  The relationships consisted of serving as co-counsel twice and representing different plaintiffs in the same cases six times.  "While we cannot say that such a relationship would never give rise to evident partiality, the facts in the record before us indicate that a reasonable person would not be forced to conclude that [arbitrator] Stein was partial toward [plaintiffs] Uhl and Pacific."  Uhl v. Komatsu Forklift Co., Ltd., No. 07-1044, slip op. at 9 (6th Cir. Jan. 9, 2008).

The unanimous panel thus ageed with the Fifth Circuit’s en banc rejection of a similar challenge in Positive Software Solutions, Inc. v. New Century Mortgage Corp., 476 F.3d 278, 283-84 (5th Cir.), cert. denied, 127 S. Ct. 2943 (2007).  As he court noted:

Most analogous to the instant case, the Fifth Circuit called it a "trivial former business relationship" when an arbitrator had previously acted as co-counsel in another matter with one of the attorneys representing a party to the arbitration.

*  *  *  *

In this case, the parties specifically contracted for arbitrators with experience in products liability actions, . . . and while we cannot say how large that pool of arbitrators would be, if a relationship as insignificant as the one in this case were enough to trigger evident partiality, it would make it much harder to find arbitrators with the relevant and necessary expertise.  For these reasons, we conclude that Komatsu has not established evident partiality.

Uhl v. Komatsu Forklift Co., Ltd., slip op. at 10.

Blawgletter couldn’t agree more.

Feedicon14x14 Contingent business law.

Leadpaint
Local governments try to abate lead paint — using contingent fee lawyers.

Kimberley A. Kralowec noted last month in The UCL Practitioner that a California Court of Appeal panel will soon hear argument on a hot issue among opponents of contingent fees:  Does the prospect of earning a contingent fee rob the lawyer who represents a public entity of "neutrality"?

The trial judge answered yes, at least in cases involving abatement of public nuisances.  He relied on a 22 year-old California Supreme Court decision, People ex rel. Clancy v. Superior Court, 705 P.2d 347 (Cal. 1985), which dealt with efforts to shut a book store on the ground that it sold obscene material, a misdemeanor.

The case, County of Santa Clara v. Superior Court, No. H031540 (Cal. Ct. App.), goes before Their Honors on January 17, 2008, in San Jose.  The plaintiffs, several cities and counties in California, seek to require pigment makers to pay for removing lead paint from homes and buildings.  You can read the principal briefs — courtesy of Ms. Kralowec — here.

Threat to Neutrality?  The trial judge focused on Clancy‘s "neutrality" requirement, dismissing the notion that any governmental entity could exercise enough control over a contingent fee lawyer (CFL) to assure lawyer’s necessary neutralness.  That the lawyer in Clancy served as the city’s sole counsel and could on his own say-so bring criminal charges did not appear to matter.  His Honor even concluded that the danger of the CFL’s committing un-neutral acts required invalidation of "any" contingent fee arrangement — regardless of the client’s contractual right to make litigation decisions (including ones regarding claims, settlement, and trial strategy), no matter how tight the language retaining those rights, and regardless the intensity of the oversight of the CFL.

Tort Reform Angle.  We may assume that the defendants who moved to axe the contingent fee arrangement did so with a particular kind of neutrality in mind — the type that kills the lawsuit because the government hasn’t the resources to pay lawyers on an hourly basis. 

That would help explain the defense-supporting involvement of amici like the American Tort Reform Association, the U.S. Chamber of Commerce, and the American Chemistry Council.

What Would Hourly Lawyers Do?  The decision raises interesting questions about the ability of cities, counties, and other units of government to enhance enforcement of civil law by hiring CFLs at no out-of-pocket cost to taxpayers.

First, does hiring a CFL to seek purely civil remedies raise the same "neutrality" concerns as appointing a private prosecutor to press criminal charges?

Second, would outside lawyers working by the hour feel any differently about enforcement than a CFL would?  Or would they simply prefer that the lawsuit last as long as possible, regardless of the outcome, maximizing their fee at no risk to them? 

Third, does paying by the hour in itself give the client effective control of the litigation?  Or is active supervision still necessary?

Finally, do contingent fee agreements really tie clients’ hands the way critics imagine they do?  In Blawgletter’s experience, a client will have only itself to blame if it doesn’t insist on retaining key rights — including the authority to fire the CFL, with or without cause; to accept or reject all settlement proposals, including handsome ones; and even to drop a case, regardless of its strength and prospects.

The economic consequences of pursuing civil remedies with the "neutral" stance of a government representative are essentially the same in either an hourly case or a contingent fee lawsuit.  The client’s decision to fire, reject, or quit has the effect of wasting the hours that have been invested in the litigation.  In an hourly case, the lawyer simply keeps the hourly fees.  The CFL situation differs only in that the client will have to reimburse the CFL’s expenses and, in some situations, pay the CFL’s lodestar (hours times hourly rate) or the contingent fee that the CFL would have earned. 

Our Take.  Blawgletter finds the idea that all contingent fee arrangements destroy a governmental client’s neutrality contrary to experience and implausible even in the realm of theory.  Last November, so did the court in City of Grass Valley v. Newmont Mining Corp., 2007 WL 4166238, at *1 (E.D. Cal. Nov. 20, 2007), which distinguished Clancy because "the City Attorney for the City of Grass Valley is acting as co-counsel in this action and the City retains ‘ultimate decision-making authority in the case.’"

We also doubt that forcing local governments to pay lawyers by the hour provides a "neutral" solution that, per Clancy, balances the interests of the people against those of the defendants.  An hourly arrangement doesn’t make the lawyers any more "neutral" than a contingent fee does.  Both the hourly lawyer and the CFL have an incentive to maximize their income.  And the financial consequences to the client of exercising control under either arrangement are basically the same.

The hourly fee has problems of its own.  It encourages inefficiency.  And the necessity of the government’s coming out of pocket weakens enforcement when it does not prevent it.

But of course we think The Hourly Fee Should Die.  And should die some more.

D. Todd Smith — master blogger over at Texas Appellate Law Blog — commented a couple days ago on The Hourly Fee Must Die — Some More.  He said:

I’m still trying to break free from the billable hour, with increasing success.  From the plaintiff’s side, evaluating whether to accept a matter on a contingent fee is fairly straightforward.  But I still haven’t settled on the best alternative-fee arrangement when working for the defense. A "reverse contingent" fee perhaps?

Great question, Toddster.

Blawgletter’s firm, Susman Godfrey L.L.P., has handled some cases on a reverse contingent fee (RCF) basis.  The agreement with the client calculates the RCF as a percentage of the savings off of a benchmark number.  The benchmark reflects an estimate of the client’s possible exposure.

By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage — 40 percent, say — of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment.  If we zero out the plaintiff, our fee totals $4 million — .4 x ($10 million – $0) = $4 million.

Negotiating an RCF presents unique challenges.  The hardest part probably is arriving at the benchmark number.  The law firm will want to use the plaintiff’s demand as the starting point, but the client will prefer to begin at bupkes.  Unless some reliable methodology for assessing exposure exists, the discussions may lead nowhere.

A second barrier to negotiating an RCF results from the fact that the client must come out of pocket to pay the fee.  Fortune 500 companies can do that, but smaller enterprises may lack the necessary liquidity.  A letter of credit or other security could bridge the gap.

The best candidates for RCF arrangements thus are cases that (1) have a track record and (2) involve clients that have the resources to pay the RCF.

Patent litigation springs to mind as a likely occasion to represent a defendant on an RCF basis.  Cisco Systems, for instance, draws its share of patent infringement complaints.  Say Cisco gets a complaint for infringing a patent that the plaintiff already litigated against another company and settled for $X.  The $X could provide a baseline for determining the benchmark in the RCF agreement.

Cisco is a good example, by the way.  Its General Counsel, Mark Chandler, has led the charge against the hourly fee as the principal basis for paying lawyers.  He’s worked out a number of creative ways to align the interests of the company with the interests of its lawyers — including by way of an agreement that had an RCF element in it.  Excellent. 

Mike Huckabee and Barack Obama won the Iowa caucuses yesterday.  Each gave an acceptance speech.  Blawgletter reproduces below the opening three paragraphs of each.

Mike Huckabee:

I wasn’t sure that I would ever be able to love a state as much as I love my home state of Arkansas.

But, tonight, I love Iowa a whole lot.

Over the past several months, my family and I have had the marvelous joy and privilege of getting to know many of you.  And it’s been an incredible honor.

Barack Obama:

They said this day would never come. They said our sights were set too high.  They said this country was too divided, too disillusioned to ever come together around a common purpose.

But on this January night, at this defining moment in history, you have done what the cynics said we couldn’t do.

You have done what the state of New Hampshire can do in five days.  You have done what America can do in this new year, 2008.

According to a local news report, direct purchasers of chocolate from Hershey, Mars, Cadbury Schweppes, and Nestle have started filing price-fixing cases and pleading for class action treatment. 

Venue.  Two of the cases are pending in Harrisburg, Pennsylvania, federal court — just down the road from the Hershey headquarters in, uh, Hershey, Pennsylvania.  A third putative class action is in the U.S. District Court for the District of New Jersey.  Blawgletter expects that, before long, someone will discover that one of the defendants has its main U.S. offices in California.

The report suggests that the filing lawyers have relied on the issuance of search warrants in Canada and on disclosures that the U.S. Antitrust Division of the Justice Department has opened an investigation of its own.  Smoke and fire, you know.

What happens next?  Others will file chocolate price-fixing cases, probably near locations where the chocolatiers have their U.S. headquaters.  A party or parties will petition the Judicial Panel on Multidistrict Litigation to move all the lawsuits to one federal judge for all pretrial purposes.  The seven federal judges on the Panel gather six times a year to consider just such requests.

Organization.  Plaintiffs counsel will at the same time attempt "private ordering".  Which means that they will try to negotiate an arrangement that nominates a group of firms as "co-lead counsel" and other firms as members of various committees, possibly including an executive committee, a discovery committee, an experts committee, and a briefing committee, among others.  The bargaining often leads to submission of a consensus plan — usually in the form of a "Pretrial" or "Practice and Procedure" order — to the lucky "transferee" judge to whom the Panel sends the cases.  His or Her Honor may reject or modify such a plan, thus wielding authority that tends to discourage complex or inefficient organization structures.

Sometimes private ordering doesn’t work, and a fight breaks out.  The transferee judge then has to select the best organization of plaintiffs’ counsel for the case.  Usually the best trial lawyers win such contests.  Those victories tend to assure that consensus structures do, indeed, include capable trial counsel and not simply pretrial litigators.

A lot more will occur of course — not least retention of superb defense counsel, hiring of economics experts, contacting of potential witnesses, and gathering of evidence.

The goal.  The cases aim to recover overcharges that resulted from a price-fixing conspiracy.  In an industry that sells billions of dollars of products in the U.S. each year, the damages could run into the hundreds of millions or even more than $1 billion.  Treble that — automatic under federal antitrust law — and pretty soon you’re talking real money.

Blawgletter will continue watching developments in what we expect will soon get a name like "In re Chocolate Price-Fixing Litigation". 

We even expect to be involved in it.  Sweet.

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Blawgletter’s heard scads of complaints about paying hourly fees in business litigation. We talked about that very phenomenon, and the reality it reflects, in August of 2007. But today brought a startling reminder that companies don’t act as if they mind paying squads — multiple squads — to handle high-stakes lawsuits. Quite the opposite.

A squad, by the way, consists of eight to 16 soldiers.

News of Judge Selna’s Memorandum of Decision re Injunctive Relief on the last day of 2007 in Broadcom Corp. v. Qualcomm Inc., No. 05-cv-467 (C.D. Cal.), pressed the memory into consciousness. Wanting to see the opinion itself for ourselves, we checked on the ECF site for the U.S. District Court for the Central District of California. And what we saw — even before we could get to the Memorandum itself — caused a sharp gasp to inflate our lungs.

What did we find? Why, we discovered incontrovertible evidence that none of the law firms working on the case has it on a pure contingent fee. What evidence, you say? Only that Qualcomm had 28 lawyers of record and that Broadcom carried even more — a smooth 31.

For those of you counting, that means 59 lawyers — just one shy of five dozen individuals and topping seven squads — showed up on the docket sheet. In all likelihood, the same number billed to the file but never made an appearance in the case.

No contingent fee lawyer — who stands to get a percentage of any recovery — would throw so many bodies at a case. She’d want a compact, cohesive, and deadly trial team. A small squad at most and trial lawyers all. Efficiency and results would be paramount, overstaffing and and a wage-earning mentality abhorrent.

We may never know the tally of hourly fees and expenses for Broadcom and Qualcomm. But we can with smug confidence bet that they’ve exceeded the $19.34 million the jury awarded. That could not happen with a contingent fee arrangement. And the clock keeps ticking.

Former trial lawyer (and current presidential candidate) John Edwards today published My Plan to Stop Corporate Abuses in the WSJ.  He notes the astonishing disparity between the wealth of corporate insiders and the declining living standards for ordinary workers.  He sums up thus:

The success of our own economy demands that we uphold our country’s values:  fair reward for work and opportunity for all. To meet these goals, we must renew America’s basic bargain with the middle class and remove the stranglehold that entrenched corporate interests have on Washington.

But the rights that Mr. Edwards promises to enact may have no teeth without capable trial lawyers willing and able to enforce the rights in court on a contingent fee basis.  Cases that aim to remedy wrongdoing by corporations — from securities fraud to price-fixing and monopolization to fiduciary breaches of trust — are often unaffordable to ordinary people and small businesses.  They can cost millions of dollars to prosecute, sometimes even tens of millions.   

Mr. Edwards represented, in medical malpractice cases, people who couldn’t have afforded to pay him by the hour.  The contingent fee was essential to them.  It provides the keys to the courthouse.  It often does the same in disputes against (and between) businesses as well.

Barry Barnett
Susman Godfrey L.L.P.

Feedicon14x14 Our feed really likes business trial lawyers, especially ones with a sense of humor.

Some prominent defense lawyers recently suggested that plaintiffs should hire "trial-only counsel" in class actions.  The trial-only counsel would have little, if any, pretrial involvement and no obligation except to try the case. 

The defense lawyers believed that lining up genuine trial counsel for plaintiffs would add significant value to the class claims.  The trial-only lawyer would presumably receive a percentage for making the commitment and a bigger one if the case goes to trial. 

That sounds like a good idea.  Perhaps a brilliant one.  What do others think?

Feedicon14x14_2 Business trial law with a sense of humor.

Kevin O’Keefe practiced as a trial lawyer in rural Wisconsin for 17 years before founding Prairielaw.com, which he sold to LexisNexis, and then LexBlog, where he now serves as President.

Via his marvelously pithy Real Lawyers Have Blogs, Kevin offers lots of free advice on blawging — or, as he might put it, LexBlogging.  Kevin doesn’t seem to suffer fools gladly, but RLHB has gobs of useful recommendations, links, and other resources for law bloggers.  Plus, by way of LexBlog, he offers a turnkey LexBlogging solution.

We proudly add Real Lawyers Have Blogs to our Blawgroll.

Feedicon Blawgletter turned one year old today!

Referring to proposals for making judicial salaries more equitable, the seventeenth Chief Justice of the United States, John Glover Roberts, Jr., said at 12:01 a.m. today in the 2007 Year-End Report on the Federal Judiciary:

I do not need to rehearse the compelling arguments in favor of this legislation.  They have already been made by distinguished jurists, lawyers, and economists in congressional hearings, letters, and editorials–and seconded by a broad spectrum of commercial, governmental, and public interest organizations that appear as litigants before the courts.  I simply ask once again for a moment’s reflection on how America would look in the absence of a skilled and independent Judiciary.  Consider the critical role of our courts in preserving individual liberty, promoting commerce, protecting property, and ensuring that every person who appears in an American court can expect fair and impartial justice.  The cost of this long overdue legislation–less than .004 percent of the annual federal budget–is miniscule in comparison to what is at stake.

Reports on the Chief’s remarks here, here, and here.

Feedicon14x14 We say to Congress — just do it already!