Finally! A Court’s Crackdown on Overbilling by a Plaintiffs’ Firm Exposes an Alleged Fraud

By Nathan A. Oyster

One of the great challenges in defending civil rights litigation – whether complex cases or straight-forward ones – is the looming specter of the plaintiff’s potential recovery of attorney’s fees if they prevail.  In some cases, such as wrongful death actions, officer-involved shootings, or incidents alleging a major injury, the potential payout of attorney’s fees after a judgment is a supplement to the exposure that a public entity faces with respect to damages.  But in many other forms of civil rights litigation, ranging from false arrest actions to illegal search cases to complex class action litigation, the potential payout of attorney’s fees is the proverbial tail that wags that the dog.  The fees award may well exceed the amount of any verdict.  Worse, a public entity has no way of knowing exactly what the plaintiff will claim in attorney’s fees as the case progresses, no way of knowing whether the Court will ultimately agree that some or most of the time spent by the plaintiff’s attorney was unreasonable, and no way of knowing what hourly rate the Court may ultimately award.  This uncertainty places public entities at a distinct disadvantage as they attempt to make sound economic decisions in deciding whether or not resolve a case whose primary economic risk involves the payment of attorney’s fees to the other side.  So it is with great satisfaction that we present the tale of plaintiffs’ lawyers in a complex class action case who received their comeuppance from a federal judge dissatisfied with their tactics.

As the Wall Street Journal reported in its March 13, 2017 edition, a lawsuit filed by shareholders against Sprint Corp., related to Sprint’s 2005 merger with Nextel, led to the sensational outcome.  After a settlement was reached, lawyers for the shareholder plaintiffs submitted their request for attorney’s fees of $4.25 million.  In reviewing the request, the Court was particularly focused on $1.5 million worth of work done by a single attorney who purportedly reviewed 48,000-plus documents in the case.  The document review attorney averaged 13 hours per day reviewing documents, which led to 6,905 hours of total billable time.  In a November 2016 ruling, the Court ultimately concluded that the requested document review fees were, “Unbelievable!”  The Court further explained, “It seems that the vast amount of work performed on this case was illusory, perhaps done for the purpose of inflating billable hours,”  The Court ultimately slashed the requested fees from $4.25 million to $450,000, and the plaintiffs’ lawyers subsequently appealed the ruling.

The ruling is part of a trend of courts cracking down on illusory or inflated billable hours in cases in which the plaintiff’s firm hopes to recover fees following a judgment or court-approved settlement.  We can hope that rulings such as this will be part of a greater trend in courts asking difficult questions of plaintiffs’ attorneys, such as:  Why did you have four lawyers at a meeting when one or two would have sufficed?  Why did you spend 20 hours reviewing documentation when a paralegal could have reviewed and summarized the documents in less than 10 hours?  And what makes you think your hourly rate should be $750 per hour when the market rate for your services is less than half that amount?

If the Court’s ruling in the Sprint shareholder suit had been the end of the story, it would have been a cautionary tale about padding hours and the courts’ willingness to scrutinize claimed fees.  But the November 2016 ruling was not the end of the story.  As the Wall Street Journal reported, the lead plaintiffs’ firm sent a letter to the judge in February 2017, advising that they had just learned that the attorney who had performed $1.5 million in document review – the attorney whose work had been the subject of significant scrutiny by the Court – was not lawfully entitled to practice in law.  He had been disbarred.  In 1987.

The lead plaintiffs’ firm advised the Court that they had only recently learned of the attorney’s status and had ended their employment relationship with the attorney and advised the local authorities as a result.  Further proceedings are ongoing in the Sprint shareholder action, and it is unclear what will happen to the settlement now that the bombshell regarding the attorney’s unauthorized practice of law has been revealed.

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