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Lead Them Not Into Temptation

The problem for many big corporations, insurance companies, financial institutions and even consumers to a lesser degree is that it is easy for a lawyer to lead them into temptation.  To the lawyer it is the means of getting paid more per case.  To the entity it is the feeling of feeling vindicated, even if the final result does not necessarily turn out that way (kind of like the last act of defiance).

We all know lawyers that do this.  Not only do we know who they are, they know who they are.  They probably live a little better than the rest of us, they are never in their offices because they are always in depositions somewhere, and they probably have the best hourly and collection rates around.  In East Texas we say that they are "Board Certified in Billing".

From my perspective typically representing the Plaintiffs, it comes at me this way.  "My client does not think it did anything wrong".  Or, their client wants to argue that a 1949 decision out of Puerto Rico represents a line of cases that represents good law, even if it goes against every decision in the circuit in which the suit resides.  Or, the one I love the best, is that the attorney is concerned not for his client, but what message this sends if he allows his client to settle this claim.  There is of course the so-called "Wal-Mart Defense" in which not only will there be no settlement, they will try to bury you regardless of the costs, for the principal of the thing.  It has to be the delight of those attorneys who think to highly of themselves to convince their clients that this is a viable option.

The problem for many big corporations, insurance companies, financial institutions and even consumers to a lesser degree is that it is easy for a lawyer to lead them into temptation.  To the lawyer it is the means of getting paid more per case.  To the entity it is the feeling of feeling vindicated, even if the final result does not necessarily turn out that way (kind of like the last act of defiance).

We all know lawyers that do this.  Not only do we know who they are, they know who they are.  They probably live a little better than the rest of us, they are never in their offices because they are always in depositions somewhere, and they probably have the best hourly and collection rates around.  In East Texas we say that they are "Board Certified in Billing".

From my perspective typically representing the Plaintiffs, it comes at me this way.  "My client does not think it did anything wrong".  Or, their client wants to argue that a 1949 decision out of Puerto Rico represents a line of cases that represents good law, even if it goes against every decision in the circuit in which the suit resides.  Or, the one I love the best, is that the attorney is concerned not for his client, but what message this sends if he allows his client to settle this claim.  There is of course the so-called "Wal-Mart Defense" in which not only will there be no settlement, they will try to bury you regardless of the costs, for the principal of the thing.  It has to be the delight of those attorneys who think to highly of themselves to convince their clients that this is a viable option.

$100 Million Bankruptcy Attorney - I Doubt It

CNNMoney reviewed what it might cost to build the $6 Million Man, who was played on TV by Lee Majors in 1974 in today's dollars.  It is a strange comparison because there really was not a $6 Million Man in 1974. There was only just an estimate of what it would take to put Lee Major's back together as one if it were possible.  And, let us face the fact that in 1974 we all thought $6 million was a heck of a lot of money.  As frivolous as money has become today (even though we do not have it) $6 million seems like chump change almost.

Nonetheless, in 2008 inflation adjusted dollars, Lee Majors would be the $26 Million Man.  But, the real cost of a modern-day cyborg in 2008 would be quite different, according to Greg Chirikjian, professor of mechanical engineering at The Johns Hopkins Institute and a big fan of the original TV show.  According to Chirikjian, research and development costs to design a bionic man would be $50 million to $100 million today. But with a completed design, production costs would only be several hundred thousand dollars per person.

What I find interesting about this discussion is that in 1986, for example, an attorney was allowed to be paid $2,500.00 in legal fees through the Chapter 13 Plan to represent a family in a Chapter 13 bankruptcy in the Eastern District of Texas.  Today, even with the extraordinary new requirements to which an attorney must plan and respond, that fee is now only $3,000.00.  Considering the inflation adjusted costs only that fee should likely be about $9,000.00 today. It is not.  And, if you consider the additional work, it should be higher still.  Judges say that consumers cannot afford these fees over a 5 year period.  However, they were able to pay the equivalent in 1986, and a larger percentage of bankruptcies survived to completion at that time.

Barrett Burke Wilson Castle Daffin & Frappier (BBWCDF)

At what point does the law firm of Barrett Burke Wilson Castle Daffin & Frappier become toxic?

Let me say that I have known Mary Daffin for years.  She is one of the most gracious and upstanding people that I know.  She has achieved wonders helping this firm grow into the powerhouse that it is.  She has always been open, honest and above board with me.  The problem is, due to the size of the law firm, and the enormous duties undertaken, we do not get to deal with Mary Daffin.  So we have to say, despite Mary Daffin, that with every hit the firm takes and with sanction it receives, BBWCDF seems to redesign itself into some organization that is more discordant, more shrill, more mischievous, more authoritarian, and more impervious in its approach.

This now is nowhere more evident than in how it has decided to handle its adversary proceedings.

Undisclosed Fees Charged By A Mortgage Company Both Before And After Confirmation Can Constitute Compensable Violations

The scenario is that debtors file bankruptcy, typically a Chapter 13 bankruptcy.  They might pay an arrearage on the home through the plan.  They pay their mortgage payment direct through the plan, meaning the ongoing mortgage payment is included in the plan, but either by the debtors or through the trustee in some jurisdictions the current house payment is being made directly.  The mortgage company continues to add charges while the bankruptcy is pending for drive by inspections, attorneys' fees, certain late penalties, and the like.  However, the company does little to disclose these to the court.  The result is the mortgage company is laying in wait -- hiding -- while these fees build (sometimes called "escrow arrearages") until the bankruptcy is discharged.  Then the mortgage servicing company (which is often not the same one as when the bankruptcy was originally filed) makes a demand for these fees, and the accrued interest from the fees.  Sometimes the mortgage company makes a demand for back house payments when the past mortgage payments were first applied to paying these fees, costs and expenses.  In any event, if not paid after discharge the mortgage company threatens foreclosure.

For years bankruptcy attorneys have been trying to figure out how to effectively deal with this matter, because the situation exists to some extent in nearly every Chapter 13 bankruptcy in which a mortgage is involved.  What complicates the matter for both the attorney and the client is deciphering the long -- often erratic -- payment history since the filing of the bankruptcy.  It takes an untold number of attorney time to get this accomplished, and there is a question of how to get paid, and how to get the matter resolved.  In this, there might now be hope.

Two Houston bankruptcy courts have tackled this issue with different opinions of which laws are violated, but essentially reaching the same conclusion -- these fees must be disclosed by the filing of a 2016(a) fee application with the court or they are likely (1) per se unreasonable, and (2) constitute violations of the Bankruptcy Code, the orders of the Court, and possibly the injunctions of the Court.

Credit Union Will Not Quit Contacting Debtor And Is Sanctioned Over $13,000

Wendelin I. Lipp, the United States Bankruptcy Judge for the District of Maryland sanctioned Navy Federal Credit Union $3,464.50 in actual damages for attorneys' fees and $10,000.00 in punitive damages for continuing to call and send correspondence to the debtor once being informed of the debtor's Chapter 7 bankruptcy filing.  (You can find the Order Awarding Damages by clicking here).  The debtor's bankruptcy attorney contacted Navy Federal both before and after the debtor filed her Chapter 7 case.  Despite this the Credit Union contacted Ms. Price by phone 10 times, by mail twice and they came to her house once.  Judge Lipp considered it a blatant disregard of the automatic stay.

Basketball Star Or No, You Cannot Throw Parents In Jail For Back Child Support When Seeking Reorganization Through Bankruptcy

There is a terrible tendency among family or domestic relation lawyers who have a child support collection matter pending before a Chapter 11, 12 or 13 bankruptcy is filed to allow the momentum of the state court collection process to continue, acting like it is out of their control.  Also, family law attorneys want to believe they are not labile in these situations, and that bankruptcy judges are loath to punish the ex-spouse just trying to collect the child support they are rightfully owed.

I am not completely sure why this dynamic continues to take place. But, too often family law attorneys who wear binders and some arrogant state law judges who think they can find creative ways to ignore the bankruptcy process.  All the while some debtor is being improperly punished, the bankruptcy estate is being harmed, and everyone involved is blaming the other and waving their hands up in the air say, "we didn't know".  It is right to say that most or many bankruptcy judges do not buy this argument.  They are not likely to punish the judges involved and they do not have to do so.  They can punish the ex-spouse and the ex-spouses lawyer, and they often do so.  Spouses owed child support and their collection attorneys should not rely on a bankruptcy judge to ignore the clear meaning of the law as a potential defense. 

Are You Just Banging Your Head Against The Wall?

Today I attended a seminar put on by the Houston Association of Debtor Attorneys (HADA).  What I learned illustrates a point I have been trying to make for a long time.  It is not only how much you charge, or how hard you work, but whether or not you are actually getting paid for your services.  If you are working hard and you are not getting paid, you are are banging your head against a wall.

The issue concernes Chapter 13 bankruptcy practice.  There is a bad tendency among lawyers, and especially among solo consumer bankruptcy counsel in particular, to market bankruptcies for little or no money down.  Amazingly, there is a tendency for these attorneys to fight the imposition of wage withholding or pay orders, which requires the Chapter 13 payments, on which the attorneys rely to get paid, to be taken out of the debtor's payroll by the employer and sent directly to the Chapter 13 Trustee.  What we learned is that it is a fools game.

First, in my opinion, it is a fools game because these attorneys have allowed pricing and fees, and how they are paid, to become the differentiator they use to market their services, thereby attracting clients which are less likely to pay the trustee (read, pay the attorney for his or her services).

Second, and more importantly, these attorneys are not getting paid. They must be starving in fact.  Of those clients who do not have wage withhold orders, the attorneys are only collecting their entire approved fee in 18% of the cases they file.

Just as shocking, in Chapter 13 cases in which there is a wage withholding or pay order in place, the attorneys are only getting paid their full approved fee in 82% of these cases.  I say only, because this means in even the best Chapter 13 cases attorneys are losing a good portion of the fees in 18% of these cases as well.  This speaks to the fact that these attorneys simply cannot afford to take cases for no or little money down.  They cannot use pricing and fees as a market differentiator if they hope to make a reasonable living from this vital work.

And, the problem is not simply limited to consumer bankruptcy cases. Too many lawyers, and especially too many solo attorneys, are putting too much of their fees at risk.

Will you initially lose clients if you quit using price and fees as a market differentiator?  You bet.  But, what is the cost?  In the consumer bankruptcy example, why are you not willing to give up those cases which only afford you a chance to make money in 18% of them?

Going Bankruptcy Rates for 2007

Steven Pollak, Assistant Editor of Digital Content at Daily Report, has advised me of the 2007 fee report for bankruptcy practitioners around the Country.  The map is shown below.  However, Akin Gump is shown for Houston, Texas at $625.00 per hour.  The Texas portion of the report on bankruptcy fees can be found here.  However, in Dallas Henry Gompf with Jones Day is the highest at $725.00 per hour.

Going Bankruptcy Hourly Rates From Around The Country In 2006

Law.Com's Daily Report has uncovered the hourly rates for bankruptcies of big named law firms around the country.  See the map below:

APPLYING A BLEND RATE FOR FEES OF SOLOS AND SMALL FIRMS IS NOT APPROPRIATE, NOR IS REDUCING THE FEE BECAUSE AN ATTORNEY IS A SOLO PRACTITIONER

In a key decision out of the United States Court of Appeals, Second Circuit, the panel ruled in a federal fee-shifting case that courts (1) cannot apply a fictional blended billing rate to a solo practitioner who assists his client in prevailing in the case, and (2) should not reduce fees from the prevailing rate because the attorney is a solo practitioner or a member of a smaller firm.

In McDonald v. Pension Plan, 450 F.3d 91 (2nd Cir. 2006), New York attorney Edgar Pauk successfully represented James McDonald in a suit charging that the former longshoreman's union pension plan failed to properly calculate the years in which he accrued benefits.

Pauk had requested $425 an hour for his work, but Southern District of New York Judges Naomi Reice Buchwald and Kevin P. Castel, who presided over different portions of the case, set respective hourly rates of $325 and $390.  The 2nd Circuit panel vacated Castel's award on the grounds that he inappropriately applied a blended rate.  Such a rate is intended to take into account the different billing rates of partners and associates within a firm, but the appeals court said it had never before seen a blended rate applied in the case of a solo practitioner.

In other words, to determine his fee award, the panel noted, the District Court Judge "analogized Pauk's situation to that of a large law firm" and "created the hypothetical 'Pauk & Associates' -- comprised of one experienced ERISA litigation attorney and a hypothetical group of inexperienced associates -- and decided on [his] own which tasks should have been done by respective members of the hypothetical firm."

Thus, though all of the work was performed by Pauk, Castel decided some of the work merited a "partner" rate of $500 an hour while work that would have been delegated to junior associates in a larger firm merited a lower rate.

The 2nd Circuit said determined that playing this type of fiction was just wrong.

"There is simply no support for the proposition that a district court can decide what legal tasks could have been done by a hypothetical associate attorney working for or with Pauk in order to calculate a blended hourly rate of $390," the court said in its unsigned opinion.

The panel approved Buchwald's award and agreed with her reduction of Pauk's requested rate based on her finding that his performance "though effective, was less than stellar." The trial judge had found the lawyer frequently inefficient and "occasionally vexatious."

The appeals court also noted that Buchwald felt it was "of great significance" that Pauk was a solo practitioner with lower overhead costs than a firm.

Though the 2nd Circuit did not reject this finding, it cautioned in a footnote "that district courts should not treat an attorney's status as a solo practitioner as grounds for an automatic reduction in the reasonable hourly rate."

The panel said overhead was not in itself a valid reason for courts to assign higher or lower rates, though it said overhead could be considered as a valid explanation of why some lawyers charged more for their services. But the appellate court said solos with presumably lower administrative costs could also merit a high hourly rate.

"Indeed, it may be that in certain niche practice areas, attorneys of the highest 'skill, expertise and reputation' have decided to maintain a solo practice instead of affiliating themselves with a firm," the court wrote. "The reasons for doing so may be numerous, including the inherent problems of high overhead, fee-sharing and imputed conflicts of interest."