Quinn Emanuel Justifies Huge Fee With $384,000-Per-Hour Returns

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at a new way to value the work lawyers have done in class-action cases—and what paved the way for what might be the “most efficient” legal work in history. Sign up to receive this column in your Inbox on Thursday mornings.

Quinn Emanuel has new ammunition in its fight for a $185 million fee award, saying in a filing this week that every hour its lawyers worked on the case generated about $384,000 in returns.

That figure, according to a Harvard Law professor the firm hired to analyze the fee award, shows the firm’s work in the Obamacare case was perhaps the most efficient ever performed by attorneys in a large class-action.

Lawyers in 13 similarly sized class action cases generated about $10,000 in returns per hour on average, professor William Rubenstein said.

Does that figure show Quinn Emanuel lawyers were, as Rubenstein argued, “epically productive?” Or does it prove they’re getting a windfall?

That’s the question the judge overseeing the fee award legal fight, Kathryn Davis, will have to consider.

The fee fight comes after Quinn Emanuel won nearly $4 billion for health insurers who were stiffed by Congress when it decided not to pay them for selling new, risky policies mandated by Obamacare.

Quinn Emanuel filed the first case taking on the US government, but a separate challenge wound its way all to the Supreme Court, resulting in $12 billion in total payouts.

The firm’s clients won every dollar they sought. But Quinn Emanuel’s lawyers worked relatively few hours on the case—9,630 hours, to be exact. It’s the equivalent of fewer than five Big Law attorneys working for one year, hardly a massive undertaking.

In the 13 large class-actions Rubenstein compared to the case, no law firm had worked less than 37,000 hours.

Because Quinn Emanuel’s lawyers worked so few hours to generate such a huge reward, the case has teed up thorny questions about how lawyers’ work should be valued.

Do attorneys just sell their time? Or should courts reward the result lawyers achieve?

In the Quinn Emanuel case, technical considerations have also been in play.

The firm initially received 5% of the $3.7 billion award they won—roughly $185 million. That’s the figure Quinn Emanuel told clients they’d ask a judge to pay them.

It’s worth noting that a 5% fee on a contingency case is significantly lower than the 33% or 40% lawyers often charge.

But that fee got tossed when some of the health insurers appealed to the Federal Circuit. They argued Quinn Emanuel should be paid around $9 million.

The appeals court noted Quinn Emanuel told clients its award figure would be subject to a “lodestar crosscheck.” The Federal Circuit said that hadn’t been done and sent the case back to Judge Davis to consider that analysis.

This is how Quinn Emanuel described a lodestar crosscheck to its clients: “a limitation on class counsel fees based on the number of hours actually worked on the case.”

The lodestar method applies a multiplier to the attorneys’ hourly bill as a reward for success. It’s usually about 1.5 to 3 times the total bill in successful cases.

If Quinn Emanuel was charging its standard hourly rates, it says its lawyers would have been paid about $9.7 million for their work on the case. That means the firm is seeking a multiplier of around 19. (Rubenstein says the lodestar is closer to 10 when applying the firm’s newer, higher hourly rates.)

Just like the $384,000 in value-generated-per-hour, a lodestar multiplier of 19 is a serious outlier.

All of this makes the judge’s task a difficult one. Davis must decide whether to reward the firm for its most-efficient result, or compensate it for the relatively little time case took.

How We Got Here

These outlandish fee award figures made me wonder: What happened to create such a unique case?

Rubenstein’s $384,000 figure doesn’t just tell us something about the lawyers and the result they achieved. It hints at an underlying fact pattern that must be devastating.

The idea of the “most efficient” litigation in class-action history roughly translates to “the least effort to convince a judge of the most damages.”

What happened that required such little legal work to produce such a huge reward?

The answer can only be described as an unusual and epic failure by Congress.

As the US government careened toward a shutdown in late 2014, Congress cobbled together a massive funding bill to avert disaster. It included, of all things, a provision that limited the government from appropriating funds to pay subsidies promised to health insurers who participated in an Obamacare program known as “risk corridors.”

The program encouraged insurers to provide new health insurance plans to riskier patients by sharing profits and receiving subsidies from the government. In the end, the government racked up a bill of more than $12 billion.

Sen. Marco Rubio (R-FL) took credit for the provision, though other Republicans argued they were just as responsible, slamming what he called a “bailout” for insurers.

Without the payments, some of the health insurers went bankrupt. And premiums ballooned in 2017, largely due to the end of the program, according to a study by the National Bureau of Economic Research.

Even setting aside the dismal outcome for insurers and the insured, the rushed, sloppy work by Congress erased whatever political talking point that had been achieved: No taxpayer money was saved in the end. The Supreme Court held Congress can’t walk away from its debts by such a flimsy maneuver.

What’s left now is a big fight over how much lawyers should be paid for mopping up this costly blunder.

Worth Your Time

On Law Firms: At least 125 lawyers are leaving Lewis Brisbois Bisgaard & Smith to join a new labor and employment firm, Justin Wise reports. The leader of the new firm, John Barber, admits there “may be a little tension right now” with his old firm, though he considers his old partners “friends.”

On Law Firms II: Big Law firms are feeling pressure to downsize after they hired more lawyers amid declining demand in the first quarter, I reported. A survey by Wells Fargo’s Legal Specialty Group shows profit pressure continues.

On Judges: Christopher Yasiejko and Kelcee Griffis profile Judge Colm Connolly, who’s digging into litigation funding as chief judge of the US District Court for the District of Delaware. They write: “First as a prosecutor and now as a judge, Connolly, 58, is known as a tenacious investigator intent on getting to the bottom of murky details—even if he has to apply some muscle to do so.”

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.