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A federal judge has ordered the insurers who lost a surety bond litigation to pay attorney fees of almost $37 million, pursuant to an unusual 10 percent “success fee” arrangement between the winning party and its lawyers. In July, federal Judge John G. Koeltl of the Southern District of New York awarded about $333 million plus attorney fees to Braspetro, a unit of Brazil’s state-owned oil company Petrobras, which had sought payment of surety bonds issued by United States Fidelity & Guaranty and the American Home Assurance Co. to guarantee performance of two oil-production-related construction projects in Brazil. New York-based Cameron & Hornbostel led the representation of Braspetro, supported by lawyers from New York’s Fox Horan & Camerini. Both firms agreed to cut their hourly rates by 20 percent in exchange for 10 percent of any recovery, less the hourly fees paid to date. “This success fee was wholly reasonable,” wrote Koeltl in United States Fidelity & Guaranty Co. v. Braspetro Oil, 97 Civ. 6124 (JGK). “It provided an incentive to the lawyers to succeed in the litigation, but the litigation was hard fought and there was no guarantee of success.” In deciding the reasonableness of the success fee, Koeltl noted that the recoverable attorney fees were limited by the terms of the surety bonds themselves, and the award of $36.7 million in attorney fees did not fully reflect the 10 percent success fee, as it also included almost $11 million in expenses. The judge also noted that courts have long upheld far larger contingent fees as reasonable. The four firms representing Braspetro and two Japanese banks that provided financing for the projects billed about $13.5 million since the beginning of litigation in 1997. The firms representing the banks, New York’s Schindler, Cohen & Hochman and the Brazilian firm Tostes, Schver & Associados Advagados, did not have a success-fee arrangement. Howard Vickery, a partner at 15-lawyer Cameron & Hornbostel and the lead trial lawyer for Braspetro, said his firm was responsible for the majority of the billings. He said the firm agreed to the success-fee arrangement partly because it was a common arrangement in Brazil, where the firm has substantial contacts with local companies. At the time, the expectation was that the insurers would settle, not that the litigation would go on for the next five years. Noting that Petrobras routinely used much larger firms like Clifford Chance and Linklaters, Vickery said his firm’s willingness to undertake such a fee arrangement may have encouraged the Brazilian oil giant to work with the small firm. “They could easily have gone with a bigger firm,” said Vickery. “We’re grateful they stuck with us.” Given the amounts awarded, Vickery said he expected an appeal from the two insurers, who were represented by Philadelphia’s Wolf, Block, Schorr & Solis-Cohen, but he said he was confident Koeltl’s rulings would stand. Ian L. Strogatz, the Wolf Block partner who represented the insurers, did not return calls seeking comment. The sureties had argued in the trial court that the oil company should not be able to recover attorney fees for efforts it argued were not directly related to the issue of the insurer’s liability under the bonds. OIL DRILLING PLATFORMS The originating lawsuit arose from two projects to convert oceangoing supertankers into offshore oil-drilling platforms for Braspetro. Both projects encountered massive delays and cost overruns, which Braspetro blamed on underbidding by the contractors. Braspetro declared the construction contracts to be in default and demanded the surety issuers cover the cost of the overruns. The issuers sued in the Southern District to avoid payment. Related litigation is still pending in the Brazilian courts. Contingency fees of any kind are still unusual in the context of general commercial litigations. Vickery said he was aware of only one other case involving a similar success-fee arrangement, though that case involved much smaller fees. Koeltl cited that Southern District case from 1996, Colli v. Wirth, 94 Civ. 3324, in his order.

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