Lawyer-Tax Case Erupts in Fee Fight

Georgia’s Supreme Court declared the City of Atlanta’s $400 per lawyer annual occupation tax unconstitutional in March, but lawyers now are fighting over fees, tax refunds and interest potentially worth more than $20 million. In Fulton Superior Court Judge Rowland W. Barnes’ courtroom last week, the dispute escalated into a clash of titans as name-brand trial lawyers, big firm partners and city attorneys sparred over how many lawyer-members of the class action qualify for refunds — an issue that directly affects how much all this will cost the city. They also fought over how much of the potential pot of gold the two plaintiffs’ lawyers should get. Two of Georgia’s top trial lawyers, Bobby Lee Cook and Thomas W. Malone, were called as experts to testify that the 33.3 percent in legal fees requested by lawyers for the class was fair and reasonable. The class lawyers are former Georgia Court of Appeals Judge Irwin W. Stolz Jr., of Winburn, Lewis, Barrow & Stolz in Athens, and Robert D. Feagin, of Decker, Hallman, Barber & Briggs in Atlanta. Large firm and defense lawyers who weren’t parties to the suit — “paid-by-the-hour” attorneys, as Malone called them — cross-examined Cook and Malone, asserting that the one-third fee they are requesting isn’t typical for class actions and pointing out that neither Malone nor Cook are class action experts. City Attorney Linda K. DiSantis and Senior Assistant City Attorney Lemuel H. Ward represented Atlanta. A MULTIMILLION-DOLLAR DECISION At stake is millions of dollars in refunds the city could owe. Atlanta’s potential payout ranges from less than $1 million to more than $13 million — not including interest. The final amount depends on how many lawyers Barnes determines are part of the class and which tax years will be refunded. The amount of interest the city will pay also is in dispute. The city argues that it should pay no more than 7 percent; plaintiffs’ attorneys contend the city owes between 9 and 12 percent. If class lawyers Stolz and Feagin prevail, Atlanta could owe $20.7 million in refunds and interest. And if the judge approves a legal fee of 33.3 percent of the refund amount, also called the “common fund,” they’ll earn $6.9 million in fees for 800 hours of work. That amount reflects refunds for all attorneys who paid the $400 tax from 1996 to 2003, plus interest, according to a brief filed by the plaintiffs’ attorneys. Those fees are excessive, said three lawyers who aren’t parties to the suit. Barnes, referring to the trio as the “objectors,” allowed them to make arguments and cross-examine the expert witnesses, reasoning that as Atlanta lawyers, they had standing as members of the class. The so-called objectors are J. Robert Persons, of counsel at Carter & Ansley; Robert B. Wedge, a partner at Shapiro Fussell Wedge Smotherman Martin & Price; and Joseph P. Henner, a Kilpatrick Stockton partner. The 33.3 percent fee is excessive, they argued. Though the objectors conceded that Stolz and Feagin assumed the risk of taking the case, they argued that discovery and depositions weren’t needed. Also, they argued, unlike in medical malpractice cases, Stolz and Feagin didn’t hire expensive expert witnesses. IT’S ALL ABOUT THE MONEY Malone, Cook and Rome attorney Robert M. Brinson of Brinson, Askew, Berry, Seigler, Richardson & Davis said he charged $375 an hour to testify that the fees were reasonable. According to the Daily Report’s calculations, using Stolz and Feagin’s interest and refund estimates, the fees could be as high as $8,625 per hour. But so far, no one knows how big an attorney occupation tax refund the city will be asked to pay. Barnes, who said he’d take all testimony under advisement, must determine that. Which lawyers are eligible for a refund is a key issue Barnes will decide. He certified two classes on Sept. 12, 2001, according to the state Supreme Court decision. Class I includes approximately 5,000 lawyers who paid the tax but didn’t demand a refund prior to class certification. They are certified for the constitutional claim only, but not for a refund. The constitutional claim was based on the argument that the tax was an unconstitutional precondition on practicing law. Class II includes lawyers who demanded a refund prior to certification. It is a substantially smaller class, numbering several hundred, according to testimony at the hearing. The city argues that paying only those who demanded a refund would cost well under $1 million, not including interest. The state Supreme Court decision specified which classes were eligible for a refund, based on Barnes’ certification, and DiSantis says it is clear that only Class II members should get one. City of Atlanta v. Barnes, No. S02A1478 (Sup. Ct. Ga. March 10, 2003). But Feagin and Stolz want to add additional members to the refund class, including all of Class I, after certification. “They argue all [lawyers who paid the fee] are qualified for a refund,” said City Attorney DiSantis. “We totally disagree with that. Our argument is, and we’ll submit it to the court, if they want to certify for a refund, they need to certify those lawyers for the purposes of a refund, not just for the constitutional issue.” Regardless of what Feagin and Stolz say, two large Atlanta firms argue that their lawyers aren’t part of the class and another says its lawyers will be part of the class only if Feagin and Stolz lower their fees. Powell, Goldstein, Frazer & Murphy says it doesn’t want to be part of the refund class because it can pursue its claim independently. O.C.G.A. � 48-5-380 lets counties or municipalities refund any taxes or license fees collected illegally, according to partner John M. Gross. Gross said his firm sent a letter to the city several years ago asking for a license tax refund and that Powell, Goldstein is pursuing its own settlement with the city. The firm is owed hundreds of thousands of dollars, he said, but it is willing to take a credit or settle for less. Also, Gross added, his firm’s demand letter was submitted after Stolz and Feagin’s classes were certified. John L. Coalson Jr., a partner at Alston & Bird, represents 343 lawyers who practiced there from 1995 to 1998. He wrote a letter objecting to the plaintiffs’ lawyers’ 33.3 percent fee request. His firm filed a claim prior to class certification, so his clients would be considered part of the refund class. But his firm argues that Stolz and Feagin should collect only 15 percent attorney fees for the portion of the class made up of A&B attorneys because those lawyers “had protected their own rights” and “not sat on their duffs,” Coalson said in an interview. If Atlanta is forced to pay only Class II refunds, Coalson said he’ll have less sympathy. But if it must pay Class I lawyers as well, then he said his firm would consider making accommodations with the city, meaning the firm may not ask for the full refund of its lawyers’ licensing taxes. Kilpatrick Stockton, on the other hand, won’t pursue a refund. That’s because the firm wants to help the city through its current fiscal crisis, said Henner, a partner there. Henner said his firm does work for the city. “It’s a pickle of a situation. The city of Atlanta is in a financial position where it’s raising taxes for the elderly for two well-known lawyers to get $5 million for 800 hours,” he said in an interview. “People need to know what’s going on. We certainly don’t want the city to pay money that we never asked for.” DiSantis said in an interview she hopes members of the bar would consider the financial situation the city is in. “The mayor and the city are trying to get back on their feet. They’ve got a lot of things going on, including difficult financial problems, she said. “I don’t know where the money is going to come from. If we had to raise taxes, that would be unfortunate.” DiSantis said Feagin and Stolz could have pursued their claims without filing a class action, especially considering the Supreme Court’s precedent in Henderson v. Carter, 229 Ga. 876 (1972), in which the court ruled class actions couldn’t be certified to sue cities over taxes. The court overturned Henderson in its decision about Atlanta’s lawyer tax. “I think it’s all about their attorneys’ fees,” she said. Assistant City Attorney Ward said in court he wanted to make sure the attorney fees came out of the common fund and weren’t tacked on top of the refund amount. He also said the issues of proper notice and the size of the class are tied up with attorney fees. A CLASS OF UNSUSPECTING PLAINTIFFS The lawyers also argued about whether most Atlanta attorneys were given proper notice of their membership in the class. On June 23, Stolz and Feagin ran a public notice in the Daily Report, announcing that any lawyers who wanted to opt out of the class needed to notify them by July 1. The notice also said that if a lawyer opted out, “expenses and attorney fees will nevertheless be charged against any tax refund to which you would be entitled, since you have been a member of the class during the litigation.” This clause drew criticism from the three lawyers who objected to the amount of attorney fees — Wedge, Persons and Henner. Wedge said the fee amounts to taking money from people who never agreed to it. Henner said he never knew he was a member of the class. “When I first saw the notice,” he said, “it said I was a member of a class, which would’ve been very difficult for me because I’m an attorney representing the city in construction [matters].” He said lawyers at his firm, Kilpatrick Stockton, “never filed a demand, so the refund for us was never in play, we believe. We are not lay people who were buying a truck. We are lawyers, and we were never given notice that we were suing the city.” In his closing statement, Stolz said he was “dismayed Henner [and others] didn’t know about the class,” due to the “front page” news coverage the Daily Report had given the case. To which Henner called out, “I didn’t know I was a member of the class.” The judge quieted the courtroom and Stolz continued, arguing that lawyers who want to opt out “shouldn’t be unjustly enriched by our work and retain one hundred cents on the dollar” if they later claim their refund. Persons called the notice “untimely” because it was published 18 months after Barnes certified the class. It should have been published immediately, he said. “Unnamed class members are told either buy-in or opt-out, but either way you pay the fees,” he said. “There’s a paucity of Georgia law on this, I admit. … The ground rules are clearer in federal court. … It bothers me greatly that … notice wasn’t given to the class.” Barnes acknowledged that he might not understand some distinctions of Georgia class action law. He gave Persons until Wednesday to provide him with a Georgia case or statute that requires the type of notification Persons wanted. The expert testimony of Malone, Cook and Brinson on the 33.3 percent fee provided some colorful courtroom exchanges. When Feagin asked if contingent fees have anything to do with time spent, Malone replied, “After the fact, yes. I’m sure I’ve made less than minimum wage on some, and [on] others [have been] paid exorbitantly. Clients, if paid handsomely, never complain about fees, in my experience.” During Persons’ questions, Malone noted, “You wouldn’t be here opting out if they hadn’t done their work.” Barnes then quipped, “Isn’t there a song, ‘Someone gets the gold, someone gets the shaft?’” To which Stolz replied, “Johnny Cash, judge.” Southern fashion also elicited some courtroom chuckles. When Feagin asked Bobby Lee Cook to come to the witness stand, Feagin said: “I’d like to congratulate him on that suit.” Cook and Feagin were wearing similar blue and white-striped seersucker suits. Stolz joked, “They’re having a competition on who looks more like Matlock.” The television legal drama about an Atlanta lawyer, “Matlock,” played by Andy Griffith, was widely believed to be inspired by Cook. The objectors acknowledged that they were bothered by needing to cross-examine such prominent bar members as Cook and Malone. Said Wedge: “I don’t like to cross-examine lawyers whom I admire.” Persons, though acknowledging that Cook and Malone have “far greater stature” than he does, still got Malone to admit he’s not an expert in class actions.