Former Qwest CEO Joe Nacchio Sues Trial Counsel For Negligence and Overbilling

Former Qwest CEO Joe Nacchio, still serving a 70 month sentence on his insider trading conviction, has sued his chief defense counsel, ex-U.S. District Court Judge Herb Stern and his firm, Stern & Kilcullen LLC (including partner Kilcullen) for negligence in representing him and for overbilling.

The firm billed Nacchio more than $25 million to defend criminal and civil matters, charging tens of thousands of dollars for staff breakfasts, attorney underwear and in-room movies during the trial in federal court in Denver, according to the complaint in state Superior Court in Newark, New Jersey.

On the negligence, Nacchio alleges: [More...]

“Among other things, they were barred by the trial court from calling a critical expert witness by virtue of their blatant failure to comply with basic litigation procedures.”

I didn't think there was a "blatant failure" to comply with the rules. I explain the issue here. And see the amicus brief on the issue filed by NACDL here. More importantly, considering a three judge panel of the 10th Circuit Court of Appeals sided with Nacchio on the issue (an opinion later reversed after the the court decided to reconsider the issue en banc) it's hard to see how his lawyers' position, even if wrong, amounted to gross negligence. The three judge panel found the criminal and civil rules are different and that Nacchio had complied with the criminal rule. It also said the Judge was wrong to exclude his expert's testimony without an opportunity to brief the issue or a hearing at which the defense could present evidence. The 10th Circuit en banc opinion reinstating the conviction, was decided by a 5 to 4 vote. The opinion is here. Some analysis is here. From the dissent:

The flaw in the government’s argument is that the rules of criminal procedure, unlike the rules of civil procedure, do not require a criminal defendant to establish the foundation for expert testimony through advance written submissions. Unless the criminal defendant is otherwise directed by the district court—something which did not happen here—he may establish the foundation for witness testimony by putting the witness on the stand for voir dire examination. The defendant responded properly to every motion made by the government, and nothing in the conduct of the defense can reasonably be construed as abandoning or forfeiting his right to establish the reliability of the expert evidence through testimony. It was the district judge, not defense counsel, who misunderstood the procedural rules.

I don't see the negligence argument winning. As to the over-billing, while $25 million is a lot to pay for representation, Nacchio agreed to it and could afford it. It was his decision to retain a team of out of state counsel and he knew he'd be paying for their travel expenses. The fee agreement should have specified what travel expenses are included.

On the one hand (and I don't know if this happened or not) if the team had flown out for a Friday hearing, expecting to return home for the weekend, and the Judge extended the hearing to Monday, requiring the team to stay over, they would need underwear. Should they have charged the client for it? While you could say they probably wouldn't have bought new underwear but for the judge's unexpected order to return Monday, and it was cheaper to buy underwear than fly home to New York and back to Denver on Sunday, you could also argue that when you're charging $600 or more an hour, springing for a few pair of underwear shouldn't be a burden. Same for dry-cleaning and food.

The in-house movies, on the other hand, clearly should have been deducted from the hotel bills before being expensed to Nacchio. I wonder if this wasn't an oversight by the law firm's billing staff who failed to parse the bills, separating out personal expenses from client reimbursable expenses. If so, it's the firm's fault, but it should be able able to be rectified short of a lawsuit.

Bottom line: While "I see London, I see France, But I'm not going to pay for your underpants" makes for an engaging headline, the real issue is whether Team Nacchio's stategic decisions on the expert witness issue were grossly negligent, or even negligent.

The law firm has malpractice insurance, and I suspect at some point the insurance company's lawyers will enter a settlement with Nacchio, returning some of the fees.

All of our coverage of Joe Nacchio's case is accessible here.

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    A long comment, one I think you'll appreciate (5.00 / 2) (#5)
    by scribe on Fri Mar 25, 2011 at 11:33:33 AM EST
    I saw this post this morning and felt compelled to write a comment, which turned out to be rather lengthy.  In the past, I've done legal malpractice cases from both plaintiff's and defendant's sides and figure my $0.02 might be of some assistance.  

    I'll start by stating my conclusion:  I think Stern's office is trying to collect their bill and Nacchio, sitting in jail, does not want to pay it.  After all, he paid a lot already and he's sitting in jail, so why should he pay more.  It's an article of faith among attorneys that the surest way to generate a malpractice suit is to sue your (losing) client for his unpaid bill.  I also suspect that Nacchio and Stern's firm tried to work it out, but finding underwear and in-room movies on your legal bill is the kind of thing that will set any client, particularly an incarcerated one, over the edge.  Like I said a couple weeks ago on this site about Charlie Sheen and his egregious behavior being a way of renegotiating his contract (note, too, that the most recent reports have been he and the producers are deep in negotiating a new deal for his services), I think this is Nacchio's way of cutting down on his bill.  Nacchio hired a pretty good firm to represent him;  they are experienced in large-value personal injury and malpractice cases.

    Fairness and sophistication.
    New Jersey holds a pretty tight leash on attorneys and their fee agreements, and does scrutinize both the retainer agreements and the bills themselves for fairness.  

    From a reference book:  "An attorney's unprofessional conduct is a factor to be considered where the attorney's fee is to be determined on a quantum meruit basis. See Straubinger v. Schmitt, 348 N.J. Super. 494, 500, 504 (App. Div. 2002)."

    From the Straubinger case:

    It is fairly well established that an attorney's violation of the Rules of Professional Conduct (RPC) in connection with the representation of a client may jeopardize that attorney's right to collect fees for services rendered. In Cohen v. Radio-Electronics Officers Union, 146 N.J. 140, 155-56 (1996), the Supreme Court stated:
    [A]n attorney's freedom to contract with a client is subject to the constraints of ethical considerations and [the Supreme Court's] supervision....
    Agreements between attorneys and clients concerning the client-lawyer relationship generally are enforceable, provided that the agreements satisfy both the general requirements for contracts and the special requirements of professional ethics. An otherwise enforceable agreement between an attorney and client would be invalid if it runs afoul of ethical rules governing that relationship.
    [citations omitted].
    At issue in Cohen was whether a one-year renewable retainer agreement between an attorney and client was enforceable. Supra, 146 N.J. at 144-45. The retainer agreement provided that the client had to give the attorney six-months notice before termination. While the Court determined the agreement burdened the right of the client to discharge the attorney, the Court held that the attorney was entitled to recover in quantum meruit for the reasonable value of the services provided. Id. at 164.

    The retainer agreement in the Cohen case, 146 N.J. 140 (1996) was one where the union hired the attorney for certain rate but required six months' notice to terminate the attorney's services.  This agreement could have left the client union quite susceptible to being milked by an unscrupulous attorney - not that such actually happened because, as the Supreme Court noted, the union was a sophisticated client that bargained for a reduced hourly rate in exchange for a longer termination period.  As a contract it would have been unremarkable but, because it was a retainer agreement for legal services, it was subject to heightened scrutiny by the courts.

    That's the way NJ handles these things - they scrutinize retainer agreements for fairness and usually resolve a tie in favor of the client because they consider attorneys to be professionals and fiduciaries, not businessmen. Stern's firm will surely call Nacchio a sophisticated client, but that's in matters of business.  In matters of being a criminal defendant - not so much.  

    So, I suspect, charging underwear and in-room movies to the client bill is unacceptable.  What else will be unacceptable, I dunno.  Whether the court ever gets to rule on that, though, is another matter.  Nacchio may have been too late.

    Statute of Limitations
    I wonder whether Nacchio will be found to have been too late.  New Jersey is a "filing" state - a critical date for statute of limitations purposes is when the complaint is filed with the court.  The other critical date is when the client became aware of the alleged harm heclaims to have suffered and that it may have been related to the legal representation.  

    McGrogan v. Till, 167 N.J. 414 (2001) is a leading case on the statute of limitations for legal malpractice actions, and it holds that the statute is six years.   (Please note that there have been within the last year or two discussions going on to make the general statute of limitations for all legal malpractice cases two years.  I don't know where/how those discussions have progressed.)

    In short, McGrogan was represented first by Till when McGrogan was alleged to have participated in a municipal bribery scheme.  Till, allegedly, had a policy of not allowing clients to cooperate with the government under any circumstances, which McGrogan alleged, led directly to his indictment, one of the injuries he complained of.  As the case wore on, he wrote a letter to the court in the spring of 1991 (25 months after his indictment) in which he stated he felt he'd been harmed by Till's representation.  While McGrogan filed his complaint more than 6 years after the first event he alleged was malpractice, the indictment, he also was more than 6 years after the last event, the letter.  Since the general rule is that a malpractice claim does not accrue (and the clock does not start running) until the client is aware he has been harmed by the alleged malpractice.  The letter would have evinced that awareness, even though the conviction did not become final (upon sentencing) for over a year more.  He filed more than 6 years after the letter, but less than six years after the conviction was final.  But, he was too late, according to Till.  The Court agreed with Till.

    Do not be led astray by the New Jersey Appellate Division's earlier opinion in this same case, 327 N.J. Super. 595;  it was one of those cases where the court reached the "correct" result (here, dismissing the case) but for the "wrong" reasons.  There, they said the length of the statute depended on the kind of injury alleged, picked a two-year statute, and made a potential mishmosh out of the law.  And they said the malpractice case had accrued in 1989 when McGrogan was indicted, a conclusion which the Supreme Court did not accept.  If the Supreme Court had accepted that, then McGrogan's case for malpractice would have accrued and the statute expired before he ever wrote the letter to the Court complaining about Till, well over a year before his conviction became final.  

    Given the length of the proceedings in Nacchio's case, calculating when the statute of limitations began to run for which claim will be a difficult matter, complicated by the question of whether the inevitable delays caused by appeals will toll the statute or not and complicated further by the en banc reversal in the Tenth Circuit on the expert witness issue.  I can't predict or opine as to whether or how this will shake out.  I don't think anyone can - it's going to be too factually-sensitive.

    "Guilty as hell."
    In McGrogan v. Till, though they devoted a full third of their opinion to kicking around the question, the Appellate Divison explicitly declined to rule on whether exoneration was required for a criminal defendant to sue his lawyer for malpractice.  

    But, given cases in analogous contexts, I suspect the defense to alleged legal malpractice called "he was guilty as hell" will have some substantial force.  Anyone who failed to make the argument would themselves be guilty of malpractice.  In the context of suing criminal defense counsel for malpractice, "he was guilty as hell" is just an outgrowth of the doctrine of tort law which says that if there was negligence but it didn't proximately cause the harm complained of, the negligent person is not liable.  Relatively recent cases like Heck v. Humphrey, 512 U.S. 477, 486-487 (1994), require a person's conviction to be nullified (by reversal on appeal, pardon, calling into question through habeas) as a prerequisite to maintaining a civil rights action for wrongs related to the arrest and conviction.  I would suspect the same general principle would obtain in the legal malpractice context - that a person convicted would have to have his conviction nullified to succeed in suing his allegedly malpracticing attorney for the malpractice which landed him in prison.  Even though it is dicta, the discussion in McGrogan seems to put a real hurt on Nacchio's case because it indicates the direction the courts were/are going.

    So, I suspect things will ultmately shake out in some form of a reduction of Stern's bill.  It's hard to prove malpractice in the first place, and the mess the Tenth Circuit made of the law on the appeals can only help the defense.  I still remain of the opinion that Nacchio was only prosecuted pour encourager les autres because he would not allow QWest to go along with the Bush/Cheney warrantless wiretapping, and that every time he litigates (or is compelled to litigate) that invisible thumb will land on the scales and against him.

    Awesome post (5.00 / 1) (#6)
    by jbindc on Fri Mar 25, 2011 at 12:48:38 PM EST

    perhaps, (none / 0) (#1)
    by cpinva on Fri Mar 25, 2011 at 07:37:31 AM EST
    hanes will come out with a new line underwear:

    "Hazards of Litigation Briefs"

    That does seem a serios flaw (none / 0) (#2)
    by Big Tent Democrat on Fri Mar 25, 2011 at 09:50:32 AM EST
    in the Tenth Circuit's en banc opinion - if no rule required it, what was the basis for the ruling?

    I suppose I need to read it, but on its face, it seems an absurd decision.

    Rule 26 of the FRCivilP requires written reports for experts who will be called at trial.

    It's interesting that the criminal procedure does not mirror this requirement, but it appears it does not.

    Very strange.

    However (none / 0) (#3)
    by Big Tent Democrat on Fri Mar 25, 2011 at 10:11:02 AM EST
    Footnote 2 of the majority opinion states:

    "Whether the district court viewed the operative criminal discovery standards as being roughly conterminous with civil discovery standards, and therefore erred in its Rule 16 determination, is not--as the principal dissent suggests--material to our resolution of this matter. See Dissenting Op. at 2-5 (McConnell, J., dissenting) [hereinafter Dissenting Op.]. As discussed further herein, by the time the district court issued its exclusion ruling, the front-and center issue was the reliability of Professor Fischel's proferred expert testimony under Daubert and FRE 702, and it was upon that ground that the district court
    primarily acted to exclude Professor Fischel's testimony, concluding that Mr. Nacchio had failed to make an adequate showing that the testimony was reliable."

    This actually buttresses the defense available to Nacchio's former lawyers it seems to me as the expert testimony was rejected on the merits, not because of a procedural issue.


    Cry Me a River (none / 0) (#4)
    by ScottW714 on Fri Mar 25, 2011 at 10:22:50 AM EST
    So give him back the cost of the undies and movies, what maybe $10,000.  Probably a tenth of what it's costing to go after them.

    No sympathy from me for a man who can afford a $25M defense, he's just pissed he lost.

    Mad as hell (none / 0) (#7)
    by norris morris on Sat Mar 26, 2011 at 02:17:36 PM EST
    He's lost and serving time and angry at his lawyers.  I think he knows its not about millions of $$$.

    Considering what they charged him that's not hard to understand. Whether he received an adequate defense, I dunno.

     But these lawyers  acted like piggies when they had  a big one.  Even when they have a small one legal time and cour costs are one thing, and expenses another.

    New underwear .....Undies For Defense.