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In a recent ABI (American Bankruptcy Institute) article, John Theil, managing attorney of Stuart Maue’s bankruptcy group, writes about the “fair contemplation” test and attorneys’ fees claims.

His article focuses on the Castellino case and how the Ninth Circuit Court of Appeals affirmed the district court’s decision upholding the bankruptcy court’s denial of a post-discharge motion for attorneys’ fees. The underlying motion stemmed from pre-petition state court litigation brought by creditor against debtor. While the ruling was against the creditor, debtors should be keenly aware of the applicable law, as the Ninth Circuit’s detailed opinion makes it clear that the “fair contemplation” test can cut both ways.

For the full article, see News and Articles.

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Summary of Our Opinions
NALFA makes money by maintaining the appearance of a professional organization devoted to advancing the professionalism of the legal bill review industry. NALFA’s rating of companies’ legal bill review programs is devoid of credibility. NALFA’s rating system is designed to induce memberships by promoting its members and punishing its non-members, without any legitimate basis. NALFA’s rating system violates its own “Best Practices”.

NALFA and Its Membership Fees
The National Association of Legal Fee Analysis (NALFA) through its Executive Director, Terry Jesse, holds NALFA out as “a 501(c)(6) non-profit professional association for the legal fee analysis field”. It purports to have “introduced Best Practices in Legal Fee Analysis” and to offer “a Certificate in Reasonable Attorneys Fees, the nation’s first and only certificate of its kind”. According to NALFA’s marketing materials, NALFA’s “Best Practices” include the following 10 points:

1. Adhere to the proper standard of reasonableness.
2. Observe a proven and reliable methodology.
3. Keep updated on attorney fee jurisprudence.
4. Keep updated on attorney fee scholarship (i.e., studies, surveys, and reports).
5. Participate in professional development programs on attorney fees and legal billing.
6. Do not advertise false or intentionally misleading information.
7. Do not charge on a contingency fee basis (i.e. for the result obtained).
8. Do not accept a case where there is an inherent conflict of interest.
9. Keep all fee and billing information in confidence.
10. Utilize technology where possible.

NALFA’s marketing materials also state that “NALFA members are fully qualified”. NALFA charges a membership fee. Last November we were told the membership fee was $2,500 annually. The following February, we were told the annual membership fee was $4,500 and the following April we were told that the annual membership fee will “tick up to $7,500 in May”.

In response to solicitations by Terry Jesse, Stuart Maue had discussions with Mr. Jesse about becoming a member of NALFA but ultimately decided to not join.

NALFA’s Rating System
News blogs posted by NALFA earlier this year stated that NALFA had developed a rating program that rates legal bill auditing companies “by process, methodology, technology, personnel, customer service and leadership”. Last June, after we decided to not join NALFA, NALFA’s blog listed a number of “U.S.-based outside legal bill review programs”, including Stuart Maue, that NALFA was going to rate. The list also identified whether each company to be rated was a NALFA member or not. About a month and a half later, another NALFA news blog stated that “[in] 2010, NALFA established Best Practices in Legal Fee Analysis. These best practice measures help ensure integrity in the legal review process and reliability in the results. Yet some outside legal bill review programs in the U.S. may not be following these standards.” The blog went on to quote Terry Jesse as stating “[if] these legal bill review programs are not following Best Practices in Legal Fee Analysis, then they are outside the mainstream of legal fee analysis” and that “[after] 6 years, if these programs are still not adhering to these professional standards, then we’d encourage them to do so”. The blog went on further to list a number of companies, with Stuart Maue at the top, and stated that those listed are “U.S.-based outside legal bill review programs (their leadership in parenthesis) [that] may not be following Best Practices in Legal Fee Analysis” (underline ours). As far as we can tell, all listed companies were non-members of NALFA. A NALFA news blog that followed 8 days later identified three legal bill review programs, all NALFA members, as “the nation’s top legal bill review programs”.

Stuart Maue’s Evaluative Response to NALFA’s Rating
NALFA’s rating of our company clearly creates the impression that there is a legitimate factual basis to believe that our legal bill review program does not follow best practices. Yet had NALFA conducted a minimally credible investigation, it would have found that our legal audit program meets or exceeds NALFA’s “Best Practices” and that NALFA’s rating of our company is categorically false.

Our company was founded 30+ years ago and has been described by The Wall Street Journal as the pioneer of the legal audit industry. Our corporate headquarters is in St. Louis County, Missouri where we occupy over 10,000 square feet of office space and employ a staff of professionals. Our legal audit teams are headed by licensed attorneys (a feature notably absent from NALFA’s “Best Practices”) and include staff accountants. We have developed and refined a legal fee review methodology that is based on recognized standards of reasonableness and which we readily disclose. Our attorneys have testified in a variety of proceedings and our methodology has withstood scrutiny by courts and other tribunals. Our attorneys stay current on legal fee cases, have written articles, and have participated in other professional development programs. Our audit methodology relies heavily on automation. We have invested significant resources on computer hardware, software, and IT personnel. We never work on a contingency fee basis, we treat our matters confidentially, we avoid inherent conflicts of interest, and our advertisements are truthful and accurate.

No one from NALFA spoke with anyone at our company about our audit methodology. We are not aware that any of our clients received inquiries from NALFA about our company or our legal fee review program. We are not aware that NALFA contacted any non-member professionals who are familiar with our work.

Following the publication of the above blogs, Terry Jesse e-mailed our founder and CEO, Harry Maue, and told him that NALFA was going to do another story on Stuart Maue’s legal review program and asked him if he had “some time to talk”. In response our President/COO, Jim Quinn, sent Mr. Jesse numerous e-mails and voicemail messages stating that he and Stuart Maue’s senior legal auditor, Mike Brychel, would like to speak with him. Despite a few return messages from Mr. Jesse that he was available, he repeatedly put us off with one excuse after another, and ultimately made it clear that he was not going to talk to us.

We believe that Mr. Jesse refused to talk to us because he knew we wanted answers to the following questions:

1. What substantive work has NALFA done to justify it holding itself out as the preeminent organization representing the legal fee review industry?
2. What kind of facility does NALFA maintain and what kind of staff does NALFA employ? Specifically, is NALFA any more than Terry Jesse working out of his Chicago apartment?
3. What is involved in obtaining a NALFA Certificate in Reasonable Attorneys Fees? Are there any tests that have to be taken or any papers submitted? Has anyone ever paid to obtain a NALFA Certificate in Reasonable Attorneys Fees and not received it?
4. What kind of vetting of its members does NALFA conduct to ensure that they are “fully qualified”?
5. What methodology did NALFA’s rating system follow in evaluating the legal bill review programs of companies (there were at least 10 companies supposedly evaluated)?
6. Who conducted NALFA’s surveys and what qualifications do he/she/they have to evaluate companies’ “auditing process, methodology, technology, or personnel”?
7. How can NALFA evaluate companies’ legal bill review programs if it did not speak to people at those companies?
8. How was NALFA able to evaluate a company’s “customer service and leadership”? Did NALFA speak with clients of companies whose legal bill review programs were rated? Did NALFA speak with any non-member professionals familiar with the companies’ work?
9. What led NALFA to conclude that some of the companies it reviewed may not be following “Best Practices”?
10. What led NALFA to conclude that certain of its members are “the nation’s best”?
11. Did any NALFA members receive an unfavorable rating from NALFA? Did any NALFA non-members receive a favorable rating from NALFA?
12. What factors have caused NALFA’s membership fees to increase so dramatically in such a short period of time?
13. Who wrote NALFA’s blogs, including those that quoted Terry Jesse?

Our Opinions About NALFA
NALFA’s actions and Mr. Jesse’s refusal to speak with us has led us to form the following opinions:

1. NALFA makes money by maintaining the appearance of an organization devoted to advancing the professionalism of the legal bill review industry.
2. NALFA’s rating system is devoid of credibility.
3. NALFA’s rating system is designed to induce memberships by promoting its members and punishing its non-members, without any legitimate basis to do so.
4. NALFA’s rating system violates its own “Best Practices” by failing to observe a proven and reliable method of evaluating companies’ legal bill review programs.
5. NALFA’s rating system violates its own “Best Practices” by using advertisements that falsely create the impression there is a legitimate basis to believe that companies who received a negative rating do not, in fact, follow best practices in conducting their legal bill review programs.
6. NALFA violates its own “Best Practices” by failing to avoid conflicts of interest by rating its members that pay it substantial membership fees and non-members who don’t.

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