Fee disputes between insurance companies and their outside counsel are far from uncommon these days. Even so, one would have to look long and hard for one as nasty as the litigation between Liberty Mutual and one its New York law firms firm that surfaced last week in the U.S. District Court in Manhattan.
In late 2010, Liberty Mutual terminated its relationship with Michael J. Devereaux & Associates due to concerns about excessive and unauthorized billing and demanded that defense counsel transfer all matters being handled by the firm to a competitor (the Lester Schwab law firm). Devereaux refused to turn over the files unless the firm was reimbursed for $335,000 in outstanding fees, declaring in a January 7 letter that “our representation of our clients, Liberty’s insureds, was never an issue but Liberty’s woeful history of paying is the problem, and a very significant problem.”
In the hope of expediting transfer of these files, Liberty Mutual agreed to post a bond to satisfy any lien that Devereaux might have and offered to resolve the fee dispute through mediation. However, after Devereaux declined to return phone calls or e-mails to discuss the offer (and with pending trial deadlines looming in several of the matters), Liberty Mutual filed suit on January 20, demanding return of the file and seeking $2.23 million in damages and an order enjoining Devereaux from publicly disclosing the details of alleged trysts in his apartment and that he had threatened to divulge in an attempt to extort more work from the Company.
Although Liberty Mutual’s complaint itself is not available for public review on PACER, press reports claim that Devereaux had presented Liberty Mutual with an unsigned complaint that he threated to file "if LM employee A did not reinstate the Devereaux firm as a preferred member of Liberty Mutual’s defense counsel panel, cause Liberty Mutual to pay all reduced and outstanding Devereaux firm invoices and provide the firm with 25 or more new cases within 60 days.” Liberty Mutual's lawyers subsequently contacted the lawyer whose name was on the unsigned complaint, who disavowed any knowledge of it.
Liberty Mutua's complaint reportedly alleges that Devereaux violated New York criminal law as well as the Rules of Professional Conduct. Devereaux, who contends that his law firm is owed $400,000 by Liberty Mutual, has denied the extortion allegations as being “completely false.”
Liberty Mutual, U.S. District Court Judge Sullivan initially entered an order on January 20 directing Michael J. Devereaux & Associates to appear before him on January 28 to show cause why the court should not require it to immediately turn over all Liberty Mutual files in its possession and directing Liberty Mutual to post a bond in the amount of $335,000 or such other amount as to be directed by the Court to pay the Devereaux firm’s outstanding bills for legal fees incurred on behalf of Liberty Mutual. He suspended these deadlines after receiving a conciliatory proposal from Devereaux, however, and has instead scheduled a show cause hearing for January 31.
While the facts of this case have a salacious flavor, their reality is utterly depressing. How could the relationship between an insurer and its outside counsel have deteriorated to this point? And what conceivable right could a lawyer claim to exercise in holding the fate of policyholder clients hostage in an effort to get back bills paid?
