The law firm representing Decatur and other governmental clients in environmental litigation was billing on an hourly basis as of November 2020 and had earned $415,000 in hourly fees over 65 months, but that fee arrangement changed retroactively last month when the governmental entities approved a $7 million fee covering the previous 11 months of legal work.
City Attorney Herman Marks said no contingency fee agreement was entered into between Harris Caddell & Shanks and its three clients — the city, Decatur Utilities and Morgan County — in advance of the settlement approved last month.
By its terms, the settlement agreement stipulates that any fees and expenses will be deducted from the $98.4 million received by the governmental entities from 3M Co. The resolutions that each governing board passed approving of the settlement specified and approved the attorney fee amount.
Marks said the millions of dollars in fees beyond those payable under the previous hourly arrangement were justified.
“We are a municipality, and like the county and DU we try to conserve where we can," he said. "But we also have to recognize when we’re the recipient of a major payment and the attorneys that represented us were the ones that got us to that. We were still on an hourly basis until we got to a settlement where we had money that we could pay out.”
Councilman Billy Jackson said the time for converting from an hourly fee to a contingency fee was before the attorneys put in the time, not retroactively.
“There was no conversation about it. There was no vote on it,” Jackson said. “Herman should have at least shared with us what our options were. There should have been some sort of vote last November to say that we’re going to change the existing fee structure to something different.”
The city of Decatur, Decatur Utilities and Morgan County were named as defendants, along with 3M and other Decatur industries, when a class action complaint first filed in 2002 was amended on June 15, 2015. The three governmental entities were again named as defendants, along with 3M and other industries, a year later in a lawsuit by Tennessee Riverkeeper.
Both lawsuits involved the industrial contaminants per- and polyfluoroalkyl substances (PFAS).
Last month, the Decatur City Council, the Decatur Utilities board and the Morgan County Commission each passed resolutions approving a settlement in which 3M would pay them $98.4 million in return for a release of claims they had against the company. Those resolutions authorized Harris Caddell to keep $7 million of that amount in fees.
The City Council approved the resolution 4-1, with the other two entities approving it unanimously. Jackson was the lone nay vote.
Jackson said last week that one of his concerns with the settlement was the switch from an hourly to a contingency fee for Harris Caddell.
The end result, Jackson said, is that the city, DU and Morgan County received millions less than they would have had Harris Caddell been paid on an hourly basis. Rather than paying Harris Caddell's Barney Lovelace, the lead attorney, pursuant to the ongoing fee arrangement, Jackson said, the city essentially gave him a gift.
“He’s getting a huge chunk of what we’re supposed to get. It’s still very difficult for me to accept what we did,” Jackson said.
Lovelace disagreed with Jackson's position.
“I have no excuses or defenses about the fee we are being paid,” he said last week. “I think we very much earned that fee, and I’m proud to have been part of this settlement.”
The settlement agreement was finalized Thursday when 3M signed it.
Marks said a contingency fee made no sense until it became clear that the city, DU and Morgan County, while nominally defendants like 3M, were in fact functioning as plaintiffs that could expect a financial recovery. That changed role was just becoming clear in 2020, he said.
Paige Bibbee, who was council president until losing her bid for reelection in August 2020, agreed with Jackson that if Harris Caddell wanted to switch from hourly to contingency billing it should have done so with council authorization before it put in the hours, not retroactively after a settlement had been negotiated.
Bibbee last week said that if Harris Caddell had proposed a contingency fee arrangement to the previous council, it would have gone badly.
"It was cheaper to do it hourly. They knew that if anything like that ever came to a vote, the council I was on was not going to vote for them to be our attorney," Bibbee said.
Lovelace had a contentious relationship with the previous council, and Jackson is the sole council member who served on both that council and the current one. At a work session in March 2020, members of the previous council pushed Marks to find a different law firm to represent the city in the litigation. Council members expressed frustration that Decatur was a co-defendant with 3M in the litigation, rather than asserting claims against 3M.
Early in January 2020, Lovelace sent an email to his colleagues at Harris Caddell suggesting that candidates should be found to run against Bibbee and Councilman Charles Kirby, both of whom had been outspoken about his representation in the ongoing litigation. Lovelace asked that the email’s recipients “do not share this email or its contents outside of this office for obvious reasons — we represent the City in PFAS litigation and other governmental entities.”
On Aug. 25, 2020, Bibbee and Kirby lost their seats to challengers Carlton McMasters and Hunter Pepper. Kristi Hill and Chuck Ard did not seek reelection, and their seats were won by Kyle Pike and Jacob Ladner.
The new council was sworn in Nov. 2, 2020.
Marks said Harris Caddell billed the city, county and DU $415,000 in hourly fees, including expenses, between the time the three entities were first named as defendants in 2015 until November 2020. As the city paid the fees, it was reimbursed for them by 3M. Lovelace was billing $260 per hour in November 2020.
"We were defendants and we were paying the hourly rate, and then 3M reimbursed us for everything up until this past year," Marks said. "And then the $7 million covers whatever happened since our last billing."
Marks said Harris Caddell was sending bills annually and he assumes that, had the settlement not taken place, the city would have received another hourly bill this December.
Ray Hardin, general manager of DU, said no contingency fee agreement was reached with Harris Caddell but the billing arrangement changed before a settlement agreement was reached.
"When our posture changed to say 'Wait, we have claims here, we’re really more of a plaintiff in this relationship with 3M,' at that point that changed and those hourly rates ceased and we began on contingency," Hardin said.
Lovelace last week stressed that his firm’s contingency fee — slightly over 7% of the $98.4 million recovery — is lower than the contingency fees charged by other firms in similar litigation involving 3M. Decatur City Schools paid a higher percentage in fees when it settled PFAS-related claims it had asserted against 3M, he said, as did West Morgan-East Lawrence Water Authority when it entered into a $35 million settlement with 3M.
Jackson said the point is not whether the percentage Lovelace charged was comparable to that charged in similar cases, but how the hourly fee arrangement that was in effect through November 2020 became a contingency fee with no vote.
“We should have known about that. We should have voted on that. Our citizens should have known about that,” Jackson said.
There still is confusion over the specifics of the new arrangement. A rationale for contingency fees that far exceed hourly rates is that the lawyer bears the risk of failing to make a recovery; no recovery, no fee.
Asked whether Harris Caddell would have been paid at an hourly rate for their time since November 2020 if they had procured no financial recovery for their clients, there was no consensus.
“I can’t speculate what would have happened if (the settlement) didn’t go through,” Lovelace said. “I can just tell you if it had not gone through, we would not have had that ($7 million) fee.”
“We’d have gotten another bill,” Marks said. “They tracked hours until this was settled.”
“If there was no settlement reached, there would have been no (attorney fee) payout because there would have been no money,” said Ladner, who as council president was involved in settlement negotiations.
The settlement agreement and the resolutions approving it use different wording to address the attorney fee issue.
Included in the $98.4 million settlement is a $25 million payment that according to the document is to be shared by Decatur, DU and Morgan County after deduction of “costs, fees, and expenses.” The amount of the fees is not specified in the settlement agreement.
The resolutions approved by the three governmental entities specify the $7 million attorney fee payable to Harris Caddell, but say it is an amount “not affecting the respective payment portions due to each governmental entity.”
“There’s no inconsistency with the settlement agreement,” Lovelace said. “They have identified in their resolution how that $25 million is going to be spent. I’ve answered that question. You can ask it in a hundred ways and I’ve already answered it. In my opinion it’s not inconsistent. Period. End of discussion of that point.”
Lovelace said the $7 million fee is reasonable because the settlement was a good one. One component of the settlement is that 3M agrees to buy the 25-acre Aquadome property which sits on the same contaminated landfill as the adjacent 15-acre Brookhaven Middle School property.
“We got $35 million for the Aquadome property and right next door the school system got $1.25 million. Now you tell me who got a better deal. That all goes into the calculation of what is a fair, reasonable fee,” Lovelace said.
Except for Jackson, City Council members agree.
“That is a significant amount of money for one year,” Pepper said of the $7 million fee. “I will say, that’s a very significant amount of money. But the money was well spent in my opinion if it had the outcome that we’re receiving.”
McMasters said the fee was less than the contingency fees in similar lawsuits and he was pleased with the result.
“Yes they were being paid (hourly) on the front end and yes, they did get contingency money, but at the end of the day it was less than 8%,” he said. “I think it was a fair deal, and the important thing is our environment’s protected, we’re able to replace Aquadome and we can finally put this crap behind us.”
Ladner said he does not view the $7 million as being a fee just for the hours spent since Harris Caddell last billed the city on an hourly basis.
“It wasn’t just 11 months. They worked on that case for a long time,” he said. “I think it’s a fair deal both for the city and for the attorneys that were representing us.”
Lovelace said the fee is reasonable based on the $98.4 million recovery obtained, but points out that the city also received benefits that are not included in the financial recovery — particularly 3M’s agreement to take ownership of three closed landfills that otherwise could have created liability for the city in the future.
"The fee is based on the result we obtained for our clients and for the community," he said.
Lovelace said Harris Caddell has also agreed to continue representation of the city, DU and the county at no additional charge through the conclusion of the class action that names the entities as defendants and the completion of the 3M-financed remediation of the Morgan County Regional Landfill, which he said likely will mean continued representation for three to four years.