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Newsom signs bill to limit fee splitting with non-lawyer

controlled firms

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Musk fights bid to disqualify Spiro in shareholder suit

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Fee fight in train crash settlement heads to appeals court

By Sara Merken and Mike Scarcella

Oct 16 (Reuters) - (Billable Hours is Reuters' weekly

report on lawyers and money. Please send tips or suggestions to

[email protected].)

California is clamping down on lawyers and law firms'

ability to share certain legal fees with other kinds of

businesses, putting the largest economy in U.S. largely

off-limits to contingency fee-sharing deals with out-of-state

firms in which non-lawyers have ownership or decision-making

authority.

Governor Gavin Newsom signed the bill into law last week,

barring attorneys in the state from splitting fees with

out-of-state "alternative business structures," unless the

contract specifies that the dollar amount be shared and other

conditions are met. An earlier version of the legislation would

have gone further, blocking lawyers in California's large legal

market from sharing any fees with an ABS.

Only a few U.S. jurisdictions allow law firms and businesses

with non-lawyer ownership to provide legal services. An effort

to allow people who are not lawyers to share fees with or own

law firms failed in California in 2022.

Firms and investors have flocked in particular to Arizona,

which became the first state to permanently scrap rules

prohibiting non-lawyer ownership in 2020. KPMG earlier this year

opened a law firm subsidiary under Arizona's ABS program, which

has now approved more than 100 entities including personal

injury firms and legal technology companies.

Trisha Rich, a partner at Holland & Knight who has advised

lawyers and firms on ABS operations, said California's new law

will "be a limiting factor" for investors and ABS firms that

work on contingency fee matters, given the size of the state's

legal market and economy. But California is just one state, and

it remains to be seen whether others will take up similar

legislation, she said.

"If other jurisdictions start adopting these laws, it's

going to make this sort of structure less attractive to both

investors and ABS firms," and they may think about different

ways to value their services or whether it makes sense to have

an ABS if their model is based on contingency cases, Rich said.

The new California law applies to arrangements entered into

after January 1, 2026, until 2030.

- Billionaire Elon Musk is opposing a bid to disqualify his

prominent longtime lawyer Alex Spiro of law firm Quinn Emanuel

from a securities fraud case over Musk's 2022 online posts about

his acquisition of Twitter.

The shareholders suing Musk in federal court in California

say Spiro is a key witness in the case with unique knowledge of

Musk's motives and communications surrounding Twitter posts that

allegedly misled investors.

They argued that allowing Spiro to be both defense lawyer and

witness would "create a grave risk of jury confusion, make a

mockery out of these proceedings, and inflict serious

prejudice."

Musk's legal team in a new court filing called the

disqualification effort a "Hail Mary" ahead of a trial scheduled

for January 2026. The investors waited too long to raise their

concerns about Spiro, they said, and removing him would unfairly

deprive Musk of his preferred counsel just months before trial.

Musk has consented to Spiro serving as both counsel and

witness in the case and argued that Spiro's testimony is limited

and not central to any disputed facts, court filings show.

Spiro and Musk's other lawyers did not immediately respond

to requests for comment, and neither did lead attorneys for the

plaintiffs.

Spiro's other clients have included actor Alec Baldwin and New

York Mayor Eric Adams. Spiro is among lawyers at big-name law

firms billing at $3,000 or more an hour.

The lawsuit alleges that Musk's posts drove down Twitter's

stock price in order to escape his $44 billion acquisition deal

or force a lower price for the platform, which has since been

renamed 'X'. Musk has denied any wrongdoing.

U.S. District Judge Charles Breyer in San Francisco will

hear arguments on the disqualification bid next month.

- A U.S. appeals court will soon hear arguments over legal fees

stemming from a $600 million class action settlement over

Norfolk Southern's ( NSC ) 2023 freight train derailment and chemical

spill in East Palestine, Ohio.

National plaintiffs law firm Morgan & Morgan is challenging

the fee distribution process, arguing it was improperly

sidelined by its co-counsel.

The Cincinnati-based 6th U.S. Circuit Court of Appeals on

Oct. 23 will weigh Morgan & Morgan's claims that a federal

district court judge wrongly approved a "quick-pay" provision

that allowed attorneys to collect $162 million in fees within

days of final settlement approval.

"Many residents of East Palestine are waiting to find out if

they will receive their damages while their attorneys get to

leave town with $162 million," lawyers for Morgan & Morgan told

the appeals court in a filing.

They said the court should issue an order "bringing the

attorneys back in line with the well-known 'I don't get paid

unless you get paid' principle."

Morgan & Morgan and attorneys defending the fee allocation

did not immediately respond to requests for comment. Norfolk

Southern ( NSC ) denied any wrongdoing in agreeing to settle.

Co-lead class counsel, represented in the appeal by veteran

litigator Paul Clement, contend that Morgan & Morgan's

objections are untimely and amount to "sour grapes."

Clement and the class attorneys said the fee allocation

model is objective and fair, and that no other firm has

challenged its share.

They told the appeals court that Morgan & Morgan had the

fewest approved hours among the lawyers leading the case and

that its exclusion from the allocation process was appropriate

given what they said was a limited role in representing class

members.

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