A recent article “Massachusetts Court Awards Attorneys’ Fees for In-House Counsel’s Work,” by Trisha M. Rich, Peter R. Jarvis and Allison Martin Rhodes of Holland & Knight, write about the recent ruling in Holland v. Jachmann in Massachusetts.
In a question of first impression, the Massachusetts Court of Appeals recently held that trial court judges have discretion to award attorneys’ fees for work performed by in-house counsel for claims brought under the state’s unfair trade practices law. The case, Holland, et al v. Jachmann, 85 Mass.App.Ct. 292, 2014 WL 1887534 (2014), decided on May 14, 2014 arose out of a dispute between two entities that had formed following a corporate split by Omniglow Corporation, a manufacturer of light sticks and other luminescent products.
Following the split, the relationship between the two resultant companies, Cyalume and Omniglow (which had retained the original Omniglow name), quickly began to collapse. Shortly thereafter, Omniglow sued Cyalume for unfair business practices under Massachusetts state law. The trial court found in Omniglow’s favor and awarded Omniglow legal fees that included an award for work performed by Omniglow’s in-house counsel pursuant to Massachusetts’ unfair business practices statute.
On appeal, Cyalume argued that Omniglow’s in-house counsel was a salaried employee, who did not bill Omniglow for his services and, therefore, Omniglow did not “incur” those fees. In addition, Cyalume argued that the in-house counsel’s failure to keep daily records made the value of his work speculative. The Massachusetts Court of Appeals disagreed and affirmed the trial court ruling, explaining that as a practical matter, every hour that in-house counsel spent on the Cyalume litigation was an hour that he could not spend on the other legal matters and as a result, that had a concrete and financial impact on Omniglow. Further, the appellate court reasoned, denying the attorneys’ fees to Omniglow based on its decision to use in-house counsel instead of outside counsel would undermine the deterrent purposes of the applicable law and would in essence reward the defendants. The appellate court also noted that the award of attorneys’ fees would further the broad remedial purpose of the statute.
The appellate court also rejected the argument that the lack of daily and detailed timesheets was fatal to the attorney fee claim. The court noted that in-house counsel was able to produce a month-by-month list of the time he spent on the case, with brief –albeit non-specific – descriptions of the work that he had completed. In deciding on the amount of the award, the trial court considered:
The in-house counsel’s competence and experience
The length of the trial
The difficulty of the legal and factual issues
The enormous amount of time spent in pre-trial preparation
The plaintiffs’ degree of success
The appellate court noted that while contemporaneous time records would have been preferred, the documents provided, coupled with the trial judge’s first-hand knowledge of the litigation, provided a sufficiently non-speculative basis for the appellate court to find that the trial court judge had not abused his discretion.
The court’s decision in Massachusetts results in the state joining a growing number of jurisdictions that recognize that fee recoveries can be appropriate for work completed by in-house counsel. However, the immediate implications of this opinion may be limited since it applies only to cases under Massachusetts unfair business practices statute. Moreover, this particular case boasted what the appellate court viewed to be excessively egregious conduct by the defendants, which arguably called out for punitive measures. Finally, at least some courts may require some detailed time records before imposing such substantial attorney fee awards. And more generally, different jurisdictions have taken different positions on whether or when attorney fees can be awarded for work by in-house counsel.
Forward-thinking lawyers would be wise to identify potential fee-shifting cases early and to request that in-house counsel keep contemporaneous and detailed time sheets. While many states have precedent for awarding fees for in-house counsel, fee petitions and best supported by timely and accurate records.
Trish M Rich is a litigation attorney in Holland & Knight’s Chicago office, where she practices complex commercial litigation and legal ethics and professional responsibility. Peter R. Jarvis is a partner in Holland & Knight’s Portland office, where he practices primarily in the area of attorney professional responsibility and risk management. Allison Martin Rhodes is a partner in Holland & Knight’s Portland office, where she focuses her practice in legal ethics and risk management, including attorney disciplinary defense.
This article was re-printed with permission. NALFA also reported in this case in “In-House Counsel Can Recover Fees in Massachusetts”
A recent NLJ story, “Firm Loses Fee Fight in Rice Farmers’ Class Action,” reports that a law firm has lost its effort to collection $13.3 million out of the fees gathered to pay for the legal work on behalf of American rice farmers, millers and dealers who sued Bayer CropScience LP for tainting the American rice supply with its genetically modified rice. The federal MDL was consolidated in Missouri federal court.
Law firm The Phipps Group also lost its effort to overturn U.S. District Judge Catherine D. Perry’s order requiring that all setting plaintiffs pay eight percent of their recoveries toward attorney fees and three percent for litigation costs and expenses undertaken for the common benefit of all plaintiffs.
Judge Steven M. Colloton, writing for the U.S. Court of Appeals for the Eighth Circuit, said that Phipps waived the challenge to the creation of a fund to pay for legal work benefiting all the plaintiffs by agreeing to settle cases under those terms. Phipps argued that success in two of his firm’s cases “enhanced lead counsel’s leverage in settlement negotiations.”
However, Colloton said Phipps was not entitled to attorney fees out of the common benefit fund when he did not have a lead role in the discovery and litigation against Bayer. “While it is possible that lawyers may create bargaining leverage over the defendant by refusing to join an MDL and litigating in multiple flora, the district court was not automatically required to accept that Phipps did so here,” the court said. “To accept Phipps’s position would reduce incentives to collaborate with leadership counsel and could frustrate the purposes of the MDL statute to promote efficiency and coordination.”
Bayer agreed to pay $750 million to rice farmers, and lead plaintiffs Don Downing, Adam Levitt and other attorneys got approval to receive $51.6 million in fees and $5.5 million in expenses. The court also authorized the law firms to receive up to a total of $72 million in fees from any remaining amount in the common benefit fund.
The disbursement of up to $72 million in fees and expenses was approximately 8.4 percent of the plaintiffs’ total recovery from the settlement with Bayer and was “within the range of awards made in similar cases,” Colloton said. Colloton agreed that the district court lacked jurisdiction to order holdbacks from state court settlements and verdicts in which plaintiffs’ counsel refused to pay into the MDL common benefit fund.
A recent New Jersey Law Journal story, “Third Circuit OKs ERISA Attorney Fees Under Catalyst Theory,” reports that the U.S. Court Appeals for the Third Circuit has ruled that attorney fees may be awarded in Employee Retirement Income Security Act (ERISA) cases under the catalyst theory, which entitles plaintiffs to fees where the pressure of a lawsuit causes a defendant to voluntarily change its conduct.
In a nonprecedential ruling in Boyle v. International Brotherhood of Teamsters Local 863 Welfare Fund, a panel led by Judge Jane Richard Roth, and including Judge Thomas I. Vanaskie and Joseph A. Greenway Jr., reversed a New Jersey district judge’s ruling that the ERISA statute does not permit attorney fee awards under the catalyst theory. In doing so, the court awarded attorney fees to plaintiffs Allen Boyle and Michael Luongo, despite upholding the lower court’s ruling granting summary to the defendants.
Roth pointed to the U.S. Supreme Court’s 2010 ruling Hardt v. Reliance Standard Life Insurance, in which it found that the ERISA statute gives district courts broad discretion to award attorney fees to plaintiffs. The Hardt court said the ERISA statute does not limit attorney fee awards to ‘”prevailing parties,’” but instead allows parties that show ‘”some degree of success on the merits’” beyond a ‘”trivial success on the merits or purely procedural victory’” to recoup fees, according to Roth.
Roth found that while Boyle and Luongo did not prevail in the case, they achieved some success with their lawsuit by promoting their former employer to voluntarily offer to retroactively reinstate benefits to early retirees and to reimburse them for any alternative coverage they may have purchased during the four-month period in 2011 when benefits ceased.
“We hold that in light of the Supreme Court’s clear rejection of the ‘prevailing party’ standard in Hardt, the catalyst theory remains viable under ERISA,” Roth said.
A recent NLJ story, “Alaska Rejects Method Calculating Fees,” reports that in an apparent case of first impression, the Alaska Supreme Court has ruled that out-of-state rates may not be used to calculate attorney fee awards except in exceptional circumstances. Unlike many other states, Alaska has a fee-shifting court rule to award courtroom victors 30 percent of their “reasonable actual fees” in cases that go to trial and do not result in money judgments.
“Since attorney fee awards are a usual part of any judgment in Alaska, the prospect of having to pay [an]…award based on fees well in excess of those that would have been billed by in-state lawyers may deter Alaskans from seeking redress in the country for their bona fide disputes.” Justice Peter Maassen wrote for the court.
Paying out-of-state hourly rates may be justified in the extraordinary situation in which there are not Alaska lawyers with the “necessary expertise or the necessary wiliness to take” a case, but that does not apply in this situation, Maassen said.
The issue arises in a settlement dispute between Exxon Mobile Corp. and Nautilus Marine Enterprise Inc. The two companies, as well as a third, settled a lawsuit related to the 1989 Exxon Valdez oil spill in 2006, and the accord reserved for the judge the question on how much prejudgment interest should be awarded.
Exxon filed a state court lawsuit seeking to reform the contract so that prejudgment interest would not be compounded or to obtain a declaratory judgment that the contract did not require compounded interest. A state court judge found that Exxon was the prevailing party and that the parties intended for the federal court judge to calculate the method of compounding the prejudgment interest.
The Alaska Supreme Court remanded the case for a new calculation of attorney fees owed to Exxon. Maassen, writing for the court, upheld the lower court’s ruling that an additional 5 percent in attorney fees could be awarded to Exxon as a sanction because Nautilus’ president had acted in bad faith. According to the opinion, he altered his personal telephone logs to add fraudulent references to compound interest.
A recent NLJ story, “Equityholder in Asbestos Case Wants Fee Examiner,” reports that Coltec Industries Inc., the parent company and primary equityholder in a gasket maker in bankruptcy, has moved to have an independent fee examiner look at the $105.2 million in fees paid to attorneys and other professional firms in the proceedings. Garlock Sealing Technologies LLC, Garrison Litigation Management Group Ltd. and the Anchor Packing Co. are the three debtors who filed for bankruptcy over four years ago because the large number of asbestos suits they face.
The official committee of asbestos personal injury claimants, the official committee of unsecured creditors and the future asbestos claimants’ representatives all have been authorized to engage professional firms, leading to the accrual of $105.2 million in fees. “One thing that is clear is that Coltec’s equity in these debtors is being squandered,” the company said in court papers.
Coltec is suggesting the appointment of W. Clarkson McDow Jr., a former U.S. bankruptcy trustee for region four covering South Carolina, Virginia, West Virginia, Maryland and the District of Columbia, to review fee applications and to control rising administrative expenses.
“Fee examiners or fee review committees have been appointed in numerous large, recent bankruptcy cases, such as those involving Bethlehem Steel, Bradless, Enron, Worldcom, Adelphia, Lehman Brothers, Collins & Aikman Corp., Exide, General Motors, Spansion and the City of Detroit,” Coltec said. “Fee examiners have likewise been appointed in a number of asbestos Chapter 11 cases.”
Coltec said it has been considering seeking a fee examiner in the case for two years but it waited until after U.S. Bankruptcy Judge George Hodges of the Western District of North Carolina determined the liability Garlock owes to asbestos plaintiffs. During the proceedings held to estimate Garlock’s liability, Hodges found evidence of misrepresentation by plaintiffs’ lawyers in several cases that Garlock settled in the past or in which Garlock lost jury verdicts.
The alleged evidence of misrepresentation led the judge to estimate that Garlock likely owes $125 million to asbestos plaintiffs, not around $1 billion to $1.3 billion as the plaintiffs alleged.
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