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Article: Paying for Claimants’ Attorney Fess is the Exception to the Rule in DC

October 11, 2019

A recent Lexology article by Meredith L. Pendergrass of Goldberg Segalla LLP, “Paying for Claimants’ Attorney Fees is the Exception to the Rule in D.C.,” reports on a recent appellate decision on attorney fee entitlement and recovery in workers’ compensation claims before the federal circuit.  The article was posted with permission.  The article reads:

The D.C. Court of Appeals was recently presented with the opportunity to weigh in on the prerequisites for ordering employers and insurers to pay for claimants’ litigation fees and costs in workers’ compensation claims.  In the case of Kelly v. D.C. Dep’t of Employment Servs., No. 18-AA-13, 2019 WL 4073672 (D.C. Aug. 29, 2019), the court refused to require the employer and insurer to bear the cost of the claimant’s attorney fees.

In Washington, D.C., there are only two limited circumstances where the employer and insurer will pay attorney fees for the claimant. D.C. Code Section 32-1530 (a) provides the ability for the claimant to seek payment of his attorney fees if employer and insurer do not pay any compensation within 30 days for the claim being filed and the claimant uses the services of an attorney to subsequently obtain benefits.

D.C. Code Section 32-1530 (b) further provides that attorney fees may be awarded against the employer and insurer in a specific set of circumstances.  This subsection requires the employer and insurer to have initially paid compensation in the claim and then a controversy arises as to the amount of further benefits due.  In order to be held to pay the claimant’s attorney’s fee in this situation, the employer and insurer have to reject a recommendation by the Mayor regarding resolution of the amount in controversy, and the claimant needs to then utilize the services of the attorney to obtain a greater amount than the employer and insurer offered to pay.  The attorney fee awarded would only apply to the difference in the amount the employer and insurer offered to pay and the amount ultimately obtained through litigation.

The only way to obtain a recommendation from the Mayor is to attend an Informal Conference and have a claims examiner issue a Memorandum of Informal Conference.  In the Kelly case, the claimant’s attorney applied for an Informal Conference to resolve a dispute regarding permanency benefits, but the employer and insurer applied for a Formal Hearing before the Informal Conference occurred.  The D.C. Court of Appeals found that since the employer and insurer did not reject a recommendation from the Mayor as subsection (b) requires, then attorney fees could not be awarded against them.  The D.C. Court of Appeals held that it was irrelevant that the employer and insurer made it impossible for the claimant to participate in the Informal Conference by applying for the Formal Hearing.  The court cited to the American Rule for litigation, which generally requires each party to bear the burden of their own litigation costs, as well as the specificity in which the act outlines the exceptions to this rule in coming to their decision.  With the Kelly case clarifying this issue, we will likely see fewer Informal Conferences going forward when it comes to litigating additional benefits owed in a claim as a way to limit overall exposure.

Meredith L. Pendergrass is an Associate at Goldberg Segalla LLP in Baltimore.  She focuses her practice on defending employers, insurance carriers, and third-party administrators in workers’ compensation matters throughout Maryland and the District of Columbia.  She regularly appears in both Maryland and the District of Columbia at agency-level proceedings all the way through each jurisdiction’s highest court system on appeals.

Can Insured Recover Attorney Fees From Public-Private Insurers?

October 10, 2019

A recent Law 360 article by Alexander Cogbill, “Can Insureds Recover Atty Fees From Public-Private Insurers?,” reports on the recent case law on attorney fee entitlement and recovery in insurance coverage litigation.  This article was posted with permission.  The article reads:

In 2009, the U.S. Court of Appeals for the Fifth Circuit definitively foreclosed awards of attorney fees in coverage litigation against insurance companies arising out of flood claims under policies written under the National Flood Insurance Program (NFIP) with its decision in Dwyer v. Fidelity National Property & Casualty Insurance Co.

This appeared to be the final word on the subject until 2019, when, in a series of three opinions, the United States District Court for the Middle District of Florida held otherwise.  These recent decisions have revived a decade-old argument about whether public-private partnerships — in this case, the NFIP — trigger a distinct federal civil rights statute: the Equal Access to Justice Act.

The National Flood Insurance Program: On the Radar

The NFIP was signed into law in 1968 as a response to endemic underinsurance which had been laid bare by a series of disastrous river floods and hurricanes in prior years.  The NFIP has enabled more than 5,000,000 homeowners and small businesses within 18,000 communities to purchase insurance for flooding annually at discounted premiums.

Although the federal government subsidizes all of the policies underwritten within this program, the Federal Emergency Management Agency, which runs the program, does not administer most NFIP policies.  Instead, FEMA engages the expertise and resources of private insurance companies as “fiscal agent[s]."  By this arrangement, the federal government accepts the insureds’ risk but delegates underwriting and claim administration.

Although the program has been a success in terms of enrolling policy holders, resultant expenses and risk accepted by the NFIP has grown unwieldy.  Presently, the program owes more than $25 billion dollars and continues to underwrite trillions of dollars of additional risk.  Accordingly, the future of the program is uncertain.

For purposes of the following discussion, understanding several key features of NFIP policies is useful.  First, FEMA receives most of the premiums (after a fee from the participating insurers) and pays the costs of claims, investigation and litigation, albeit indirectly.  Second, because NFIP policies are governed by federal common law, suits regarding these policies are properly asserted in federal court, without consequential damages.

Equal Access to Justice Act: All Hands on Deck

The American Rule dictates that litigants pay their own attorney fees unless fee-shifting is prescribed by contract or statute.  The EAJA is a substantial statutory exception to this default rule. Under the EAJA, a party that prevails in litigation against “the United States or any agency or official of the United States” may recover attorney fees except when a court finds that the position of the United States was “substantially justified or [] special circumstances make an award unjust."  Notably, there is no fee-shifting provision when a plaintiff is unsuccessful.

The EAJA was enacted in 1980 to assist litigants, particularly civil rights litigants, in accessing the court systems so that they would be on equal footing with the government and would be able to pursue their rights without being deterred by the cost of legal representation.  The legislative history specifically states that the EAJA is not to burden private parties with attorney fees, but is silent about the application to the NFIP.

FEMA is an agency of the United States, and suits against them allow for attorney fees unless defenses are “substantially justified."  However, whether a private insurer is an agent of the United States for the purpose of this section is more nuanced.  Hurricane Katrina litigation in the Eastern District of Louisiana highlighted this confusion, with decisions repeatedly flip-flopping on the issue over three years.

Dwyer v. Fidelity: The Eye of the Storm

The Katrina decision on this topic to filter to a higher court was Dwyer v. Fidelity National Property and Casualty Insurance Co.  At the trial court level, the Federal District Court for the Eastern District of Louisiana held that insurers participating in the NFIP were acting as “an instrumentality of the United States” and, as such, qualified for the EAJA fee shifting.  In its opinion, the Dwyer trial court observed that the organizing statute of the NFIP utilizes the term “agent” to describe participating insurers qualifying them as “agencies” as contemplated by the EAJA for the purposes of fee shifting.

On appeal, the Fifth Circuit Court of Appeals reversed.  The Dwyer appellate court began its discussion by observing that Title 28 defines “agency” for the purpose of the EAJA as “any department, independent establishment, commission, administration, authority, board or bureau of the United States or any corporation in which the United States has a proprietary interest…”  The court further noted that none of these categories describe a private insurer subsidized by FEMA.

The court next looked to the NFIP regulations which describe the role of a private insurer as a "fiscal agent" rather than an "agent" for the purposes of the EAJA.  The court found support for this conclusion in Supreme Court of the United States precedent which similarly cautions that mere contractual relationships do not transform all federal contractors into governmental “agen[cies].”  Summarizing their opinion, the court stated, “[t]he District Court might be correct in concluding that allowing suit against private insurers is a mere formality imposed by regulation, but regardless, the EAJA must be applied according to its terms.”

Since Dwyer, no appellate court has revisited this issue, and when trial courts — with the notable exception of the Middle District of Florida — have confronted the issue with NFIP participating insurers, they have adopted Dwyer’s reasoning.

Middle District of Florida’s Storm Surge

Initially, the Middle District of Florida capitulated to Dwyer.  In 2017, citing Dwyer, the court decided Chatman v. Wright National Flood Insurance Co. in favor of the private NFIP-insurer dismissing claims for attorney fees.

However, this year, courts in this one federal district have latched onto a novel argument and are going against the current.  In these cases, the courts determined that although the insurer was not an agency of the United States, the payment made under a FEMA policy is functionally remitted by the United States government.  Under this reasoning, this connection with U.S. Department of the Treasury funds is sufficient to survive an initial motion to dismiss.

These decisions rely on the U.S. Court of Appeals for the Eleventh Circuit opinion Newton v. Capital Assurance Co., which assessed whether prejudgment interest is appropriate under the NFIP.  In reaching its decision, the Newton court reasoned that the United States retained a financial stake in litigation against NFIP insurers.  Therefore, its sovereign protection from prejudgment interest extends to suits against its insurer partners as any interest charges are, in reality, “direct charges against FEMA.”  Newton holds “the line between a [NFIP insurer] and FEMA is too thin to matter for the purposes of federal immunities such as the no-interest rule.”  As is evident, Newton’s reasoning diverges from Dwyer’s even if they address slightly different issues.

In January of 2019, the Middle District of Florida first began its swim against the current by declining to dismiss attorney fees entirely and only eliminating state claims of attorney fees in Lovers Lane LLC v. Wright National Flood Insurance Co.  This decision cited but did not explicitly rely upon Newton in permitting a claim for attorney fees under the EAJA to survive an initial pre-answer motion.  In fact, the Lovers Lane court failed to discuss its reasoning except to acknowledge pre-Dwyer decisions ruling in favor of insurers on the same issue.

In April, the court issued a second decision departing from Dwyer.  In Collier v. Wright National Flood Insurance Co. the court again declined to dismiss a claim of attorney fees, citing Lovers Lane LLC without further discussion.  On June 13, the court committed to this interpretation in Arevalo v. American Bankers Insurance Co. of Florida. The court held:

Based on the principles and regulations discussed by the Eleventh Circuit in Newton, the determining factor is not so much whether [the insurer] is an “agency” of the United States under the Act.  Rather, it seems to matter more whether the government is the source of the funds or who would pay an award of attorney’s fees.  Here, payment of attorney’s fees may be a direct charge on federal funds if FEMA approves [the insurer’s] request for reimbursement of the attorney’s fees incurred defending this NFIP litigation.

This is of course assuming that [the insurer] seeks reimbursement for its defense costs from FEMA and otherwise has an arrangement with FEMA whereby it is entitled to reimbursement.  Either way, it is at least plausible at this point in the litigation that attorney’s fees may be paid from federal funds by FEMA.

Notably, however, the Middle District’s reasoning has already been rejected by the Southern District of Florida in its Aug. 12 decision in Hampson v. Wright National Flood Insurance CoHampson dismissed Arevalo in a footnote, holding without further discussion, “this Court disagrees [with Arevalo’s conclusion that the source of the funds plausibly relates to fee shifting] and declines to depart from case law in this circuit and other courts finding that a WYO carrier is not an agency of the United States as required by the EAJA.”

Next Steps: Batten Down the Hatches

At this point, it is unclear whether other districts will join the Middle District of Florida in applying Newton to the EAJA. Even if the trend were isolated to this single court — which is by no means guaranteed — it represents a district split on this critical issue.  Moreover, this conflict may portend a circuit split between the U.S. Court of Appeals for the Fifth Circuit (Dwyer) and the Eleventh Circuit (Newton).

The consequences of this nascent split are not purely academic.  One-way fee shifting agreements — where only the defendant is potentially liable for their adversary’s attorney fees — such as the EAJA, are understood to raise settlement values in favor of defendants (and their attorneys) and increase the likelihood of settlements on otherwise questionable claims.  Accordingly, the practical effect of this line of cases in the Middle District of Florida may be increased payments to NFIP insureds throughout the United States.  For all the legitimate policy calculations undergirding the EAJA, this effect on the financially strapped NFIP was not clearly intended.

Given the existing financial vulnerabilities of the NFIP, the sheer number of policy holders (greater than 5,000,000), and the predictions of increasing intensity of hurricanes and flooding because of climate change, this trend merits close monitoring.  NFIP insurers and United States taxpayers alike have a vested interest in its outcome.  These cases from the Middle District of Florida may be a drop in the ocean or could foreshadow a change in the weather.

Alexander Cogbill is an associate at Zelle LLP in New York.

SCOTUS Questions Seem to Doubt USPTO’s Attorney Fee Claim

October 9, 2019

A recent Law 360 story by Jimmy Hoover and Bill Donahue, “Justices Question USPTO’s Bold Pursuit of Atty Fees,” reports that the U.S. Supreme Court appeared skeptical of the U.S. Patent and Trademark Office’s recent practice of seeking attorney fees from parties that take the agency to court, given that the USPTO paid for its own lawyers for more than a century.  At oral arguments in the case Peter v. NantKwest, the justices, minus an ailing Justice Clarence Thomas, peppered an attorney from the U.S. Solicitor General’s Office with questions about the USPTO’s new and aggressive pursuit of attorney fees, which extends even to cases that the agency loses.

The Federal Circuit ruled last year that the policy violates the so-called American Rule, a deep-rooted doctrine that litigants must pay their own attorneys unless Congress expressly says otherwise.  Several members of the Supreme Court seemed sympathetic to that view.  “What sense does it make to think that Congress wanted the winning party to turn around and pay the government's legal fees, given how unusual that is?” Justice Brett Kavanaugh asked. “Why would Congress have thought to do it that way?”

The case revolves around de novo appeals, which allow dissatisfied patent or trademark applicants to effectively relitigate their application in district court rather than merely appeal to the Federal Circuit.  Both the Patent Act and the Lanham Act say that for applicants who choose the de novo route, “[a]ll the expenses of the proceedings shall be paid by the applicant.”

USPTO long interpreted that to cover things like travel expenses and copying, but started arguing in 2013 that the “expenses” provision covers attorney fees too.  In the case at hand from NantKwest Inc., that included over $78,000 for the cost of the agency attorneys who defended the company’s lawsuit over a rejected cancer treatment patent.

At arguments, Justices Neil Gorsuch and Stephen Breyer homed in on the fact that the USPTO had long declined to pursue attorney fees from applicants under the current statute or its predecessors.  “How did the government just figure this out?” Justice Gorsuch asked.  While Deputy Solicitor General Malcolm Stewart admitted — to laughter in the courtroom — that the abrupt change was “an atmospherically unhelpful point for us,” he denied that this historical record doomed his case.  “For that 170-year period we were foregoing a source of income that we were entitled to get,” he said.

Defending the policy, Stewart said that collecting attorney fees is “consistent with the overall statutory scheme” whereby the USPTO is supposed to cover aggregate costs, including personnel costs.  He also pointed out that NantKwest’s lawsuit “caused us to incur 30 times the expenses that would ordinarily be the fees for the patent application and examination.”

“It seems fair and appropriate to make the applicant pay,” he said.  Morgan Chu of Irell & Manella LLP, representing the company, disagreed.  “The government is arguing for a radical departure from the American Rule,” Chu said.  “It is arguing that when a private party sues the government for its improper action, then that private party must pay for the government's attorneys, even if the government and its attorneys are flatly wrong.”

Article: Defense Perspective on Plaintiffs’ Attorney Fees in FLSA Litigation

October 8, 2019

A recent Wage & Hour article by Mark Tabakman, “Plaintiff Attorney Fees in FLSA Cases: The Frustrating, Driving Force in These Cases,” reports on plaintiffs’ attorney fee requests in Fair Labor Standards Act (FLSA) litigation from a defense counsel perspective.  This article was posted with permission.  The article reads:

I read a very interesting article in the Epstein Becker Wage & Hour Defense Blog, whose sentiments I wholeheartedly agree with.  It concerns the issue of attorney fees for plaintiff lawyers in FLSA/wage cases.  The blog post notes that often, these lawyers get big dollar fee awards, while the allegedly victimized people they represent get “pennies.”

The posting notes, and I agree, that there are many, many plaintiff wage hour class (or single) action lawyers who believe in their clients and feel that their clients were “wronged” by not receiving proper payment (e.g. overtime).  With that said, there are also many who are more dedicated to their fees and maximizing those fees than they are in vindicating their clients’ position.

The posting notes that some plaintiff lawyers will announce that they “need” to get a certain sum as their fees for the case.  Then, the defendant’s lawyer (and a mediator, if it goes that far) know that they have to work back from that demanded fee award to get to a point where the case settles and the plaintiff(s) get something, whatever that “something” is.  That is, as the post correctly notes, the “tail wagging the dog.”

The posting notes, and again I agree, that the issue defaults to whether judges will try to do something about this disturbing trend, to stem this tide.  One example makes the point.  A Judge was presiding over a matter where the parties settled a wage-hour case, with small recoveries by the plaintiffs and where the plaintiff lawyers sought fees far greater than the recoveries that their clients would themselves receive.

The Judge could have easily approved the settlement, just to get it off the docket, but this Judge refused to take the easy way out.  She observed that these cases often are not about the employees or “justice” but rather the plaintiff lawyer’s fees.  She would not approve the settlement and hoped that other Judges would also not put up with these tactics.

 The Takeaway

I am so glad to hear a Judge express this sense of frustration.  I encounter it all the time and feel it all the time.  She is right.  Often times, I find myself settling so-called small cases because the portent of a large attorney fee demand makes the risk of defending too great, even if I know the client did nothing wrong.  That is wrong and very frustrating to me.

I hope the next Judge I get in a wage hour case is just like this one…

Mark E. Tabakman is a partner in the Labor & Employment Department of Fox Rothschild LLP who focuses his practice on advising and defending employers across the country in wage-hour matters. Based in the firm’s Princeton, NJ office.

NJ Judge: Litigation is Just Another ‘Capitalist Enterprise’

October 7, 2019

A recent Law 360 story by Emma Cueto, “Legal Practice Just a ‘Capitalist Enterprise’, Judge Laments,” reports that a New Jersey state judge ruling on an attorney fee dispute lamented that the practice of law has been reduced to "just another capitalist enterprise," before deciding that the former attorney in a personal injury case against Verizon was not entitled to a say in the approval of a potential settlement.

In an order that was deleted for a "typographical error," according to the judge's chambers, Judge Stephen L. Petrillo said that Gregg Stone, the original attorney for a woman who was paralyzed after she was struck by a falling utility pole, would be entitled to seek compensation for the work he put in on the case but could not object if he thought the settlement fee award was too small.

First, however, Judge Petrillo expressed his displeasure that the dispute had arisen at all.  "This unfortunate fee dispute, coming as it does in the midst of seemingly final negotiations of a settlement, should resolve, with certainty, any lingering doubt that the practice of law, that storied profession of Marshall and Jefferson and Lincoln, is really now just another capitalist enterprise," he wrote in the order.

The case was brought in 2017 by Maria Meister and her husband, Peter Meister, against Verizon New Jersey Inc. and two other companies, Altice USA and PSEG Services Corp.  According to the order, Maria Meister was struck by a utility pole that fell after partially rotting through, leaving three of her limbs paralyzed.  Gregg Stone initially represented her, but two years later withdrew due to a breakdown of the attorney-client relationship, citing "incessant emails" as well as "ultimatums and non-physical threats" by Peter Meister, according to his motion.  David Mazie then took over the case, which is potentially nearing a settlement, the decision said.

Stone asked the court that he be allowed to be heard during the settlement approval process, arguing that his retainer agreement entitled him to recover a portion of the funds.  He also argued that Mazie, having taken on the case at the eleventh hour, had no incentive to ensure that any settlement properly reflected the years of effort the case involved.

Judge Petrillo, however, rejected this argument, saying that it was not supported by case law.  Stone would be allowed to petition for a cut of any attorney award based on the work he put in, the judge said, but his retainer agreement stopped being binding when he withdrew from the case, and he did not have the right to intervene in the approval process.

He also said that the whole episode did not reflect well on the legal profession.  "While lawyers may indeed make a client's life better through their advocacy and vigilant protection of that client's interests," the judge wrote, "they are uniquely able to make it seem as though they are not doing so when quarreling, as they are here, over who gets to spell out how much they should be paid from their paralyzed client's recovery and why one is more entitled to do so than another."

He later also lamented in a footnote that the attorneys seemed invested not in deciding who could represent the Meisters' interests, but rather who could have a say in how much the attorneys were paid.  Mazie told Law360 that he believed the judge's displeasure was directed solely at Stone, saying that Stone's request was not in line with the law.  "It is unfortunate that Mr. Stone fails to recognize that the only thing that is important is doing what is best for the clients, not what is best for the lawyers," Mazie said.  "The court clearly got it right here."

The order, which was issued on Wednesday, was deleted on Friday, along with an order on a discovery motion.  Judge Petrillo's chambers told Law360 that the orders were deleted because of a "typographical error" but that the substance of the orders would not be changed.  The judge had no further comment on the case, according to a member of his staff.