A recent New York Law Journal story, “Panel Vacates $200K Attorney Fee for JHO’s Lack of Records,” reports that a nearly $200,000 attorney fee award was vacated by an appellate panel that found a hearing officer failed to “develop the record as to the reasonableness” of the amount.
Ruling in STA Parking Corp v. Lancer Ins. Co., a unanimous panel of the Appellate Division, First Department, said Judicial Hearing Officer Ira Gammerman, “after a very abbreviated hearing, awarded attorneys’ fees of $196,372.33, the exact amount that was sought, to the penny.”
The fee dispute stemmed from defendant Lancers Insurance’s payments to Baritz & Colman, the law firm it hired to defend its insured, STA Parking, in connection with multiple property damage claims brought against it. Lancers claimed it had already paid the law firm $180,000 in full satisfaction of its legal bill.
Baritz & Colman argued before Gammerman that the $180,000 payment was for a separate lawsuit specifically covered by its agreement with Lancers, according to the fee hearing transcript. Lancers produced one of its claims managers to testify that Lancers agreed to pay Baritz’s $150 per hour for representing STA Parking in connection with all the lawsuits brought by neighboring property owners, including the one before Gammerman.
But an engagement letter produced by Lancers referenced only one of the lawsuits, and Gammerman ruled that the $180,000 paid was in connection with that case only. Lancers argued that since Baritz & Colman continued to accept payments under the letter as additional cases were filed, the $180,000 payment had covered all of the cases, including the one before Gammerman.
The appellate panel vacated the fee award and order a new hearing. Baritz & Colman associate Aaron Taishoff said his firm was “fully prepared to provide the court with whatever additional documentation it requests in compliance with the First Department’s holding.”
A recent The Record story, “Federal Circuit Signals Nuisance Settlements Should Factor in Fee-Shifting,” reports that two judges on the U.S. Court of Appeals for the Federal Circuit seemed to suggest during oral arguments that a patent owner’s pattern of suing multiple parties and then settling for modest amounts should be a factor judges consider when deciding whether to award fees under the U.S. Supreme Court’s Octane Fitness ruling.
An attorney representing a subsidiary of IP Nav, one of the country’s largest patent-monetization firms, argued in SFA System v. Newegg that there was no evidence his client litigated without regard to the merits of the case. But the Federal Circuit judges Kathleen O’Malley and Todd Hughes suggested that the mere pattern of settlements in the litigation—which involved 86 other operating companies—might be enough alone to draw an inference.
“In all those cases involving this patent over the years, have any of them ever proceeded to a decision, a merits decision on infringement and/or validity,” Hughes asked John Edmonds, the Collins Edmonds Pogorselski partner representing SFA Systems LLC.
SFA sued a host of software manufacturers and retailers over a patent on sales force automation. Many of the cases settled in the $25,000 to $50,000 range, Mark Lemley, partner at Duris Tangri said, though he acknowledged under questioning that some manufacturers paid millions and one retailer paid more than $500,000.
Newegg moved for fees, saying that SFA and IP Nav never intended to take the case through judgment, and instead were looking to score cheap settlements. Davis disagreed. “The fact that SFA has filed several lawsuits against numerous defendants is insufficient to render this case exceptional,” he wrote. “In many cases, patent infringement is widespread and the patent owner may be forced to revert to widespread litigation against several infringing parties to enforce its intellectual property rights.”
Federal Circuit Judge Hughes picked up that thread at the outset of the appellate argument. “What if these patents aren’t actually worth that much money?” he asked Lemley. SFA’s calculation might be, “We’ll spend money to file a complaint. If the defendants realize they’re infringing they’ll pay for the small value of these patents, and we’ll move on. If somebody’s going to fight it, we're not going to spend $5 million when our damages are only $50,000."
But O’Malley then posed a question that might cause nonpracticing entities some heartburn. “Are you saying under the totality of the circumstances,” he asked, “if you have someone whose entire strategy is to use litigation for an improper purpose, that that would be enough, under Octane ?
A recent Global Post story, “Judge OKs Activision $275 Million Shareholder Settlement, $72 Million for Lawyers,” reports that a Delaware judge approved a $275 million shareholder settlement involving videogame maker Activision Blizzard Inc and awarded the small law firms that brought the case a $72.5 million fee.
The owner of the "Call of Duty" game agreed to the settlement last year, which ended a shareholder lawsuit challenging Activision's $8 billion deal to acquire its stock held by French conglomerate Vivendi SA. The lawsuit alleged that Activision's chief executive and co-chairman benefited unfairly from the deal, and the settlement barred them from gaining control of Activision.
Travis Laster, a judge on Delaware's Court of Chancery, overruled an objection to the settlement and to the fee award. The lawsuit was led by the four-attorney firm of Friedlander & Gorris in Wilmington and the six-lawyer firm of Bragar Eagel & Squire in New York.
"This case involved true contingency risk," wrote Laster, in a 90-page opinion approving the fee and settlement. He noted the partners of the firms involved took out personal loans to fund the case and turned away other work.
The fee award works out to $9,500 an hour, according to court records. "While the size of the award implies a generous hourly rate, in this case it is justified by the effort," wrote Laster.
The fee award was opposed by two shareholders who said their attorneys had contributed to ultimate settlement by opposing an attempt to strike an early deal in the case. They sought $7.25 million for lawyers at Levi & Korsinksy in New York and Smith Katzenstein & Furlow in Wilmington.
Laster rejected that argument and noted "they can claim to have contributed causally to the settlement only in the metaphysical sense that the flap of a butterfly's wings in Beijing may lead to a thunderstorm in Delaware."
The case was a derivative lawsuit, meaning the investor who brought it, Anthony Pacchia, was suing on behalf of Activision. The settlement was paid to Activision's treasury by Vivendi, insurers and an investor group that included Activision Chief Executive Bobby Kotick and co-Chairman Brian Kelly.
The settlement is the largest ever for a shareholder derivative lawsuit. Other large settlements include $139 million involving News Corp in 2013 and $122 million paid by Oracle Corp's chief executive, Larry Ellison, in 2005.
A recent New York Law Journal story, “Magistrate Cuts ‘Princely’ Fee Proposal by 80 Percent,” reports that a federal magistrate judge approved a $1.375 million class action settlement on overtime wages but slashed the attorney fee award, saying the “princely sum” was unjustified. Though Frank & Associates of Farmingdale, NY sought a full one-third of the settlement--$458,333--Eastern District Magistrate Judge Gary Brown cut the fee award to just under $93,000.
With the approximately 80 percent decrease in fees, Brown rejected the firm’s arguments that the percentage method was the norm for class litigation to be followed within the Second Circuit. In Flores v. Mamma Lombardi’s of Holbrook, 12-cv-3532, Brown said “the purported ‘trend’ among district courts within the circuit to award a flat 33.3 percentage fee in employment common fund class action cases, upon which plaintiffs’ counsel relies, appears to be driven by plaintiffs’ counsel seeking high payouts at the expense of silent class members, and ignores important precedential rulings.”
The magistrate judge said there were issues with the quality of the advocacy, “including the undisclosed participation by an attorney representing the class in the drafting of objections to the very settlement he negotiated on behalf of the class.”
In the underlying suit, restaurant workers sued the operators of several Long Island restaurants in 2012, saying they were unlawfully denied overtime pay, which they were entitled to under the Fair Labor Standards Act. There were 4,132 class members.
After “significant discovery” in the case, the parties told Brown in June 2013 that they had accepted his settlement proposal. The parties consented to Brown’s jurisdiction and the magistrate judge preliminarily approved the settlement in July 2014. Though he gave final certification on the “fair and reasonable” settlement, Brown cut the proposed fee request “in light of the peculiarities of this case.”
Citing nine cases, Frank & Associates said the fee award of one-third was in step with class litigation in the circuit “and what reasonable paying clients pay in contingency employment cases.” But Brown looked to a decision from Southern District Judge William Pauley, Fujiwara v. Sushi Yasuda, 2014 WL 5840700, which found there was “reason to be wary of much of the case law awarding attorney’s fees in [Fair Labor Standards Act] cases in the circuit.
Instead of a percentage fee award, Brown opted for the lodestar method of determining reasonable attorney fees. Frank & Associates said its attorneys spent 653 hours on the case, but Brown said a significant amount of time spent was “unnecessary, inappropriate and, in certain instances, antithetical to the efficient and professional resolution of this matter.”
The firm said it was to be paid at hourly rates ranging from $550 to $75. In the fee application, Romero’s hourly rate was $450. Brown trimmed Romero’s rate to $200 and said the firm was asking for different rates with some of the same attorneys in similar cases. He said it would be “unfair to impute [Romero’s] conduct to the other lawyer’s involved” and put the total hourly range between $350 and $75. He said because a favorable outcome was achieved and “to satisfy the public policy of incentivizing attorneys to accept cases … some fee award is warranted.”
A recent law firm blog post, “Attorney Fee Trends in Multidistrict Litigation: What is ‘Common?’”, by Alicia M. Raines and Jennifer R. Tudor of Barnes & Thornburg LLP write about trends in attorney fee awards in MDL. They write:
The Supreme Court of the United States’ (SCOTUS) recent denial of a Petition for Writ of Certiorari involving the payment of attorneys’ fees and expenses confirms the importance of court forum, as well as keeping up to date on fee assessment and allocation trends, in multi-district litigation (MDL).
MDL results when several civil actions involving very similar facts in different federal districts are consolidated in order to promote judicial efficiency and effectiveness in the pretrial proceedings. The United States Code, 28 U.S.C. § 1407, governs these proceedings. Section 1407 sets forth how the Judicial Panel on Multidistrict Litigation may initiate MDL procedures, or how a party in a pending action may initiate procedures. Section 1407 establishes how MDLs are managed by a federal judge, the appointment of lead counsel and the criteria for which cases are appropriate for transfer to the MDL. However, there are a few critical aspects of MDL governance on which the statute is silent. In those instances, the federal judge has full discretion to rule as he or she deems fit given the case at issue. Fee assessment is one aspect of a MDL that is not governed by Section 1407.
Generally, with regard to attorneys’ fees, the “American Rule” governs. Under the “American Rule,” each party is responsible for the attorneys’ fees charged by its retained counsel. Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 264-65 (1975). And, parties are not responsible for attorneys’ fees not generated by the counsel they selected. Liberty Mut. Ins. Co. v. OSI Indus., Inc., 831 N.E.2d 192, 205 (Ind. Ct. App. 2005). However, there are several exceptions to the “American Rule” that could expose parties to additional costs that they did not anticipate and impact the outcome of litigation or settlement. One such exception is known as the “common fund or common benefit doctrine.” In re Vioxx Products Liability Litigation, 760 F.Supp.2d 640, 647 (E.D. La. 2010). Under the common benefit doctrine, attorneys who provide substantial, common benefit to a successful class of plaintiffs are entitled to attorneys’ fees. Id. Common benefit funds are typically created by court orders early in class action litigation in anticipation of plaintiffs’ success. In re FedEx Ground Package Sys., Inc., Employment Practices Litig., No. 3:05-MD-527 RM, 2011 WL 611883, at *6 (N.D. Ind. Feb. 11, 2011). Common benefit funds are generally financed by requiring defendants to hold back a portion of the damage or settlement award recovered by plaintiffs. See Phipps Group v. Downing, et al., No. 14-786, 2014 WL 7477017 (2014). Plaintiffs’ attorneys who provided a common benefit to plaintiffs may then request an allocation from the fund for their fees.
Although traditionally applied in class actions, common benefit funds have been increasingly used in MDLs, as well. See In re Nuvaring Products Liability Litigation, No. 4:08 MDL 1964 RWS, 2014 WL 7271959, at *2 (E.D. Mo. Dec. 18, 2014). Despite the lack of apparent authority in 28 U.S.C. § 1407 and the existence of the “American Rule,” courts involved in MDL have frequently found inherent authority (i.e., inherent managerial authority) to establish such funds. In re Vioxx, 760 F.Supp.2d at 648-49. MDL courts have also cited the broad principals of equity and quantum meruit or looked to the terms of a settlement agreement for establishing the common benefit fund.
Even though the use of common benefit funds is becoming more prevalent in MDL, methods of determining the amount of fees to award to plaintiffs, and how to allocate the fees among plaintiffs’ attorneys vary. Indeed, courts have used several techniques for calculating the award of attorneys’ fees. By way of example, in the In re Nuvaring MDL, the court acknowledged that the Eight Circuit tends to favor the “percentage method,” or a percentage of the total award, as the fee calculation strategy. 2014 WL 7271959, at *2. Although recognizing that the SCOTUS has acknowledged use of the “percentage method,” the court in the In re Vioxx MDL found that the Fifth Circuit generally calculated its attorney fee award by multiplying the number of reasonable hours worked by the reasonable hourly rate – the “lodestar method” – and then adjusting it upwards or downwards based on twelve factors outlined in Johnson v. Ga. Highway Express, Inc., 488 F.2d 715, 717-19 (5th Cir. 1974). 760 F.Supp.2d at 650. The Johnson factors include (among others) time and labor required, the customary fee, the amount involved and the results obtained, and awards in similar cases.
It is important to note that despite the Eighth Circuit and Fifth Circuit’s tendencies, both cases cited above – In re Nuvaring and In re Vioxx – utilized a “blended” approach – selecting a percentage and checking the result for reasonableness through the lodestar method. The Seventh Circuit has also used both methods. See In re Trans Union Corp. Privacy Litigation, No. 00 C 4729, 2009 WL 4799954, at *8-9 (N.D. Ill. Dec. 9, 2009). This “blended approach” appears to be the modern trend. However, giving the historic inconsistencies, it will be important to continue to watch these fee assessment trends.
Further, the amount of oversight allowed by the courts to ensure plaintiffs’ attorneys are submitting reasonable requests for fees in MDL varies depending on the forum, and should also be considered closely. A special master (a court-appointed individual who addresses pre-trial or post-trial matters, as outlined in Federal Rule of Civil Procedure 53) is frequently appointed to recommend or evaluate the evidence supporting the allocation of attorneys’ fees and expenses. See In re Vioxx Products Liability Litigation, No. 09-2861, 2013 WL 1856035 (E.D. La. April 30, 2013) (finding that the court has jurisdiction to award common benefit fees as part of its inherent managerial authority in the Vioxx MDL, but declining to do so, and instead referring matter to special master to make a recommendation on an appropriate allocation amount, if any). See also In re Nuvaring, 2014 WL 7271959, at *5-7 (approving fee allocation recommendation of special master). Other courts have found that the transferor courts, as opposed to the MDL court, are in the best position to determine the common benefit of attorneys’ work, and thus, allocate fees. See In re FedEx, 2011 WL 611883, at *6.
Note that the ability to investigate and confirm the validity of plaintiffs’ attorneys’ fee requests has been inconsistent in MDL, as well. See In re Nuvaring, 2014 WL 7271959, at *5-7 (allowing attorneys “ample opportunity to voice their positions for their common benefit fee allocation, including submission of written affidavits to the special master to supplement time sheets and advocate for the value added, as well as in-person meetings after the initial fee recommendation); In re Vioxx, 2013 WL 1856035, at *7 (allowing special master to set a discovery schedule, conduct evidentiary hearings, and hear oral argument as needed). Cf. In re Genetically Modified Rice Litigation, 764 F.3d 864 (8th Cir. 2014) (Special master noted that reviewing court “may rely on summaries of attorneys and need not review actual billing records[,]” and rejected attorneys’ claim that discovery was needed.).
On Dec. 14, 2014, following the settlement of the In re Genetically Modified Rice Litigation MDL, a Petition for Writ of Certiorari was filed that brought to light some of these inconsistencies in attorney fee assessment and allocation. The petition presented the question of whether MDLs are an exception to the “American Rule,” and if so, requested “guide posts to be followed by MDL courts during the analysis and disposition of fee requests.” Phipps Group, 2014 WL 7477017, at *12. Petitioner argued, in relevant part, that Congress did not create an exception to the “American Rule” in 28 U.S.C. § 1407, significant differences exist between class actions and MDLs so applying similar principals (e.g., common benefits funds) is inappropriate, the SCOTUS has never held that the common benefit doctrine extends to MDLs, and the Circuits are split on these issues (as described above). Id. at *10-30. Petitioner also pleaded for the SCOTUS, if an exception to the “American Rule” is found, to provide guidance on “whether discovery is warranted, if evidence must be presented, and if an adversarial hearing or trial is necessary.” Id. at *28. On Feb. 23, 2015, the SCOTUS denied the Petition. Phipps Group v. Downing, et al., 135 S.Ct. 1455 (2015).
Given defendants’ potential liability exposure in MDL for attorneys’ fees, combined with the complete discretion given to judges to determine how plaintiffs’ attorneys’ fees are awarded and allocated, attorneys and parties in MDL are highly encouraged to investigate their judge’s stance on this topic and remain apprised of the latest trends.
This blog post was published with permission. Jennifer R. Tudor and Alicia M. Raines are members of the firm’s Commercial Litigation Practice Group who practice in the Indianapolis office.
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