A recent article, “Tips to Ensure Recovery of Prevailing Party Legal Fees,” by Shepard Davidson of Burns & Levinson LLP in Boston, writes about the recent First Circuit opinion, Thompson v. Cloud.
While it may not be standard practice when drafting contracts to include a clause stating that “if litigation between the parties ensues the prevailing party will recover its legal fees,” such provisions do appear in a variety of contracts from time to time. A recent First Circuit opinion, Thompson v. Cloud, involves such a clause and also serves as a good reminder that it can be dangerous to take lightly even seemingly simple provisions in an agreement.
In Thompson, the contract at issue stated that all disputes:
[A]rising out of or relating to this Agreement … shall be submitted to mediation ... If a party does not agree first to go to mediation, then that party will be liable for the other party’s legal fees in any subsequent litigation regarding that same matter in which the party who refuses to go to mediation loses in that subsequent litigation.
Notwithstanding the foregoing language, the plaintiff filed suit without ever suggesting that the parties mediate the underlying dispute. In response, the defendants filed a counterclaim, asserting that the plaintiff breached his obligation to engage in pre-litigation mediation. Ultimately, the defendants prevailed in the litigation and sought an order that the plaintiff reimburse them for their legal fees. The District Court refused to award legal fees to the defendants, and the First Circuit agreed it would not be appropriate to engage in fee shifting in this case.
As an initial matter, the First Circuit noted that while the mediation provision at issue could have been drafted so as to equate the filing of a lawsuit with a refusal to mediate, it was not. Rather, the prevailing party clause in the agreement took “a different approach by imposing the penalty of paying attorney’s fees only when a party ‘does not agree first to go to mediation.” In light of this language, the Court reasoned that “the refusal to mediate [must] be clear before the heavy sanction of attorney’s fees can be imposed.”
The Court then discussed that the defendants did not request mediation when the dispute was raised prior to the commencement of litigation, nor did they move to compel mediation after the plaintiff filed suit. Rather, the defendants actively engaged in litigating the matter in the District Court. In light of all these circumstances, the First Circuit ultimately concluded, the plaintiff never clearly refused to mediate.
Accordingly, Thompson provides two relatively straightforward lessons for in-house counsel. First, when drafting a provision that calls for the prevailing party to recover its legal fees, a slight deviation in language and/or approach can have an enormous impact on its applicability, to be sure to say exactly what you mean. Second, if in-house counsel anticipates wanting to invoke a fee-shifting provision that does exist, be sure your client invokes all potential predicates to recovering legal fees. While “lying in wait” sometimes can be an appropriate and effective strategy, Thompson reminds us not to be so cleaver that we outsmart ourselves.
This article was reprinted with permission. Shepard Davidson is a Partner at Burns & Levinson LLP in Boston. Mr. Davidson is Co-Chair of the Firm’s Business Litigation Department.
A recent Legal Intelligencer story, “Third Circuit Wrestles with Attorney Fees under ERISA,” reports that after broaching the issue in an opinion issued last summer as not precedential, the U.S. Court of Appeals for the Third Circuit suggested during arguments Tuesday morning that it might soon answer definitively whether or not the catalyst theory for recovering attorney fees applies under ERISA. The catalyst theory allows plaintiffs to collect fees when the pressure of legal action causes a defendant to voluntarily change its conduct.
“I’m trying to sort out the law here … on the catalyst theory,” Judge Thomas L. Ambro told Mark Oberstaedt on Tuesday. Oberstaedt, of Archer & Greiner in Haddonfield, NJ argued on behalf of CareFirst, a member of the Blue Cross Blue Shield Association and a defendant in the case.
The case, Templin v. Independence Blue Cross, was initially filed as an Employee Retirement Income Security Act (ERISA) action in 2009 by people who have hemophilia seeking reimbursement for their medication. The insurance companies agreed to pay $2.2 million in claims, according to court papers. The plaintiffs then moved to collect the interest that had accrued on those claims, which settled in 2013. They are now seeking to recover attorney fees for that part of the litigation.
In 2010, the U.S. Supreme Court ruled in Hardt v. Reliance Standard Life Insurance that the ERISA statute gives district courts broad discretion to award attorney fees to plaintiffs. The high court ruled that the statute doesn’t limit attorney fee awards to only prevailing parties, but allows parties who show “some degree of success on the merits” to recover attorney fees.
U.S. District Judge Joel Slomsky of the Eastern District of Pennsylvania had rejected the plaintiffs’ bid to collect attorney fees in the hemophilia case because the interest they collected came from a settlement rather than a judgment and the amount of interest that they had won was small.
NALFA also reported on this issue in “Third Circuit OKs ERISA Attorney Fees Under Catalyst Theory”
A recent AM Law Litigation Daily story, “Cooley Wins Attorney Fees After NexTag Patent Trial Win,” reports that Cooley has won an award of attorney fees for client NexTag Inc. in a patent case brought by Lending Tree LLC. In an Oct. 9 ruling, U.S. District Judge Frank Whitney in Charlotte held that Lending Tree and its lawyers at Sheppard Mullin engaged in unreasonable tactics. The amount of the fee award, which will include work done by Cooley since Jan. 10 of this year, will be determined later.
Lending Tree, which runs an online service that matches borrowers and lenders, had sued NexTag for patent infringement in 2010. During a trial, which Lending Tree lost, evidence emerged that Lending Tree knew of NexTag’s allegedly infringing activity more than six years before suing.
Cooley had argued Lending Tree’s claims were barred by the equitable doctrine of laches, which prevents litigants from waiting too long to sue. The judge noted that some of this evidence came from data backup tapes that Lending Tree had initially refused to produce, even after a court order.
The judge cited other tactics by Lending Tree, including a failure to do a meaningful investigation before suing and a failure to review the company’s communications concerning NexTag. “This case is exceptional under a totality of the circumstances,” Whitney wrote.
NexTag didn’t get the full fee award it sought. The judge rejected it request for fees from the start of the case. Instead, he awarded fees as of Jan. 10, the date that he rejected Lending Tree’s motion for summary judgment. The judge declined to hold Sheppard Mullin jointly liable for fees as Cooley had asked, finding that the firm didn’t act in bad faith or intentionally abused the judicial process. Whitney did, however, previously order Sheppard Mullin to pay sanctions during discovery.
The judge ordered NexTag to submit an accounting of its attorney fees.
NALFA welcomes Nancy B. Rapoport as a qualified bankruptcy fee examiner. NALFA member Nancy Rapoport is a professor of law at UNLV Law School in Las Vegas.
She has served as a court-appointed bankruptcy fee examiner and as an expert for the fee examiner in a number of large, high-profile cases. Here are some of her expert witness activity:
Consultant for the Liquidating Trust for In re Residential Capital, LLC, U.S. Bankruptcy Court, Southern District of New York, Case No. 12-12020, regarding the reasonableness of fees (2014-present).
Expert for the Fee Examiner in Matter of Lehman Brothers Holdings, Inc., U.S. Bankruptcy Court, Southern District of New York, Case No. 08-13555 (2012).
Expert for the Fee Examiner in In re Motors Liquidation Co., U.S. Bankruptcy Court, Southern District of New York, Case No. 09-50026 (2011-2012).
Fee Examiner in the various Station Casino bankruptcy cases, U.S. Bankruptcy Court, District of Nevada, Case Nos. BK-09-52477 through BK-11-51219 (2011).
Court’s fee expert and chair of the Fee Review Committee in In re Pilgrim’s Pride Corp., U.S. Bankruptcy Court, Northern District of Texas, Case No. 08-45664 (2009-2010) (testified at hearing).
Court’s fee expert and chair of the Fee Review Committee in In re Mirant Corporation, U.S. Bankruptcy Court, Northern District of Texas, Case No. 03-46590 (2003-2006; 2011-2012) (testified in deposition and at hearing).
For more on Nancy, visit http://www.thenalfa.org/Network-Directory/rapoport/ and http://www.law.unlv.edu/faculty/nancy-rapoport.html.
A recent New York Law Journal story, “$1M Fees Ruling from Special Referee Spurs New Dispute,” reports that the law firm Herrick Feinstein is entitled to $1 million in fees and costs for defending a developer in a five-year contract dispute over a Staten Island waterfront parcel, a New York special referee ruled. The recommendation from Special Referee Lancelot Hewitt in Princes Point v. AKRF Engineering already fueled opposition from plaintiff’s counsel Rosenberg Cacilca & Birney, which argued that Herrick’s hourly rate were “unreasonable” and its block billing entries “redundant.”
That the fees’ issue has prompted a new round of legal wrangling is emblematic of the case; plaintiff Princes Point retained five separate law firms and appealed every lower court ruling and moved several times to reargue appellate decisions. Princes Point argues that a 50 percent across-the-board reduction of Herrick’s total hours billed “is more than appropriate,” saying the $920 per hour billable rate on the upper range was neither reasonable nor “in line with prevailing rates in the legal community.”
In his expert fee recommendation to the trial judge, Hewitt found Herrick’s rates were “not unreasonable within the New York legal community, given the documentary evidence submitted, including published articles of the subject, and fee applications charged by previous counsel of plaintiff.” Hewitt said that the facts comprised a “complicated, commercial litigation case” and cited the difficulty of issues presented; skill required to perform the services, the benefit resulting to the client; and the amount in dispute.
“If a party elects to engage in extensive discovery and motion practice, including unsuccessful motions to reargue, appeals and motions to reargue appellate decisions, it should not be heard to complain that the successful parties’ legal fees were too high,” said Scott Mollen, partner at Herrick Feinstein. “The amount of the fees was directly caused by the plaintiff’s unsuccessful ‘scorched earth’ approach to litigation.”
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