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Federal Judges Question Attorney Fee Formula in Florida Coverage Cases

December 12, 2019

A recent Daily Business Review story by Steven Meyerowitz, “Florida Split: Should Attorney Fees Count Toward Federal Amount in Controversy?,” reports that a decision by a Miami federal judge highlights a split among Florida district courts on whether to include statutory attorney fees when calculating whether an insurance coverage case removed from state court meets the federal minimum for the amount in controversy.

On Sept. 10, 2017, Hurricane Irma struck South Florida and damaged the home owned by Jaclyn and Xavier Caceres. The Cacereses submitted a claim to their insurer, Scottsdale Insurance Co.  Scottsdale assigned a claim number and issued the Cacereses a check for $10,975, reflecting a wind deductible in the amount of $5,854.

In May 2019, after renewing their policy, the Cacereses submitted a separate claim for property damage due to heavy rain and roof collapse. Scottsdale assigned a claim number and issued the Cacereses a check for $7,975.  On June 22, 2019, the Cacereses presented Scottsdale with a repair estimate for $91,863 that covered the estimated damages for both claims.

On Sept. 5, 2019, the Cacereses sued Scottsdale in state court. Their complaint alleged they were seeking damages in excess of $15,000, and they sought to recover attorney fees and costs under Florida Statutes Section 627.428.  Scottsdale removed the state court action to federal court, indicating among other things that the amount in controversy was $75,034 based on the $91,863 repair estimate minus the $10,975 check paid and the wind deductible.

The Cacereses moved to remand, arguing the amount in controversy did not exceed $75,000.  Specifically, they contended Scottsdale could not use a pre-suit damage estimate as a basis for establishing the amount in controversy and, even using the pre-suit damage estimate, Scottsdale failed to account for the second check to the Cacereses, which decreased the amount in controversy from $75,034 to $67,059.

For its part, Scottsdale countered the amount in controversy requirement was satisfied because the Cacereses sought to recover attorney fees and costs, which through trial could easily exceed the remaining $7,941 needed to establish the amount in controversy under the Cacereses’ interpretation.  U.S. District Judge Beth Bloom granted the Cacereses’ motion to remand.  In her decision, she ruled  district courts may consider pre-suit demands in evaluating whether a case has been properly removed.

The district court then observed the Cacereses’ total estimate of damages for the claims from both the Sept. 10, 2017 loss and the May 13, 2019 loss amounted to $91,863, Scottsdale issued two checks to the Cacereses for the losses, and the wind deductible of $5,853.68 was applied to the 2017 claim.  The district court said it was “clear” the amount in controversy was $67,059.

Bloom next considered whether the Cacereses’ bid for attorney fees counted toward the amount in controversy.  She noted the issue has caused a split in district courts within the U.S. Court of Appeals for the Eleventh Circuit, citing a 2017 Middle District of Florida decision discussing the divide and a 2010 Southern District of Florida case discussing the “conflicting case law” on whether the amount of  should be calculated on the date of removal or through the end of the case.

The district court then ruled the amount in controversy did “not include highly speculative, prospective amounts” of attorney fees but rather only those fees accrued at the time of removal.  According to the district court, this ruling was in line with a 1994 Eleventh Circuit precedent establishing “jurisdictional facts are assessed on the basis of plaintiff’s complaint as of the time of removal.”

The district court noted Scottsdale provided no evidence to establish the Cacereses accrued $7,941 in attorney fees by the removal.  Accordingly, the district court concluded Scottsdale had not satisfied its burden of establishing the amount in controversy exceeded $75,000.

Third Party Access to Attorney Fees at Issue in PayPal Case

December 11, 2019

A recent The Recorder story by Alaina Lancaster, “Suit Claims PayPal Tramples Attorney-Client Privilege With 3rd-Party Access to Attorney Fees,” reports that a California legal professional has sued payment platform PayPal Inc. for violating attorney-client privilege by allowing credit card companies to reverse attorney fee transactions.

Todd White, a paralegal based in San Diego, has brought claims of breach of contract, fraud and unlawful business practices against the company after a client asked a credit card company to cancel the payment of attorney fees to White on PayPal, according to the complaint in the U.S. District Court for the Northern District of California.  The purchaser asked to rescind the charge, reporting “problems with the payment.”

White, who is representing himself in the litigation, said the canceled payment has strapped him with a $20 “chargeback fee” from PayPal and a negative balance of $116.73 in his account.  He alleges it is PayPal’s “customary business practice to provide another financial institution with unrestricted access on demand to funds already on deposit in the PayPal account which then grants them with ultimate authority for granting refunds of attorney’s fees.”

According to the complaint, PayPal does not provide the same financial protections to providers of services and digital goods as sellers of physical goods on the platform.  After reviewing White’s internal complaint, PayPal reviewed the situation again and “found no errors” in how the transaction was handled, White wrote.

The paralegal claims the San Jose, California-based company fraudulently asserted its user agreement complied with state laws while violating California’s mandates around unfair business practices.  White is asking for $75,000 in damages, as well as punitive damages.

Attorney Fee Award Analysis in Section 285

December 10, 2019

A recent Mintz law firm blog post by Andrew H. DeVoogd and Kara E. Grogan of Mintz Levin PC, “Counterproductive and Cost-Increasing Litigation Tactics are Objectively Unreasonable in Section 285 Attorney Fee Award Analysis,” reports on attorney fee awards under Section 285.  This story was posted with permission.  The post reads:

Nearly six years ago, the Supreme Court in Octane Fitness v. ICON Health & Fitness promulgated a “totality of the circumstances test” for awarding reasonable attorney fees to the prevailing party in exceptional cases under 35 U.S.C. §285.  As lower courts have applied this standard, it has become clear that the motivation and conduct of the losing party is a focal point of the exceptionality analysis.  However, two recent decisions emphasize that bad faith arguments and litigation tactics—by both parties and in all stages of litigation—are critical to the exceptionality analysis in Section 285 attorney fee awards. 

By way of background, Section 285 permits courts, in exceptional cases, to award reasonable attorney fees to the prevailing party.  Using the totality of the circumstances test, courts consider factors such as frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case).  However, exceptional cases are rare—reserved for circumstances where a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify an award of fees. 

First, the Western District of Louisiana in Total Rebuild Inc. v. PHC Fluid Power, LLC, concluded that although the plaintiff’s patent was found unenforceable due to inequitable conduct, the case was not exceptional, due to the defendant’s “counter-productive and cost-increasing litigation tactics.”  The defendant’s unscrupulous actions included: (1) not informing the court in its opening brief that the plaintiff proposed a “walkaway” settlement offer; (2) evidence suggesting that the defendant’s motive was to deny the “walkaway” settlement, seek judgment against the plaintiff, and file a motion for sanctions to hit the plaintiff—a competitor—with a large judgment; and (3) not engaging in any meaningful settlement discussions.  This amounted to “objective unreasonableness.”  Due these bad faith litigation tactics, the court refused to allow the defendant to “benefit from fueling an environment that increased the cost to litigate this case.”  

Second, a magistrate judge in the Southern District of New York in EMED Technologies v. Repro-Med Systems, recommended finding the case exceptional and granting nearly $1 million in attorney fees due to the plaintiff’s bad faith shortly after granting a summary judgment of noninfringement.  Surprisingly, the magistrate judge based its attorney fee analysis in large part on the plaintiff’s claim construction position.  According to the magistrate, based on Federal Circuit precedent and the patent’s prosecution history, it was bad faith to initiate the litigation despite knowing the “conventional” construction of the claim term “consisting of” as used in the claim.  And, although the court ruled in plaintiff’s favor on other claim terms, “EMED’s success in that regard does not render any less unreasonable its objectively baseless construction and application of the closed mechanical fastener element.”  The court also cited additional examples of the plaintiff’s bad faith, including: (1) filing the action in the incorrect venue; (2) filing a motion for preliminary injunction; and (3) pressing on with the litigation “even after claim construction and the Court’s ruling against it.”  Although the district court judge has yet to affirm this report and recommendation, the magistrate’s opinion is instructive.

Taken together, these cases illustrate that practitioners should be mindful of reasonableness and decorum.  Courts are unlikely to find a case exceptional and award attorney fees if the prevailing party refuses reasonable requests for extensions of time or calls opposing counsel inappropriate names, as in Total Rebuild.  Along those same lines, practitioners should also avoid counterproductive and cost-increasing litigation tactics.  Tactics such as filing useless motions, taking objectively unreasonable positions, refusing to engage in meaningful settlement discussions, and excessive billing are all not only unprofessional (and potentially unethical), but may be used as fodder by an adversary to support an exceptional case fee award.  It is important to also remember that the entire record is scrutinized in a Section 285 analysis.  Baseless or unsupportable motions or positions, even at the start of a case, may come back to bite you and your client.

Andrew H. DeVoogd is a Member at the Boston office of Mintz Levin. Drew is an experienced intellectual property litigator and trial attorney whose work encompasses a broad range of technologies.  He regularly represents clients in high stakes patent disputes, including at the International Trade Commission, involving some of the world's largest technology companies. Kara E. Grogan is an Associate at the Boston office of Mintz Levin.  Kara focuses her practice on Section 337 cases in the International Trade Commission and district court patent litigation.  She has experience in, for example, motion practice, written discovery, and drafting license agreements.

Fifth Circuit: Procedural Win is Not Grounds for Attorney Fees

December 9, 2019

A recent blog post from Proskauer’s Employee Benefits & Executive Compensation Blog by Lindsey H. Chopin, “Fifth Circuit: Procedural Win Is Not Grounds for Attorney’s Fees,” reports on a recent Fifth Circuit decision regarding fee entitlement in purely procedural wins in employment cases.  This story was posted with permission.  The post reads:

The Fifth Circuit concluded that a plan participant was not entitled to recover attorneys’ fees for obtaining a remand order requiring the district court to apply a de novo, rather than abuse of discretion, standard of review to the administrative determination of her benefit claim.  In so ruling, the Court applied the principles enunciated by the U.S. Supreme Court in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010), which held that a plan participant must have “achieved some degree of success on the merits” in order to receive a fee award under ERISA.  The Supreme Court held that, although the participant need not qualify as a “prevailing party,” she must obtain more than “trivial success on the merits or a purely procedural victory.”  The Fifth Circuit applied the “some success on the merits” standard and observed that the remand order here included no comment on the strength of the remanded claim.  The case is Ariana M. v. Humana Health Plan of Texas, Inc., No. 18-cv-20700, 2019 WL 5866677 (5th Cir. Nov. 8, 2019).

Lindsey H. Chopin is an associate at Proskauer LLP in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group, focusing on complex employee benefits litigation.

Equifax Class Counsel Defend $77.5M Fee Request

December 6, 2019

A recent Daily Report story by R. Robin McDonald, “Equifax Class Counsel Defend $77.5M Fee Request, Calling Settlement ‘Unprecedented’,” reports that lawyers representing the class of 147 million people whose personal information was compromised in a 2017 Equifax data breach are asking a federal judge in Atlanta to give final approval to a $1.4 billion settlement agreement, contending it exceeds the value of all previous consumer data breach settlements combined.  They also defended their request for $77.5 million in legal fees in court filings.

Calling it the largest recovery in a data breach in U.S. history, class attorneys said the benefits available to consumers meet or substantially exceed those that have been obtained in similar cases.  The attorneys also said people with valid out-of-pocket claims tied to the breach will be fully reimbursed, and all class members may claim credit monitoring.  Calling their fee request “well-justified and equivalent to or below typical awards,” class counsel said people objecting to the $1.4 billion proposal significantly undervalue the settlement and the risks associated with bringing a data breach case.

“By any measure—the size of the cash fund, the minimum cost to Equifax of $1.38 billion, or the total value to the class when considering the value of the available credit monitoring services—this settlement is unprecedented, exceeding the value of all previous consumer data breach settlements combined,” consumer class attorneys argued in the pleading.

Class lawyers also said their settlement negotiations were complicated by separate negotiations Equifax conducted with the U.S. Consumer Financial Protection Bureau, the U.S. Federal Trade Commission and 50 state attorneys general.  Equifax refused to execute the settlement class counsel carved out until it also reached separate agreements with the regulators that included a “take-it-or-leave-it package of proposed changes” and $70.5 million in extra money “but also potentially made class members worse off,” class counsel contended.

“Counsel spent months negotiating with Equifax on these changes and then with both Equifax and the regulators, so that the increased funds could be incorporated without adversely impacting the class,” class lawyers said.  “Successfully resolving those problems did not ensure that the extra money would be available … because Equifax refused to execute the settlement until and unless it also reached separate agreements with the regulators, which it wanted to announce as part of a ‘global resolution,’” class lawyers contended.  But Equifax had difficulty finalizing those agreements, they said.

Class counsel “forced the issue” by setting a hard deadline and threatening to move to enforce a binding settlement deal they reached separately with Equifax that didn’t include federal regulators or the states.  Equifax signed the global deal shortly before the deadline.  Citing class action case law when the government piggybacks off of class counsel’s work, additional fees are justified, class counsel said in their filing.  The filing stated they shared responsibility with federal regulators for increasing the size of the settlement fund “and should be compensated for their effort.”

Under the terms of the consumer settlement, Equifax will pay $380.5 million earmarked for class benefits, fees, expenses and service awards, as well as notice and administration costs.  Equifax also will pay up to an additional $125 million, if needed, to satisfy claims for consumers’ out-of-pocket losses from efforts to defend against identity theft and $1 billion designated to upgrade the company’s data security and technology.  Because there is no cap on the settlement, Equifax could pay as much as $2 billion more if all 147.4 million class members sign up for credit monitoring, the class lawyers said.  No settlement funds will revert to Equifax.

Class counsel also pushed back against an objection filed by Ted Frank and other objectors who said the legal fees are excessive.  The U.S. Court of Appeals for the Eleventh Circuit has approved class action settlements that typically range from 20-30% with a suggested benchmark of 25%, the class counsel said.

Class counsel also contended that claims their fees are disproportionate are “based on a misunderstanding of the settlement.”  Class counsel said it was rather an “historic achievement” to require Equifax to spend $1 billion on data security and related technology.

“That Equifax may also benefit makes no difference. Defendants almost always benefit by doing the right thing. … The key question is whether the class is better off. In this case, that is undeniable as the business practice changes will immediately benefit all class members by reducing the risk of another breach.  And, according to a top cybersecurity expert, Equifax’s commitment to spend $1 billion will ensure adequate funding to secure class members’ personal information long after this case is resolved.”

The class lawyers also took issue with Frank’s attempts to brush aside the value of credit monitoring services.  “The high quality credit monitoring offered here is far better than the free or low-cost services typically available.  Moreover, courts have often recognized the benefit of credit monitoring, use its retail cost as evidence of value, and consider that value in awarding fees,” their filing said.  They also contended that affected consumers have already signed up for an estimated $6 billion in credit monitoring, based on the retail price.

Class lawyers said that, to date, more than 15 million class members—or over 10% of the class—already have filed claims for credit monitoring, and every class member who submits a valid, out-of-pocket loss claim is expected to be completely reimbursed for losses fairly traceable to the data breach.  “If class counsel were awarded 10% of those benefits, the fee would be much larger than requested,” they said.

Three Places Overbilling May Be Lurking

December 2, 2019

A recent Law 360 article by Andrew Strickler, “3 Places Overbilling May Be Lurking,” reports on overbilling.  The article reads: By most accounts, the wild ol’ days of lawyer invoicing —...

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