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Category: Fee Award

In-House Counsel Can and Should Collect Attorney Fees

August 21, 2017

A recent Corporate Counsel article by Daniel K. Wiig, “In-House Counsel Can and Should Collect Attorney Fees,” writes about attorney fee entitlement for in-house counsel work.  This article was posted with permission.  The article reads:

When weighing his post-Senate career options, then-U.S. Sen. Howard "Buck" McKeon rejected an offer from a prominent law firm, opting not to "live his life in six-minute increments."  Indeed, it is with fair certainty to state a top reason lawyers in private practice transition to in-house is to escape the billable hour.  And while the imminent death of the billable hour may have been highly exaggerated (again and again), it remains the predominate metric for private-practice attorneys handling commercial work to track their time and collect fees.

Numerous reports suggest the in-house lawyer is "rising," with companies opting to retain more and more legal work within their law departments, and decreasing the amount of work they disseminate to outside counsel.  Sources cite various reasons from cost to the intimate knowledge in-house lawyers possess regarding their employer vis-à-vis outside counsel.  Whatever the genesis, it reasons that in-house lawyers morphing into the role traditionally held by outside lawyers should assume all such components of the role, which, when possible, can include recovering attorney fees for actual legal work performed, as noted in Video Cinema Films v. Cable News Network, (S.D.N.Y. March 30, 2003), (S.D.N.Y. Feb. 3, 2004), and other federal and state courts.

Recovering attorney fees is that extra win for the victorious litigant, whether provided by statute or governed by contract.  It leaves the client's bank account intact (at least partially) and gives the prevailing attorney additional gloating rights.  For the in-house lawyer, recovering attorney fees can also occasionally turn the legal department from a cost center to a quasi-profit center.  In-house lawyers can and should collect attorney fees.

To be clear, recovering attorney fees is not available for in-house lawyers functioning in the traditional role of overseeing outside counsel's work.  As noted in Kevin RA v. Orange Village, (N.D. Ohio May 4, 2017), a court will not award fees to in-house lawyers that are redundant, i.e., those which reflect work performed by outside counsel.  Indeed, when in-house counsel is the advisee of litigation status rather than drafter of the motion or attends the settlement conference as one with authority to settle rather than to advocate more advantageous settlement terms, she functions as the client rather than lawyer, of which attorney fee are unavailable.

Unlike their counterparts in private practice, in-house counsel do not have set billing rates, although an exception may exist if internal policies permit the legal department to invoice the department that generated the legal matter.  Even in such a situation, as with law firm billing rates, the actual fees/rates are considered by the court but not determinative in awarding fees, as noted in Tallitsch v. Child Support Services, 926 P2d. 143 (Colo. App. 1996).  In determining what constitutes an appropriate and reasonable attorney fee award, courts frequently apply the "reasonably presumptive fee" or the "lodestar" method.  Under the lodestar method, as explained in Earth Flag v. Alamo Flag, 154 F.Supp.2d 663 (S.D.N.Y. 2001), fees are determined by "multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate."

Reasonableness is a question of fact for the trial court.  In determining a reasonable hourly rate, federal courts look to those reflected in the federal district in which they sit, while state courts consider the prevailing rates in their respective city and geographical area.  Courts will also consider other factors such as the complexity of the case, the level of expertise required to litigate the matter, and the fees clients in similar situations would be willing to pay outside counsel in determining the appropriate hourly rate for the in-house lawyer.  Determining whether the tasks performed by the in-house lawyer were reasonable is left to the court's discretion.

Recognizing legal departments do not necessary operate in lockstep fashion as a law firm, courts will consider the "blended" rate in the lodestar calculation.  Here, a court will combine or "blend" the reasonable rates for associates, partners, counsel and paralegals in their locale to devise the appropriate hourly rate for the in-house lawyer.  The premise is in-house lawyers generally take on less defined roles in litigating a matter than their counterparts in private practice, performing a combination of litigation tasks that may be more clearly delineated among law firm staff.

In order to successfully receive an award of attorney fees, the in-house lawyer must maintain a record akin to a law firm's billing sheet of her time spent on the matter, as reflected in Cruz v. Local Union No. 3 of International Brotherhood of Electrical Workers, 34 F.3d 1148 (2d Cir. 1994).  Consequently, an excel spreadsheet, or similar document, enumerating the time and task, with as much detail as possible, is required to sustain a court's scrutiny in looking for tasks that were "excessive, redundant or otherwise unnecessary," as noted in Clayton v. Steinagal, (D. Utah Dec. 19, 2012).  Moreover, the in-house attorneys who worked on the matter must execute affidavits attesting to the accuracy of their time records, and include the same in their moving papers.

As the legal profession changes and corporate legal departments retain more of their work, in-house should take advantage of statutory or contractual attorney fees provisions, notably for the litigation they handle internally.  In so doing, the in-house lawyer may find a number of benefits, such as approval to commence litigation that they may have otherwise shied away from because of the possibility to recoup attorney fees and the benefit of essentially obtaining payment for the legal work performed.

Daniel K. Wiig is in-house counsel to Municipal Credit Union in New York, where he assists in the day-to-day management of the legal affairs of the nearly $3 billion financial institution.  He is also an adjunct law professor at St. John's University School of Law.  Wiig successfully moved for in-house attorney fees in Municipal Credit Union v. Queens Auto Mall, 126 F. Supp. 3d 290 (E.D.N.Y. 2015).

Seventh Circuit Cuts Fee Award in Half

August 18, 2017

A recent NLJ story by Amanda Bronstad, “Fees in Class Action Over Moldy Washing Machines Nearly Halved,” reports that a federal appeals court has slashed plaintiffs' attorney fees by nearly half in a class action settlement over defective washing machines — but the firms could have taken a bigger hit.  A much bigger hit.

The opinion by the U.S. Court of Appeals for the Seventh Circuit reduced the fees in a 2015 settlement from $4.8 million to $2.7 million.  The suit alleged that front-loading washing machines made by Whirlpool Corp. and sold by Sears, Roebuck and Co. from 2004 to 2006 had a defect in their central control units and grew mold inside them.  Sears estimated that the settlement, which resolved just the claims over the control units in Kenmore and Whirlpool brands, was worth about $900,000.

The Seventh Circuit found a federal magistrate judge's reasoning "questionable" when she boosted the award 1.75 times what lawyers charged for their work.  "The judge's reasoning was that the case was unusually complex and had served the public interest and that the attorneys had obtained an especially favorable settlement for the class," wrote Judge Richard Posner.  "The district court, comparing the hourly rates sought by class counsel with the complexity of their work, concluded that for the most part the case wasn't very complex — it was just about whether or not Sears had sold defective washing machines.  This conclusion leaves us puzzled about the court's decision nevertheless to allow a multiplier."

What the Seventh Circuit did not do, however, is find any problem awarding fees greater than the benefits to class members, despite two of its own precedents in 2014 cautioning courts to presume that such fees are unreasonable.  Defense attorneys insisted that the fee award disregarded those precedents — Pearson v. NBTY and Redman v. RadioShack — and that the plaintiffs' attorneys should get no more than $900,000 given that 95 percent of the class won't get anything.

Yet such a presumption, Posner clarified, wasn't "irrebuttable."  He noted the "extensive time and effort that class counsel had devoted to a difficult case against a powerful corporation entitled them to a fee in excess of the benefits of the class."  But three times what class members got?  The attorneys should get what they billed for — "no more, no less," Posner wrote, remanding with directions to award $2.7 million.

Plaintiffs' attorneys, meanwhile, spent much of their appeal brief focused on the Seventh Circuit's 2015 ruling in In re Southwest Airlines Voucher Litigation, which awarded $1.6 million in fees in a coupon settlement.  But Posner's opinion never mentioned that ruling.  Sears and Whirlpool were represented by Timothy Bishop, a partner at Mayer Brown in Chicago.  In an email, both companies praised the Seventh Circuit's decision to reduce "the plaintiffs' lawyers' excessive and unreasonable fee by more than 43 percent."

Steven Schwartz of Chimicles & Tikellis in Haverford, Pennsylvania, did not respond to a request for comment.  His firm sought fees alongside five others, including Carey, Danis & Lowe in St. Louis, San Francisco's Lieff Cabraser Heimann & Bernstein and New York's Seeger Weiss.

The class actions were filed in 2006.  In 2012, the Seventh Circuit certified two classes of customers in a ruling written by Posner that ended up before the U.S. Supreme Court, which remanded the case in light of its ruling in Comcast v. Behrend. Posner reaffirmed the certification ruling in 2013.  Separate claims over mold against were transferred to multidistrict litigation in the Northern District of Ohio, where a federal jury issued a defense verdict in 2014.  In that case, the lawyers got $14.75 million in counsel fees and costs.

After U.S. Magistrate Judge Mary Rowland of the Northern District of Illinois approved the central unit settlement last year, the attorneys sought $6 million in fees.  They claimed their lodestar — the amount they actually billed — was $3.25 million and that they deserved a 1.85 multiplier to account for their efforts in the case.

In a 55-page opinion, Rowland reduced their lodestar to $2.7 million after finding issues with some of their billing records, but multiplied the amount by 1.75 due to the novelty and complexity of the case, the success achieved and the advancement of a public interest.

"It is no exaggeration to say that this protracted nine-year litigation has concerned fees and little else," Bishop wrote in the brief for Sears and Whirlpool appealing her fee award.  "The approach taken by the district court would encourage prolonged litigation to drive up class counsel's hours with no added value to the class."

But it was the defendants, Schwartz wrote in the plaintiffs' response brief, who drove up those hours.  "The only reason why it took a decade of litigation up through the eve of trial to get the cases settled was defendants' refusal to even discuss settlement," he wrote.

The case is In re: Sears, Roebuck and Co Front-Loading Washer Products Liability Litigation, 7th U.S. Circuit Court of Appeals, No. 16-3554.

Judge Trims Hours Billed in Copyright Infringement Action

August 17, 2017

A recent Law 360 story by Sophia Morris, “Judge Reinstates, Then Trims Fees Award to ‘Obstinate’ Attys,” reports that a Florida federal judge ruled that Yellow Pages Photos Inc. was entitled to attorneys’ fees and costs totaling more than $1.4 million in a copyright infringement suit following an Eleventh Circuit ruling in its favor, but revised the amount downward based on the conduct of the company's counsel at Shumaker Loop & Kendrick LLP.

U.S. District Court Judge Richard A. Lazzara was ruling on the fee request following the remand of YPPI’s infringement suit against subcontractor Ziplocal and Yellow Pages Group LLC from the Eleventh Circuit.  He found that while YPPI was the prevailing party and thus entitled to fees and costs, the amount must be reduced given its attorneys' conduct during the litigation.

“Obstructing the rhythm of a case by throwing up roadblocks of schedules too busy to calendar depositions, just for the sake of being disagreeable and obstinate, particularly in view of the multiple attorneys working on the case, does not bode well in finding the number of hours incurred was reasonable or acceptable in any sense of the word,” Judge Lazzara said.

Yellow Pages Photos filed the long-running infringement suit in 2012 over Ziplocal and Yellow Pages Group’s use of copyrighted photos.  In 2014 a federal jury awarded YPPI $123,000 in damages.  Yellow Pages Group appealed and YPPI cross-appealed, and the Eleventh Circuit affirmed the judgment in 2015.  YPPI then appealed the district court’s lowered fee award, and the Eleventh Circuit ruled in January that it was entitled to a revised fee determination given that it had requested $1.4 million in fees from Ziplocal and had been awarded $69,354.76. 

Now, on remand after the January ruling, YPPI requested fees and costs for both the district court action and the appeal process.  But Judge Lazzara said that given the stonewalling behavior of YPPI’s attorneys during the course of the district court proceedings he cannot award fees and costs in the amount requested.

The court found that the lodestar for the district court action should be $1,280,395.57, a 10 percent reduction “representative of the excessive, redundant and otherwise unnecessary number of hours expended,” Judge Lazzara said.  He then reduced this lodestar by another 10 percent to $1,152,356.01, saying that YPPI had requested an excessive amount of damages in what was a simple case.  The damages that were awarded were much lower than what was initially requested and the court found that the fee award should reflect this.

YPPI’s attorneys also made a fee request of $57,419.50 for work expended on the appeal.  The court said that while the hourly rate was reasonable, the amount of hours expended on the appeal was not.  Judge Lazzara said that the fee request was not detailed and it appeared that the attorneys were duplicating each other’s work.  He therefore reduced the fee award to $50,794,50.  “The time of 136 hours seems excessive and unnecessary for researching and briefing the issue of attorneys’ fees and nontaxable costs,” the court said.

Plaintiffs Firm Sues for Fees in Celgene $280M Settlement

August 16, 2017

A recent Bloomberg Big Law Business story by Max Siegelman, “Plaintiffs Firm Sues for Fees in Celgene $280M Settlement,” reports that court filings show plaintiffs law firm Grant & Eisenhofer is suing their former client and their former co-counsel from a $280 million settlement against pharmaceutical giant Celgene Corporation.

G&E claims it racked up a $7 million tab that has not been paid since the case was settled in July, and that it is entitled to a share of the contingency fee for the recovery effort.  Their original deal would have won the firm anywhere between $28 and $33 million, according to the complaint filed in California federal court.

In 2010, G&E filed a complaint against the pharmaceutical company Celgene on behalf of Beverly Brown, one of its former sales managers.  According to that complaint, the company pressured Brown and others to promote the drug Thalomid as a treatment for bladder, breast and brain cancer, despite lacking FDA approval for these uses.  As part of its marketing plan, the complaint alleged, Celgene dispatched over 100 “agents,” to hospitals and doctors offices around the country to aggressively push the drugs and their untested results.

The case was settled for $280 million in July, 2017.  Most of the settlement is earmarked for the federal government, 28 states and Washington D.C.  The payment is equivalent to about two weeks worth of sales of Revlimid, which generated $6.97 billion in revenue for Celgene last year, according to data compiled by Bloomberg News.

G&E is suing Brown, California firm Bienert, Miller & Katzman, and South Carolina based Richard Harpoolitan on the grounds that those firms and a former G&E director Reuben Guttman, poached Brown as a client after Guttman left the firm.  They are suing for breach of contract, intentional interference with contract, quantum meruit and declaratory relief in the U.S. District Court in the Central District of California.

The claims stem from a frayed relationship between the firm and Guttman, who took on the plaintiff Brown as a client in 2009, according to the complaint.  He left the firm in early 2015 and shortly after, Brown replaced the G&E legal team with Guttman and another former lawyer from the firm who later started a firm with Guttman called Guttman, Buschner & Brooks PLLC.

Despite the switch, G&E claims it should be compensated for the work it performed on behalf of Brown in the case.  According to the G&E complaint, whistleblowers typically receive 25 to 30 percent of the settlement.  Given the $280 million settlement with Celgene, that means Brown could receive anywhere from $70 to $84 million as a whistleblower “bounty,” some of which will go to her legal team.  According to G&E, their original deal with Brown would have won the firm a 40 percent contingency fee — anywhere between $28 and $33 million.

Federal Circuit Considers Fee Award in Original Octane Fitness Case

August 14, 2017

A recent NLJ story by Scott Graham, “Federal Circuit Weighs $1.4M Fee Award in the Original ‘Octane Fitness’ Case,” reports that the original Octane Fitness v. Icon Health & Fitness is now before the Federal Circuit.  That was the 2014 case the Supreme Court used to ease the standard for awarding “exceptional case” attorney fees in patent litigation.

The decision definitely made an impression on U.S. District Judge Ann Montgomery of Minnesota.  Back in 2011, she’d brushed aside Octane Fitness LLC’s complaints about its competitor’s unreasonable claim construction and unfair litigation tactics and declined to award fees.  After the Supreme Court decision, she awarded $1.4 million in fees and costs, saying that, in her 22 years as a judge, the case “stands out as a particularly and unusually weak case on the merits.”

The parties were back at the U.S. Court of Appeals for the Federal Circuit.  This time, Morrison & Foerster partner Deanne Maynard argued for Icon Health & Fitness Inc. that, while it might have had a losing case, the company had not acted unreasonably.  “Hard fought, to be sure, but that’s typical in patent cases, especially competitor-on-competitor suits,” Maynard told the judges. “Not extraordinary.  Not rare.  Like many this court sees every day.”

Maynard faced two obstacles: One is that the Supreme Court also has said that the Federal Circuit should generally trust trial judges to make the call on attorney fee awards under Section 285 of the Patent Act.  The second is that one of the three Federal Circuit judges, Todd Hughes, sounded inclined to further lower the standard for awarding fees.

“All those typical patent cases” that Maynard was describing “arise from a regime in which it was incredibly hard to get attorney fees,” Hughes told her.  “So we don’t have a baseline yet for what is the new standard.  So how do we know whether this complies with the new standard or not?”

The case, now styled Icon Health and Fitness v. Octane Fitness, is a battle between two fitness machine companies over the style of an elliptical trainer—including whether Octane’s has a “stroke rail” that “extends from a foot rail to a frame” in the manner described by Icon’s patent.  Octane argues that its elliptical is nothing like this and that Icon executives joked with each other in emails about how the company found this 10-year-old patent gathering dust in its portfolio and asserted it to just mess with smaller competitor Octane.

In her original 2011 opinion, Montgomery called these “stray comments by employees with no demonstrated connection to the lawsuit.”  But following the Supreme Court decision—and additional discovery—she concluded that Icon general counsel Everett Smith probably was the source of the executives’ opinions.

Morrison & Foerster formally joined the case just after Montgomery awarded fees in 2015.  Maynard argued to the Federal Circuit that just this last June, well after the Supreme Court reset the standard, the Federal Circuit threw out a fee award in a case where executives spoke much more brazenly about stomping on their competition.  Maynard didn’t mention it, but two of the three judges on that opinion--Pauline Newman and Alan Lourie—were presiding over her case with Hughes.

“What is a competitor supposed to do?” she asked the judges.  “A competitor in the marketplace not surprisingly often has a large patent portfolio, often monitors what its competitors are doing, and if it sees a new competitor in the marketplace who seems to be copying their invention, sues them.”  “You’re going to overdeter—overdeter—if you award fees on facts like these,” she told the court.

Rudolph Telscher of Harness Dickey has been representing Octane Fitness since the beginning of the case—all the way up to the Supreme Court and back.  He told the Federal Circuit that not only should Octane keep its $1.4 million award, it also should get another $1.5 million for having to litigate the attorney fee issue before Montgomery, the Federal Circuit and the Supreme Court.  “Do we appreciate that award?  We of course do,” he said.  “But we’re still out $1.5 million, which means the net effect is our client has gotten no fee award.”

The Federal Circuit did not sound likely to expand the award.  The judges suggested that, until the Supreme Court changed the rules, it was not unreasonable for Icon to oppose attorney fees.

Whether to affirm the underlying $1.4 million award sounded like the closer issue.  “There does seem to be at least misapprehensions by the district court” about claim construction, Hughes said.  Montgomery’s characterization of Icon’s argument is “not right.  That’s not what they argued,” he told Telscher.

Telscher said Icon should have known better.  Suppose "I was Icon’s management, and somebody said, ‘Yeah, we’ve got this 10-year-old patent.  It doesn’t work.  We’ve never used it.'  And we’re going to say that’s the basis for a claim against Octane, a small startup company who’s taking market share with a completely different product?”  Incredibly, he said, “the red flags didn’t go off.”