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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.”

Attorneys Earn $25M in Attorney Fees in JPMorgan 401K Settlement

September 24, 2019

A recent Law 360 story by Danielle Nichole Smith, “Workers’ Attys Get $25M in Fees From JPMorgan 401K Deal,” reports that a New York federal judge has given the final green light to a $75 million settlement resolving an Employee Retirement Income Security Act (ERISA) class action over JPMorgan Chase & Co.’s management of investments from participants in third-party 401(k) plans, signing off on the participants' bid for $25 million in attorney fees.

In his two orders, U.S. District Judge Vernon S. Broderick granted his final approval to the deal struck between JPMorgan and the class of third-party 401(k) plan participants and awarded the class counsel $25 million in attorney fees and nearly $1.5 million in costs.  The settlement was “fair, reasonable and adequate,” the judge found, dismissing with prejudice objections from three individuals.

Judge Broderick was also unpersuaded by two objections lodged against the attorney fees in the settlement.  The judge found one objection taking issue with certain costs being imposed on the class to be unavailing because courts weren’t allowed to “pick and choose the terms of the settlement they may desire to have modified.”

And another objection regarding the size of the award failed to take into account the 26,952 hours the firms spent working on the case, the judge said.  While the objector looked at the class counsel’s out-of-pocket costs to conclude that the $25 million represented a 1429% profit, the firms’ $17.6 million lodestar showed they only sought a “modest multiplier” of 1.4, the judge held.

The dispute stems from a proposed class action filed against JPMorgan and affiliates in April 2012 that received certification in March 2017.  In their case, the participants alleged that JPMorgan wrongly had its stable value funds invest heavily in funds that themselves were invested in “excessively risky, highly-leveraged assets.”

More Law Firms Enter NFL Concussion Fee Allocation Dispute

September 18, 2019

A recent Law 360 story by Ryan Boysen, “More Firms Pile Onto Seeger Weiss in Concussion Fee Fight,” reports that Zimmerman Reed LLP and Kreindler & Kreindler LLP have added their voices to the growing chorus of attorneys claiming Seeger Weiss LLP shortchanged them for their work on the landmark NFL concussion settlement, in a contentious fee fight in the Third Circuit.  In separate briefs, Kreindler’s Anthony Tarricone and a handful of Zimmerman Reed lawyers said their early contributions to the litigation that led to the massive concussion settlement were overlooked and undervalued by Chris Seeger and U.S. District Judge Anita B. Brody when she determined how to divvy up most of the $112 million common benefit fund in 2017.

“Despite recognizing that 'every attorney involved in the litigation has taken on the risk that work will be performed but no payment will be received,’ the court’s awarded multipliers have almost no correlation to the actual” hours of work performed or the risk of nonpayment inherent in those hours, Zimmerman Reed said in its brief.  “That result is completely inconsistent with the court’s” decision to award Seeger Weiss a comparatively massive risk multiplier for its own hours, Zimmerman Reed added.

Tarricone received a risk multiplier of 1.25 for his hours and Zimmerman Reed received a multiplier of just 1, while Seeger Weiss received a 3.5 multiplier, according to court documents.  That huge 3.5 multiplier, coupled with the hundreds of hours billed by Seeger Weiss for its own work, have allowed it to take home nearly $65 million worth of the roughly $100 million that’s been paid out from the common benefit fund thus far.

Seeger is widely acknowledged as the primary architect of the settlement itself, but most of the 20 or so firms involved in the concussion litigation’s early stages have repeatedly bristled at his perceived heavy-handedness and concentration of power during that process.  While those firms are still able to collect contingency fees when their individual clients’ awards are approved under the settlement, practically all of them were left seething after Judge Brody’s lopsided allocation of the CBF money.

They’ve also taken issue with how that money was divvied up in the first place.  According to an opening brief filed last month that Tarricone, Zimmerman Reed and many other firms have all joined, Seeger was allowed to pour over each firm’s time records and decide what would count and what wouldn’t, and determine their risk multipliers.  That process was then essentially rubber-stamped by Judge Brody with hardly any independent analysis on her part, the opening brief claims.  Meanwhile, all of the other firms involved still have yet to lay eyes on Seeger’s own time records.

The first concussion lawsuit was filed against the NFL in 2011 and the settlement was finally approved in 2015, putting to rest claims that the NFL knew for decades about the long-term dangers of repeated concussions but did nothing to warn its players.  The uncapped deal has a 65-year lifespan and covers about 20,500 retired NFL players, all of whom are potentially eligible for payments ranging from a few thousand dollars to $5 million depending on their age and the severity of their football-related brain injuries.  Thus far it’s on track to pay out roughly $675 million to players, although many attorneys have complained that the process is far more difficult than they bargained for.

While the joint opening brief primarily takes aim at the broader issues that allegedly infected the CBF allocation process, Tarricone and Zimmerman Reed’s briefs focus on their own grievances.  Tarricone says he co-chaired the public relations effort undertaken by the lead lawyers in the concussion litigation and was instrumental in getting retired football players on television and favorable op-eds written, as well as steering reporters to write about concussions in football.

Nevertheless, in the brief, he claims Seeger ordered him to delete 80 hours that should have been payable from the CBF and discounted his efforts when coming up with what he considers the paltry risk multiplier of 1.25 for his other hours.  Tarricone and his firm ultimately received about $1.5 million from the CBF, but Tarricone claims it would have been higher if his actual work and risk were properly accounted for.

Similarly, Zimmerman Reed said the late Charles “Bucky” Zimmerman was instrumental in getting the concussion litigation off the ground in the first place, and then spent many hours from 2013 to 2017 monitoring some lawyers and lenders who were allegedly misleading retired players in an attempt to squeeze money out of them.

“During that time, Seeger Weiss largely ignored the [Ethics Committee’s] efforts,” Zimmerman Reed said.  “Once the issue gained public traction” through an article in the New York Times however, “Seeger Weiss, as was its practice in this case, unilaterally took over the effort initiated by the committee” and then “barely acknowledged the work Zimmerman Reed performed.”

“The district court’s failure to scrutinize Seeger Weiss’s recommendation that it be credited for certain work but that Zimmerman Reed not be credited for similar work on the Ethics Committee is clearly erroneous,” the firm said.  Neither Tarricone nor Zimmerman Reed gave precise dollar amounts or other figures in their briefs, but both were adamant that their final payouts from the CBF should have been higher.

For its part, Seeger has not yet submitted a reply brief in the fee fight.  But his response to the initial objections that were overruled by Judge Brody in her 2017 order on the CBF allocation can likely provide some foreshadowing of the arguments he’ll make before the Third Circuit.  “Certain firms disagree with the court’s decision to ask me to submit a proposed allocation, likening me to a ‘fox’ divvying up the chickens, and claiming that I cannot be objective, or worse,” Seeger wrote in that earlier response.