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Category: Fee Jurisprudence

US Supreme Court to Decide USPTO Attorney Fee Rule

March 5, 2019

A recent The Recorder story by Scott Graham, “Supreme Court Will Decide if USPTO Can Collect Legal Fees,” reports that the U.S. Supreme Court agreed to hear a dispute over attorneys fees between the U.S. Patent and Trademark Office and a company led by billionaire Patrick Soon-Shiong.  Iancu v. NantKwest is an appeal from the PTO after the U.S. Court of Appeals for the Federal Circuit refused en banc to award the office its fees in litigation with immunotherapy company NantKwest.  After being denied a patent, NantKwest initiated what’s known as a Section 145 proceeding in district court to try to force the PTO to issue it.  Section 145 of the Patent Act provides that “all the expenses of the proceedings shall be paid by the applicant,” regardless of outcome.

NantKwest lost the suit, and the PTO moved for $78,592 in attorneys fees and $33,103 in expert fees.  The PTO did not seek attorneys fees for more than 100 years but says it changed its policy after the Supreme Court in 2012 broadened the kinds of evidence and discovery that can be introduced in 145 proceedings.  The agency argues that the expansive “all the expenses” language is broad enough to cover attorneys fees.  The Federal Circuit disagreed in a 7-4 en banc ruling.  Judge Kara Stoll wrote that the Supreme Court has generally applied the American Rule and allowed fee-shifting only when Congress explicitly provides for it.  “All the expenses” doesn’t meet that standard, she concluded.

The PTO and the Justice Department argued in their petition for cert that the Fourth Circuit has awarded fees in a Section 145 appeal.  The filing included U.S. Solicitor General Noel Francisco and Assistant Attorney General Jody Hunt, who heads the Civil Division.  NantKwest is represented by an Irell & Manella team led by partner Morgan Chu.  “’Fees’ are never mentioned” in the statute, Chu wrote in opposition, “let alone ‘attorneys’ fees’ or any other equivalent that would suggest that such fees are recoupable.”

Section 145 proceedings are fairly rare, but two academics who follow Federal Circuit law said they weren’t entirely surprised the Supreme Court took the case.  Emory University law professor Timothy Holbrook said that, whenever the solicitor general’s office signs on to a PTO cert petition, the odds of the court granting cert go up.  Villanova University law professor Michael Risch said the close vote at the Federal Circuit could have gotten the court’s attention, and the justices might be on the lookout for some noncontroversial decisions to counter the potential blockbusters in the offing with the arrival of Brett Kavanaugh.

Risch also suggested the court might use the case to examine whether “expenses” should be narrowed to exclude not only attorneys’ fees but expert witness fees as well.  “Similarly, the law is unsettled about whether in-house counsel can even collect in fee-shifting cases,” he said via email.  “As far as I can tell, the Federal Circuit doesn’t even address that question (though the dissent does).”

Texas Law Firm Accused of ‘Gross Fee Churning’

March 4, 2019

A recent Texas Lawyer story by Brenda Sapino Jeffreys“Former Houston Energy Exec Sues Trail Firm AZA Alleging ‘Gross Fee Churning’, reports that Houston trial firm Ahmad Zavitsanos Anaipakos and three of its name partners were sued by a former Houston energy executive who alleges the firm engaged in “gross fee churning” when representing him in an employment dispute.  “The several Houston lawyers breached their agreement with their client by over-charging, padding their bills for services and providing unreasonable and unnecessary charges solely to place their interests ahead of their client’s interest so they could improperly line their pockets at their client’s expense,” Paul A. Bragg, the former chairman and former chief executive officer of Vantage Drilling, alleges in a petition filed in state district court in Houston.

Bragg seeks more than $1 million from the defendants including actual and punitive damages and fee forfeiture.  He brings negligence, breach of duty of fair dealing, breach of fiduciary duty, and fraud causes of action against the defendants, who include the firm partners John Zavitsanos, Demetrios Anaipakos and Joseph Ahmad.  Bragg alleges that AZA’s representation provided him with “no benefit whatsoever,” because he ended up agreeing to a settlement during an arbitration that was essentially the same as what his former employer offered him initially when he was terminated.

In a written statement, the law firm defendants said the allegations don’t deserve to even be characterized as meritless.  “We will defend it, of course, and we will win. There is no payday coming for Mr. Kassab, the lawyer who filed this lawsuit.  We categorically deny his lawsuit’s allegations which we consider pure fiction,” the defendants wrote in the statement.

They wrote that Bragg’s lawsuit is retaliation by his attorney, Lance Kassab, because AZA is working pro bono, defending the estate of a Houston attorney who was sued for barratry by Kassab.  Lance Kassab could not be reached for immediate comment, but his nephew, David Kassab, who works with his uncle at Kassab Law Firm, said he is not surprised the defendants would say that.

“It’s absolutely ludicrous. We are happy to represent Mr. Bragg in his lawsuit against AZA because of the conduct as alleged in the petition,” David Kassab said.  In their statement, the law firm defendants also said that if Michael Cohen, President Trump’s former lawyer, still had a law license, “even he would have refused to take this case.”

‘Questionable’ Billing

As alleged in Bragg v. Zavitsanos, Bragg hired AZA shortly after Vantage Drilling International, a successor to Vantage Drilling, fired him on March 21, 2016, and Anaipakos and Ahmad were the main lawyers at AZA representing him.  “After reviewing the employment agreement, both lawyers told Bragg he had a ‘slam dunk’ case and that Vantage would be held responsible for severance pay, MIP [management incentive plan] awards, legal fees and expenses,” Bragg alleges in the petition.

Bragg alleges Vantage offered him severance, excluding the MIP, when he was terminated, but he declined the offer. He also alleges that on the advice of AZA counsel, he declined a similar offer during mediation in September 2016 and also one just prior to an arbitration in July 2017.  “Importantly, each time the offer was made, AZA counsel reacted with disdain to the offer and held firm that Bragg would prevail on the MIP award,” Bragg alleges in the petition.

Bragg claims that on the third day of the arbitration, his AZA lawyers were “suddenly very negative about the likelihood of prevailing on the MIP award,” and they encouraged him to accept the Vantage offer on the table, to which he “reluctantly agreed.”  Bragg alleged that his employment agreement required Vantage to pay him up to $300,000 in legal fees for any dispute with the company, but it paid only $108,000 because that is all AZA had invoiced prior to the time of settlement.

He alleges as the settlement was finalized, AZA informed him that the fees would total between $400,000 and $500,000, but later revised that to $750,000 and Vantage eventually paid AZA $875,000 in fees and expenses.  He alleges that despite assurance from the firm that it would rebate any excess fee payment from Vantage to him, Bragg said he received no final accounting or rebate from the firm for several months.

Bragg further alleges that AZA encouraged him to continue with the arbitration, “promising” him he would recover his MIP and treble damages, but he ended up with a settlement that was equal to the settlement Vantage offered before Bragg hired AZA.  “He would have received the same result and eliminated 90 percent of the legal fees he incurred at the hands of AZA,” Bragg alleges in the petition.  Bragg further claims that AZA used “block billing”—billing multiple tasks as a single billing entry—which he alleges is a “known tool used to inflate fees.”

Also, Bragg alleges, there were instances of duplicative billing that led to $22,148 in fees,  “questionable and vague billing entries” for communication, preparation and general tasks totaling $148,554, clerical work for $23,475, research services for $5,273, and “undocumented disbursements” totaling $196,160.  Bragg also alleges that Zavitsanos billed nearly $40,000 to depose a witness in Greece to “enjoy an all-expense paid trip to his villa in Greece at the cost of his client.”  “Only after getting caught with his hand in the proverbial ‘cookie jar,’ did AZA refund a portion of these charges,” Bragg alleges.

In addition to the firm’s statement, Zavitsanos, in an interview, disputed allegations related to fees and billing.  He said the litigation settled at Bragg’s insistence and Bragg “did not pay a penny out of his pocket on his fees.”  He also said that because Vantage was paying Bragg’s legal bills, under a provision in his employment contract, AZA provided Vantage with general billings because “we did not want to give them a roadmap” to legal strategy.

Bayer Seeks Attorney Fees After $155M Hemophilia Drug IP Verdict

March 1, 2019

A recent Law 360 story by Taylor Arluck, “Bayer Seeks Fee After $155M Hemophilia Drug IP Verdict,” reports that Bayer pushed a Delaware federal court Friday to have a Takeda Pharmaceutical unit cover its legal costs on top of its $155 million jury verdict for patent infringement of a hemophilia treatment, arguing the case was "exceptional" because of its opponent's "refusal" to follow court instructions.  Bayer Healthcare LLC said Baxalta Inc.’s bad behavior before and during a six-day trial that ended on Feb. 4 — which included willfully disobeying a Delaware federal judge's claim construction order and disclosing a hemophilia drug's profitability in bad faith — met the definition of "exceptional" under federal law.  Under U.S.C. Section 285, a case can be deemed "exceptional," and thus eligible for an attorney fees award, and Bayer argued that it fit the bill because Baxalta engaged in "unreasonable behavior."

Bayer argued Baxalta's "unwillingness to play by the rules" and repeated and flagrant refusal to abide by U.S. District Judge Richard G. Andrews' instructions satisfied the requirements.  "Baxalta's pattern of conduct includes its repeated refusal to abide by the court's claim constructions, bad faith in executing discovery obligations, assertion of frivolous defenses at trial, attempts to mislead the jury, and repeated behavior that undermined the orderly progress of the litigation and trial," Bayer said in its motion for attorneys' fees.

The jury in the trial, which began on Jan. 28, deliberated for more than five hours before returning a verdict entirely in Bayer's favor.  According to the verdict form, the four patent claims in the suit are neither obvious nor invalid for lack of enablement.  Bayer deserved 17.78 percent of an $873 million royalty base, leading to the $155 million figure, the jury said.  Those royalties are for sales between June 2016 and November 2018.

U.S. Patent Number 9,364,520 covers an improved way to treat hemophilia patients. Hemophiliacs have a deficiency of a blood-clotting protein called Factor VIII.  In December, Judge Andrews called out the Takeda unit for not following his claim construction order.  Baxalta later had experts advance arguments at trial that allegedly flouted the ruling.

"Baxalta's disregard for the court's claim construction is itself evidence of unreasonable litigation conduct that warrants an exceptional case finding," Bayer said.  "This ongoing pattern of disobedience of the markman order and the fact that the court had to then issue numerous other orders telling Baxalta not to do so establishes this case as exceptional."  Bayer also pointed to a January finding by Judge Andrews that Baxalta engaged in "bad faith" by belatedly and improperly disclosing information about the profitability of its flagship hemophilia treatment Adynovate.

"Rather than stand by its own documents created in the regular course of business and the testimony of its own financial witness, Baxalta served post hoc financials designed to deflate the damages award to which Bayer was entitled," Bayer said.  "The suspicious origin of the late-disclosed financials exemplifies the unreasonable measures that Baxalta took in litigating this case."  Bayer also said Baxalta tried to mislead the jury and present a frivolous defense at trial by falsely claiming it derived the '520 patent from Nektar Therapeutics, with whom it had a partnership in 2003 to develop the treatment.  Bayer ended the partnership a year later and pursued its own research.

The case is Bayer Healthcare LLC v. Baxalta Inc. et al., case number 1:16-cv-01122, in the U.S. District Court for the District of Delaware.

Article: Fresh Takes on Seeking Costs and Fees Under Rule 45

February 22, 2019

A recent Pepper Hamilton blog post article by Donna Fisher, Matthew Hamilton, and Sandra Hamilton, “Fresh Takes on Seeking Costs and Fees Under Rule 45,” reports on fee-shifting incurred in responding to a Federal Rules of Civil Procedure 45 subpoena.  This article was posted with permission.  The article reads:

Recent case law reveals that courts vary widely in their approaches to shifting the costs and fees incurred in responding to a Federal Rule of Civil Procedure 45 subpoena.  Some courts view shifting costs and fees as mandatory in situations where a nonparty is forced to bear “significant” costs.  Others may shift costs and fees only to the extent those costs are “unreasonable,” which is measured by (1) the nonparty’s size and economics, despite its lack of connection to the dispute, (2) defining “reasonable costs” so narrowly that the nonparty bears substantial costs or (3) eliminating attorneys’ fees from the cost-shifting calculation.  The relief a nonparty may be awarded may depend on factors that are not specifically identified in Rule 45 but that are nonetheless included in the court’s concept of fairness.  As the cases discussed below demonstrate, nonparties responding to Rule 45 discovery requests should consider the following best practices:

Know and understand the applicable jurisdiction’s rules pertaining to Rule 45’s protections. 

Be able to demonstrate that the non-party has attempted to respond to Rule 45 discovery in the most efficient manner available.

If possible, demonstrate that review for compliance with regulations or attorney-client privilege is consistent with any applicable protective order or local rule and, therefore, not just for the non-party’s benefit. 

In order to increase the likelihood of recovering costs of any motion practice, attempt to cooperate with the requesting party and demonstrate a willingness to resolve or mitigate the costs and the dispute.

The cases discussed below evaluate motions for costs and fees in two broad categories: (1) those incurred when litigating the scope of the subpoena itself and (2) those incurred in compliance.

Costs and Fees Incurred Litigating the Scope of the Subpoena Itself

The district court in In re Aggrenox Antitrust Litigation considered the motion of a nonparty, Gyma Laboratories of America, to recover $72,778.20 in costs and fees incurred in response to a Rule 45 subpoena from the direct purchaser plaintiffs.  Gyma objected to the requests as overbroad and asserted that production would be unduly burdensome.  At the hearing on cross-motions to compel and to shift costs and fees, the court expressed concern that Gyma had not made a record establishing the alleged difficulties in production, but directed that Gyma would be eligible for reimbursement of reasonable costs incurred.

In reviewing Gyma’s subsequent motion for costs and fees, the court reasoned that Rule 45 makes cost-shifting “mandatory in all instances in which a non-party incurs significant expense from compliance with a subpoena,” but that it did not require the requesting party to bear the entire cost of compliance.  Further, the court held that only “reasonable” costs are compensable under Rule 45 and that the moving party bears the burden of proof.  The court found that Gyma had not established that a reasonable client would use its “expensive” New York counsel to handle the subpoena, and further that costs and fees incurred prior to the date it provided an estimate of costs to the plaintiffs and the court were not fairly chargeable.

Moreover, the court found that many of the costs and fees were incurred in connection with Gyma’s efforts to resist compliance with the subpoena, which the court found was a unilateral “decision to litigate the subpoena zealously.”  Finding that Gyma was “notably intransigent and dilatory in its response,” and considering the admonition of the U.S. Court of Appeals for the Second Circuit, that courts should “not endorse scorched earth tactics” or “hardball litigation strategy,” the district court denied Gyma’s motion for fees in bringing the motion, and awarded only $20,000 in reasonable costs and fees for compliance with the subpoena.

The court in Valcor Engineering Corp. v. Parker Hannifin Corp. considered the motion of non-party MEDAL, to shift the entire cost of production pursuant to a subpoena, $476,000, to the requesting party.  The court found that the costs and fees were objectively unreasonable, and that much of the cost resulted from MEDAL’s tactical decision to aggressively challenge every aspect of the subpoena, which led to two separate motions to compel.  Moreover, the court found that MEDAL demonstrated little interest in minimizing expenses or preventing further motion practice.  For example, after the court granted the first motion to compel, MEDAL withheld nearly 90 percent of the documents identified by search terms as non-responsive, without providing any explanation.  The court also found that MEDAL’s aggressive tactics tended to demonstrate that it was not a truly disinterested non-party, and that it had been intimately involved in the acts giving rise to the litigation.  Finding that MEDAL’s motion came “close to wielding the shield of Rule 45 as a sword,” the court denied its motion for cost-shifting.

By contrast, the court in Linglong Americas Inc. v. Horizon Tire Inc. granted, in full, a similar request by non-party GCR Tire & Service for costs and fees associated with a Rule 45 subpoena served by Horizon.  GCR objected to the scope of the subpoena, and its counsel spent several months negotiating with Horizon’s counsel to narrow the request.  GCR moved to recover its costs and fees, and Horizon objected to allocation of fees incurred in narrowing the scope of the subpoena.  Reviewing Rule 45 case law, including Aggrenox, the court reasoned that it was required to protect the non-party from significant, reasonable expenses incurred in compliance.  The court found that narrowing the subpoena took several months of work by GCR’s attorneys and that the charges were reasonable, particularly since GCR had already paid them.  The court further found that expenses incurred in litigating the fee dispute were reasonable and incurred in compliance with the subpoena.  Accordingly, the court awarded the full $24,567 sought for responding to the subpoena and another $15,338 in fees for filing the fee dispute.

Costs and Fees Incurred in Collection, Processing and Review

In Sands Harbor Marina Corp. v. Wells Fargo Insurance Services of Oregon, the plaintiffs alleged that EVMC Real Estate Consultants, Inc. and others conspiring with EVMC fraudulently induced the plaintiffs to pay advance loan commitment fees when, in fact, no financing was available.  Wells Fargo, the employer of one of the defendants, served a subpoena on Dogali Law Group, a nonparty law firm that had represented EVMC in connection with the loan transactions at issue.  Dogali withheld multiple documents on the basis of attorney-client privilege.  Several years later, the court ruled that a defendant law firm could not withhold documents on the basis of attorney-client privilege because no surviving entity had standing to invoke the privilege on EVMC’s behalf.  Wells Fargo then renewed and expanded its earlier subpoena to Dogali, seeking the withheld documents.  When Dogali argued that an electronic production would be time-consuming, Wells Fargo proposed to use its own vendors to reduce time and costs.  After unsuccessful negotiations about the payment of costs and fees for the production, the court ordered production of the previously withheld privileged documents, as well as all documents responsive to the expanded subpoena.  Dogali later filed a motion for costs and fees in the amount of $39,709.

Weighing the mandate of Rule 45, the court held that Dogali was entitled to an award of fees.  While the court generally agreed that the legal services rates charged were reasonable, it found that the legal time spent responding to the second subpoena and renewed subpoena included time for tasks that were unreasonable, such as time spent researching whether Dogali had standing to assert the attorney-client privilege, reviewing the documents for privilege, creating privilege logs for documents reviewed previously, and researching privilege and waiver issues.  In addition, the court held that time spent communicating with former partners, preparing file memoranda, and conferring with Wells Fargo’s counsel about costs and production was not reasonable.

Finally, the court looked at the attorney time spent researching and preparing the motion for costs as well as the paralegal time spent reviewing documents for production.  The court denied Dogali’s request for the costs of drafting and reviewing the application as unnecessary and excessive.  As to time billed for the paralegal and cost of production, the court noted Wells Fargo’s offer to allow Dogali to utilize its vendor and determined that “rather than explore a more efficient and economical approach for the production, [Dogali] opted to have [its] paralegal print each email individually and convert it into a pdf…[Wells Fargo] should not be required to bear the cost of [Dogali’s] unilateral decision to utilize a more time-consuming approach.”  After carving out costs and fees determined to be unreasonable, the court awarded Dogali fees and costs in the amount of $10,537.33.

In Nitsch v. Dreamworks Animation SKG Inc., the court determined that attorneys’ fees and costs associated with protecting the confidentiality of affected non-parties were reasonable and therefore compensable.  Non-party Croner Company, a consulting company that conducted annual compensation benchmarking, moved for reimbursement of costs incurred in responding to the plaintiffs’ subpoena, which sought survey data that Croner obtained from companies in the animation and visual effects industry over several years.  Before Croner responded to the subpoena, its counsel conferred with plaintiffs’ counsel, advised that it would seek reimbursement of costs, and provided an initial estimate of those costs.

Because all surveys Croner conducted were subject to confidentiality provisions, Croner notified affected clients about the subpoena and devised a form of production to produce the information for the plaintiffs but preserve the anonymity of the survey participants.  The process was more time-consuming than expected, and Croner sought costs, including outside attorneys’ fees, in the amount of $67,787.55.  The plaintiffs objected on the basis that the request was unreasonable, arguing that Croner had produced only 16 documents and that the requested sum was grossly over-inflated and unreasonable.

Citing Rule 45(d)(2)(B)(ii)’s requirement that a court must protect a person who is neither a party nor a party’s officer from “significant expense resulting from compliance,” the court stated that the “shifting of significant expenses is mandatory, but the analysis is not mechanical; neither the Federal Rules nor the Ninth Circuit has defined ‘significant expenses.’”  The court then discussed whether costs tied to Croner’s confidentiality concerns were compensable, as “resulting from compliance” with a subpoena.

The court noted that reimbursable fees include those incurred in connection with legal hurdles or impediments to production, such as ensuring that production does not violate federal law or foreign legal impediments, but reimbursable fees do not include fees incurred for services for the non-party’s sole benefit and peace of mind.  The plaintiffs argued that Croner’s efforts to protect client confidentiality were purely business interests that inured solely to Croner’s benefit and that the protective order was sufficient to address Croner’s confidentiality issues.  The court disagreed, finding that the efforts to address confidentiality issues were reasonable and compensable.

Significantly, the court held that Croner’s efforts were consistent with the protective order entered into by the parties, stating that: Croner’s efforts to protect client confidentiality were not made to be obstreperous, but were the result of compliance with the subpoena.  Indeed, if any of the parties in this case were asked to produce a non-party’s confidential information, the stipulated protective order requires them to do what Croner did.

In Steward Health Care System LLC v. Blue Cross & Blue Shield of Rhode Island, however, the court reached the opposite conclusion when the non-party, Nemzoff & Company LLC, requested reimbursement for costs and fees associated with complying with a subpoena from Blue Cross, which included a review for relevancy and privilege.  Nemzoff initially refused to comply due to the costs involved, resulting in a court order compelling compliance and a warning that Nemzoff should minimize expense as it may bear the cost.  The court explained that only “reasonable expenses” incurred — and not all expenses — may be shifted.

The court held that attorneys’ fees have traditionally been awarded as sanctions in the most egregious circumstances or when the requested fees were for work that benefited only the requesting party.  Since it was not presented with any argument for sanctions, the court found that Nemzoff’s use of its own attorneys to review the documents for relevancy, confidentiality and privilege matters was only for Nemzoff’s benefit, and conferred an unwanted benefit upon Blue Cross.  Nemzoff’s attorneys were protecting its own interests.  As such, the court denied Nemzoff’s request.

While cost-shifting remains within the discretion of the court, courts have consistently been more likely to award costs and fees when a non-party has worked in good faith to narrow the scope of a subpoena and responded in an efficient fashion.  To the contrary, when a non-party attempts to obstruct the discovery process, courts have refused to shift costs and fees.  As demonstrated by the case law, the potential for cost-shifting must necessarily turn on the particular facts and circumstances of each case.

Donna Fisher is a member of the health sciences department at Pepper Hamilton LLP.  Matthew Hamilton is a member of the health sciences department at and partner at the firm.  Sandra Adams is a discovery attorney at the firm.  For a full list of end notes, visit https://www.pepperlaw.com/publications/fresh-takes-on-seeking-costs-and-fees-under-rule-45-2019-02-13/

Mass. Supreme Court Sets Standard for Attorney Fees in Wage Suits

February 19, 2019

A recent Law 360 story by Chris Villani, “Mass. Top Court Sets Standard for Atty Fees in Wage Suits,” reports that an employee suing an employer for unpaid wages can recover attorneys' fees when winning a "favorable settlement," even when a court does not sign off on the deal, according to a Massachusetts Supreme Judicial Court ruling with potentially wide-ranging implications.  The appeals court affirmed a lower court ruling and sided with a pair of former employees of a Boston dry cleaner who claimed they were denied about $28,000 owed to them in wages and overtime and ultimately settled for more than 70 percent of that figure.  The top court said the so-called catalyst test should apply when assessing whether to tack on attorneys' fees.

Under this standard, fee-shifting can occur if a lawsuit is a "necessary and important factor" in causing a defendant to fork over a "material portion" of relief requested by a plaintiff through a settlement agreement, even if there is no judicial involvement in the accord.  The bar, which is lower than federal fee-shifting standard, is necessary to avoid needlessly long and costly litigation, the top court said.

"The catalyst test best promotes the purposes of fee-shifting statutes by encouraging attorneys to take cases under such statutes to correct unlawful conduct and rewarding them accordingly when they do so," Associate Justice Scott L. Kafker wrote in the unanimous opinion.  "The catalyst test also promotes the prompt settlement of meritorious cases, avoiding the need for protracted litigation, superfluous process, or unnecessary court involvement solely to 'prevail' in a formalistic sense to ensure an award of attorney's fees and costs."

The dry cleaner, Sturgis Cleaners Inc., had sought to enforce the federal standard set in 2001 by the U.S. Supreme Court in Buckhannon Board and Care Home v. West Virginia Department of Health & Human Resources, which said a party is required to win an enforceable judgment or a consent decree before being eligible to be the "prevailing party" and having the chance to collect attorneys' fees.  But the Massachusetts high court disagreed, seeing the catalyst test as a better method because it provides two crucial incentives related to all wage litigation: giving attorneys a reason to take cases where individual employees claim to have been denied wages, and adding, the opinion said, "a powerful disincentive for employers to withhold the wages in the first place."  "If such settlements did not result in the obligation to pay attorney's fees, there would be a disincentive to bring such cases in the first place, thereby leaving other unlawful conduct unaddressed and uncorrected," Justice Kafker wrote.

The former employees, Belky Ferman and Veronica Guillen, filed suit in 2014.  After two years of litigation, including the entry and lifting of a default judgment against the dry cleaner, the case settled through mediation for $20,500.  The attorney fee issue was left to the court, and a Suffolk County Superior Court judge, applying the catalyst test, ruled in favor of the employees.  "The catalyst test thus recognizes that successful litigation may be reflected in settlements as well as court rulings," Justice Kafker wrote, "as settlements are often 'the products of pressure exerted by [a] lawsuit.'"

The employees’ case was presented to the high court by Liz Soltan, a Harvard Law School student arguing as a student practitioner with the Harvard Legal Aid Bureau.  She told Law360 the court's decision might help combat wage theft, which studies have suggested may be problem costing workers in the Commonwealth $700 million annually.  “Wage theft is such an epidemic in Massachusetts, especially among low income and immigrant workers, this is the kind of ruling we needed for access to justice,” Soltan said.  “I am hoping it'll mean more lawyers are going to feel secure in taking these cases.”

The case is Belky Ferman & another vs. Sturgis Cleaners Inc. & another, case number 12602, in the Supreme Judicial Court of Massachusetts.