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Category: Fee Jurisprudence

Federal Circuit: Attorneys Lack Standing to Recover Attorney Fees for Veteran

January 13, 2020

A recent Law 360 story by Kevin Penton, “Fed Circ. Won’t Let Attys Get Fees From Feds on Vet’s Behalf, reports that attorneys lack standing under federal law to sue the federal government on their own to recover fees for work they performed on behalf of a veteran, the Federal Circuit held in a precedential opinion.  The appellate panel rejected arguments by attorneys Meghan Gentile and Harold H. Hoffman III of the nonprofit Veterans Legal Advocacy Group that they could collect over $4,000 in fees after their former client, Matthew Shealey, prevailed in his case, even though he had fired them and had opposed their attempt to collect the money.

The Federal Circuit noted that in a 2010 case known as Astrue v. Ratliff, the U.S. Supreme Court held that under the Equal Access to Justice Act, the “prevailing party” is the actual party in a case, not the individual’s attorneys.  “The fact that the statute awards to the prevailing party fees in which [its] attorney may have a beneficial interest or a contractual right does not establish that the statute ‘awards’ the fees directly to the attorney,” the Federal Circuit said, quoting the Supreme Court.

The Federal Circuit also rejected an alternative argument by Gentile and Hoffman that they had a right to the money under the fee agreement that they had inked with Shealey, as “the fee agreement on its face does not purport to assign Mr. Shealey’s [Equal Access to Justice Act] claim to intervenors, and the intervenors expressly disclaimed such a theory at oral argument.”  The appellate panel also rejected the argument that the attorneys had so-called third party standing to sue for fees on their former client’s behalf, as Shealey revoked his authorization for them to apply for the fees and costs, according to the opinion.

“The interests of a client such as Mr. Shealey — including the ability to resolve their fee claim by settlement with the government and the ability to decline pursuing an [Equal Access to Justice Act] claim at all — would be impaired if their attorneys were afforded standing to file a claim on their behalf when that authority has been revoked,” the Federal Circuit wrote.

Federal Circuit Faults Judge in Patent Fee Award

December 26, 2019

A recent Law 360 story by Ryan Davis, “Fed. Circ. Faults Judge’s $444K Fee Award in IV Patent Case,” reports that the Federal Circuit vacated a Delaware judge’s decision ordering patent licensing company Intellectual Ventures to pay Trend Micro Inc. $444,000 in attorney fees after a failed patent suit, saying the judge may not have used the right legal standard.  The appeals court said it seemed that after Chief Judge Leonard P. Stark of the District of Delaware invalidated Intellectual Ventures’ patents, he only considered one aspect of the case to have “stood out from others,” the U.S. Supreme Court’s standard for when attorney fees are warranted, rather than the case as a whole.

The Patent Act states that attorney fees may be awarded "in exceptional cases.”  When he awarded fees to Trend Micro in 2017, Judge Stark said an unusual situation in the case, when Intellectual Ventures’ expert witness changed his testimony, was exceptional, but the case as a whole was not.  He ordered the company to pay Trend Micro’s fees related to that witness, but the Federal Circuit said it was concerned by the judge’s statement that the overall case was not exceptional.

“Instead of determining whether the case was exceptional, it appears that the district court may have focused on whether one discrete portion of the case stood out from other cases," the Federal Circuit said.  "This is not the appropriate analysis."  The court noted that it has held that an award of attorney fees can be related to particular conduct and circumstances that stood out and made the case exceptional, "but in all such cases we have required a finding of an exceptional case — not a finding of an exceptional portion of a case — to support an award of partial fees."  The court therefore remanded the case so that Judge Stark can consider whether the specific circumstances render the case exceptional and deserving of attorney fees.

During pretrial proceedings in that case, Intellectual Ventures' expert offered an opinion about the meaning of a phrase in one of the patents.  During trial, however, the expert offered a different interpretation, saying he changed his opinion after working with Intellectual Ventures' lawyers.  Judge Stark later invalidated all three patents, finding that they claim only abstract ideas.  Trend Micro then moved for attorney fees and Judge Stark granted the motion, ruling that Intellectual Ventures' conduct was exceptional, "solely with respect to this collection of circumstances" regarding the changed expert testimony.

The Federal Circuit ruled that because Judge Stark only found that those specific circumstances were exceptional, "it is not clear that the district court applied the proper legal standard when it considered whether the case was exceptional."  However, the appeals court rejected Intellectual Ventures' argument that attorney fees can only be awarded for a pattern of "bad faith, sharp tactics, and unreasonable litigation positions," and not for a single act.

Fifth Circuit: $10M Fee Allocation Needs More Analysis

December 20, 2019

A recent Law 360 story by Celeste Bott, “5th Circ. Says Judge Botched Divvy of $10M Atty Fee Award,” reports that the Fifth Circuit vacated the allocation of $10 million in attorney fees in a class action against SGE Management over an alleged pyramid scheme to resell electricity, saying the lower court relied on “unconsummated or outdated contracts among the attorneys” and didn’t adequately explain its reasoning.

The panel said the district court must elaborate on its reasoning for allocating a $1.5 million share to attorney Scott Clearman, who brought the appeal because he says he is entitled to half of the award.  The order isn’t supported with written reasons, especially “given the disparate positions taken by the vexed attorneys, the size of the award and the complexities in weighing the attorneys’ various contribution," the court said.

The district court “explicitly disclaimed” in its order the use of 12 factors laid out in the Fifth Circuit’s 1974 Johnson v. Ga. Highway Express case for determining the reasonableness of attorney fees, but another Fifth Circuit case, In re: High Sulfur Content Gasoline Products Liability Litigation, mandates the use of the Johnson framework in fee allocations, the court said.

“We have little choice but to find that the district court abused its discretion in explicitly disclaiming use of the Johnson factors,” the panel said.  “The sole reasoning of record is the recitation that the court, ‘having examined the various agreements, and the spirit behind the documents determine[d] that the last arrangement, even though Scott Clearman did not join in, is fair and equitable.’”  Under the High Sulfur precedent, courts are required to do more, the court said. 

“Although sympathetic to the difficult task the lawyers gave to the district court, we must vacate the award allocating attorney’s fees and remand for proceedings consistent with this opinion and with due consideration of the Johnson factors,” the panel said.  “While nothing forecloses an agreement among all, its absence leaves no choice but to ‘do it by the book.’”

When Clearman initially joined the case, any fee was to be distributed with 75% to Clearman and 25% to attorney Jeffrey Burnett, the first to be retained by two distributors for Stream Energy LLC when they suspected the company’s multi-level marketing program was a pyramid scheme, according to filings in the case.  Clearman later partnered with Matthew Prebeg to form Clearman Prebeg LLP. Burnett and Clearman Prebeg were then joined in the litigation by Andrew Kochanowski and Sommers Schwartz PC.  A new fee agreement was signed that allocated 60% to Clearman Prebeg, split among its partners, 20% to Sommers and 20% to Burnett.

But at this point, the other attorneys dispute Clearman’s involvement, saying though he remained in charge of the case he struggled with severe substance abuse issues and eventually entered inpatient treatment.  When the district court certified the class in 2014, the remaining Clearman Prebeg partners formed a new firm, Prebeg Faucett & Abbott PLLC, and other attorneys on the case retained Goldstein & Russell.  A new fee arrangement was signed off on by everyone except Clearman, giving Goldstein & Russell 16% and Burnett 17%, with the remainder distributed among Sommers, Prebeg Faucett & Abbott and Clearman, who would receive about 17%.

It was that final agreement that the lower court deemed fair and equitable.  Clearman argues he is entitled to $5 million, though the other lawyers on the case contend he failed to keep adequate time sheets and was asking for an exorbitant hourly rate.

SCOTUS Strikes Down USPTO Attorney Fee Rule

December 16, 2019

A recent Law 360 story by Bill Donahue, “Supreme Court Strikes Down USPTO Atty Fee Rule,” reports that the U.S. Supreme Court struck down an unusual U.S. Patent and Trademark Office policy that saw the agency automatically demand repayment of its legal bills, ruling that it ran afoul of the centuries-old rule that U.S. litigants must usually pay their own lawyers.  Ruling unanimously in favor of a drugmaker called NantKwest Inc., the justices rejected the agency's recent reinterpretation of a decades-old provision in the federal Patent Act that says companies must pay "all expenses" incurred by USPTO in certain types of appeals — regardless of who wins the case.

Affirming a lower court's ruling last year, the high court said that term should not be read to cover the salaries paid to USPTO attorneys who worked on a particular case.  Writing for the court, Justice Sonia Sotomayor said that the agency's approach would violate the so-called American Rule, a doctrine that says litigants must pay for their own attorneys unless Congress expressly says otherwise.

"The [American Rule] presumption against fee shifting not only applies, but is particularly important because [the Patent Act] permits an unsuccessful government agency to recover its expenses from a prevailing party," Justice Sotomayor wrote.  "Reading [the statute] to award attorney's fees in that circumstance would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts."  The ruling had stakes for trademark lawyers, too.  The Lanham Act contains an identical provision and the USPTO has also asked for such attorney fees in trademark cases.

First rolled out in 2013, USPTO's policy was rooted in a novel interpretation of decades-old statutory language.  When the USPTO refuses to grant a patent, the Patent Act allows the applicant to file a streamlined appeal on the existing record directly to the Federal Circuit, or it can file a "de novo" appeal in a district court — a more robust process that allows the applicant to enter new evidence into the record.

The law says that applicants who choose the de novo route must pay "all expenses" of the proceeding, regardless of who wins the appeal.  The provision makes no mention of winning or losing; the applicant pays no matter what.  For decades, the USPTO had only interpreted "expenses" to mean relatively small things, like travel expenses, expert fees and copying.  But that changed in 2013, when the agency started arguing that the expenses provision also covers attorney fees, which are typically far larger.

In the years since, courts have split over the policy.  While the Fourth Circuit ruled that the policy was a fair rereading of the statute, the Federal Circuit ruled that it violated the American Rule.  On appeal to the high court, USPTO had argued that the American Rule didn't apply at all to the unusual Patent Act provision in question.  The rule only covers awards of fees to prevailing parties, the agency argued, and the “expenses” provision applies regardless of who wins a case.

The high court flatly rejected that argument.  “That view is incorrect.  This Court has never suggested that any statute is exempt from the presumption against fee shifting,” Justice Sotomayor wrote.  “Nor has it limited its American Rule inquiries to prevailing-party statutes.  Indeed, the Court has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to the prevailing party.”

Analyzing the provision under the American Rule — which requires clear authorization from Congress — the high court said Patent Act was not explicit enough to cover attorney fees.  "The reference to 'expenses' in [the Patent Act] does not invoke attorney's fees with the kind of clarity we have required to deviate from the American Rule," Justice Sotomayor wrote.  "Simply put, in common statutory usage, the term 'expenses' alone has never been considered to authorize an award of attorney's fees with sufficient clarity to overcome the American Rule presumption," the justice wrote.

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.