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Category: Fee Jurisprudence

Article: Courts Finally Taking Unreasonable Contest Counsel Fees Seriously

November 20, 2020

A recent Law.com article by Christian Petrucci, “Courts Finally Taking Unreasonable Contest Counsel Fees Seriously,” reports on attorney fee claims in workers’ compensation cases.  This article was posted with permission.  The article reads:

Absent the legal mechanism to pursue a bad faith claim against a workers’ compensation carrier, one of the only weapons in a claimant’s arsenal to discourage the baseless denial of claims is that of the unreasonable contest counsel fee demand.  Tragically, it is commonplace for an overly aggressive defendant to deny a claim with no factual or legal basis to do so.  Claimants are routinely forced to needlessly prosecute a petition for benefits or otherwise oppose baseless defense petitions, which causes precious judicial resources to be misallocated and inflicts significant undue stress, mental anguish and financial distress on the injured worker.

Of course, the humanitarian nature of the Workers’ Compensation Act is supposed to prevent any delay in the payment of benefits or the baseless denial of claims.  The law directs that the act be liberally construed to be remedial in nature, although one would never know it from the paucity of unreasonable contest counsel fee awards at the trial level.  The actual law provides that awarding counsel fees is to be the rule and excluding fees the exception to be applied only where the factual record establishes a reasonable contest. See Millvale Sportmen’s Club v. Workers’ Compensation Appeals Board, 393 A.2d 49 (Pa. Commw.1978).  It is also important to note that the question of whether a reasonable basis exists for an employer to have contested liability is fully reviewable on appeal as a question of law to be based upon findings supported by substantial evidence.  See Kuney v. Workers’ Compensation Appeals Board, 562 A.2d 931 (Pa. Commw. 1989).

The Pennsylvania Workers’ Compensation Act provides in pertinent part: In any contested case where the insurer has contested liability in whole or in part … the employee, or his dependent, as the case may be, in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings: Provided, That cost for attorney fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer.

Despite the plain reading of the statue, unreasonable contest attorneys fees are almost never awarded and even in the most egregious situations, are awarded in a nominal amount which is stayed pending appeal in every instance.

Given this background, Gabriel v. Workers’ Compensation Appeals Board (Procter and Gamble Products), decided by the Commonwealth Court in September, offers significant hope that the tide will be turning in the effort to police instances of bad faith in the workers’ compensation world.  At a minimum, Gabriel affords a heightened expectation that an attorney can be compensated in cases which lack a wage-loss benefit award, which is the normal corpus on which contingency fees are based.

In Gabriel, the claimant injured his arm at work and notified his employer.  The claimant treated with doctors based at the company’s plant and the employer’s insurance carrier actually paid medical expenses associated with the claim.  However, the employer inexplicably failed to file a bureau document either accepting or denying the claim within 21 days, as required by the act.  Consequently, the injured worker was forced to retain an attorney and file a claim petition, which was summarily denied by the employer.

Before the WCJ, both parties presented evidence over the course of a number of hearings and the record was eventually closed.  Perhaps sensing what was about to happen, the employer finally issued a medical only notice of compensation payable toward the end of the litigation.  The filing date was more than two years after the date of injury.

The WCJ granted the claim petition, but as is normally the case consistent with the above background, did not award unreasonable contest counsel fees or grant a penalty for failure to file a bureau document within 21 days as required by law.  The WCJ reasoned that the employer “was paying the claimant’s medical bills,” and “it was not until the last hearing in this matter that the claimant produced any medical evidence establishing a specific diagnosis for his work injury other than a puncture wound.”

The claimant appealed the denial of attorney fees and penalties, but the board affirmed the WCJ’s decision.  The board held that the WCJ did not err or abuse his discretion in not awarding a penalty or attorney fees since although the employer paid for the claimant’s medical  expenses, doing so is not an admission of liability.  The board also found that the claimant was seeking a description of injury different than what was listed on the NCP.

Following the board decision, the claimant petitioned for review by the Commonwealth Court.  The court reversed the decisions of the WCJ and the board, finding that the employer presented an unreasonable contest in defending the claim petition because it had, in fact, violated the act by failing to timely issue a bureau document.  The court also noted that the employer denied all allegations in the claim petition, including ones it knew to be true, forcing the claimant to commence needless litigation.  Moreover, the employer did not  present any evidence to contest the claim petition.  Had the employer filed a bureau document timely, the claim petition would have had to be filed.

Similarly, the court found a penalty award to be appropriate, since the employer violated the act when it did not timely issue the medical only NCP as required under Section 406.1(a) of the act, thus forcing the claimant to hire an attorney, produce evidence of the injury of which it had notice, and hire an expert to review the medical records of the employer’s own company doctors who had treated him.  The act was intended to avoid this.

As a practice tip, it is vital that claimants’ attorneys zealously demand the imposition of unreasonable contest counsel fees in almost every case.  Until insurance companies actually begin to risk the forfeiture of entire counsel fee awards during the pendency of a two-year petition, they will continue to have little incentive to voluntarily accept claims that have no defense but are denied anyway for a variety if bogus reasons.  Gabriel demonstrates that a new day may have arrived in this battle.

Christian Petrucci of the Law Offices of Christian Petrucci, concentrates his practice in the areas of workers’ compensation and Social Security disability.  He also counsels injured workers in matters involving employment discrimination and unemployment compensation benefits.

Judge Cites New Ninth Circuit Ruling When Considering Fee Calculation

November 12, 2020

A recent Law 360 story by Dorothy Atkins, “Koh Rips Kellogg Attys ‘Kitchen Sink’ Litigation Tactics,” reports that U.S. District Judge Lucy Koh rejected a revised $20 million deal to resolve claims Kellogg falsely labeled its sugar-loaded cereals and slammed class counsel for their "kitchen sink" approach to litigation, saying "the way you've litigated this case throughout has been overly burdensome on the court."  At the start of a hearing held via Zoom, Judge Koh took issue with a lengthy, now-mooted motion to enforce the settlement that class counsel filed after Kellogg purportedly threatened not to cooperate with a renewed bid for preliminary approval.

If approved, the proposed deal would resolve lead plaintiff Stephen Hadley's August 2016 lawsuit that alleges Kellogg Sales Co. falsely advertises its sugar-loaded Raisin Bran, Frosted Mini-Wheats and Smart Start cereals and Nutri-Grain breakfast bars as healthy.  Judge Koh told class counsel, Jack Fitzgerald, that she spent considerable time deciding the motion to enforce the settlement, which had 64 exhibits attached and included confidential information from the settlement negotiations, which Judge Koh repeatedly said isn't allowed.

But Kellogg ultimately did not oppose the class's renewed motion for preliminary settlement approval, so now the motion to enforce is moot, Judge Koh said, and the work and time she spent deciding it was a waste.  She added that she would have denied the motion.  Judge Koh noted that the motions to dismiss in the case were over 65 pages long "each time" and the lengthy motions practice is "a constant problem."  She also warned repeatedly that she'll remember how the attorneys overburdened the court if she decides to award attorney fees.

The discussion came during an hours-long hearing on the second attempt by the parties to get the deal preliminarily approved in hotly contested litigation over Kellogg's labels. For example, the Frosted Mini-Wheats and Smart Start labels say "lightly sweetened" and the Nutri-Grain bars say "wholesome goodness," which Hadley said implies those products are low in sugar, even though they contain 18% to 40% added sugars.

In February, Judge Koh rejected an initial $31.5 million class action settlement, finding the deal contained several troubling provisions and outright legal errors.  The parties went back to the negotiating table, but in July, class counsel filed a renewed motion for preliminary approval along with a motion to enforce the settlement, which Kellogg opposed.  But during the lengthy hearing on the motions, Judge Koh pointed out that the motion to enforce attached privileged mediation communication between defense counsel, class counsel and the mediator.

Judge Koh also took issue with the "mechanics" of how the proposed deal calculates attorney fees. The judge pointed out that as it is proposed, fees would need to be approved before a cash settlement is distributed, but the fees depend on how many class members choose to redeem coupons compared to those who choose cash payments, and class members need to know how much they would receive in a cash payment in order to decide whether to opt for a coupon or cash.

"It seems a bit circular," she said.  Judge Koh added that in light of the Ninth Circuit's ruling earlier this week in Chambers et al. v. Whirlpool Corp. et al., she is "more confident" that this deal qualifies as a coupon settlement for the purposes of determining attorney fees.  But Fitzgerald argued that even under Chambers, the court has the discretion to award fees and he proposed to base the fee award on using a lodestar that's calculated after they determine how many class members will redeem a coupon versus cash payment.

Ninth Circuit Clarifies Fee Calculation Method in Class Coupon Settlements

November 11, 2020

A recent Law 360 story by Dave Simpson, “9th Circ. Nixes $14.8M Atty Fees in Dishwasher Defect Deal,” reports that the Ninth Circuit sent back a lower court's approval of $14.8 million in fees for the attorneys representing a class of millions of owners of allegedly defective Sears and Whirlpool dishwashers, ordering it to determine the value of the settlement, which provides coupons to much of the class.

In a unanimous, published decision penned by U.S. Circuit Judge Kenneth K. Lee, the panel said that while U.S. District Judge Fernando M. Olguin was right to approve the California federal court settlement, the attorney fees were off-base.  He shouldn't have used a lodestar-only calculation, or a calculation based on attorneys' hours worked and their rates, for the coupon portion of the settlement, the panel said.  The judge should have, instead, attempted to determine the value of the coupons and based the attorney fees on that calculation, the panel said.  They remanded the approval of the attorney fees and ordered the judge to recalculate.

Further, it said, the judge was wrong to multiply the attorneys' lodestar by 1.68, disagreeing with, among other things, the judge's lauding of the settlement as "impressive."  "While observing that the parties' respective valuations of the settlement ranged from $4,220,000 to $116,700,000, the court declined to determine where in that spectrum the actual value fell," the panel said.  "Given this enormous spread, without at least estimating the settlement value, the court could not have conducted the necessary evaluation between 'the extent of success and the amount of the fee award.'"

In the case of California residents David and Bach-Tuyet Brown, their KitchenAid dishwasher overheated while they were sleeping in April 2010, filling the house with smoke and causing them to spend $70,000 to replace the entire kitchen and to lose an additional $3,000 in rental income as a result of having to vacate the property for three weeks, according to the complaint.

In September 2015, the parties reached a proposed settlement that was open-ended and involved several elements for owners, court records show. If a person had already had to repair their unit, they would get $200, or more if they saved their repair receipt showing they paid more to have it fixed, according to the deal.  And Sears and Whirlpool also agreed to repair dishwashers that weren't even part of the class but also had fire problems, according to filings in the case.

In August 2016, the lawyers duked it out in court over whether the $15 million fee request baked into the settlement up for final approval was too much. Attorneys for Sears and Whirlpool said that the plaintiffs' attorneys had worked hard, but deserved a fee award of $2 million to $3 million.  The requested amount, the defendants said, would dwarf the benefits received by the class.  The class lawyers fought back, saying the potential value of the uncapped deal was enormous and may cover between 15% and 20% of all U.S. households.

In October 2016, Judge Olguin shut down arguments by Sears Holdings Corp. and Whirlpool Corp. that attorneys at the five firms that worked to litigate the case and reach a deal last year over the allegedly defective washers were asking too much, finding that the arrangement the lawyers reached for the class — cash payments to owners of Kenmore, KitchenAid and Whirlpool home dishwashers to cover repairs or rebates toward buying a new model, plus some insurance-like deals and other protections — was highly beneficial.

The panel quickly shot down the attorneys' arguments that the Class Action Fairness Act is preempted by corresponding state law, noting that the plain language of CAFA makes clear that its attorney fees provisions top any state laws and apply to all federal court class actions.  "Indeed, it would be highly incongruous for Congress to expand federal jurisdiction for class action lawsuits based on diversity jurisdiction, but then in the same statute prevent CAFA's attorney's fee provisions from applying in those diversity jurisdiction-based cases," it said.

The panel then pointed out that precedent mandates the use of a percentage-of-value calculation for any "portion" an award "attributable to the award of the coupons."  The court's decision to use a lodestar calculation for the coupon portion of the deal was, therefore, an error, the panel found.  The panel also shot down the plaintiff attorneys' argument that the settlement provides a "rebate" rather than a "coupon."  It is a coupon, "despite the settlement agreement's refusal to use that term," the panel said.

"To use the 'rebate,' class members must spend hundreds of out-of-pocket dollars to purchase a new dishwasher," the panel said.  "And the rebates expire in 120 days, a third of the useful life of the [credits].  Given that a dishwasher typically lasts at least several years, most consumers likely will not redeem their coupons within 120 days."

Finally, the panel turned to the 1.68 lodestar multiplier, finding that the judge wrongly included the value of the coupon portion of the settlement in determining the 1.68 multiplier for the lodestar value, and also several of its reasons for enhancing the attorney fees cannot be justified, the panel said.  The judge was wrong, for instance, to find that the case was "undesirable" for attorneys to pursue, noting that this very notion is undercut by the fact that five different law firms pursued the claims for many years.

"If the mere fact that the defendants are 'large corporations' were sufficient, then most class action fee awards would automatically qualify for enhancement — contrary to the rule that multipliers are for 'rare and exceptional circumstances,'" the panel said.  "In practice, deep pockets often create an incentive to sue, particularly in the class action context."

The district court had said that the wide gap between the parties' estimated valuations for the deal meant that any attempt to determine a value of the deal "would be imprecise to the point of uselessness."  The panel ordered the court to attempt to determine a value for the deal and to consider whether, as Whirlpool argues, a negative multiplier should apply to the attorney fees.

"It becomes even more critical to crosscheck the lodestar valuation if the parties present widely divergent settlement valuation estimates," the panel said.  "It may admittedly be difficult to determine that amount with precision, but courts must try to do so to ensure the fees are not excessive."

Federal Circuit Asked in Toss Fee Award to Apple, Cisco

October 15, 2020

A recent Law 360 story by Britain Eakin, “Fed. Circ. Asked To Nix Alsup’s Fee Award to Apple, Cisco,” reports that saying its infringement suit against Apple and Cisco was reasonable, a tech company told the Federal Circuit that U.S. District Judge William Alsup wrongly determined the case was exceptional and abused his discretion by awarding them $4.2 million in fees.  In a brief, Straight Path IP Group LLC said the district court departed from an agreed-upon claim construction in granting summary judgment of non-infringement to Apple and Cisco.  It argued that as a result, Federal Circuit precedent requires it to reverse Judge Alsup's finding of exceptionality, which is required for a prevailing party in a patent dispute to get fees.

"Where a plaintiff asserts infringement under a claim construction and the district court subsequently clarifies or modifies that construction in granting summary judgment of non-infringement, this court holds that the case is not exceptional, and that a district court abuses its discretion by granting a motion for attorney's fees," Straight Path said.  In determining whether a case is exceptional, a district court considers things like whether a suit was frivolous or if a party's case was unreasonable.

Straight Path contended that it provided plenty of evidence that its case was reasonable, including a declaration from former U.S. Chief Circuit Judge Paul Michel.  The former judge testified at the district court that Straight Path had "asserted an objectively reasonable view of infringement" under the agreed-upon claim construction, which he said was supported by evidence.  While Judge Alsup called Straight Path's litigation position "a slick maneuver," the company argued in its brief that "Chief Judge Michel's view far more accurately characterized this case."

"Whether ultimately correct or not, Straight Path respectfully submits that if Chief Judge Michel concluded that the litigating position was reasonable, that is strong evidence that the litigating position was reasonable," the brief said.  Straight Path said the appeals court need not probe why Judge Alsup deemed the case an exceptional one "in such brash tones."  "It is enough to recognize that the district court's determination of exceptionality runs afoul of the limits this court has placed on the district court's discretion, and must therefore be reversed," Straight Path said.

The fee dispute between the parties has been a lively one, sparking fireworks in the courtroom during a May 7 hearing when Judge Alsup scolded Apple and Cisco for initially requesting $10 million in fees after beating the suit nearly three years ago.  The judge said the tech giants "played games," used "abusive" tactics and were motivated by "greed, G-R-E-E-D."

He required them to resubmit their fee bids and appointed a special master to determine a reasonable amount of fees and costs. On May 19, the court awarded Cisco $1.9 million — half of its initial request — while Apple netted $2.3 million of its initial $3.9 million ask.  In its brief, Straight Path — now known as SPIP Litigation Group LLC — noted that the claim construction the parties had agreed to was signed off on by the Federal Circuit when Straight Path successfully appealed Patent Trial and Appeal Board decisions invalidating various claims in the patents, which Cisco and others challenged after Straight Path initially sued in 2014.

Pre-Suit Demand Can’t Serve as ‘Catalyst’ in Justifying Fee Award

October 6, 2020

A recent Metropolitan News story, “Pre-Suit Demand Can’t Serve As ‘Catalyst’ For Public Benefit, Justifying Fee Award,” reports that an attorney fee award may not be made based on a pre-litigation demand having been the “catalyst” for bringing about alterations to a public accommodation which caused it to be accessible to persons in wheelchairs, Div. One of the First District Court of Appeal held.

Richard Skaff, who is wheelchair bound, sued the Rio Nido Roadhouse in Sonoma County, owned by Lowbrau, LLC, for injunctive relief and damages based on his inability to gain access to the facility on the night of Oct. 18, 2012.  However, that was before he complained to the owner, who was in the process of effecting renovations which provided access to the handicapped when suit was filed in 2013, with the work having been completed by the time of trial in 2017.

Skaff sued under Health and Safety Code §19955 et seq., pertaining to accessibility of public accommodations to the handicapped, and the Unruh Civil Rights Act. Civil Code §55 provides that where a suit is brought under §19955, “[t]he prevailing party in the action shall be entitled to recover reasonable attorney’s fees.  Sonoma Superior Court Judge Allan Hardcastle ruled against Skaff on the Unruh claim, finding there was no access barrier that needed to be remediated.  He held in his favor under §19955, however, awarding Skaff $242,672 in attorney fees and costs.

Hardcastle reasoned that the §19955 claim “would have entitled him to obtain injunctive relief for all non-compliant conditions at the Rio Nido Roadhouse relative to his disability” had they not already been remediated, but since they had been, he “already obtained all the injunctive relief he sought in his pre-litigation correspondences and in his complaint,” rendering him the prevailing party. 

Justice Gabriel P. Sanchez wrote the opinion reversing the judgment on the §19955 cause of action and the fee award. He wrote: “It is axiomatic that plaintiff cannot prevail on a cause of action in which no violation of law was ever demonstrated or found.  Nor is the catalyst theory available when a claim lacks legal merit.  That a pre-litigation demand may have spurred action that resulted in positive societal benefit is not reason alone to award attorney fees under the Civil Code.”

Sanchez said the catalyst theory originated in connection with the private attorney general statute, Code of Civil Procedure §1021.5, but has been applied since 2010 to attorney fee awards under Civil Code §55.  However, he pointed out, the theory “requires a causal connection between the plaintiff’s lawsuit and the relief obtained.”  The jurist said the pre-litigation demand, not the lawsuit, prompted the remediation and, in any event, remediation was not required under §19955 which requires remediation only where certain other repairs or alterations were made—which weren’t.

Sanchez set forth: “Plaintiff cannot be deemed the prevailing party because no evidence was adduced at trial establishing a violation or potential violation of section 19955.  Nor can plaintiff be awarded his attorney fees under a catalyst theory because the claim on which it is based was objectively without legal merit.  While Lowbrau accomplished all the remediation plaintiff sought in his pre-litigation demands, plaintiff concedes that none of that remediation was required by section 19955.  The fee award must therefore be reversed.”