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Category: Fee Reduction / Fee Denial

Seventh Circuit Cuts Fee Award in Half

August 18, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

Judge Trims Hours Billed in Copyright Infringement Action

August 17, 2017

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

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

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

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

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

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

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

Federal Circuit: Court Abused Discretion in Patent Fee Award

July 6, 2017

A recent The Recorder story by Scott Graham, “Newegg Overcomes Acacia in Attorney Fee Fight,” reports that the Federal Circuit is putting its foot down on attorney fees.  The D.C.-based appellate court on ordered U.S. District Judge Rodney Gilstrap of the Eastern District of Texas to award attorney fees in a spat between online retailer Newegg Inc. and a subsidiary of NPE Acacia Research Group LLC.  Adjustacam v. Newegg marks the first substantial attorney fee win for Newegg, one of the country's most aggressive litigants against patent suits it deems abusive.  The Federal Circuit indicated that Newegg is asking for $350,000.

It's also the second time the U.S. Court of Appeals for the Federal Circuit has ordered Gilstrap to consider awarding fees in the case.  This time the court was more blunt, essentially directing that fees be awarded under the Supreme Court's 2014 Octane Fitness precedent.  “The district court abused its discretion failing to follow our mandate to evaluate the totality of the circumstances under Octane [Fitness],” Judge Jimmie Reyna wrote.  He again remanded for further proceedings, this time “including the calculation of attorneys' fees.”

Acacia subsidiary Adjustacam and Newegg have been slugging it out over fees since 2013.  Newegg's outspoken general counsel, Lee Cheng, left the company last year, but outside counsel Mark Lemley of Durie Tangri continued the fight at the Federal Circuit, with Collins, Edmonds, Schlather & Tower partner John Edmonds representing Adjustacam.

Adjustacam sued 58 defendants in the Eastern District of Texas in 2010 over a patent on a rotatable camera mount.  Newegg insisted there was no basis for infringement, especially after U.S. District Judge Leonard Davis construed the claims in 2012.  Adjustacam continued to litigate the case for several more months before dismissing it.

Davis declined to award fees in 2013.  But the following year the U.S. Supreme Court issued Octane Fitness, which liberalized fee-shifting in patent cases.  The Federal Circuit instructed Davis to reconsider in light of Octane, saying Newegg's arguments "appear to have significant merit."

By then Davis had retired.  His successor Gilstrap adopted almost all of Davis' findings and conclusions, saying Davis had been in the best position to evaluate the case.  That led to a testy second hearing before the Federal Circuit in April, where the judges seemed angry that Gilstrap hadn't taken their hint, but also reluctant to second-guess a district judge's discretion on attorney fees.

In the ruling, they didn't hold back.  “The wholesale reliance on the previous judge’s factfinding was an abuse of discretion,” Reyna wrote.  “We specifically instructed the judge on remand to 'evaluate' the merits of Newegg’s motion in the first instance based on the new Octane standard, which did not occur.”  Reyna wrote that the court recognizes the deference owed to district courts in deciding fees motions.  “Deference, however, is not absolute,” he added.

Indeed, it's the second time in the last month that the Federal Circuit has directed Gilstrap to award fees in a case.  In Rothschild Connected Devices Innovations v. Guardian Protective Services, the Federal Circuit remanded for additional proceedings, “including those pertaining to the calculation of attorney fees.”

Second Circuit to Reduce Attorney Fees in Madoff Class Action

June 28, 2017

A recent Law 360 story by Cara Salvatore, “2nd Circ. To Reduce Fee Award in $655M Madoff Settlementreports that the Second Circuit approved the general shape of a $655 million class action settlement involving investors in hedge funds that placed money with Bernard Madoff’s investment firm, but said attorneys’ fees were set too high given the low risk they took on.

The appeal stemmed from a district court fight over how to divvy up money returned to a group of funds that invested in Bernard L. Madoff Investment Securities LLC after the funds reached an agreement with the Madoff bankruptcy trustee in 2011 to settle battling claims.  Plaintiffs in the class action case invested in various funds managed by Tremont Group Holdings Inc., which in turn funneled money to Madoff.

Though some Tremont investors said the plan of allocation, or POA, was unfair because they received less than those whose investments were 100 percent Madoff-related, the Second Circuit disagreed.  “The district court did not abuse its discretion in approving the POA … It is the product of protracted, contentious mediation [and] appellants’ interests were adequately represented and protected,” the Second Circuit said.

But the appeals court raised an eyebrow at the attorneys’ fees in the suit, which it said could have gone over $40 million under the scheme that had been approved by a district judge.  That included 3 percent of the fund plus a lodestar multiplier of 2.5.

“In absolute terms, an award of three percent of a common fund is not excessive,” the Second Circuit said.  However, “It does not do to multiply the fee award here — which is based on hours worked after the [2011] Investor Settlement — in order to compensate a risk that dissipated when the court approved that settlement.”

The panel wants the multiplier reduced — but said it doesn’t have to be as low as 1, and that the district court should use its discretion.  Contingency risk is the number-one factor that should direct a lodestar multiplier, and there was not enough of that risk here, the panel said.  Another 2011 settlement in the trustee litigation “essentially guaranteed” that there would be ample money to compensate the attorneys, it said.

Additionally, any risk that the plan would have been completely taken down by objectors was “remote” and so the attorneys should not receive any extra for that possibility, the panel said.

At a hearing in March, counsel for the investors objecting to the plan of allocation told the Second Circuit that the allocation arrangement was flawed and was ultimately the product of unfair side-deals made between various plaintiff parties at a 2014 mediation session.

Meanwhile, Weil Gotshal & Manges LLP attorney Irwin H. Warren, a representative for a group of institutional investors who supported the POA, said that approval of the deal should stand, and that those who objected are actually net winners overall.

Tremont reached a $1 billion settlement with the Madoff bankruptcy trustee in 2011.  The agreement established two settlement funds for the benefit of investors, including one consisting of all of the assets remaining in one group of funds overseen by Tremont, called the Rye funds, which was to be distributed according to the allocation plan approved by U.S. District Judge Thomas Griesa.

Tremont, part of Massachusetts Mutual Life Insurance Co., was the second-largest Madoff feeder fund.  The $1 billion settlement stemmed from allegations by trustee Irving Picard that the company continued to pour money into Bernard L. Madoff Investment Securities LLC despite obvious red flags.

Court Denies Fees to Notorious Whistle Blower

June 16, 2017

A recent Bloomberg BNA story by Michael Bologna, “Court Tosses Fees for ‘King of Qui Tam’, Business Model Done?” reports on the denial of attorney fees for a notorious whistle blower.  The article reads:

The profit motive driving hundreds of false claims lawsuits by a Chicago lawyer known as the “king of qui tam” may be drying up after an appeals court rejected the prolific whistle-blower’s demand for fees in a case involving unpaid sales and use taxes (Illinois ex rel. Schad, Diamond & Shedden PC v. My Pillow, Inc. , Ill. App. Ct., No. 152668, 6/15/17).

In a case of first impression, a three-judge panel of the Illinois Appellate Court reversed a portion of a circuit court ruling that granted Stephen B. Diamond attorney fees in an action under the Illinois False Claims Act (FCA) against the retailer My Pillow Inc.

Diamond had successfully demonstrated that My Pillow had failed to collect and remit tax on merchandise sold to Illinois customers from internet and telephone sales platforms.  After a bench trial in September 2014, a Cook County Circuit Court judge awarded a judgment of $1,383,627, with $782,667 in the form of damages and penalties, and $600,960 in the form of attorney fees.

The appeals panel upheld the circuit court’s judgment with regard to My Pillow’s failure to collect and remit taxes to Illinois, but it reversed on Diamond’s eligibility for attorney fees.  The court found Diamond, serving as relator on behalf of the State of Illinois, couldn’t achieve benefits in the litigation as both the whistle-blower and the attorney for the whistle-blower.

“We hold that the fee-shifting provision in the Act does not permit the award of attorney fees to relator, who served as its own attorney for much of this case,” Judge David Ellis wrote on behalf of the panel.  “To the extent that the trial court awarded relator fees for work performed by relator’s own attorneys, that fee award is reversed.”

The ruling—the first of its kind dealing with a whistle-blower also serving as his own counsel—could derail the false claims freight train that Diamond, and his law firm Stephen B. Diamond P.C., has steered through Cook County Circuit Court for more than a decade.  Diamond is regarded as the most prolific tax whistle-blower in the country, and his “cottage industry” of FCA actions has perplexed and annoyed retailers, policymakers, and legal scholars across the country.  All of the cases involve purported violations of the Illinois sales and use tax code.

“We think this could really solve the problem here in Illinois,” said Catherine A. Battin, a partner with McDermott Will & Emery in Chicago and counsel to My Pillow.  “There have been discussions about solving it legislatively.  This decision leaves the door open for legitimate insiders and relators, but not this kind of cottage industry where you have one lawyer filing a 1000 lawsuits.”

Diamond has served as relator in about 1,000 qui tam actions over the last 15 years.  A recent investigation by Bloomberg BNA revealed Diamond has collected almost $12 million through this pattern of litigation.  The Illinois General Assembly is considering various legislative fixes to address Diamond’ strategies.

Officials with Diamond’s law firm didn’t immediately respond to a request for comment.  Battin speculated that Diamond would likely appeal the ruling to the Illinois Supreme Court because it undermines the “abusive fee generation” component of his business model.