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In-House Counsel Can and Should Collect Attorney Fees

August 21, 2017

A recent Corporate Counsel article by Daniel K. Wiig, “In-House Counsel Can and Should Collect Attorney Fees,” writes about attorney fee entitlement for in-house counsel work.  This article was posted with permission.  The article reads:

When weighing his post-Senate career options, then-U.S. Sen. Howard "Buck" McKeon rejected an offer from a prominent law firm, opting not to "live his life in six-minute increments."  Indeed, it is with fair certainty to state a top reason lawyers in private practice transition to in-house is to escape the billable hour.  And while the imminent death of the billable hour may have been highly exaggerated (again and again), it remains the predominate metric for private-practice attorneys handling commercial work to track their time and collect fees.

Numerous reports suggest the in-house lawyer is "rising," with companies opting to retain more and more legal work within their law departments, and decreasing the amount of work they disseminate to outside counsel.  Sources cite various reasons from cost to the intimate knowledge in-house lawyers possess regarding their employer vis-à-vis outside counsel.  Whatever the genesis, it reasons that in-house lawyers morphing into the role traditionally held by outside lawyers should assume all such components of the role, which, when possible, can include recovering attorney fees for actual legal work performed, as noted in Video Cinema Films v. Cable News Network, (S.D.N.Y. March 30, 2003), (S.D.N.Y. Feb. 3, 2004), and other federal and state courts.

Recovering attorney fees is that extra win for the victorious litigant, whether provided by statute or governed by contract.  It leaves the client's bank account intact (at least partially) and gives the prevailing attorney additional gloating rights.  For the in-house lawyer, recovering attorney fees can also occasionally turn the legal department from a cost center to a quasi-profit center.  In-house lawyers can and should collect attorney fees.

To be clear, recovering attorney fees is not available for in-house lawyers functioning in the traditional role of overseeing outside counsel's work.  As noted in Kevin RA v. Orange Village, (N.D. Ohio May 4, 2017), a court will not award fees to in-house lawyers that are redundant, i.e., those which reflect work performed by outside counsel.  Indeed, when in-house counsel is the advisee of litigation status rather than drafter of the motion or attends the settlement conference as one with authority to settle rather than to advocate more advantageous settlement terms, she functions as the client rather than lawyer, of which attorney fee are unavailable.

Unlike their counterparts in private practice, in-house counsel do not have set billing rates, although an exception may exist if internal policies permit the legal department to invoice the department that generated the legal matter.  Even in such a situation, as with law firm billing rates, the actual fees/rates are considered by the court but not determinative in awarding fees, as noted in Tallitsch v. Child Support Services, 926 P2d. 143 (Colo. App. 1996).  In determining what constitutes an appropriate and reasonable attorney fee award, courts frequently apply the "reasonably presumptive fee" or the "lodestar" method.  Under the lodestar method, as explained in Earth Flag v. Alamo Flag, 154 F.Supp.2d 663 (S.D.N.Y. 2001), fees are determined by "multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate."

Reasonableness is a question of fact for the trial court.  In determining a reasonable hourly rate, federal courts look to those reflected in the federal district in which they sit, while state courts consider the prevailing rates in their respective city and geographical area.  Courts will also consider other factors such as the complexity of the case, the level of expertise required to litigate the matter, and the fees clients in similar situations would be willing to pay outside counsel in determining the appropriate hourly rate for the in-house lawyer.  Determining whether the tasks performed by the in-house lawyer were reasonable is left to the court's discretion.

Recognizing legal departments do not necessary operate in lockstep fashion as a law firm, courts will consider the "blended" rate in the lodestar calculation.  Here, a court will combine or "blend" the reasonable rates for associates, partners, counsel and paralegals in their locale to devise the appropriate hourly rate for the in-house lawyer.  The premise is in-house lawyers generally take on less defined roles in litigating a matter than their counterparts in private practice, performing a combination of litigation tasks that may be more clearly delineated among law firm staff.

In order to successfully receive an award of attorney fees, the in-house lawyer must maintain a record akin to a law firm's billing sheet of her time spent on the matter, as reflected in Cruz v. Local Union No. 3 of International Brotherhood of Electrical Workers, 34 F.3d 1148 (2d Cir. 1994).  Consequently, an excel spreadsheet, or similar document, enumerating the time and task, with as much detail as possible, is required to sustain a court's scrutiny in looking for tasks that were "excessive, redundant or otherwise unnecessary," as noted in Clayton v. Steinagal, (D. Utah Dec. 19, 2012).  Moreover, the in-house attorneys who worked on the matter must execute affidavits attesting to the accuracy of their time records, and include the same in their moving papers.

As the legal profession changes and corporate legal departments retain more of their work, in-house should take advantage of statutory or contractual attorney fees provisions, notably for the litigation they handle internally.  In so doing, the in-house lawyer may find a number of benefits, such as approval to commence litigation that they may have otherwise shied away from because of the possibility to recoup attorney fees and the benefit of essentially obtaining payment for the legal work performed.

Daniel K. Wiig is in-house counsel to Municipal Credit Union in New York, where he assists in the day-to-day management of the legal affairs of the nearly $3 billion financial institution.  He is also an adjunct law professor at St. John's University School of Law.  Wiig successfully moved for in-house attorney fees in Municipal Credit Union v. Queens Auto Mall, 126 F. Supp. 3d 290 (E.D.N.Y. 2015).

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.

Investor Rips Fee Request in $100M Halliburton Settlement

August 1, 2017

A recent Law 360 story by Jon Hill, “Investor Rips Atty Fee Requests to $100M Halliburton Deal,” reports that an investor representing Halliburton Co. shareholders in a $100 million settlement with the company over its asbestos liability disclosures has slammed attorneys’ fees requests from two law firms previously involved in the case, telling a Texas federal court that their work provided no meaningful benefit.

Former co-liaison counsel Federman & Sherwood and Kilgore & Kilgore PLLC have asked the court to award them attorneys’ fees of more than $333,000 combined, but lead plaintiff The Erica P. John Fund Inc. argued that the firms do not deserve to be compensated.  “Neither Federman nor Kilgore conferred any independent benefit upon the class and both firms had a role in work that was detrimental to the class,” the fund said.

The court granted preliminary approval in March of the $100 million settlement with oil services company Halliburton, marking the beginning of the end for what had become one of the longest-running class actions in U.S. history.  In connection with the settlement, class counsel Boies Schiller Flexner LLP and Kahn Swick & Foti LLC told the court that they would seek a combined fees award equivalent to a third of the settlement fund — more than $33 million — plus reimbursement for nearly $6.3 million in expenses for their decade of work litigating the suit.

But before that request was formalized in a motion filed by the EPJ Fund earlier this month, Federman and Kilgore filed their own bids for attorneys’ fees of more than $200,000 and $132,000, respectively.  The amounts were reasonable for the more than 300 hours that each firm clocked in efforts on behalf of the class since 2002, the firms argued. Both had served as co-liaison counsel to Schiffrin & Barroway LLP until that firm withdrew as lead counsel in 2005, at which point Kilgore continued on as local counsel for another two years.

But the EPJ Fund has opposed these fee requests, contending that both firms were supporting players and have not met the high burden of proof necessary for non-lead counsel to demonstrate the benefits they created for the class and overcome a lead plaintiff’s objections.

According to the fund, Federman has identified no specific beneficial tasks in its fee application and has even incorporated in its tally the time it spent on a previous fee application to accompany a rejected 2004 settlement proposal of $6 million that it supported.  This proposed settlement was a “disaster” that delayed recovery for the class by more than a year, the fund claimed.

“By including fee-related work pertaining to the failed $6 million settlement in its requested lodestar, Federman undermines the credibility of its entire fee application,” the fund said.  Kilgore’s request fared no better in the estimation of the fund, which noted that the firm “unbelievably” counted in its fee request the time it spent helping to oppose the fund’s effort in 2006 to replace the then-co-lead counsel.  These former co-lead counsel have “tellingly” not asked the court for fees, the fund said.

“That Kilgore seeks compensation for work that was indisputably detrimental to lead plaintiff and the class speaks volumes regarding its fee request,” the fund told the court.  The fund said it is not opposed to reimbursement of reasonable expenses incurred by either Federman or Kilgore, which are seeking to recover expenses of more than $18,000 combined.

In a separate filing, Federman objected to the class counsel’s attorney fee application on the grounds that Boies Schiller and Kahn Swick have not provided their “contemporaneous and detailed time and expense records” despite a request sent by both certified mail and email.

Such records are necessary so that the court and all parties involved “can make an informed and complete evaluation as to the reasonableness of the fee and expense award requested by class counsel,” Federman argued, urging the court to require disclosure of these reports before making any final decision on their award application.

But the EPJ Fund shot back in a footnote in its filing Monday, saying, “Federman’s request, like the firm’s fee quest, is without basis.”  The court will determine whether to approve the attorneys’ fee and expense award applications at or after a settlement fairness hearing scheduled for July 31.

Tenth Circuit: District Court Used Wrong Method to Calculate Fee Award

July 27, 2017

A recent Law 360 story by Melissa Daniels, “10th Circ. Nixes $17.3M Fee Award in Royalties Settlement,” reports that a Tenth Circuit panel set aside a $17.3 million attorneys’ fees award in a published decision that found the district court incorrectly calculated the award in a $52 million settlement over gas well royalty payments by failing to use the lodestar method of calculation.

Class counsel in the Oklahoma federal court action moved for a fees award of 40 percent, but two class members objected to the request.  The court settled on an award of about $17.3 million, or a third of the fund, plus an incentive award of half a percent for lead plaintiff Chieftain Royalty Company.

The panel reversed the awards and remanding the case.  In a 26-page opinion, the panel observed that class counsel didn’t provide necessary records about their hours to be used in a lodestar calculation, which could end up preventing it from getting fees at all.  Any figures about hours worked were “mere estimates,” the panel said.

“The district court will have to decide in the first instance whether any award can be made in light of the absence of contemporaneous time records,” the panel said.  “It is unfortunate that class counsel did not do the necessary homework on Oklahoma law.”

Chieftain had filed the state-law putative class action against EnerVest Energy Institutional Fund in 2011, alleging the oil and gas company underpaid lease royalties on gas from wells in Oklahoma.  The $52 million settlement, meant to benefit around 21,000 class members, netted final approval about four years later.

The panel said that while the circuit had no binding precedent on whether federal courts must follow state laws governing how to calculate attorney fees, it found a consensus among five other circuits who’ve considered the issue.  “When state law governs whether to award attorney fees, all agree that state law also governs how to calculate the amount,” the panel said.

The decision also nixed the $260,000 incentive award for Chieftain, saying the percentage-based award is unsupported by the record.  “When discussing the time [Chieftain president Robert] Abernathy had expended on the case, counsel did not provide detailed contemporaneous records but offered only approximations and generalities,” the panel said.

The case is Chieftain Royalty et al. v. EnerVest Energy et al., case number 16-6022, in the U.S. Circuit Court of Appeals for the Tenth Circuit.