A recent Law 360 story by Rachel O’Brien, “Judge Nixes Suit For Crypto Co. Investor’s $728K Atty Fees,” reports that a New York federal judge tossed a lawsuit by an alleged pump-and-dump scheme mastermind asking for his attorney fees to be paid by a cryptocurrency company involved in the alleged scheme, ordering the man to pay the company's fees instead.  While Barry Honig and his business GRQ Consultants Inc. point to indemnification clauses in agreements with Riot Blockchain as proof that his legal fees should be paid, U.S. District Judge Naomi Reice Buchwald said the clauses say the opposite.

Honig, at one time the largest shareholder in Riot Blockchain, spearheaded a $27 million pump-and-dump scheme involving 10 individuals and 10 associated corporate entities, the U.S. Securities and Exchange Commission alleged in September 2018.  Honig and others, including former Teva Pharmaceutical Industries Ltd. chairman Phillip Frost and Riot Blockchain CEO John O'Rourke, manipulated stock prices in three microcap companies and left investors holding "virtually worthless shares," the SEC said.

In July 2019, Honig settled the SEC claims without admitted any wrongdoing, submitting to an injunction barring him from future violations of federal securities laws, a penny stock ban and further restrictions.  Honig was named in several other suits, including in five shareholder derivative actions which alleged Riot, its directors and officers and Honig violated securities laws, and that Honig bought stock from Riot to gain "control" over the company so he could violate the securities laws.

A February 2018 class action from shareholder Creighton Takata in New Jersey federal court alleged that Honig's purchase of securities was part of a "fraudulent scheme consisting of misrepresentations, omissions, and actions that deceived the investing public in violation of securities laws."  He called those allegations "a house of cards" in his October 2019 motion to dismiss, which was granted in April because the shareholders didn't show how the defendants violated anti-fraud provisions of federal securities law, the judge said then.

In the case tossed, Honig had argued that the security purchase agreements he entered into with Riot in 2017 to buy convertible promissory notes and common stock purchase warrants guaranteed that if Honig was a defendant in a lawsuit, Riot would pay his legal fees.  The indemnification clauses in the agreements, Honig argued in the April suit, meant Riot must pay the $728,000 attorney fees he incurred fighting securities fraud allegations by the SEC and in class actions.

Riot argued that Honig's claim fails because Riot isn't obligated to pay when the litigation is connected with actions "based upon ... any violations by [Honig] of securities laws or any conduct by [Honig] which constitutes fraud, gross negligence, willful misconduct or malfeasance by [Honig]."  But Honig said the carveout in the indemnification clause only applies to actual securities violations, and since some of the lawsuits are ongoing, he's entitled to advancement of legal costs.

Judge Reice Buchwald agreed with Riot that "the allegations of the underlying action — not the merits of the action — govern Riot's obligations."  Since it's the nature of the allegations that trigger the obligation to indemnify, the clauses clearly side with Riot, Judge Reice Buchwald said.  "If there were any ambiguity, which there is not, about when the obligation to indemnify is determined (and thus whether allegations or merits control), the next sentence of Section 4.8 confirms the court's conclusion," she said.  She pointed to the section that states if an action is brought wherein the indemnity clause might be implemented, Honig must notify Riot in writing and Riot "shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to [Honig]."

"The logic of Section 4.8's structure is apparent," the judge said.  "The first sentence informs the parties as to whether indemnification is required.  If and when those conditions are satisfied, Honig would notify Riot, which then has the option to assume the defense.  The provision presupposes that the parties can determine, prior to that notice, whether an obligation to indemnify exists."

Judge Reice Buchwald also granted Riot's motion that Honig pay its reasonable attorney fees for this action.  Scott Carlton of Paul Hastings LLP, counsel for Riot Blockchain, told Law360 in a statement, "We are pleased with the court's careful consideration in this matter, including the awarding of attorneys' fees for Riot Blockchain as the prevailing party."

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.

A recent Law 360 story by Emily Lever, “Hagens Berman Says It Earned Every Penny of $48M Fees,” reports that Hagens Berman Sobol Shapiro LLP continued to defend its demand for $48 million in attorney fees from optical disk drive price-fixing settlements, saying the litigation was high risk and they deserve a high reward.  Hagens Berman, the lead counsel for a class action accusing Samsung, Toshiba, Panasonic and others of colluding to inflate the cost of optical disk drives, hit back at an objector from the class who said they should get nothing.  "This litigation was extremely risky and it obtained an exceptional result," Hagens Berman said in a brief.

The multidistrict litigation, consolidated in 2010, resulted in three rounds of settlements totaling $205 million.  The firm initially secured $48 million in attorney fees, but the Ninth Circuit nixed the award, saying it was much steeper than the original $21 million bid the firm submitted and it needed to provide "further explanation."

The firm is holding on to the $48 million while the San Francisco federal court takes a second look.  But Hagens Berman should have returned the money, and their "defiant" conduct should lead to their fees getting zeroed out, according to objector Connor Erwin.  "They have no legal entitlement to the funds, which belong to the class," Erwin told the court.

Hagens Berman took exception to what they called Erwin's "vacillating arguments."  The firm argues that regardless of whether the lower court ultimately invalidates the award or finds "some impropriety in the fee arrangement," they remain entitled to recovering the value of their services.  And the value of those services is high, they contend, given that they were extraordinarily successful.

The case ended up being much more difficult than Hagens Berman could have reasonably predicted when it bid for a mere $21 million in attorney fees 10 years ago at the outset of the case, the firm argued.  Hagens Berman said that contrary to Erwin's claim that the length and complexity of the case were par for the course and should have been expected, the case was unusually long and treacherous.  The class was denied certification on the first attempt, and the second attempt was only successful because of the firm's hard work, it said.

Hagens Berman also contested Erwin's claim that it was trying to "manufacture" the appearance that it was receiving a lesser amount than it really was by factoring in litigation expenses into its demand after earlier saying it would waive them.  Just because they are waiving expenses does not mean the court shouldn't consider counsel's net gain or loss when assessing what an appropriate fee should be, Hagens Berman said.

A recent Law.com story by Katheryn Tucker, “Judge’s Question on $12M Legal Bill: ‘I Want to Hear Why This Is Something Legitimate’,” reports that a big fee was the sticking point during Zoom oral arguments before the Georgia Court of Appeals.  The panel of three—Presiding Judge Sara Doyle, Chief Judge Chris McFadden and Judge Ken Hodges—is being asked to decide whether plaintiffs lawyers can tack on their 40% contingency fee award on top of a $33 million wrongful death verdict.

“I want to hear why this is something legitimate,” Doyle said to Mike Terry of Bondurant Mixson & Elmore, arguing for the plaintiff’s side to defend the verdict and attorney fee claim.  Doyle said she understands that plaintiffs lawyers take on the risk of a case with no guarantee of being paid, and that’s “why they get more.”  But why wouldn’t the fee come out of the $33 million judgment, she asked.

Terry said plaintiffs counsel is entitled to the added fee under Georgia law after making a $1 million offer of settlement, then far exceeding that sum at trial.  So the plaintiffs counsel’s math subtracts that $1 million from the $33 million verdict, which makes $32 million, multiplies that by 40%, which is about $12 million, then adds the two together, making $45 million.

On the other side was Laurie Webb Daniel of Holland & Knight, representing the driver who turned left in front of a reportedly speeding motorcycle.  Daniel was hired by the insurance company, State Farm, which now has $45 million on the line between the verdict and the added-on fee award.  Daniel told the panel that the plaintiffs counsel had shown no documentation to justify the fee demand.  Plus she said Terry’s argument had been “based on an erroneous order,” and that “improper material had been presented to the jury.”  She said the judge allowed plaintiffs counsel to question the defendant about her prior driving record and past speeding, which had nothing to do with the case.  “The law does not allow collateral impeachment,” Daniel said.

The case was tried in February 2019 before Spalding County State Court Judge Josh Thacker. The plaintiff is the wife of a man killed 15 years ago when a car turned left in front of his motorcycle.  The jury awarded: $63,000 for medical and funeral expenses, $3.25 million for general estate damages, $4.1 million for wrongful death-loss of wages and $26 million for wrongful death-noneconomic value of the life of Daniel K. Mayfield Jr.

“This was a tragic case of a driver who turned left directly in front of a motorcyclist that she failed to see approaching,” Mayfield family attorney Ben Brodhead of Brodhead Law said after the verdict.  “The case was complicated by three independent witnesses who claimed that the motorcyclist was traveling at approximately 80 mph to 100 mph as he approached the intersection.”  But Brodhead said he was able to establish that “no one observed the motorcycle’s speed in the 10 seconds before the crash.” 

The jury apportioned 3% of the fault to Mayfield and 97% to defendant Vickie Lynn Fain Kennison, the driver who turned left into the path of Mayfield’s motorcycle.  Broadhead said he made requests for the $100,000 State Farm policy limit over the course of a decade of litigation.  He said immediately after the trial that he would be asking for the added 40% fee award in addition to 97% of the verdict, plus interest and litigation expenses.

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.

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