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Category: Fee Entitlement

No Attorney Fees for Illinois Law Firm in Qui Tam Action

September 20, 2018

A recent Law 360 story by Lauraann Wood, “Ill. Firm Can’t Collect Fees for Work on Its’ Qui Tam Suit,” reports that the Illinois Supreme Court sided with an appellate panel's ruling rejecting fee awards for lawyers of a firm that brought whistleblower claims accusing My Pillow Inc. of failing to collect taxes on certain sales to Illinois customers, citing 150-year-old precedent that the court said puts the issue to bed.

The state's high court said it "expressly rejected" the notion that attorneys can charge for legal work they perform on their own behalf in its 1861 Willard v. Bassett ruling, which deemed the practice "forbidden by every sound principle of professional morality as well as by the policy of the law."  And while ideas of professional morality have evolved since that ruling came down, the court has still followed the principle that it defies state policy to allow lawyers to become their own clients and then charge for professional services that advance their cause, the Supreme Court said.

That means the unanimous state appeals court that reversed more than $600,000 in attorneys' fees awarded the firm Schad Diamond & Shedden PC for work its attorneys performed in bringing the firm's successful qui tam action against the upscale pillow manufacturer was right to do so, the opinion said.  "There was nothing that could fairly be characterized as an attorney-client relationship from which an obligation or need to pay an attorney fee might arise," Chief Justice Lloyd Karmeier wrote in the court's 14-page opinion.  "When Diamond the law firm made a legal decision, it was not counseling a client.  It was talking to itself."

The ruling constitutes a near-final reversal of a trial court ruling whose fee award to Diamond made up nearly all of the money My Pillow was ordered to pay on top of the $889,637 judgment it got slapped with after losing a bench trial over relator Stephen Diamond's claims.  The trial court also awarded the firm $266,891 as a statutory award for recovering those proceeds on behalf of the state, which declined to intervene in the case.

Diamond launched the suit in 2014, claiming My Pillow violated the state's False Claims Act and acted with reckless disregard in failing to collect and pay the state its fair share of taxes on products it sold to its Illinois customers, while also falsifying records to hide its conduct.

My Pillow lost its appeal of the trial court's damages award but, in the same ruling, won on its argument that the firm should not have been awarded attorneys' fees.  The ruling sided with My Pillow's argument that the firm was essentially acting as a pro se litigant in the suit and should therefore be held to the same fee standard, since self-represented litigants cannot recover attorneys' fees for their own work.

In agreeing with the appellate court, the Supreme Court noted there was "no factual or legal distinction between Diamond the relator and Diamond the law firm."  "They were one and the same," Justice Karmeier wrote.  "Their interests in the litigation were identical, and their contributions to the case were indistinguishable."

The case is The People ex rel. Schad Diamond & Shedden PC v. My Pillow Inc., case number 122487, in the Supreme Court of the State of Illinois.

Mootness Attorney Fee Awards Before the Seventh Circuit

September 18, 2018

A recent Law 360 story by Diana Novak Jones, “7th Circ. Has Chance to Cut Off ‘Mootness Fee’ Merger Case,” reports that against a backdrop of near-constant shareholder litigation challenging mergers, the Seventh Circuit is the first federal circuit that’s been asked to stop a burgeoning litigation strategy among plaintiffs attorneys that some view as extortion of the merging companies and their shareholders.

The strategy centers on plaintiffs attorneys’ ability to collect so-called mootness fees in exchange for dismissing class actions that accuse merging companies of disenfranchising their shareholders.  The fees come after the companies make some additional disclosures about the deal, mooting the litigation but giving the attorneys a way to get paid in exchange for its purported impact.  Lawsuits and class actions filed after merger announcements are so common that it’s rare to see a major deal go unchallenged, experts say.  Consumer advocates and courts have criticized the cases as “strike suits,” filed only to secure fees for the attorneys.

In what's believed to be the first time a federal appellate court has been given a chance to address the issue, the Center for Class Action Fairness — a group run by the free market advocates the Competitive Enterprise Institute -- on Sept. 10 filed a brief with the Seventh Circuit that attacks the "mootness fee racket."  The suit stems from the dismissal of shareholder suits over the now-scuttled merger of Akorn Inc. with Fresenius Kabi AG, which ended with a $322,500 fee payment to the plaintiffs’ attorneys, according to court records.

Researchers tracking litigation filed after merger announcements say the percentage of mergers with a value of more than $100 million that are the subject of a shareholder suit has been on the rise since around 2003.  By 2013, approximately 96 percent of all mergers at that level attracted at least one shareholder suit, according to a March 2018 Vanderbilt Law Review article, “The Shifting Tides of Merger Litigation,” featuring data compiled by a U.S. Securities and Exchange Commission economist and law professors from the University of Pennsylvania, the University of California Berkeley and Vanderbilt University.

The suits largely accused the merging companies of breaching their fiduciary duties to shareholders, sometimes by failing to secure a high enough per-share price or by withholding information.  They were almost exclusively filed in Delaware courts, where more than 60 percent of Fortune 500 companies are incorporated, according to the state.  A large number of the suits ended in settlements where the suit’s target agreed to amend some of its disclosure statements and pay the class’ attorneys’ fees, according to the economist who worked on the article, Matthew Cain, currently a visiting research fellow at Harvard Law School.

But the popularity of those “disclosure settlements,” as courts have called them, waned after the Delaware state courts issued a series of rulings that sought to restrict their use.  The most significant ruling came from the Delaware Court of Chancery in 2016 in response to litigation over Zillow Inc.’s acquisition of Trulia Inc., with the court saying that attorneys bringing these types of settlements should expect far more scrutiny going forward.

“It is beyond doubt in my view that ... the court’s willingness in the past to approve disclosure settlements of marginal value and to routinely grant broad releases to defendants and six-figure fees to plaintiffs’ counsel in the process have caused deal litigation to explode in the United States beyond the realm of reason,” Chancellor Andre Bouchard wrote.

The number of merger suits filed in Delaware dropped after that and it hasn’t rebounded in the years since, according to the researchers.  Instead, cases are popping up in federal courts across the country, and instead of ending in settlements, they’re ending in dismissals and “mootness fees,” the researchers said.  “The problem that existed in the state courts has now simply migrated to the federal courts,” said Vanderbilt Law School professor Randall Thomas, one of the researchers who wrote the article.

Thomas said he and his colleagues are still gathering the latest data, but his preliminary impression is that the trend is showing no sign of slowing down.  “Deal litigation is almost universal on every sizable deal,” he said, adding that the majority of these suits are being filed by just four law firms. He declined to name the firms, however.  And the majority of the cases are ending in “mootness fees,” resulting in average attorneys’ fees of $265,000 per case in 2017, according to the article.

That’s what happened in the six shareholder suits against Akorn in Illinois federal court, according to Frank.  As an Akorn shareholder, Frank sought to intervene in the cases and asked for a permanent injunction against the shareholders’ attorneys to bar them from accepting payment for dismissing Exchange Act class actions without court approval of their fee award.

But U.S. District Judge Thomas Durkin rejected Frank’s motion in three of the suits.  The Akorn transaction fell apart, and the plaintiffs’ attorneys filed motions disclaiming any right to the more than $300,000 in fees Akorn had agreed to pay, according to court records.  The judge said that disclaimer made Frank’s motion moot.

Frank’s appellate brief says the firms involved in the Akorn litigation are among the most prolific firms in the “mootness fee racket,” an industry of its own.  In filings opposing Frank’s motion to intervene in the Akorn suits, the shareholders called Frank a “paid activist” who was only looking to punish the plaintiffs’ counsel for fees earned following negotiations.

Consumer Can Recover Attorney Fees in Florida Debt Collection Action

September 17, 2018

A recent Law 360 story by Carolina Bolado, “Consumer Can Get Fees for Winning Debt Collection Suit,” reports that a Florida appeals court ruled that a consumer who fends off an "account stated" lawsuit seeking to collect on an unpaid credit card balance can collect attorneys' fees under Florida law.  Florida's Second District Court of Appeal reversed a trial court's order denying Katrina Bushnell's request for attorneys' fees after debt buying company Portfolio Recovery Associates LLC voluntarily dismissed its suit over an unpaid credit card bill.

Bushnell had asked for attorneys' fees under the credit card agreement, which contains a provision authorizing the creditor to recover its attorneys' fees as part of its collection costs.  Under Florida Statute 57.105(7), if a contract has a provision allowing attorneys' fees to a party that has to take action to enforce the contract, the court can also allow attorneys' fees to the other party if it prevails in the dispute.

The trial court ruled against Bushnell but asked the appellate court to address the issue and answer the question of whether an "account stated" action that seeks to collect an unpaid debt is considered an action to enforce a contract.  The Second District said that it is such an action and ruled that the account stated lawsuit could not have happened if the credit card contract did not exist.  "Simply put, if there had been no credit card contract, the amount due would not have accrued in the first place," the appeals court said.  "The credit card contract and the account stated cause of action are therefore inextricably intertwined such that the account stated cause of action is an action 'with respect to the contract' under section 57.105(7)."

The appeals court relied on the Florida Supreme Court's 2002 decision in Caufield v. Cantele, in which the court concluded that the prevailing party in a lawsuit for fraudulent misrepresentation was entitled to fees under the state's reciprocity provision.  The Supreme Court reasoned that the existence of the contract and the misrepresentation claims in the case were "inextricably" linked.  The Second District applied this reasoning to the case against Bushnell and concluded that the reciprocity provision in 57.105(7) applies.  The appeals court reversed the order denying Bushnell's fees and remanded it to the trial court to determine a reasonable fee award for her counsel.

Bushnell’s attorney Jennifer Jones of McIntyre Thanasides Bringgold Elliott Grimaldi Guito & Matthew PA called the decision “a big win for the little guy in Florida.”  She said the litigation tactic used against Bushnell is common among debt buyers, who often buy charged-off credit cards accounts for pennies on the dollar and then sue without proper documentation.  The customers often cannot secure legal representation to defend themselves against these lawsuits, according to Jones.

The case is Bushnell v. Portfolio Recovery Associates LLC, case number 2D17-429, in the Second District Court of Appeal of Florida.

Eleventh Circuit: Insurer Owes $1.2M in Attorney Fees in Coverage Matter

September 11, 2018

A recent Law 360 story by Anne Cullen, “Insurer Owes $1.2M Atty Fees in Construction Suit: 11th Circ,” reports that the Eleventh Circuit affirmed that Houston Specialty Insurance Co. will have to shell out $1.2 million in attorneys' fees to a construction firm and two of its employees after the insurer lost its coverage suit at trial over a contractor's injury.  The three-judge panel rejected the insurer’s argument that the district court shouldn't have awarded fees to All Florida Weatherproofing & Construction, the company's president and a sales representative while a separate suit Houston brought against the three was ongoing.

In its second suit, Houston claims the construction company and its employees forfeited their coverage when they rejected the insurer's defense in the underlying case, which was brought by a contractor who said he was paralyzed after falling through the roof of a mobile home that an All Florida sales representative had allegedly failed to inspect.  The ruling found that the outcome of the insurer's forfeiture suit doesn't matter.  The panel said that because the firm and its employees won the suit over coverage, which was affirmed on appeal, they are entitled to fees.

"Even if Houston Specialty ultimately wins in the forfeiture case, it would not negate the defendants' attorney's entitlement to fees for prosecuting and prevailing in the coverage case," the unpublished opinion said.  The panel also was not persuaded by the insurer's assertion that the lower court erred when it doubled the fees awarded to the attorneys representing All Florida — bringing the $565,000 award up to $1.13 million.  The appeals court found the construction company's poor financial condition and its low chance of winning the case meant it couldn't have secured competent defense in Houston's suit unless there was a possibility of a multiplier.

Houston appealed the fee award in June, a few months after the Eleventh Circuit upheld an earlier decision in the case backing a jury's finding that Houston had a duty to defend and indemnify All Florida and the two employees from the underlying action.  Houston's forfeiture suit is pending before a separate Eleventh Circuit panel, after the insurer appealed a district court ruling in late 2017 in favor of the All Florida defendants.

The case is Houston Specialty Insurance Co. v. Enoch Vaughn et al., case number 18-10635, in the U.S. Court of Appeals for the Eleventh Circuit.

Judge: Law Firm Granted Attorney Fees Despite Receivership

August 31, 2018

A recent Law 360 story by Lauraann Wood, “Firm Can Get Fees Despite Receivership, Judge Says, reports that an Illinois federal judge granted a law firm's bid to collect $20,000 in retainer fees for work performed leading up to and during a hearing in which he ordered a receivership over a real estate investment company accused of running a Ponzi scheme, saying the firm’s request is fair and reasonable.

U.S. District Judge John Lee granted Celiza Braganca’s motion to collect the money, which was transferred to Braganca Law LLC  in two $10,000 wire payments surrounding the hearing in which the judge temporarily restrained and ordered a receivership over Jerome and Shaun Cohen’s allegedly unlawful business conduct, over the U.S. Securities and Exchange Commission’s objection that the money she’d receive belongs to the investors the father-son duo allegedly defrauded. 

“Allowing reimbursement sought by Braganca Law for the work they performed is reasonable and appropriate here,” Judge Lee said.  “After all, the defendant should be entitled to legal representation for the defense in this case at least through the entry of a consent judgment.”  The commission asked for a temporary restraining order and receivership the day it filed suit against the Cohens and their company Equitybuild LLC, saying they wrongfully misled about 900 investors with promises of double-digit returns.

The two owners lied to their investors about essentially everything, from their failure to disclose that both had previously filed for bankruptcy to their falsehoods about the experience and technology they’d tap to identify undervalued but high-performing property, according to the SEC’s lawsuit.  The Cohens would represent to investors that those properties were generating returns between 12 and 20 percent, but in reality they were losing huge amounts of money and returns were being paid with other investors’ money, according to the suit.

However, the day after the suit was filed, Equitybuild sent a $10,000 wire to Braganca’s firm, the SEC said.  A day after that, while the court was conducting TRO proceedings, the firm received another $10,000 from Equitybuild’s investment vehicle, Equitybuild Finance LLC, according to the commission.  But during the hearing, Braganca noted to Judge Lee that she’d raised the issue of attorneys’ fees during the earlier TRO proceedings, and the motion he saw regarding her requested $20,000 is how he told her to approach the issue.

The case is U.S. Securities and Exchange Commission v. Equitybuild Inc. et al., case number 1:18-cv-05587, in the U.S. District Court for the Northern District of Illinois.