A recent Law 360 story by Ryan Davis, “USPTO Tells Justices Law is Clear-Cut on Win-Or-Lose Fees,” reports that the U.S. Patent and Trademark Office told the U.S. Supreme Court that it is entitled to recover attorney fees whenever it is sued over rejected applications, even if it loses, saying that outcome is "unambiguously" required by the statute.  The office made the argument in its opening brief for a case the justices agreed to hear in March to resolve a circuit split over whether disappointed applicants who file suit must pay the office's legal bills.

The statute governing such suits states that the applicant must pay "all the expenses" of the proceeding.  The Federal Circuit ruled last year that the phrase is not specific enough to include the USPTO's attorney fees, but in its brief, the office said "that reasoning is unsound."  "Both in its ordinary usage and in the specific context of civil litigation, the term 'expenses' unambiguously encompasses the increments of employee salary that the USPTO seeks to recoup," the office said.

Citing dictionary definitions of the word "expenses" as the expenditure of money, time or resources to accomplish a result, the office said it is clear that the money the office spends defending lawsuits count as expenses, and "that observation resolves this case."  While the Federal Circuit said the office's reasoning runs afoul of the "American Rule" that each side pays its own attorney fees, the office said the expenses requirement is not a fee-shifting provision that triggers the rule.

Fee-shifting typically applies based on which party prevails in a case, but since the expenses requirement is imposed on all applicants who sue the agency, even if they prevail, the American Rule is not implicated, the USPTO said.  Even if it were, the meaning of the word "expenses" is clear enough to show that Congress intended to override the rule and require applicants to pay the office's attorney fees, it said.

When the USPTO rejects an application for a patent or trademark, the applicant has two options.  The first is a Federal Circuit appeal, which does not require the applicant to pay the office's expenses but is decided only on evidence that the office considered, and the second is to file suit in district court, which carries the expense requirement but permits new evidence that wasn't before the office.  For years, the office only sought relatively minor expenses like travel costs and expert fees in district court cases, but it reversed course in 2013 and began seeking attorney fees from applicants, which can be much more substantial.

The Fourth Circuit blessed that practice in a trademark case in 2015, saying the provision is not a fee-shifting statute that implicates the American Rule.  The high court took the case after the Federal Circuit, sitting en banc, reached the opposite conclusion last year in a case where NantKwest Inc. unsuccessfully appealed the office's rejection of a cancer drug patent and was ordered to pay the USPTO's attorney fees of over $78,000.

The USPTO's brief said the office began seeking attorney fees in 2013 because such cases had become increasingly complex and expensive to defend, and because Congress had recently granted the office the authority to set its own fees, which officials wanted to ensure just recouped the cost of its services.  By seeking attorney fees when it is sued, "the agency has attempted to recoup those expenses from the particular applicants who cause the agency to incur them, rather than from other fee-paying users of the USPTO's services," it said.

In its January brief urging the Supreme Court not to hear the case, NantKwest argued that the American Rule applies whenever a litigant seeks attorney fees from opponents, not just when the award is based on who prevailed, as the USPTO contends.  The word "expenses" is too ambiguous to overcome the rule, it said.  "That 'expenses' could plausibly be understood to encompass attorneys' fees is not enough," it said.

Also last week, the USPTO urged the justices not to consolidate the NantKwest case with an appeal by Booking.com raising the same issue in a trademark case.  Instead, the court should just apply the outcome in NantKwest to that case, the office said.  Earlier this month, the title of the NantKwest case was changed when USPTO Director Andrei Iancu was recused from the case and substituted as the petitioner by USPTO Deputy Director Laura Peter.

The case is Peter v. NantKwest Inc., case number 18-801, in the Supreme Court of the United States.

A recent Texas Lawyer story by Angela Morris, “Why Are Civil Defense Lawyers Thrilled the Texas House Passed This Bill?,” reports that, just as lawmakers are pushing to narrow Texas’ anti-SLAPP motion to dismiss, the Texas House also passed a bill that would sweeten the deal for civil defense attorneys to make more use of a different type of motion to dismiss.

Under current law, this motion, known as the “91a motion to dismiss” because it’s located in Texas Rules of Civil Procedure Rule 91a, allows attorneys to argue for the dismissal of a case that has no basis in law or fact.  There’s a mandatory loser-pays provision that says the prevailing party collects attorney fees from the losing party.  Defendants have not used the motion too frequently because they don’t want to risk paying attorney fees to plaintiffs if they lose a dismissal fight.

House Bill 3300, which the Texas House passed 136-5, proposes a small but significant tweak to the law.  In the loser-pays provision, it changes the word “shall” to “may,” which gives a judge discretion to decide to award fees.  The bill heads to the Senate where, in the final weeks of the session, it must get a public hearing in committee, pass committee and pass the full Senate.

Texas Lawyer asked attorneys on Twitter whether this legislation, if passed, might lead defendants to file 91a motions to dismiss more often.  Here are a handful of the tweets we got in reply, edited for style and grammar.

“Yes — no question. Loser-pays is the only disincentive to filing a 91a motion in every case.  And defendants often waive their fee recovery from plaintiffs because courts are more likely to grant 91a dismissal if it doesn’t require saddling plaintiffs with fees,” tweeted Anne Johnson, a partner in Haynes and Boone in Dallas.

“As things stand, TRCP 91a creates a sort of game of chicken: A lot of defendants will file the motion but then pull it down before it is heard, unless they are almost 100% confident they will prevail.  With mandatory fees, the risk of paying the other side money is just too high,” tweeted Christopher Kratovil, managing member of Dykema’s Dallas office.

“As someone who works more in federal court — where 12(b)(6) reigns — I’ve always thought 91[a]‘s mandatory fee-shifting was a big problem.  This would be helpful.  I suspect more plaintiff oriented folks strongly disagree,” tweeted Raffi Melkonian, a partner in Wright, Close & Barger in Houston.

“I’m against the mandatory fees provision.  The fees usually aren’t too high, but it still discourages the use of an otherwise valuable tool,” tweeted Jadd Masso, a member of Clark Hill Strasburger in Dallas.

“This is a welcome change, though the Rule 91a standard itself should be clarified and improved,” tweeted Lee Whitesell, an associate with Hogan Lovells in Houston.

A recent Law 360 story by Jeff Sistruck, “4 Things Attys Need to Know About Fla’s ‘AOB’ Reform Bill,” reports that Florida Gov. Ron DeSantis gave the insurance industry cause for celebration when he said he would sign legislation aimed at curbing what carriers call an epidemic of abusive litigation by repair contractors seeking payment under property policies.  Here, Law360 breaks down four key provisions of the so-called Assignment of Benefits reform bill.

Fee-Shifting Switch

The bill passed by the Florida Legislature is expected to have a significant impact on long-standing insurance practices in the Sunshine State, where homeowners often assign their insurance benefits to contractors working on hurricane-damaged houses.  Once signed by the governor, it will take effect July 1.

In recent years, insurers have complained that some contractors have abused the Assignment of Benefits, or AOB, system by accepting assignments from policyholders and then performing excessive repairs or imposing inflated charges, leading to widespread coverage litigation.  Reform advocates have blamed that spike in litigation for increases in insurance premiums.  According to attorneys and experts interviewed by Law360, the surge in AOB actions was attributable in large part to Florida’s “one-way” attorney fee rule, which required an insurance company to pay an assignee’s costs to litigate a coverage suit, regardless of which side prevailed in court.

The new bill replaces that rule with a formula that allows for an award for either the assignee or the insurer — or neither — based on a comparison of a court’s judgment and pre-suit settlement offers.  That change doesn’t apply to policyholders who sue their insurers directly.  The formula for determining attorney fee awards compares the gap between the insurer's pre-suit settlement offer and the assignee's pre-suit demand, dubbed the "disputed amount," and the difference between the judgment obtained and the settlement offer.  If the difference is less than 25% of the disputed amount, the insurer is entitled to attorney fees.  If the difference is 25% to 49% of the disputed amount, neither party gets fees.  And if the difference is 50% or more, the assignee is entitled to a fee award.

Beth A. Vecchioli, senior director for government consulting at Carlton Fields, said the new fee shifting provision is an attempt to “level the playing field so everyone has skin in the game.”  “The current one-way attorney fee provision was always originally designed to help consumers who don't have the same financial resources as their insurers to go through litigation,” Vecchioli said.  “Once these assignments started popping up, though, the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.  It didn't seem fair or right that the insurance industry still had to deal with this one-way attorney fee provision in those situations."

However, Rob Friedman of Friedman PA, who represents policyholders, said that while the bill’s fee shifting provision applies only to contractors wielding AOBs, he is concerned that insurers may use their legislative success to try to curtail or eliminate the one-way fee rule in disputes with policyholders, too.  “[The one-way fee provision] has been one of the most important protections insurance consumers have under the law,” Friedman said.  “While this erosion of that protection is limited to assignment of benefits situations, I am concerned the industry is targeting the one-way fee provision more broadly.  This may be a slippery slope for the industry to push for doing away with that provision altogether or to erode it in other contexts as well."

Pre-suit Protocol

The new bill states that assignees must give insurance companies notice of intent to file a suit and cannot serve the insurer before it has a chance to make a coverage determination within the statutory time frame.  The insurer must respond within 10 days with a settlement offer or a demand for appraisal or other alternative dispute resolution.

Fred Karlinsky, co-chair of Greenberg Traurig LLP's insurance regulatory and transactions practice, said that in the past, some contractors have quickly filed suit before even giving insurers the chance to perform their own investigations.  “Under this legislation, we will hopefully avoid some of these 'gotcha'-type situations,” he said.  As Friedman sees it, though, the new raft of pre-suit requirements may discourage contractors, particularly smaller operations, from taking on repair jobs.  Companies will have to “lawyer up” at the outset of a job just to understand their rights and obligations under the AOB reform bill, he said.

“A small 'mom and pop' contractor isn't going to want to take on a $1,000 roof repair under an assignment of benefits if they have to hire a lawyer just to tell them what their rights and obligations are,” Friedman said.  “There are so many pitfalls in this statute that a contractor could wind up facing a coverage denial for violating any number of requirements."

Limiting AOBs

In another notable change, the bill opens the door for insurers to offer policies that cannot be assigned to a third party as long as they clearly provide notice to prospective policyholders of those restrictions and also offer assignable policies with the same coverage.  If an insurer opts to sell both types of policies, the restricted policy must cost less.  In addition, an insurer must notify its policyholders “at least annually” of the coverage options it is making available.

According to attorneys and experts, that provision provides clarity for the insurance industry, which had faced confusion about whether insurers can ever place restrictions on AOBs.  “This concept was originally developed by the [Florida] House under the theory that it is better for consumers to have more options than less,” said Vecchioli of Carlton Fields.  “They recognized that they couldn't completely restrict all assignments.  This is a smart, consumer choice-driven option, allowing insurers to offer both options."

Assessing the Impact

The new bill also contains a built-in mechanism for assessing the effectiveness of the AOB reforms.  Starting on Jan. 30, 2022, insurers must submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year.

According to attorneys and experts, those numbers will give the Florida Legislature concrete information to decide whether additional measures are needed to further rein in abuses of the AOB system.  The true test of the legislation will come when the next major hurricane or other catastrophe hits the Sunshine State, yielding huge quantities of AOB-related claims data, sources said.  "We would welcome the Legislature continuing to monitor AOB fraud and making any changes they feel are appropriate,” Greenberg Traurig's Karlinsky said.

A recent New York Law Journal story by Jack Newsham, “Milberg Claims Firm Cheated Out of $12M Fee in Argentine Bond Case,” reports that, the plaintiffs firm Milberg has sued a group of European investors that it previously represented in years of Argentina bond litigation, alleging the investors fired the law firm to avoid paying an $11.9 million fee.  In the suit, the New York firm is asking a federal judge to throw out an arbitral award that left Milberg with a mere $87,000.

According to Milberg’s suit, filed in Manhattan federal court, money manager Hans Wilhelm Brand fired the firm shortly after receiving a $162 million settlement offer from Argentina and learning that Milberg would be entitled to an $11.9 million contingency fee if he accepted.  People and entities whose money Brand managed, called the HWB investors, switched lawyers and reached a nearly identical settlement a year later, according to Milberg’s suit against the investors.

Milberg said it initiated arbitration against the HWB investors in 2017 seeking legal fees, but received a stunning decision from a three-man disputes panel in February 2019 that found the investors’ payments to Milberg and its other lawyers, totaling $513,000, was sufficient.  The neutrals at the International Centre for Dispute Resolution acknowledged Milberg had done more work for the HWB group than the firm’s billing records might indicate, but said “qualitative considerations have their limitations,” and said no further fees were merited.

“Anyone with passing familiarity with complex litigation prosecuted on a contingency fee basis … would be shocked to learn that a hard-fought case lasting well over a decade, which resulted in a settlement recovery by plaintiffs of $162 million, could end with an award of fees to plaintiffs’ counsel of zero,” the law firm said in its petition. (The firm was paid $87,000 before the arbitration over legal fees began.)

Documents Milberg filed in its suit indicate that it took over the HWB entities’ claims from Marc Dreier by 2010, after Dreier admitted to orchestrating a massive investment fraud scheme and his law firm failed.  The clients had previously paid $110,000 to Dreier and around $300,000 to Argentine lawyer Patricia Rosito Vago and her nonlawyer husband, the arbitral award said in a footnote.

Michael Spencer was the lead Milberg lawyer on the Argentine bond cases, according to the arbitral award, and the firm said the HWB group was its biggest Argentine bonds client.  Milberg received between $5 million and $5.5 million from other clients for its work on those cases, the award said.

The arbitrators noted that Milberg clocked 172 attorney hours and 90 paralegal hours on the HWB entities’ cases, worth $142,900, but spent “more time on the representation of HWB than is reflected in its HWB-specific time records.”  Still, the panel declined to award Milberg any more than it had been paid, saying the $513,000 the HWB investors had paid to all their lawyers was “a reasonable total fee recovery.”

In its lawsuit, Milberg, which reorganized in 2018 and now does business through the firm Milberg Tadler Phillips Grossman, argued that the award should be vacated because it showed manifest disregard for the law.  After firing Milberg, the award said, the HWB clients hired the firm Wilk Auslander to go to bat for them; that firm was paid $1.6 million after billing $2.3 million, according to the award. Milberg argued that Wilk Auslander failed to secure a better settlement than Argentina offered in 2016 through its bond dispute settlement program known as the “propuesta.”

But Wilk Auslander partner Jay Auslander, a lawyer for HWB investors, said in an interview that Milberg had ridden the coattails of other law firms whose clients held much greater amounts of Argentine bonds.  It was those firms that did the heavy lifting, he said, not Milberg.  “That [Milberg] caused the propuesta is, in our view, absurd,” he said in the interview. “We had a highly qualified, highly experienced three-lawyer panel that had a very high level of juridical sophistication and heard a tremendous amount of evidence. … We believe their award will not reasonably be challenged.”

A recent Law 360 story by Nathan Hale, “Fla. High Court Asked to Clarify Atty Fee Award Calculation,” reports that a Florida appeals court suggested that a clash between case law and its own judgment means the state's high court needs to clarify whether to include certain prejudgment interest when determining if a judgment triggers a party's entitlement to attorney fees under a state statute.  In its opinion, the Fourth District reversed a trial court's awarding of attorney fees to CCM Condominium Association Inc. in its negligence and breach of contract case against Petri Positive Pest Control Inc., saying the lower court improperly included prejudgment interest accrued after the association made a settlement offer.

The panel said it based its decision on language in Florida Supreme Court opinions, including White v. Steak & Ale of Florida, which suggests post-offer prejudgment interest should be excluded, even though it would reach the opposite conclusion based on its own interpretation of the term "judgment entered" in the offer-of-judgment statute, found in Section 768.79 of the Florida Statutes.  "[W]e are troubled by how far the formula created in White strays from what we believe is the plain meaning of the statute," the judges said.

They certified a question of great public importance to the Supreme Court, asking it to clarify whether to exclude post-offer prejudgment interest and noting that the law is widely used and is an important tool for settling cases.  The Fourth District also certified that its decision conflicts with two other appeals court decisions.

"We're obviously disappointed to lose, but we are very pleased that the court recognized the conflict and recognized that it is an issue of great public importance, and we are optimistic that the Supreme Court will accept review so it can clear up an area of law that affects many litigants across the state," CCM counsel Maegen P. Luka of Brannock & Humphries told Law360.  The appeal arose from a 2013 lawsuit that CCM, which does business as Country Club Manor Condominium Association, filed against Petri for negligence and breach of contract.

According to the opinion, CCM offered to settle all of its claims for $500,000, but Petri rejected the proposal.  After a trial in 2016, a jury awarded CCM more $551,881 in damages, and the trial court entered a judgment of $636,327, including prejudgment interest.  CCM moved to recover attorney fees based on that figure, which exceeded its settlement offer by more than 25%, the statutory threshold to trigger its entitlement.

Petri objected, pointing to the 2002 White decision, which it said defined the plaintiff's total recovery as including only attorney fees, costs and prejudgment interest accrued up to the date of its settlement offer.  That would push CCM's recovery below the 25% threshold.  Looking first at the statute itself, the Fourth District said the meaning of "judgment entered" is "easily understood."

"It is easy to calculate.  Included in that judgment are all of the elements of damages recovered in a case.  This includes prejudgment interest where applicable," the panel said, citing state court decisions that hold prejudgment interest is just another element of pecuniary damages.  But looking to the case law, the panel agreed with Petri that the Supreme Court appears to have gone beyond the text of the statute to create a different threshold.

In White, the high court found that the plaintiff's preoffer taxable costs should be included in calculating the "judgment obtained" for the purpose of entitlement to attorney fees, and said that "total net judgment" "includes plaintiff's taxable costs up to the date of the offer and, where applicable, the plaintiff's attorneys' fees up to the date of the offer."

"Thus, the court did not use the judgment actually entered or recovered in accordance with the statutory language, but it directed the calculation of a different amount based upon what might have been a final judgment at the time that the offer was made," the Fourth District said.  "However, the court did not include in this calculation any direction regarding prejudgment interest."

For an answer on prejudgment interest, the appeals panel pointed to the Supreme Court's 2012 decision in Shands Teaching Hospital and Clinics v. Mercury Insurance Co. of Florida, in which the justices approved a lower court's denial of fees based on "adding to the amount of damages recovered the attorney's fees, costs and pre-judgment interest accrued up to the date of the proposal for settlement."

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