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Category: Ethics & Professional Responsibility

Insurer Fights $1.6M Fee Coverage After Attorney Mishandled Suit

May 9, 2019

A recent Law 360 story by Kevin Penton, “Insurer Fights $1.6M Fee Coverage After Atty Mishandled Suit,” reports that an insurance company for a lawyer who was bench-slapped for the “incessant filing of absurdly lengthy and legally incorrect briefs” is arguing that it’s not responsible for covering nearly $1.6 million in fees awarded to insurance carriers on the winning side of the underlying case. 

Because Dougherty & Holloway LLC and attorney Josue Hernandez did not warn ALPS Property & Casualty Co. of any actual or potential claims against them when they applied for professional liability insurance in February 2018, the company should not be liable for the fees awarded by a Colorado federal judge in January and February, the insurance company argued in a complaint on Friday.

In January, U.S. District Judge John Kane awarded a host of insurance companies nearly $1.6 million in fees after they defeated allegations that they had unfairly denied coverage to homeowners, according to court documents.  In February, the judge held that Hernandez should be held personally responsible for just over $1 million of the amount, according to the order.

ALPS noted the long procedural history of the underlying case in its complaint, including that the insurance companies filed for attorney fees as early as May 2016.  Yet when Hernandez and the two attorneys who comprise Dougherty & Holloway applied for the liability insurance, they answered “no” to whether they were aware of any “fact, circumstance, act, error, or omission” that could be used as the basis for a claim, according to the complaint.

“Any claims for attorney’s fees asserted by claimants arising out of the January 2019 order and/or February 2019 order are outside the coverage afforded by the policy because, prior to the policy’s April 21, 2018 effective date, the insureds knew or reasonably should have known that its actions on behalf of its clients in the lawsuit might be the basis of a claim against the insureds,” the complaint reads.  Judge Kane held in January that Hernandez must be held personally responsible for a portion of the fees given “his incessant filing of absurdly lengthy and legally incorrect briefs” and vexatious conduct throughout the litigation, according to the judge’s order.

The judge sided with the defendants’ expert witness’ testimony that the hours of legal work they expended defending the case were reasonable and necessary over the plaintiffs’ argument, which was based not an expert’s testimony but an “unreliable and bewildering” 24-factor test of Hernandez’s own concoction.  Judge Kane also noted that throughout the litigation, the plaintiffs had repeatedly made extra work for the defendants, such as filing a 40-page motion for more time to respond to the defendants’ motion to dismiss.  After the defendants filed a seven-page opposition to that motion, the plaintiffs followed with a 47-page reply brief that “illustrates a system gone mad,” the judge said.

Judge May Get Involved in Pelvic Mesh Fee Allocation Dispute

April 23, 2019

A recent Law.com by Max Mitchell, “Pelvic Mesh Judge Isn't Obligated to Probe Allegations of 'Self-Dealing' in Fee Fight--But He Might Dive In,” reports that although allegations of fee-padding and self-dealing have roiled the pelvic mesh multidistrict litigation, the judge overseeing the consolidated lawsuits is under no obligation to investigate those claims.  But that does not necessarily mean U.S. District Judge Joseph Goodwin of the Southern District of West Virginia will turn a blind eye either.

According to court watchers, allegations that arose recently in the contentious fee dispute should give any judge pause, and may lead Goodwin, who is overseeing the vast litigation, to call for further investigation of the claims before he allocates an estimated $550 million in disputed fees.  “It seems to me the court more or less has to look into these allegations in deciding the fee dispute, and the fact that the court itself appointed this committee sounds like a further reason why the court should be interested in whether they’re behaving properly,” Rutgers University professor John Leubsdorf said.

Infighting Over Fees

The allegations arose in court filings late last month—about two weeks after the fee and compensation committee and Daniel Stack, a retired Illinois state court judge appointed to review the fee allocation process, issued their final recommendations on how to allocate the fees among 94 firms each claiming they did work for the “common benefit” of the MDL.

Specifically, Roseland, New Jersey, attorney Adam Slater of Mazie Slater Katz & Freeman wrote in a March 26 objection that plaintiffs attorney Bryan Aylstock pressured the chairman of the fee and compensation committee, Henry Garrard, to boost the amount of attorney fees to Aylstock’s Pensacola, Florida-based firm, Aylstock, Witkin, Kreis & Overholtz, which ultimately got $10 million more.  According to the objection, Aylstock threatened that his colleague, D. Renée Baggett, a member of the fee and compensation committee, would not sign off on its preliminary written recommendation if Garrard, of Blasingame, Burch, Garrard & Ashley in Athens, GA, refused to increase the fees for Aylstock’s firm.

Slater and fellow Mazie Slater partner David Mazie filed separate declarations insisting that Stack had relayed the information at a Jan. 3 meeting with them.  “Judge Stack stated that he ‘was sickened’ and ‘angered’ by this conduct, which he described as Mr. Aylstock pressuring the FCC chairman when he was particularly vulnerable,” Slater wrote in his firm’s objection.  “Judge Stack explained that he could not recommend the far lower amount he believed Aylstock deserved since he was, as he termed it, ‘put in a box’ since the agreement with the Aylstock firm included assurance that Judge Stack would not reduce the agreed-upon award.”

The objection also accused Motley Rice of padding its bills in the mesh litigation.  “Similarly, Judge Stack stated that he believed that Motley Rice (like some others in the litigation) had inflated its contributions and had ‘padded’ its time with thousands of phantom hours,” Slater wrote.  Stack told him that Motley Rice did that “in every litigation,” according to the objection.  Shanin Specter, of Kline & Specter, also filed a March 26 objection that raised similar concerns, contending that Stack “simply rubberstamped” the FCC’s recommendations.

When reached for comment, Specter said the filings raise serious allegations, and that attorneys should have a right to appeal decisions regarding the fee dispute—an issue that is currently being disputed before the U.S. Court of Appeals for the Fourth Circuit.  “As we said in our filing, firms, especially Mazie Slater, have raised troubling concerns about what’s occurred in relation to the attorney fee issue,” he said.  “Good lawyers are going to be deterred from getting involved in MDLs if they think that the rules can be changed in the middle of proceedings and there’s no right of appeal.”

Slater and Rice declined to comment about the dispute, and Aylstock did not return a message for comment.  Garrard said he could not comment beyond the FCC’s court filings.  The FCC, however, has made counterclaims against the objecting firms, accusing them of collectively making false attacks and submitting bills “riddled with excessive entries, duplicative billing” and other problems.  Garrard also specifically called Slater’s account of Alystock’s fee request false, stating that he “has never felt taken advantage of by this firm.”

“The FCC evaluated the Aylstock firm’s submission by the same criteria as every other firm, which included the opportunity to provide and receive feedback and to be heard,” Garrard wrote.  The use of such “caustic rhetoric” was “unfortunate,” he added.  “It serves no legitimate purpose for these objectors to air personal grievances or what they apparently believe to be ‘dirty laundry’ regarding alleged conversations with FCC members or with the external review specialist save perhaps to embarrass or insult,” he wrote.

But it is unlikely that response will be the end of the dispute.  Objecting attorneys have since filed replies, contesting the FCC’s accounts.  And, although the court has shot down previous requests for discovery regarding the fee allocations, attorney Benjamin H. Anderson of Anderson Law Offices in Cleveland filed a motion requesting a hearing.  “The eight members’ claims of having actually performed the work needed to justify their recovery of two-thirds of the common benefit fund are simply implausible and cannot withstand scrutiny,” Anderson said.

Where Can Courts Go From Here?

Several attorneys said that, although contentious fee disputes are commonplace in big cases, the allegations raised in pelvic mesh are outside the norm, and could lead to a variety of actions by the court depending on what allegations may get substantiated and what allegations might be shown to be false.  Court watchers noted that, unlike in class action litigations, there are no codified duties for judges presiding over MDLs to delve into the particulars of a fee dispute, and often courts simply follow the recommendations of the special master tasked with reviewing the dispute.

However, at least one attorney said there is some case law that might fall in favor of transparency, most recently a decision by U.S. District Judge Robert Kugler in In re Benicar Products Liability Litigation, which, earlier this month, issued an order saying, among other things, that all firms involved in the litigation will be given access to submissions made to the common benefit committee.

The statute governing MDLs is “barebones,” according to Penn Law professor Stephen Burbank, so disputes often arise about exactly what powers a court can exercise.  Courts are also generally reluctant to redo the work performed by special masters who oversee fee disputes, but still, Burbank said, courts generally want to review fee submissions thoroughly.  “The incentives for passing and for unfair allocation on the basis of what I’ll call politics rather than effort are pretty high, and most judges know this,” Burbank said.  “It would be very, very surprising if a judge in any context just accepted what a lawyer is proposing.”

Despite the lack of specific rules, courts generally seek to exercise broad discretion when it comes to fee disputes, Burbank said, and so a credible allegation of impropriety could set the whole fee allocation process back numerous steps.  “That might make me think, well maybe my assumption about the total amount is wrong,” Burbank said.

Among other things, judges facing serious allegations in fee disputes can hold hearings regarding the disputed hours and the rates, attorneys said.  Courts can also call for further evidence and depositions, and, depending on the findings, there could even be disciplinary implications.

Ethics attorney Thomas G. Wilkinson Jr. of Cozen O’Connor said there is little oversight regarding what exactly a “reasonable fee” should be, but, knowingly making false statements can run afoul of ethics laws regarding candor to the court.  “Any kind of knowingly false statement to the court could have disciplinary consequences,” Wilkinson said.

Federal courts are somewhat limited in what they can do if a violation has been found to have occurred, and generally their options are imposing monetary sanctions, or revoking an attorney’s pro hac vice admission.  Any proceedings regarding an attorney’s law license would have to first be initiated by the disciplinary body of the attorney’s home state.  Wilkinson said state disciplinary boards “most always will investigate further” if an issue has been brought to them via a judge’s opinion.

However, he noted that, without a request from attorneys, courts have no duty to sanction lawyers found to have run afoul of the ethics rules.  “There’s no duty on the part of a judge to send an issue to the disciplinary body,” Wilkinson said.  “Even if the judge concludes there was a violation.”

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 17, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees.  While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case.  Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong.  The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher.  After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.”  Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict.  Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order.  Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request.  That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed.  The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.”  Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute.  There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs.  Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety.  The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either.  Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition.  And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation.  The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses.  On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.  In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant.  But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure.  Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice.  The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.”  Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case.  Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed.  So, why do these cases—and understanding how they were decided and why—matter to me?  There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees.  Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded.  This is equally true before the trial court in the first instance and on appellate review.  Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment.  It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court.  On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost.  From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows.  As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions.  The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy.  And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources.  In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions).  By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group.  He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.

Second Circuit Upholds Attorney Fee Reduction in FACTA Settlement

April 10, 2019

A recent New York Law Journal story by Colby Hamilton, “Second Circuit Upholds Judge’s Slashing Attorney Fees in Fair Credit Law Settlement,” reports that the U.S. Court of Appeals for the Second Circuit affirmed a Manhattan federal judge’s order to cut down a fee request in a Fair Credit Reporting Act lawsuit, finding she had properly exercised her discretion, over arguments to the contrary from the plaintiff’s attorneys.  The Second Circuit ruling upheld a decision entered last May in which U.S. District Judge Valerie Caproni of the Southern District of New York refused to allow attorneys to collect approximately $83,000 in fees in their Fair and Accurate Credit Transactions Act (FACTA) case.

The plaintiff in the underlying matter, Joan Pasini, had brought two other suits in Manhattan federal court under the exact same premises.  In the Godiva suit, she ultimately secured a $5,500 settlement with the chocolate maker, after opting out of a class action settlement that would have awarded her up to $80.

As Caproni noted in her order, the Godiva action involved “no motion practice, no discovery, no contested hearings, a single status conference, which lasted less than 30 minutes, two telephone conferences, which also lasted about 15 to 30 minutes each, and one mediation session.”

The district court found there was “nothing reasonable” about the $83,000 figure submitted by Glendale, California, attorney Chant Yedalian and local counsel, attorney Sameer Birring.  Rather, the litigators were using FACTA as a “cudgel to attempt to extract an unreasonable fee.”

“Attorneys who take on consumer protection lawsuits are sometimes pursuing a public good—the individual damages are generally quite modest but there is a public interest in ensuring compliance with federal consumer protection laws,” the district court wrote.  “Counsel is entitled to recover reasonable fees, but this court will not aid and abet extortion.”

The 10-page complaint in the underlying suit replicates claims similar to the other FACTA suits brought by Pasini.  She claimed the chocolatier printed out a receipt for a credit card transaction that included the first six digits and the last four digits of the card number.  Under FACTA, no more than the last five digits of the card number are allowed to be on a receipt provided to the cardholder.

After opting out of the settlement and an initial figure from the chocolatier of the statutory settlement maximum of $1,000, Pasini demanded a $75,000 payment from Godiva, according to court papers.

The suit was filed March 10, 2017. On Sept. 29, the parties alerted the court that the settlement amount for the plaintiff had been agreed to for the far smaller sum of $5,500, but Godiva stated to the court that attorney fees remained an issue.  Attorneys for Godiva argued in opposition to the fees that counsels’ “aim throughout this case has been to generate the maximum amount of attorneys’ fees possible.”

Caproni agreed, finding the hourly rates proposed by opposing counsel in the “exceedingly straightforward case” exorbitant.  She cut Yedalian’s requested fee range of $550 to $650 an hour down to a “generous” $350 an hour, while bringing Birring’s $350 an hour requested rate down to $275.

Similarly, Yedalian’s 152 hours of billable work was “so out of proportion to the tasks he purportedly undertook” that Caproni said she had to “question the accuracy of the bills.”  All but five hours of the claimed time “was spent on low-level work that could have been accomplished by an associate or paralegal; tasks any competent attorney (much less one with 15 years of experience practicing in an area of the law that is neither sophisticated nor intellectually challenging) could have accomplished far more quickly.”

Caproni ultimately cut Yedalian’s hours billable at the new rate by 90 percent, leaving him with an entitled fee of $5,325.83, while Birring was, at a reduction of 65 percent to his hours, granted $1,020.25 in fees.  With the reduced costs of $620 provided to the plaintiff, Caproni’s order amounted to less than 10 percent of what Pasini sought.

On appeal, the panel of Circuit Judges John Walker Jr., José Cabranes and Robert Sack said Caproni was within her right to the substantial reduction “in light of the pervasive errors and exaggerations in the fee application.”  The panel went on to likewise support the district court’s gutting of travel fees for Yedalian, as “there was no reason local counsel could not attend the initial status conference instead of lead counsel from California.”

Pelvic Mesh MDL Fee Committee Accused of Self-Dealing

March 29, 2019

A recent Law 360 story by Andrew Strickler, “Pelvic Mesh MDL Fee Committee Accused of Self-Dealing,reports that a group of firms that worked on cases for plaintiffs in the multidistrict litigation over pelvic mesh implants has accused fee committee members of self-dealing and obscuring the process of divvying up the case's proceeds.  In one recent filing, New Jersey-based personal injury firm Mazie Slater Katz & Freeman said the committee's recommendations on a split of the "common benefit" fees had largely ignored its role as one of the “driving forces and largest risk-takers” in the massive litigation.

The firm also said some members of the fee and cost committee had raised concerns that committee leaders — chair Henry Garrard of Blasingame Burch Garrard & Ashley PC, Joseph Rice of Motley Rice, and Clayton Clark of Clark Love & Hutson GP — had “predetermined” to give themselves the lion’s share of the fund at the expense of other firms.  Adam Slater of the Mazie Slater firm also claimed that in the “most glaring example of self-dealing,” attorney Bryan Aylstock of Aylstock Witkin Kreis & Overholtz pressured Garrard to up his firm’s award by $10 million by threatening to stop an Aylstock firm partner who sits on the committee from backing the award recommendation.

Retired Judge Daniel Stack, who was appointed by the court to oversee fee allocations, “stated that he ‘was sickened’ and ‘angered’ by this conduct, which he described as Mr. Aylstock pressuring [Garrard] when he was particularly vulnerable,” according to the filing.

The litigation accusing Boston Scientific Corp. of making defective pelvic mesh implants was first centralized in West Virginia six years ago as three MDLs covering 150 cases.  It later grew into seven MDLs with some 53,000 lawsuits.  In January, U.S. District Judge Joseph R. Goodwin in West Virginia ordered that 5 percent of all proceeds should be set aside for attorneys at 94 common benefit firms, representing some $336 million.  Stack and the fee committee issued their fee allocation recommendations to the court in mid-March.

In another March 26 filing, personal injury firm Kline & Specter PC also objected to its $3.745 million award from the common benefit fund, and said fee committee members were attempting a “mass taking.”  The Philadelphia-based firm, which has raised previous objections about the fee committee, also accused Stack of “rubber stamping” the committee’s recommended awards and severely underestimating the firm’s contributions in mesh-focused state court litigation.  “Mr. Stack’s methodology, if one exists, is severely flawed,” the firm said, calling his contribution “worthless.”

A third law firm, Ohio’s Anderson Law Offices LLC, also told the court the eight-member fee committee had authorized for their own firms 66 percent of the total pool, leaving the rest to 79 other firms.  Garrard, Rice and Clark “alone are enriching themselves with 41 [percent] of the total fund; an astonishing $143,669,635,” the firm said.  “By definition, this is self-dealing pure and simple.”