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Category: Fee Agreements

Can Insured Recover Attorney Fees From Public-Private Insurers?

October 10, 2019

A recent Law 360 article by Alexander Cogbill, “Can Insureds Recover Atty Fees From Public-Private Insurers?,” reports on the recent case law on attorney fee entitlement and recovery in insurance coverage litigation.  This article was posted with permission.  The article reads:

In 2009, the U.S. Court of Appeals for the Fifth Circuit definitively foreclosed awards of attorney fees in coverage litigation against insurance companies arising out of flood claims under policies written under the National Flood Insurance Program (NFIP) with its decision in Dwyer v. Fidelity National Property & Casualty Insurance Co.

This appeared to be the final word on the subject until 2019, when, in a series of three opinions, the United States District Court for the Middle District of Florida held otherwise.  These recent decisions have revived a decade-old argument about whether public-private partnerships — in this case, the NFIP — trigger a distinct federal civil rights statute: the Equal Access to Justice Act.

The National Flood Insurance Program: On the Radar

The NFIP was signed into law in 1968 as a response to endemic underinsurance which had been laid bare by a series of disastrous river floods and hurricanes in prior years.  The NFIP has enabled more than 5,000,000 homeowners and small businesses within 18,000 communities to purchase insurance for flooding annually at discounted premiums.

Although the federal government subsidizes all of the policies underwritten within this program, the Federal Emergency Management Agency, which runs the program, does not administer most NFIP policies.  Instead, FEMA engages the expertise and resources of private insurance companies as “fiscal agent[s]."  By this arrangement, the federal government accepts the insureds’ risk but delegates underwriting and claim administration.

Although the program has been a success in terms of enrolling policy holders, resultant expenses and risk accepted by the NFIP has grown unwieldy.  Presently, the program owes more than $25 billion dollars and continues to underwrite trillions of dollars of additional risk.  Accordingly, the future of the program is uncertain.

For purposes of the following discussion, understanding several key features of NFIP policies is useful.  First, FEMA receives most of the premiums (after a fee from the participating insurers) and pays the costs of claims, investigation and litigation, albeit indirectly.  Second, because NFIP policies are governed by federal common law, suits regarding these policies are properly asserted in federal court, without consequential damages.

Equal Access to Justice Act: All Hands on Deck

The American Rule dictates that litigants pay their own attorney fees unless fee-shifting is prescribed by contract or statute.  The EAJA is a substantial statutory exception to this default rule. Under the EAJA, a party that prevails in litigation against “the United States or any agency or official of the United States” may recover attorney fees except when a court finds that the position of the United States was “substantially justified or [] special circumstances make an award unjust."  Notably, there is no fee-shifting provision when a plaintiff is unsuccessful.

The EAJA was enacted in 1980 to assist litigants, particularly civil rights litigants, in accessing the court systems so that they would be on equal footing with the government and would be able to pursue their rights without being deterred by the cost of legal representation.  The legislative history specifically states that the EAJA is not to burden private parties with attorney fees, but is silent about the application to the NFIP.

FEMA is an agency of the United States, and suits against them allow for attorney fees unless defenses are “substantially justified."  However, whether a private insurer is an agent of the United States for the purpose of this section is more nuanced.  Hurricane Katrina litigation in the Eastern District of Louisiana highlighted this confusion, with decisions repeatedly flip-flopping on the issue over three years.

Dwyer v. Fidelity: The Eye of the Storm

The Katrina decision on this topic to filter to a higher court was Dwyer v. Fidelity National Property and Casualty Insurance Co.  At the trial court level, the Federal District Court for the Eastern District of Louisiana held that insurers participating in the NFIP were acting as “an instrumentality of the United States” and, as such, qualified for the EAJA fee shifting.  In its opinion, the Dwyer trial court observed that the organizing statute of the NFIP utilizes the term “agent” to describe participating insurers qualifying them as “agencies” as contemplated by the EAJA for the purposes of fee shifting.

On appeal, the Fifth Circuit Court of Appeals reversed.  The Dwyer appellate court began its discussion by observing that Title 28 defines “agency” for the purpose of the EAJA as “any department, independent establishment, commission, administration, authority, board or bureau of the United States or any corporation in which the United States has a proprietary interest…”  The court further noted that none of these categories describe a private insurer subsidized by FEMA.

The court next looked to the NFIP regulations which describe the role of a private insurer as a "fiscal agent" rather than an "agent" for the purposes of the EAJA.  The court found support for this conclusion in Supreme Court of the United States precedent which similarly cautions that mere contractual relationships do not transform all federal contractors into governmental “agen[cies].”  Summarizing their opinion, the court stated, “[t]he District Court might be correct in concluding that allowing suit against private insurers is a mere formality imposed by regulation, but regardless, the EAJA must be applied according to its terms.”

Since Dwyer, no appellate court has revisited this issue, and when trial courts — with the notable exception of the Middle District of Florida — have confronted the issue with NFIP participating insurers, they have adopted Dwyer’s reasoning.

Middle District of Florida’s Storm Surge

Initially, the Middle District of Florida capitulated to Dwyer.  In 2017, citing Dwyer, the court decided Chatman v. Wright National Flood Insurance Co. in favor of the private NFIP-insurer dismissing claims for attorney fees.

However, this year, courts in this one federal district have latched onto a novel argument and are going against the current.  In these cases, the courts determined that although the insurer was not an agency of the United States, the payment made under a FEMA policy is functionally remitted by the United States government.  Under this reasoning, this connection with U.S. Department of the Treasury funds is sufficient to survive an initial motion to dismiss.

These decisions rely on the U.S. Court of Appeals for the Eleventh Circuit opinion Newton v. Capital Assurance Co., which assessed whether prejudgment interest is appropriate under the NFIP.  In reaching its decision, the Newton court reasoned that the United States retained a financial stake in litigation against NFIP insurers.  Therefore, its sovereign protection from prejudgment interest extends to suits against its insurer partners as any interest charges are, in reality, “direct charges against FEMA.”  Newton holds “the line between a [NFIP insurer] and FEMA is too thin to matter for the purposes of federal immunities such as the no-interest rule.”  As is evident, Newton’s reasoning diverges from Dwyer’s even if they address slightly different issues.

In January of 2019, the Middle District of Florida first began its swim against the current by declining to dismiss attorney fees entirely and only eliminating state claims of attorney fees in Lovers Lane LLC v. Wright National Flood Insurance Co.  This decision cited but did not explicitly rely upon Newton in permitting a claim for attorney fees under the EAJA to survive an initial pre-answer motion.  In fact, the Lovers Lane court failed to discuss its reasoning except to acknowledge pre-Dwyer decisions ruling in favor of insurers on the same issue.

In April, the court issued a second decision departing from Dwyer.  In Collier v. Wright National Flood Insurance Co. the court again declined to dismiss a claim of attorney fees, citing Lovers Lane LLC without further discussion.  On June 13, the court committed to this interpretation in Arevalo v. American Bankers Insurance Co. of Florida. The court held:

Based on the principles and regulations discussed by the Eleventh Circuit in Newton, the determining factor is not so much whether [the insurer] is an “agency” of the United States under the Act.  Rather, it seems to matter more whether the government is the source of the funds or who would pay an award of attorney’s fees.  Here, payment of attorney’s fees may be a direct charge on federal funds if FEMA approves [the insurer’s] request for reimbursement of the attorney’s fees incurred defending this NFIP litigation.

This is of course assuming that [the insurer] seeks reimbursement for its defense costs from FEMA and otherwise has an arrangement with FEMA whereby it is entitled to reimbursement.  Either way, it is at least plausible at this point in the litigation that attorney’s fees may be paid from federal funds by FEMA.

Notably, however, the Middle District’s reasoning has already been rejected by the Southern District of Florida in its Aug. 12 decision in Hampson v. Wright National Flood Insurance CoHampson dismissed Arevalo in a footnote, holding without further discussion, “this Court disagrees [with Arevalo’s conclusion that the source of the funds plausibly relates to fee shifting] and declines to depart from case law in this circuit and other courts finding that a WYO carrier is not an agency of the United States as required by the EAJA.”

Next Steps: Batten Down the Hatches

At this point, it is unclear whether other districts will join the Middle District of Florida in applying Newton to the EAJA. Even if the trend were isolated to this single court — which is by no means guaranteed — it represents a district split on this critical issue.  Moreover, this conflict may portend a circuit split between the U.S. Court of Appeals for the Fifth Circuit (Dwyer) and the Eleventh Circuit (Newton).

The consequences of this nascent split are not purely academic.  One-way fee shifting agreements — where only the defendant is potentially liable for their adversary’s attorney fees — such as the EAJA, are understood to raise settlement values in favor of defendants (and their attorneys) and increase the likelihood of settlements on otherwise questionable claims.  Accordingly, the practical effect of this line of cases in the Middle District of Florida may be increased payments to NFIP insureds throughout the United States.  For all the legitimate policy calculations undergirding the EAJA, this effect on the financially strapped NFIP was not clearly intended.

Given the existing financial vulnerabilities of the NFIP, the sheer number of policy holders (greater than 5,000,000), and the predictions of increasing intensity of hurricanes and flooding because of climate change, this trend merits close monitoring.  NFIP insurers and United States taxpayers alike have a vested interest in its outcome.  These cases from the Middle District of Florida may be a drop in the ocean or could foreshadow a change in the weather.

Alexander Cogbill is an associate at Zelle LLP in New York.

NJ Judge: Litigation is Just Another ‘Capitalist Enterprise’

October 7, 2019

A recent Law 360 story by Emma Cueto, “Legal Practice Just a ‘Capitalist Enterprise’, Judge Laments,” reports that a New Jersey state judge ruling on an attorney fee dispute lamented that the practice of law has been reduced to "just another capitalist enterprise," before deciding that the former attorney in a personal injury case against Verizon was not entitled to a say in the approval of a potential settlement.

In an order that was deleted for a "typographical error," according to the judge's chambers, Judge Stephen L. Petrillo said that Gregg Stone, the original attorney for a woman who was paralyzed after she was struck by a falling utility pole, would be entitled to seek compensation for the work he put in on the case but could not object if he thought the settlement fee award was too small.

First, however, Judge Petrillo expressed his displeasure that the dispute had arisen at all.  "This unfortunate fee dispute, coming as it does in the midst of seemingly final negotiations of a settlement, should resolve, with certainty, any lingering doubt that the practice of law, that storied profession of Marshall and Jefferson and Lincoln, is really now just another capitalist enterprise," he wrote in the order.

The case was brought in 2017 by Maria Meister and her husband, Peter Meister, against Verizon New Jersey Inc. and two other companies, Altice USA and PSEG Services Corp.  According to the order, Maria Meister was struck by a utility pole that fell after partially rotting through, leaving three of her limbs paralyzed.  Gregg Stone initially represented her, but two years later withdrew due to a breakdown of the attorney-client relationship, citing "incessant emails" as well as "ultimatums and non-physical threats" by Peter Meister, according to his motion.  David Mazie then took over the case, which is potentially nearing a settlement, the decision said.

Stone asked the court that he be allowed to be heard during the settlement approval process, arguing that his retainer agreement entitled him to recover a portion of the funds.  He also argued that Mazie, having taken on the case at the eleventh hour, had no incentive to ensure that any settlement properly reflected the years of effort the case involved.

Judge Petrillo, however, rejected this argument, saying that it was not supported by case law.  Stone would be allowed to petition for a cut of any attorney award based on the work he put in, the judge said, but his retainer agreement stopped being binding when he withdrew from the case, and he did not have the right to intervene in the approval process.

He also said that the whole episode did not reflect well on the legal profession.  "While lawyers may indeed make a client's life better through their advocacy and vigilant protection of that client's interests," the judge wrote, "they are uniquely able to make it seem as though they are not doing so when quarreling, as they are here, over who gets to spell out how much they should be paid from their paralyzed client's recovery and why one is more entitled to do so than another."

He later also lamented in a footnote that the attorneys seemed invested not in deciding who could represent the Meisters' interests, but rather who could have a say in how much the attorneys were paid.  Mazie told Law360 that he believed the judge's displeasure was directed solely at Stone, saying that Stone's request was not in line with the law.  "It is unfortunate that Mr. Stone fails to recognize that the only thing that is important is doing what is best for the clients, not what is best for the lawyers," Mazie said.  "The court clearly got it right here."

The order, which was issued on Wednesday, was deleted on Friday, along with an order on a discovery motion.  Judge Petrillo's chambers told Law360 that the orders were deleted because of a "typographical error" but that the substance of the orders would not be changed.  The judge had no further comment on the case, according to a member of his staff.

Class Counsel Seek $15M in Fees in $74M SunEdison Settlement

September 23, 2019

A recent Law 360 story by Mike Curley, “Attys Seek $15M in Fees From $74M SunEdison Settlement,” reports that the lead counsel in a class action claiming SunEdison Inc. misled shareholders about its financial health before filing for bankruptcy is asking a New York federal court to approve more than $15 million in attorney fees for its work in reaching a $74 million settlement with the company. 

In a memorandum filed, attorneys with Bernstein Litowitz Berger & Grossmann LLP, representing plaintiffs the Municipal Employees’ Retirement System of Michigan and Arkansas Teacher Retirement System, said the fee, which amounts to 21% of the $74 million pot, is reasonable and under the amount suggested by lodestar guidelines.

The request also includes $1.5 million in expenses, and 21% of any additional recovery, according to the memorandum.  The attorneys are also requesting an award of $13,598 to the Municipal Employees’ Retirement System of Michigan and $1,819 to Arkansas Teacher Retirement System for their costs and expenses.

The fees reflect that the settlement was achieved through the “skill, tenacity and effective advocacy” of the lead attorneys, according to the memorandum, including an extensive investigation into SunEdison’s alleged fraud, drafting the complaints, defeating motions for dismissal and summary judgment and nationwide and international discovery efforts.  In addition, the fee is based on a written agreement that lead counsel signed with the Municipal Employees’ Retirement System of Michigan at the start of the case and should therefore be presumed to be reasonable, the attorneys argued.

Circuit courts have approved attorney fees in settlements of this type of more than 30% of the total fund, according to the memorandum, which added that the lodestar payment, based on the amount of hours the attorneys put in, would be $18 million, making the $15 million request only 86% of the lead counsel’s time.

The 2015 class action alleges false and misleading statements and omissions in violation of the Exchange Act and liability and negligence claims under the Securities Act.  The suit is one of a multitude that SunEdison is facing in multidistrict litigation following business decisions that ultimately led to its filing for bankruptcy in April 2016.

In their bid for initial settlement approval filed in July, shareholders in the company also asked the court to allow their counsel to request attorney fees of up to 22% of the settlement fund and another $2 million in litigation expenses incurred over the three and a half years since the suit was filed.  Under the settlement, a $74 million fund will be divided between the two subclasses, with $19.5 million and any of the supplemental insurance money going to the Exchange Act subclass, and $54.5 million going to the Securities Act subclass, the investors said.

Fee Allocation Dispute in BNY Mellon Settlement Can Be Litigated

September 20, 2019

A recent Law 360 story by Chris Villani, “Atty Can Sue for Fees in BNY Mellon Settlement, Judge Rules,” reports that a dispute between Bailey & Glasser LLP, the Howard Law Firm and McTigue Law LLP over a $3 million fee following a $10 million settlement with Bank of New York Mellon Corp. sounds like a breach of contract case to a Massachusetts judge, who invited McTigue on Thursday to sue if it wanted.  Chief U.S. District Judge Patti B. Saris said that, in approving the $3.33 million fee award for the lawyers representing a class of trustees who sued BNY Mellon over alleged excessive charges, she would not resolve a long-running dispute between the lead class attorneys and a lawyer for the named plaintiff in the case.

During a hearing earlier this month in her Boston courtroom, Judge Saris heard arguments from McTigue Law that it was entitled to a 20% cut of the fee under the terms of a co-counsel agreement between McTigue, Bailey & Glasser and Howard Law.  The latter two firms said McTigue violated that pact and should not get the 20% share, and Judge Saris invited McTigue to sort the issue out through a new suit.

“McTigue Law’s motion essentially raises a breach of contract claim against lead plaintiff’s counsel,” Judge Saris wrote in a brief order.  “The court did not resolve that claim in its ruling on lead plaintiff’s motion for attorneys fees and expenses.”  Judge Saris said she would deny McTigue’s motion for a 20% cut without prejudice to a separate breach of contract suit.

The order clarified Judge Saris’ more lengthy Wednesday order giving her blessing for the fee, after which a McTigue representative told Law360 it did not believe the judge’s fee award prevented the firm from going after Bailey & Glasser and Howard Law for the cut it believes it rightfully deserves.  The class of trustees reached a settlement with BNY Mellon in March on the eve of trial, but the accord with the bank did little to stem the disagreements between two class counsel firms and Brian McTigue, the personal lawyer for class representative Ashby Henderson.

Bailey & Glasser and Howard Law told the judge in their fee request that McTigue's firm "did not benefit the class, but rather caused disruption, delay and confusion."  McTigue countered by saying he performed "significant and material work" on the case and argued his cut was agreed to in 2016, when the firms signed a contract stating he “will be apportioned 20% of the lodestar work, awarded 20% of the fees and pay 20% of the expenses in this litigation, all on an ongoing basis, as measured from the beginning of the litigation.”

Novartis Whistleblower Attorneys Slam ‘Unjust' Fee Award

September 13, 2019

A recent Law 360 story by Jeannie O’Sullivan, “Novartis Whistleblower Attys Slam ‘Unjust’ $1.4M Fee Award,” reports that Webber McGill LLC urged a New Jersey state court to redo the $1.4 million in counsel fees it awarded the firm and a solo attorney for their representation of a former Novartis Pharmaceuticals Corp. executive in her whistleblower lawsuit, arguing that the court overlooked binding precedent and critical facts in arriving at the “manifestly unjust” sum.

The Hanover-based firm, which had sought more than $3 million for its representation of Min Amy Guo, invoked the New Jersey Supreme Court’s 1995 holding in Szczepanski v. Newcomb Medical Center that counsel fee awards should be determined independently of the fee agreement between counsel and client.  But the court factored in that very agreement in calculating the award, according to Webber McGill's reconsideration motion.

The award also ran afoul of another high court ruling from that same year, Rendine v. Pantzer, in which the justices held that counsel fee awards should be based on current rates rather than the prevailing rate at the time services were rendered, the motion said.  “In short, plaintiff believes the order yields manifestly unjust results and plaintiff respectfully requests that the court remedy those injustices,” the motion said.

The award, handed down Aug. 9 by Morris County Superior Court Judge Louis Sceusi, was based on hourly rates of $350 and $300, respectively, for name partners James K. Webber and Douglas J. McGill, $250 for firm member Michael J. Reynolds and $200 for firm counsel Christena A. Lambrianakos, the motion said. Morristown, New Jersey-based solo attorney Richard J. Murray, who also represented Guo, was awarded based on a $450 hourly rate.

Webber McGill went on to blast the “inequities” between the firm’s award and fees won by the defendants’ counsel for Guo's misconduct during the trial.  The Novartis attorneys won awards based on hourly rates of $395 for John B. McCusker of McCusker Anselmi Rosen & Carvelli PC and $390 for Patricia Prezioso of Nukk-Freeman & Cerra PC.  Webber McGill took on a higher risk of nonpayment because Guo is a one-time client, whereas Novartis is an institutional client for McCusker Anselmi and thus generates “reliability and volume” for that firm, the motion said.

Further, the court undervalued the contributions the individual Webber McGill attorneys made, according to the motion. Webber has more experience in employment law than Prezioso, and McGill is a “skilled and experienced litigator” who was an “integral part of the winning team,” the motion said.  Reynolds was “uniquely helpful” to the case in terms of his pharmaceutical industry compliance knowledge, and Lambrianakos’ work was “absolutely necessary and invaluable,” according to the motion.

The court also contravened Rendine with respect to Murray because it based his hourly rate of $450 on a previous case, whereas he should have been awarded based on the prevailing hourly rate of $525, the motion said.  “The solution to the court’s errors with respect to plaintiff’s counsel’s rates is to review the record on the fee application and follow the dictates of Rendine and Szczepanski to determine the appropriate market rates for the Webber McGill attorneys as they ought to be compensated today,” the motion said.  Lastly, Webber McGill decried the court’s “draconian” reduction of McGill’s and Reynolds’ hours by 42% and 35%, respectively, saying the cuts weren’t justified by the record.