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Category: Fee Caps / Fee Limits

PG&E Bankruptcy Attorneys Blast Fee Examiner’s Caps on Fees

October 2, 2019

A recent Law 360 story by Rick Archer, “PG&E Case Attorneys Blast Fee Application Protocol,” reports that counsel for Pacific Gas and Electric Co. (PG&E), the utility’s board of directors and the unsecured creditors in its bankruptcy case have jointly claimed the court-appointed fee examiner is seeking to impose excessively strict caps and unnecessary barriers to their fee applications.

In a filing with a California bankruptcy court, the parties said the fee examiners' proposal would unreasonably put a flat cap on compensation for time spent preparing fee applications, bar compensation for travel time and place other “unwarranted” barriers to fee applications.  “The protocol and motion together contain a litany of requirements that have no basis in the Bankruptcy Code, rules or guidelines,” they said.

The filing is a response to a September filing by Bruce Markell, the fee examiner appointed by the court in the case, proposing guidelines and procedures to evaluate applications to approve legal fees.  According to the filing, 23 firms had submitted appearances in the bankruptcy case as of Sept. 16, although only eight had filed fee applications.

Markell argued he should be allowed to bar redacted time entries and applications for nonworking travel time, which he said made up about $1 million of the then-current fee applications.  He also sought a cap on payable hours for time preparing employment and fee applications.  “The fee examiner has been impressed by the amount charged for obtaining court approval of employment. In one interim application, these fees approached $200,000,” he said.

In the filing, counsel for PG&E and the unsecured creditors argued the proposed guidelines are too strict, saying the general local guidelines call for fee application preparation to be capped at 5% of total fees, and that standard guidelines call for attorneys be compensated for up to two hours of non-working travel time.  They noted a number of attorneys in the case who are based in New York and others are required to travel around California in connection with wildfire litigation.  They also argued the procedures would unnecessarily penalize late applications and impose other “unwarranted barriers.”

“The protocol and motion should not impose requirements beyond what Congress has commanded,” they argued.  PG&E filed for Chapter 11 bankruptcy in January after racking up over $30 billion in liabilities related to its alleged role in sparking wildfires that charred vast swaths of California and killed 130 people.

Seeger Weiss Targeted in NFL Concussion Fee Appeal

August 14, 2019

A recent Law 360 story by Ryan Boysen, “First Shots Fired in Seeger Weiss Concussion Fee Appeal,” reports that Seeger Weiss LLP has “hoarded” nearly $65 million for its work on the landmark NFL concussion settlement while punishing rival firms by docking their pay over perceived slights, all through an “improper process” that “lacked transparency and basic mechanisms of fairness,” according to the opening briefs in a contentious Third Circuit appeal.

The appeal was filed over a year ago, challenging an order by U.S. District Judge Anita B. Brody that created a $112.5 million common benefit fund to pay the 24 firms involved in bringing to fruition the uncapped concussion settlement, which has paid out nearly $660 million in claims since it was approved in 2015.  In opening briefs filed, two groups of law firms and retired football players led by Locks Law Firm and Lubel Voyles LLP took aim at Seeger Weiss’ role in divvying up that money.

The firms argued that Judge Brody essentially gave Chris Seeger carte blanche to award himself and other firms whatever he pleased, then rubber-stamped his decisions with hardly any oversight, violating constitutional due process obligations and binding precedent in the process.  Adding insult to injury, Locks Law said, all of the firms involved in the settlement were required to submit time records to Seeger while he determined their final awards, but to this day no other firm “has seen Mr. Seeger’s records” and “neither will this court: those records were never made part of the record below.”

“The court empowered Mr. Seeger … to reward himself and penalize rivals without any on-the-record scrutiny of his own time records,” Locks Law said.  “The court accepted Mr. Seeger’s [determinations] with only minor adjustments.”  “There is no justification for this manifestly inadequate process,” Locks Law added.

While ostensibly separate, the allegations in the briefs mirror complaints about the settlement as a whole, which many attorneys claim has been marred by a lack of transparency and a seeming willingness on Judge Brody’s behalf to improvise when deciding issues of considerable importance to the class of 20,000 retired players suffering from concussion-related brain damage the deal is meant to compensate.

The briefs also underscore the bad blood that’s been building up for years between Seeger and many of the other lawyers involved in the case.  To take just one example, Locks Law was terminated as class counsel alongside five other firms in May, a move many viewed as retaliation for its request that Judge Brody reconsider new medical guidelines that Locks Law had argued would make it harder for players to get paid.  Prior to that, Locks Law butted heads with Seeger directly when it sought to take over the implementation of the deal, arguing that Seeger was letting the NFL steamroll the players with “scorched earth” legal tactics.  Both of those motions were denied.

In a nod to those broader tensions, Lubel Voyles acknowledged in its brief that while “fee fights in class action litigation are, sadly, not rare,” it is rare “for the optics of a common benefit fee award to be so poor that even class counsel are divided on every aspect of the award, not just allocation of the money.”  Locks Law said that before Judge Brody made a decision on how to apportion the $112.5 million CBF, some firms recommended a special master be appointed for that purpose while Locks Law itself urged the creation of a committee.

Instead, Locks Law said, Judge Brody let Seeger make “the sole determinations of what work performed by other [leading firms] qualified for common benefit compensation in his petition.”  “The district court’s decision to delegate responsibility for that allocation to the largest recipient of those fees, co-lead counsel Christopher Seeger,” was an “improper process,” Locks Law said.

Locks Law said all of the firms applying for those fees had to submit their time sheets to Seeger for him to review, but Seeger’s own records were only ever reviewed in camera by Judge Brody.  After approving more hours for his firm than any other, and awarding a higher lodestar multiple — a common calculation used by law firms to determine fees in many instances — for those hours than to any other firm, Seeger ultimately received about $52 million of the initial $85 million payout from the fund.  His firm has since received $8 million more, and is waiting on Judge Brody to approve more than $4 million on top of that, for a total of nearly $65 million.

Meanwhile, Locks Law has received less than $5 million in common benefit fees thus far, despite representing more than 1,000 players in the litigation compared to Seeger’s 20-or-so clients, a common point of contention raised by many other lawyers involved in the case.  Locks Law says Seeger seized on an interview Gene Locks gave to Bloomberg Businessweek for a 2013 article that “infuriated the NFL” as a reason to justify the low lodestar multiple given to Locks Law, but in its brief the firm said that explanation was “not credible.”

Lance Lubel of Lubel Voyles claims he was cut out of the CBF fees entirely because he objected to the settlement, something he's done frequently, even though his earlier complaints about the deal’s language led to significant safeguards being put in place to protect retired players.  Lubel echoed many of Locks Laws’ concerns with Seeger’s role in the CBF distribution, but went one step further by also challenging a 5% holdback that’s currently applied to each successful monetary award and a 22% fee cap Judge Brody imposed on attorneys representing retired players.

The 5% holdback is being set aside, and Judge Brody has said she’ll rule at a later date on whether or not to tap those funds to continue paying CBF fees for the implementation of the 65-year-long program, money that would presumably only be available to Seeger after Judge Brody axed the other class counsel firms in May.  Lubel said the $112.5 million should be enough money to compensate the lead firms over the entire course of the settlement’s lifespan.

As to the 22% cap on attorney fees, which works out to 17% after the holdback is applied, Lubel said Judge Brody “has, in the spirit of helping class members, gutted their chances of qualifying for an award through the claims process.”  That’s because many retired players require expensive medical tests before they can qualify for an award, and the price of those exams can easily reach $10,000 or more.  For various reasons, a player’s attorney is often the only party willing and able to front those funds, Lubel said.  But artificially capping their fees at a relatively low 17% rate makes them less willing to spend that money to get the ball rolling on a client’s claim, he continued.

The case is In re: National Football Players' Concussion Injury Litigation, case number 18-2012, in the U.S. Court of Appeals for the Third Circuit.

Feds Fight ‘Bad Faith” Fee Award to Supreme Court

June 17, 2019

A recent Law 360 story by Suzanne Monyak, “Feds Fight ‘Bad Faith’ Fee Award in High Court No-Fly Suit,” reports that a Stanford-educated Malaysian woman who was mistakenly placed on the no-fly list does not deserve to recoup her full legal expenses from challenging that placement, the federal government told the U.S. Supreme Court, disputing the Ninth Circuit's finding that government attorneys had acted in "bad faith" during the lengthy litigation.

The full Ninth Circuit overstepped when it paved the way for Rahinah Ibrahim's attorney fee award to be bumped up from less than $500,000 to as much as $3.9 million, the U.S. Department of Justice said in its high court petition.  That higher fee award was based on the appeals court's finding that the federal government had acted in "bad faith" over the course of the decade-long litigation, reversing decisions from both the appellate panel and the lower court.  "As a unanimous panel of the court of appeals held, the district court's finding of no bad faith, as well as the underlying findings that support it, were correct or, at a minimum, not clearly erroneous," the petition says.  "The en banc court went out of its way, and out of its proper role, to rule otherwise."

Ibrahim sued the U.S. Department of Homeland Security and other government agencies after she, then a Ph.D. student at Stanford University on an F-1 student visa, was detained in 2005 at the San Francisco International Airport while en route to Malaysia because her name popped up on a no-fly list.  At the time, she was recovering from a hysterectomy and was in a wheelchair.  Although she was eventually released and able to leave the country, the government later revoked her student visa, and she has not been allowed to return to the U.S. because of her inclusion on several other terrorist watch lists.

After nearly a decade of litigation, Ibrahim prevailed during the first no-fly list bench trial of its kind, according to the majority opinion.  However, despite winning her case and commending the attorneys who worked on it, U.S. District Judge William Alsup only awarded her $419,987 in fees and $34,768 in expenses, which was a fraction of the $3.92 million in attorneys' fees and costs her firm McManis Faulkner had requested, finding that Ibrahim didn't win on all of her claims.

A three-judge Ninth Circuit panel upheld the district court's decision in August 2016, and she asked the full court for a rehearing, arguing that the government had used aggressive and secretive litigation tactics — including the use of 26 attorneys who spent thousands more hours on the case than McManis Faulkner's.

The majority of judges on the full court agreed.  In that January decision, the Ninth Circuit concluded that Ibrahim was entitled to full attorney fees under the Equal Access to Justice Act, a law that caps attorney's fees at $125 per hour unless the losing side acted in "bad faith."  Throwing out the district court's lower fee award, the full court ripped the federal government for engaging in years of "scorched earth litigation" despite knowing "all along" that the Muslim woman's inclusion on the Transportation Security Administration's no-fly list was a mistake.

The Ninth Circuit also faulted Judge Alsup's "piecemeal approach" to calculating fees based on the government's individual arguments instead of evaluating the government's conduct as a whole, and instructed the lower court to recalculate the fee in light of the new bad faith finding.  In the petition, the DOJ urged the justices to take up the case, stressing that the en banc court's ruling, if left standing, threatens to "undermine the government's efforts to fairly but vigorously litigate to protect the public interest in the future" and "unfairly impugns the integrity of the career government attorneys faithfully carrying out their duty to defend the government's policies and protect its sensitive information."

Article: Fee Award Highlights Patent Litigation in Claims Court

April 15, 2019

A recent Law 360 article by Matthew Rizzolo and Steve Meil of Ropes & Gray LLP, “Fee Award Highlights Patent Litigation in Claims Court,” reports on patent attorney fee awards in the U.S. Court of Federal Claims.  This article was posted with permission.  This article was originally published in Law 360.  The article reads:

Subject to certain exceptions, patent litigation in the United States typically adheres to the “American rule”: Each party pays its own attorney fees, win or lose.  But many may not be aware that assertions of patent infringement against the United States government itself are not governed by this same rule, making it easier for some successful plaintiffs to recover attorney fees at the conclusion of litigation.

A recent ruling from the U.S. Court of Federal Claims awarding a plaintiff more than $4 million in attorney fees explains the different standard in detail, and may lead to increased interest in bringing patent claims against the government.

Section 1498 Actions and Attorney Fees

Under 28 U.S.C. § 1498, the Court of Federal Claims has exclusive jurisdiction over patent infringement suits brought against the federal government.  Because “infringement” by the government is generally treated as a Fifth Amendment taking of a license to use a patented invention, plaintiffs in such suits cannot receive injunctive relief, but are limited only to “reasonable and entire compensation” for the use or manufacture of the patented invention by or for the government.

Originally, the statute did not clarify whether “reasonable and entire compensation” included costs and attorney fees; the Court of Federal Claims has also found that Section 1498 claims are not directly analogous to other takings claims.  It therefore determined that the Equal Access to Justice Act (the statute that typically provides for attorney fee awards in claims against the government) did not apply to Section 1498 claims, leaving patent owners with no avenue to obtain attorney fees even in the most egregious Section 1498 cases.

Recognizing this disparity between the taking of real property and intellectual property, in 1996 Congress amended Section 1498(a) to expressly provide awards of “reasonable costs, including reasonable fees for expert witnesses and attorneys.”  The sponsors of the amendment noted that without the ability to recover fees, small businesses in particular may be unable to afford the expense of defending patents against government expropriation.

Accordingly, Congress limited the awards to certain types of plaintiffs: independent inventors, nonprofit organizations, and small businesses with less than 500 employees.  Congress further limited the awards to exclude cases where “the position of the United States was substantially justified” (mirroring the language of the Equal Access to Justice Act), or where “special circumstances make an award unjust.”

The ability to recover attorney fees as a “default” stands in sharp contrast to typical patent infringement suits, where plaintiffs — even small businesses or nonprofits — recover fees only “in exceptional cases.”   As Congress observed, however, suits against the government “authorize the government to take a license in any patent,” making such suits more analogous to takings of real property than to private infringement suits.

The Fee Award in Hitkansut v. United States

Yet in the near quarter-century since Section 1498 was amended, the Court of Federal Claims has handed down only three decisions on awards of attorney fees.  The previous cases, decided well over a decade ago, both resulted in the Court of Federal Claims denying fees.  But on March 15, 2019, the court for the first time awarded a successful plaintiff attorney fees under Section 1498.

In Hitkansut LLC et al. v. United States, the court had previously found that the government used Hitkansut’s patented invention, and awarded $200,000 in compensatory damages.  While Hitkansut had sought nearly $6 million in compensatory damages, the court found that much of these requested damages were not appropriate under the law.  The court’s prior infringement and damages findings were affirmed on appeal, and Hitkansut subsequently sought to recover its attorney fees and litigation expenses: $4.51 million.  In a thorough and detailed opinion, the court granted Hitkansut the vast majority of its fee request.

The court first addressed the fact that Hitkansut had engaged in a contingency fee arrangement with its attorneys.  The government argued that this meant that Hitkansut had not “actually incurred” any fees, disqualifying it from any award.  But the court observed that the fee arrangement was irrelevant, noting that “[a]ccepting the government’s argument would ... dissuade litigation by the very class of people the fee-shifting provision of 28 U.S.C. § 1498(a) exists to help.”  Because “[t]he patent owners most likely to use contingent arrangements are those ... specifically identified by the statute,” the court found that the fact of a contingent arrangement should not impact an award of costs.

The court then considered whether the government’s position in the suit was “substantially justified.”  Adopting the standard from the Equal Access to Justice Act, the court explained that a position is “substantially justified” when it is “justified to a degree that could satisfy a reasonable person, which is no different from the ‘reasonable basis both in law and fact’ formulation.”  In the court’s view, an award depends on whether the government can demonstrate that the positions it took “were such that a reasonable person could conclude that its position was supportable,” taking into account both pre- and post-litigation conduct.

Applying this standard, the court found that the government’s positions on both non-infringement and invalidity lacked substantial justification.  Regarding potential infringement, the court observed that the government had (1) altered its research activity in line with disclosures Hitkansut had made to the government under a confidentiality agreement; (2) represented the opposite of claims their employees had made in invention disclosures and in depositions; and (3) advanced arguments inconsistent with the court’s claim construction.

As for validity, the court found the government’s arguments to be “unsupported by the facts”: the government failed to demonstrate either part of the Alice test, and its own witnesses’ testimony undermined its obviousness and enablement arguments.  Finally, the court found that the government’s success in arguing matters secondary to the “primary issue” of infringement did not alter whether its overall position was supportable.  It concluded that, “the government’s position may not be substantially justified even though it may have taken certain reasonable stances during the dispute.”

Having decided that fees should be awarded, the court then turned to what constitutes “reasonable” fees under Section 1498(a).  The court first denied the portion of fees expended in pursuing other similar suits as “not reasonably related” to the case, and reduced fees where they exceeded prevailing local rates.  The court then considered whether to increase or decrease the total fee, where “the most critical factor is the degree of success obtained.”

The government argued that (1) because damages were reduced to 5% of those sought, fees should be reduced proportionately; and (2) the requested fees should be capped at the amount of damages.  But the court rejected both of these arguments, finding the reduction in damages was unrelated to the primary issue of infringement, and that the remaining award — even where Hitkansut proved infringement of only some of the claims — indicated a sufficient degree of success.

Notably, the court found that the purpose of the fee-shifting portion of the statute is “to accommodate suits where the cost to bring the suit could not be recovered from the damages awarded.”  As a result, there was no reason that fees could not greatly exceed actual damages — even where, as here, the fees exceeded compensatory damages by a factor of 20.

Possible Implications

While the court’s decision in Hitkansut is likely to be appealed, it may lead to increased consideration from patent owners in bringing Section 1498 patent actions against the government (currently, only a handful of such suits are filed each year).  A common refrain among patent owners in recent years has been that it is too expensive to enforce patents.  Indeed, the high cost of litigation leads many patentees, especially those with a relative lack of resources, to outsource enforcement to patent assertion entities, or rely on contingency arrangements and/or litigation funders to assist with litigation.

For those patent owners who believe that their patents may be used by the U.S. government and/or government contractors, the court may be an avenue to seek compensation for infringement, with the knowledge that they may have a substantial chance at recovering their attorney fees and other expenses — in sharp contrast to suits against private entities.

Additionally, the prospect of a substantial fee award may lead to the government entering into settlements in these cases at higher levels than it may have previously.  And the increased attention for Section 1498 actions may come from more than just independent inventors or nonprofit organizations — given that many nonpracticing entities, even publicly traded ones, likely fall below the 500-employee threshold, they may also increase their activity at the Court of Federal Claims.

Finally, the Hitkansut court’s decision to award fees in the face of the plaintiff’s contingency arrangement may also attract firms who work on alternative fee and contingency arrangements, as well as litigation funding entities, to explore becoming involved in Section 1498(a) actions.

Matthew J. Rizzolo is a partner and Steve Meil is an associate at Ropes & Gray LLP.  For the full text of this article, including footnotes, visit https://www.law360.com/articles/1149324/fee-award-highlights-patent-litigation-in-claims-court.

$20M in Fees to Class Counsel in Madoff Ponzi Suit

March 15, 2019

A recent Law 360 story by Rick Archer, “Lead Class Attys in Madoff Ponzi Suit Awarded $20M,” reports that a New York federal judge awarded nearly $20 million in fees to the counsel for a class that received a $1 billion settlement for money lost through Bernard Madoff's Ponzi scheme, saying objectors to the award were rehashing rejected arguments.  Saying the objectors' claims that class counsel is being compensated for work unconnected to the case "go well beyond the mandate" set forth in a 2017 Second Circuit ruling on the fee award, U.S. District Judge Colleen McMahon accepted a magistrate judge's findings and approved the new attorneys fee award on the Tremont Fund settlement.

Tremont, part of Massachusetts Mutual Life Insurance Co., was the second-largest Madoff feeder fund.  The $1 billion settlement reached in 2011 stemmed from allegations by trustee Irving Picard that the company continued to pour money into Bernard L. Madoff Investment Securities LLC despite obvious red flags.  In August 2105, U.S. District Judge Thomas Griesa issued an oral order approving a complex plan of allocation to the plaintiffs that included a 3 percent fee award for the plaintiffs' counsel, capped at 2.5 times the lodestar.  Based on the size of the settlement fund at the time, the award would have been $18.7 million and capped at about $40 million.

Several Tremont investors objected to the plan and the fee request, in particular, on the grounds that there was little risk involved in reaching the settlement and because class counsel had already received substantial fees from a previous settlement in the litigation.  Judge Griesa rejected those objections, and in June 2017, the Second Circuit upheld his ruling on the settlement distribution but remanded the fee award, saying the lodestar multiplier was not justified by the "limited risk" plaintiffs' counsel had run.

After Judge Griesa's death in December 2017, the case was remanded to Judge McMahon, who asked U.S. Magistrate Judge Gabriel Gorenstein to issue a report.  Judge Gorenstein's report was issued in February, saying that while plaintiffs' counsel was now requesting a lodestar of 1.67, which would produce a $33.2 million fee cap, he had found that the risk factors did not justify any modifier and set the cap at approximately $19.9 million.

A group of Tremont investors filed a new objection to the fees, arguing new evidence provided last year showed that 75 percent of the fees Judge Griesa used to calculate the lodestar were for work unconnected with the fund distribution, but class counsel argued that the Second Circuit had rejected those claims and had remanded solely to recalculate the lodestar multiplier cap.  In her ruling, Judge McMahon said the only reason the case had been remanded was to revise the lodestar cap down.  "In his excellent report, Judge Gorenstein anticipated and answered every objection raised by the Tremont Fund objectors. I find no flaw in his reasoning," she said.

The case is In re: Tremont Securities Law litigation, case number 1:08-cv-11117, in the U.S. District Court for the Southern District of New York.