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Category: Fee Cap / Fee Limits

Federal Circuit Backs Cap on Attorney Fees in IDEA Cases

August 11, 2020

A recent Law 360 story by Andrew Karpan, “DC Circ. Backs Atty Fee Cap in Civil Rights Row” reports that the D.C. Circuit rejected the efforts of attorneys representing hundreds of parents in a civil rights case to collect over $5 million in fees from Washington, D.C., and ruled that a congressional cap that strictly limited the amount they could collect in those cases was perfectly valid.

The opinion, authored by U.S. Circuit Judge Gregory Katsas, found that an appropriations rider Congress passed in 2009 did not violate the Takings Clause of the Fifth Amendment nor was it an illegal intervention into the court's power to award fees.  The rider expressly forbade Washington from paying more than $4,000 in attorney fees in any single civil rights case filed under the Individuals with Disabilities Education Act, which mandates special education services for kids.

Crucially, Judge Katsas wrote, Congress started limiting the city's ability to pay out legal fees in IDEA cases in 1999, which was before the parents in these cases filed suit.  "The fee cap does not interfere with any reasonable expectations, for each of the awards at issue was entered at a time when Congress had already limited the District's ability to pay IDEA fee awards," the judge said.  The ruling covered eleven separate IDEA cases, all of which preceded 2009 and all of which successfully alleged that Washington didn't provide a special needs education to students who qualified for one.

Back in 2015, a magistrate judge calculated the city's tab in those cases at about $3.7 million, along with another $1.3 million in interest, according to Tuesday's ruling.  Two years later, a D.C. federal judge used the cap to trim the fee award to $220,000 but left the interest, which had notched up to $1.4 million by then.  Both the parents and the city challenged that ruling.

Congress, which provides funding to public schools in Washington through the District of Columbia Appropriations Act, had every reason to be concerned about using that budget to pay lawyers in IDEA cases, Judge Katsas observed.

The city's "long struggle" to comply with IDEA was costing it $10 million a year by the time Congress began limiting how much of that funding could be spent on fee payments in those cases, the ruling noted.  An appropriations rider passed in 2009 had instituted the permanent $4,000 cap on the awards.

The parents argued, in part, that the rider violated their rights to fees that a court had awarded them but the panel said shaving a fee award isn't "a per se taking."  Deciding to trim an award that had already been issued didn't misappropriate the powers of Congress either, the panel added.  Lawyers for the parents should also have known they wouldn't be able to collect more than $4,000 a case because the initial rider dated to 1999, Judge Katsas added.

But in addition to ruling that the cap was perfectly legal, the D.C. Circuit also scratched the $1.4 million in interest the parents had won.  "This principle is as old as the Republic," Judge Katsas mused on this point, citing a ruling the Supreme Court made in 1789, in Hoare v. Allen, and in which the court similarly scratched the interest on debts owed to a British creditor during the Revolutionary War, as the Constitutional Congress had expressly banned paying debts to British subjects.

Similarly, Judge Katsas wrote, Congress had banned Washington from paying lawyers in IDEA cases fees above a certain amount: interest couldn't be collected on fees above that amount either.  The panel sent the award back to a lower court to recalculate using the capped award instead.  The D.C. Circuit ruled on an IDEA fee bid in a different case just last year, when a panel initially rejected a nearly $7 million fee award in a class action suit leveled under that law, ruling in that case that a lower court had used an invalid matrix for calculating fees.

Second Circuit Affirms $20M Fee Award for Madoff Investor Class Counsel

July 7, 2020

A recent Law 360 story by Dean Seal, “2nd Circ. Oks $20M Award For Madoff Investor Class Attys” reports that the Second Circuit rejected the last objection to a nearly $20 million fee award for counsel of an investor class that received a $1 billion settlement for money lost through Bernard Madoff's Ponzi scheme.  The appellate panel said aspects of the objection, which contended that class counsel was being compensated for work unconnected to the case, were "plainly untrue" and went beyond the scope of what the Second Circuit had mandated when it sent the award back to a New York federal judge in 2017 for revision of the award's lodestar multiplier.

"There is also no cogent reason for this court to revisit our earlier order affirming all but the lodestar multiplier cap in the 2015 attorneys' fee award," the appellate judges said.  The order affirmed the $19.9 million award for Entwistle & Cappucci LLP, Hagens Berman Sobol Shapiro LLP and Bernstein Liebhard LLP, firms that represented investors in the $1 billion deal known as the Tremont Fund settlement.

Tremont Group Holdings Inc., part of Massachusetts Mutual Life Insurance Co., was the second-largest Madoff feeder fund.  The $1 billion settlement Tremont reached with investors 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 2015, U.S. District Judge Thomas Griesa issued an oral order approving a complex plan of allocation to the plaintiffs that included a 3% 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 a different New York federal court, which asked a federal magistrate judge to issue a report.

The report, issued in February 2019, said that while plaintiffs' counsel was now requesting a lodestar of 1.67, which would produce a $33.2 million fee cap, the magistrate judge 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% 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.

U.S. District Judge Colleen McMahon followed the report's recommendation and agreed that the only reason the case had been remanded was to revise the lodestar cap downward.  On appeal, the Second Circuit reached the same conclusion, saying that its 2017 order only took issue with the lower court's "failure to account for the lack of contingency risk involved in the litigation, finding 'no merit in appellants' other arguments.'"  "We did not instruct the district court to determine whether the hours included in lead counsel's lodestar related only to [fund distribution]," the judges said.  "Consequently, doing so would have exceeded the scope of our mandate.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Fox Rothschild LLP
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Law Firms Win Suit Over Pelvic Mesh Attorney Fees

March 27, 2020

A recent Law 360 story by Bill Wichert, “NJ, Texas Law Firms Beat Suit Over Pelvic Mesh Atty Fees,” reports that a New Jersey federal judge nixed a proposed class action against Potts Law Firm, Nagel Rice LLP and other firms over allegedly excessive attorney fees in pelvic mesh litigation against Johnson & Johnson and its Ethicon unit, saying Texas law governed the claims and permitted the fees.  U.S. District Judge Madeline Cox Arleo granted the firms' motions to dismiss an amended suit from plaintiffs Debbie Gore and Doris Lance-Smith over claims their retainer agreements ran afoul of a New Jersey rule capping contingent fees, noting that the fees were paid as part of settlement awards approved by a special master and a state judge in the Lone Star State.

The Garden State rule "does not apply and the fees awarded to defendants were entirely consistent with Texas law," Judge Arleo said in her written opinion.  The fee arrangements allowed the women's lawyers to receive 40% of their settlements, but Texas law has no particular cap on contingent fees, the judge said.  Under the New Jersey rule, an attorney can collect a fee of 33.33% of the first $750,000 recovered and then smaller percentages for subsequent amounts, and those fees must be based on the "net sum recovered" after deducting expenses.

Gore and Lance-Smith cited no authority for extending that rule "to litigation settled in a foreign court by out-of-state lawyers representing out-of-state plaintiffs who sustained injuries outside of New Jersey," according to the judge's opinion.  Nagel Rice, which is based in New Jersey, did not receive any of the fees in question, but Potts and other Texas firms did, the opinion said.

Gore, a Texas resident, and Lance-Smith, an Alabama resident, both retained Texas firms to pursue claims they suffered injuries from allegedly defective pelvic mesh products, the opinion said.  Lance-Smith retained Potts in June 2012 to litigate such claims, the opinion said.  The following May, Gore retained a firm then known as Steelman & McAdams PC and partner Annie McAdams to pursue similar claims, the opinion said.

About two months later, Gore agreed to McAdams working and splitting attorney fees with a firm then known as Bailey Perrin Bailey LLP, the opinion said.  In July 2014, Gore and Lance-Smith each filed a master short-form complaint in New Jersey state court "as part of the New Jersey iteration of the mesh litigation," the opinion said.  Nagel Rice and firm partner Andrew L. O'Connor were listed as the women's attorneys, with Potts and firm partner Derek Potts listed as co-counsel, the opinion said.

Those complaints represent the only connection in the current matter to New Jersey, but beyond them being filed, state dockets indicate that "no litigation activities occurred" and that those matters are now closed, Judge Arleo noted.  The settlements and fee awards at issue stem from a master settlement agreement reached in August 2016 between Potts Law Firm, among other firms, and J&J and Ethicon, the judge said.  That deal was administered through a Texas state court case, the judge said.  Judge Arleo pointed to that Texas link in finding that that state's law governed the proposed class action.

The judge noted that "the complex settlement process, which plaintiffs consented to after ample opportunity for objection, was reached by negotiations between Ethicon and Texas law firms and was administered by the Texas state court and a Texas special master."

"Indeed, no New Jersey law firms or lawyers were even listed as receiving contingency-based attorneys' fees as part of plaintiffs' settlements," the judge said.  "As such, the state with the most-significant relationship to the substantive claims at issue is Texas."

Adam M. Slater of Mazie Slater Katz & Freeman LLC, representing Gore and Lance-Smith, on Wednesday said they would appeal the judge's decision.  "When a case is filed in New Jersey, the New Jersey Court Rules apply, including the contingency fee rule.  According to this decision, the New Jersey contingency fee rule can be easily side stepped, allowing personal injury plaintiffs to be charged 40% contingency fees, in an MDL or any other New Jersey case," Slater told Law360.

Second Circuit: No Attorney Fee Caps in FLSA Settlements

February 4, 2020

A recent Law 360 story by Braden Campbell, “2nd Circ. Says There’s No Attorney Fee Can in FLSA Deals,” reports that district courts should not limit plaintiffs’ attorney fees to a third of the settlement amount in Fair Labor Standards Act cases, the Second Circuit said, reversing a Manhattan judge’s decision to give a tour group chaperone a bigger cut of the $25,000 settlement in his overtime suit.

Second Circuit courts “routinely apply” the one-third benchmark when evaluating whether such settlements are fair, as courts must do for deals resolving FLSA cases, a three-judge panel said.  But the use of a 33% cap hurts low-wage workers — like SD Protection Inc. chaperone Michael Fisher — whom Congress passed the FLSA to help, the panel said.

“By implementing a percentage cap on attorneys’ fees in FLSA actions, district courts impede Congress’s goals by discouraging plaintiffsʹ attorneys from taking on 'run of the mill' FLSA cases where the potential damages are low and the risk of protracted litigation high,” the panel said.

The panel likewise admonished the trial court for revising the settlement to give Fisher a larger share of the award, saying judges exceed their authority when they rewrite settlements. Instead, courts should reject unfair settlements and give the parties a do-over, the panel said.  The decision vacates a Southern District of New York order ending Fisher’s unpaid overtime suit against SD Protection.  Fisher, who was paid $10 an hour to supervise student tour groups, alleges he worked several hours of overtime at his regular wage each week for the 26 weeks he worked for SD Protection.

The parties agreed to a settlement worth $25,000, with $2,000 going to Fisher and the rest going to his counsel with Lee Litigation Group.  But U.S. District Judge Richard Berman said that split was unfair, boosting Fisher’s payout to about $15,000 and dropping his attorney’s share accordingly in an order approving the deal.  Lee Litigation appealed.

While workers bringing claims for violations of other federal employment laws can settle them privately, a judge or the U.S. Department of Labor must deem FLSA settlements fair before they take effect.  Courts in the Second Circuit analyze fairness by looking at several factors, including whether the amount of fees and costs paid to the plaintiff’s attorney are “reasonable.”  The panel noted that courts often use a “proportionality limit” that deems payouts that top 33% of the settlement fund to be unfair.  But “neither the text nor the purpose of the FLSA” supports that limit, the panel said.

The law itself only requires that deals be “reasonable,” the panel said, while a 33% benchmark is “inconsistent with the remedial goals of the FLSA.”  Because FLSA plaintiffs generally earn modest wages to begin with, a hard fee cap would leave “employees like Fisher … with little legal recourse,” the court reasoned.  “No rational attorney would take on these cases unless she were doing so essentially pro bono,” the panel said.