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Category: Fee Clause

Court Remands Fee Award, Tackles Jury Waiver Language

February 8, 2017

A recent New Jersey Law Journal story by David Gialanella, “Court Remands $2M Fee Award, Tackles Jury Waiver Language,” reports that in a decision that sheds some light on the specificity of language required for waivers contained in employment contracts, a New Jersey appeals court has reversed an award of $2.06 million in attorney fees to Heartland Payment Systems Inc., though it appears the company will recover fees in some form.

The court remanded the case, holding that a claim lodged under the state Conscientious Employee Protection Act (CEPA) was not covered by a contract provision that waived the right to jury trial for disputes arising from "'this agreement.'"  That language, as well as the absence of language specifically referring to claims based in the statute, limited the provision's effect, the court ruled.  The panel also noted the high threshold for fee awards to employers under the CEPA.

"It was error for the trial judge to conclude the threshold was met based upon her finding that [the plaintiff] 'failed to set forth a viable claim against the defendant pursuant to CEPA,'" Appellate Division Judge Marianne Espinosa wrote in the Feb. 6 published opinion.

"There is a broad spectrum in the quality of proofs that fall between a claim that is not 'viable' and one that is 'without basis in law or in fact," she added.  The court directed the judge on remand, based on a fee-shifting provision in the employment contract, to apportion fees to the CEPA and contract claims.

The plaintiff, Greg Noren, was employed by Princeton-based Heartland Payment Systems from April 1998 to June 2005 as a "relationship manager," a role in which he sold payment processing services.  The contract he signed provided that he and Heartland both "'irrevocably waive any right to trial by jury in any suit, action or proceeding under, in connection with or to enforce this agreement,'" according to the decision.  Another contract provision awarded fees and costs "'[i]n any suit, action or proceeding arising out of or related to this agreement,'" according to the decision.

Noren was terminated in 2005.  His suit was eventually whittled down to the two claims, breach of contract and the CEPA violation.  His jury trial demand was denied based on the waiver provision and, after 22 days of bench trial, Bergen County Superior Court Judge Susan Steele dismissed both claims.  She awarded Heartland $2.06 million in fees and costs for the defense of both claims, finding them so intertwined that the fees could not be apportioned, the decision stated.

In his appeal, Noren did not dispute the jury waiver's applicability to the contract claim, or the notion that fees may be awarded based on Heartland's success in defeating that claim.  But he did dispute the waiver's applicability to the CEPA claim, and the corresponding fee award based on the statute.

Espinosa, joined by Appellate Division Judges Clarkson Fisher Jr. and Garry Rothstadt, held the waiver inapplicable to the CEPA claim, and remanded the case for a jury trial on that claim.

The waiver, "by using 'this agreement' as the defining threshold for all suits, actions and proceedings, ... limits the category of disputes for which a jury trial is waived," Espinosa said, relying in part on the state Supreme Court's 2001 decision in Garfinkel v. Morristown Obstetrics & Gynecology Associates, which held that such provisions should specify that statutory claims, in addition to contract-based ones, are waived.

The fee award was vacated because, the court said, Steele wrongly found that CEPA's fee-shifting provision had been triggered.  "To lack any basis in law or in fact, there must be either no legal authority to support the claim or the absence of a factual basis for the claim," Espinosa said, noting that the CEPA claim's survival of summary judgment indicated that it was not without basis.

The court said it must be determined on remand what proportion of the fees are attributable to defense of the contract claim, which are awardable based on the employment contract's fee-shifting provision.

How to Get Reciprocal Contractual Attorney Fees in California

February 6, 2017

A recent CEBblog article, “How to Get Reciprocal Contractual Attorney Fees,” by Julie Brook, reports on reciprocal attorney fee shifting provisions under California’s § 1717.

This material is reproduced from the CEBblog™, How to Get Reciprocal Cotractual Attorney Fees (https://blog.ceb.com/2017/02/06/how-to-get-reciprocal-contractual-attorney-fees/) copyright 2017 by the Regents of the University of California.  Reproduced with permission of the Continuing Education of the Bar - California.  (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our Web site CEB.com).

This article was posted with permission.  The article reads:

It’s like magic: California’s CC §1717 transforms a unilateral attorney fee provision in a contract into a reciprocal one!  When the contract provides for attorney fees to either a particular party or the prevailing party, the prevailing party “on the contract” is entitled to recover reasonable attorney fees regardless of whether that party was the party specified in the contract.  But taking advantage of this statute depends on meeting the following five requirements.

  1. There must be an attorney fees provision.  Section §1717 can convert a one-way attorney fee clause into a mutual and reciprocal clause, but it can’t create an attorney fee provision out of thin air.  The contract at issue must include at attorney fee provision for the statute to have any effect.
  2. Only the prevailing party gets fees.  A party’s right of recovery depends on whether that party is determined by the court to be the prevailing party.  There’s no prize just for participating.
  3. The action must be “on the contract.”  When it comes to CC §1717, courts have construed “on a contract” broadly to apply to any action that involves a contract.  But it doesn’t apply to tort claims such as fraud if the lawsuit doesn’t also seek to enforce or avoid enforcement of the contract.  And it also doesn’t apply to promissory estoppel claims, because they’re based on equitable principles.
  4. The fees recovered must be “reasonable.”  One of the purposes of CC §1717(a) is to assure uniform treatment of attorney fee recoveries in actions on contracts with attorney fee clauses and to eliminate disparities based on whether the recovery was authorized by contract or by statute.  PLCM Group, Inc. v Drexler (2000) 22 C4th 1084.  So §1717(a) limits the amount of fees recoverable to “reasonable” fees as “fixed by the court,” even if the contract clause doesn’t limit recovery to reasonable levels.
  5. Attorney fee clause applies to the whole contract.  If a contract has an attorney fee clause, that provision will be construed to apply to the entire contract unless each party was represented by counsel in the negotiation and execution of the contract and the fact of that representation is specified in the contract. CC §1717(a).

For more on recovery of attorney fees by contract, check out CEB’s California Law of Contracts, chap 9.  And when deciding whether to include an attorney fee provision in a contract, turn to CEB’s Drafting Business Contracts: Principles, Techniques and Forms §§15.18-15.20.

Other CEBblog™ posts you may find useful:

CEB is a self-supporting program of the University of California that is cosponsored by the State Bar of California.  CEB is the go-to source for lawyers on information about the law, and the practice of law, in California.  For more on CEB, visit https://blog.ceb.com/

Jenner Wins in $4.4M Contingency Fee Dispute

January 23, 2017

A recent Texas Lawyer story, “Texas Supreme Court Stands Aside in Prickly Fight Over Contingency Fees,” by Scott Graham reports that the Texas Supreme Court has turned down serial patent plaintiff Terry Fokas' bid to avoid paying a $4.4 million fee award to Jenner & Block on a patent infringement case that the firm dropped after losing on summary judgment.

Fokas and Jenner have been in a knock-down, drag-out fight that raises intriguing issues about contingency fees, lawyer withdrawals and an arbitrator's power to hash them all out.  So far Jenner & Block has won at every step, with the Texas courts deferring to an arbitrator's award of fees.

"I can't even get a court to look at this and that's the most frustrating part," said Fokas, a former Big Law attorney who now runs patent licensing company Parallel Networks LLC, in an interview last month.  Fokas says he can't understand how a firm that agreed to work on a contingency basis can be awarded anything after pulling out of the case midstream.  Parallel Networks had to hire new counsel to get summary judgment reversed on appeal, ultimately leading to a $16.5 million settlement with Oracle Corp.

Jenner then told Fokas the firm was entitled to fees because their contract allowed it to terminate the contingency agreement and get paid hourly rates if it was no longer in the firm's "economic interest to continue the representation."  Jenner declined to comment through a spokeswoman, but says in court papers that it invested 24,000 hours in the Oracle litigation, laying the groundwork for the successful outcome.

Jenner also argued that it had good cause to withdraw because Fokas was habitually late reimbursing litigation expenses.  JAMS arbitrator Jerry Grissom agreed on that point following a nine-day hearing, and pointed to a clause in the fee agreement that called for Jenner to receive "an appropriate and fair portion" of any recovery if the fee agreement were breached.

Fokas says the fee agreement is unconscionable and incentivizes law firms to abandon clients when the outlook for a contingency fee turns sketchy.  But the Texas courts have declined to intervene, citing U.S. Supreme Court decisions that limit the grounds for overturning arbitration awards.  The Texas Supreme Court denied review Jan. 20, handing another win to Jenner and its counsel at Haynes and Boone and Koning Rubarts.

Fokas has already hired appellate specialist Daniel Geyser of Stris & Maher to start making his case for certiorari to the U.S. Supreme Court.  Geyser said Jan. 20 that courts must have some power to review attorney fee awards.  Otherwise, "you're left with a void over legal conduct that violates fundamental Texas law regulating the legal profession."

'Treated Like a Bank'

Parallel Networks was founded in the mid-2000s to monetize patents developed by an e-commerce company called epicRealm Inc. that went bankrupt during the dot.com bust.  Parallel has filed waves of patent infringement suits in Texas federal courts, targeting more than 180 defendants including Netflix Inc., eHarmony.com Inc. and Herbalife International of America, according to research by RPX Corp.

Fokas is a former corporate lawyer at Brobeck, Phleger & Harrison and Milbank, Tweed, Hadley & McCloy who runs Parallel's operations from Dallas.  Initially he used Locke Liddell and Baker Botts for the suits.  Some of the technology at issue originated with Oracle, so Oracle sued Parallel for a declaratory judgment of noninfringement and invalidity in Delaware.  A marketing company called QuinStreet filed a similar DJ action.  Fokas tapped Jenner & Block for those two cases.  Jenner signed essentially the same contingency fee contract that Fokas had already negotiated with Baker Botts, according to arbitrator Grissom's opinion.

The Oracle case consumed a lot of Jenner resources—millions of pages of discovery, numerous depositions, claim construction briefs, summary judgment motions and Daubert challenges.  Along the way, Parallel sometimes went several months without paying invoices for expenses, with the bill running as high as $550,000. Jenner felt that it was "essentially being treated like a bank who was making non-interest bearing loans to its client," according to Grissom's opinion.

Then in December 2008, U.S. District Judge Sue Robinson of the District of Delaware dealt Parallel a body blow by granting Oracle summary judgment of noninfringement.  Some Jenner lawyers wanted to push ahead—partner Paul Margolis wrote in an email to firm managers that "the appellate group feel[s] strongly about the merits of our appeals."  Firm management was concerned about the business implications.  "Our contingent fee agreement allows us to terminate the engagement for any reason on 30 days notice, so long as that is consistent with our ethical obligations," partner Terri Mascherin, then of Jenner's management committee, emailed other managers.  "In the event we terminate and the client ultimately succeeds in recovering money in a judgment or settlement of its claims, we remain entitled to be compensated at a minimum for our fees incurred, based upon our regular hourly rates."

At the same time, the litigation was getting even more expensive.  Microsoft Corp. had jumped in to defend QuinStreet with its own lawsuit against Parallel.  That meant "Oracle all over again in terms of the investment that would be required," Mascherin testified at the arbitration hearing.

As 2008 drew to a close, firm partners leaned hard on Fokas to get current on his bills.  With help from settlement proceeds in other litigation, Fokas and Parallel paid all outstanding invoices as of Dec. 24, 2008.  Jenner gave notice of termination nine days later.  "Literally within minutes of the wire hitting their account, there are internal emails talking about dropping the case," Fokas claims.

With help from Baker Botts, Parallel turned the Oracle case around.  The U.S. Court of Appeals for the Federal Circuit threw out Robinson's summary judgment order in 2010.  Two Jenner lawyers who had left to start their own firm, George Bosy and David Bennett, prepared the case for trial. Bennett acknowledged at the arbitration hearing that they made "significant use" of Jenner's previous work on the case.  Oracle settled three days before trial.

Epic Fee Fight

At first Jenner demanded that Fokas pay $10 million, saying it was entitled to its hourly fees.  As arbitration approached the firm backed off that position, seeking $3 million under the fee agreement's "appropriate and fair" provision.  The arbitration hearing spanned nine days and 2,400 pages of transcript.

Grissom found in a 51-page opinion that Fokas and Parallel Networks had breached the fee agreement by being chronically late paying expenses.  "Jenner had good reason to be concerned whether it wanted to continue with a client who had shown a consistent pattern of not paying, either because it was not responsible, or did not have resources," Grissom wrote.  Awarding a partial fee avoids "the injustice of Parallel enjoying all the benefits of Jenner's services and the fruits of the settlements, such as those here, without paying any fee whatsoever to Jenner."  Grissom awarded $3 million, plus $1.4 million in Jenner's fees for the arbitration.

Fokas has pleaded with three different Texas courts to throw out the award, arguing that the state's rules of professional conduct forbid law firms from unilaterally converting a contingency contract to some other fee basis.  Jenner argues that as a corporate lawyer who has negotiated numerous contingency contracts, Fokas can hardly say he was tricked by an unconscionable contract.  In fact, Fokas is the party who provided the contract, the firm points out in its court papers.

The Texas Court of Appeals ruled in 2015 that its hands are tied by U.S. Supreme Court case law.  "If we were to overturn the arbitration award as unconscionable and violative of public policy, we would be substituting our judgment merely because we would have reached a different decision," Justice David Bridges of Texas' Fifth District Court of Appeals wrote.  Geyser says the issue isn't that open and shut.  Some courts have ruled that arbitrators "exceed their powers" when their decisions violate public policy, and that's grounds for judicial review under the Federal Arbitration Act, he said.

Discussing the case last month, Fokas sounded ambivalent about a date with the Supreme Court.  A law professor once told him, "You don't ever want to make law.  It's too expensive," he recalled.  "Now I know what he was talking about."  But he's ready to fight and he knows Jenner is too.  "If they had fought as hard in the Oracle case as they had against me, maybe we would have had a different result," he says.

Jenner, meanwhile, is ready for closure.  "It has been more than three years since the arbitrator announced his award," the firm argued to the Texas Supreme Court.  "It is time to conclude this dispute, as the FAA scheme intends."

Omnibus Insureds and Their Entitlement to Attorney Fees Under Florida Law

September 9, 2016

A recent Daily Business Review article, “Omnibus Insureds and Their Entitlement to Attorney Fees Under Florida Law,” by Christina M. Himmel, explores the third-party right to attorney fees under the Florida Insurance Code.  The article reads:

Let's face it, most lawsuits will require both significant time and money.  To that end, at the outset of litigation lawyers often look to the availability of recovering attorney fees from the adverse party.  In the United States under the American rule, litigants must pay their own attorney fees.  However, a party can recover attorney fees from the other side if authorized by contract or statute.

Florida's Insurance Code is one example of a statutory right to attorney fees.  Specifically, the code provides a right to attorney fees for certain classes of individuals, including named insureds and named beneficiaries.  Additionally, a provision in the code allows a third party that qualifies as an omnibus insured to recover attorney fees as the prevailing party in a dispute against an insurer.  Through this provision, a beneficiary that is not explicitly named in an insurance policy but is nonetheless expressly covered by a provision in that policy may be able to recover attorney fees from the insurer.

Pursuant to Section 627.428(1), Florida Statutes, a third party that qualifies as an omnibus insured is entitled to recover reasonable attorney fees from the insurer if he prevails in an action against the insurer.  The language of the section provides a right to reasonable attorney fees to "any named or omnibus insured or the named beneficiary under a policy."  Thus, according to the plain language of the statute, named insureds, omnibus insureds and named beneficiaries are entitled to the benefits of the section.

Prior to 1982, Section 627.428 only allowed "an insured or named beneficiary" to recover attorney fees.  Then in 1982, the Florida Legislature added the phrase omnibus insured to the statute to clarify and adopt a more expansive interpretation of insured that had developed in the lower courts.  However, despite this addition, the Florida Legislature did not define the phrase omnibus insured.

Instead, case law has developed that attempts to define the meaning of this phrase.  For example, the Fourth District Court of Appeal stated in State Farm Fire & Casualty v. Kambara in 1996 that omnibus insured is a phrase that is "frequently used to refer to an individual insured under an omnibus clause of an insurance policy."

The Florida Supreme Court has provided guidance as to the meaning of these various terms, noting in Continental Casuatly v. Ryan in 2008 that a named insured is a person who is "designated as an insured" under the policy, whereas an omnibus insured is a person "covered by a provision in the policy but not specifically named or designated."

Tenant Injury

To illustrate, in Kambara, a tenant suffered injuries in his apartment complex, which was insured by a premises liability policy issued by State Farm.  After State Farm denied the tenant's claim, the tenant sued State Farm for reimbursement of his medical expenses under a provision in the premises liability policy that stated the insurer would pay medical expenses for injury caused by an accident on the premises owned or rented by the insured during the relevant policy period.

The Fourth District Court of Appeal held that the tenant was entitled to attorney fees under Section 627.428 because he qualified as an omnibus insured under the premises liability policy.  The insurer argued that the tenant was merely a third party beneficiary of the policy, was therefore outside the purview of the section and was not entitled to fees.  The Fourth DCA rejected the insurer's argument, noting that the tenant's rights derived directly from the policy making him an omnibus insured.

In juxtaposing the distinction between a third-party beneficiary and an omnibus insured, the Fourth DCA noted that to qualify as an omnibus insured, the individual must derive his rights directly from a clause of the insurance policy without regard to the issue of liability.  A third-party beneficiary, on the other hand, derives his benefits only upon a finding of liability against the insured tortfeasor.

In short, a third party's qualification as an omnibus insured under Section 627.428 depends on whether the third party derives rights directly under a specific clause in the insurance policy.  If so and the claimant prevails against the insurer, the third party is considered an omnibus insured and entitled to recover fees.

Christina M. Himmel is an associate at Kluger, Kaplan, Silverman, Katzen & Levine in Miami.  Her practice focuses on complex commercial disputes in both state and federal court.

NALFA Hosts Successful Program on Attorney Fees & Ethics

September 24, 2015

Today, NALFA hosted its fourth professional development and CLE program on attorney fee and legal billing matters of the year.  The 90-minute program, “Attorney Fees & Ethics: It Pays To Be Reasonable,” featured a panel of nationally prominent experts on legal ethics and professional responsibility including Carole J. Buckner, Principal of Buckner Law Corp. in Irvine CA, Jan L. Jacobowitz, Professor of Law at the University of Miami School of Law in Coral Gables, FL and Ronald C. Minkoff, Shareholder and Director at Frankfurt Kurnit Klein & Selz in New York, NY.

This program was approved for 1.50 legal ethics credit hours in the key states of California, Florida, Illinois and Texas.  Some of the comments from the program include:

“Excellent exchange between the panelists”

“Pleased they covered so much ground on these ethical matters”

“Very informative discussion”

“Excellent practical advice on the rules governing attorney fees”

Bloomberg News Covers NALFA Webinar

August 3, 2015

Bloomberg BNA Class Action Litigation Report reported on the recent NALFA webinar, “Attorney Fees in Class Actions: Fee Calculations, Hot Issues & Trends.”  The Bloomberg...

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Great Reviews for NALFA Webinars

June 3, 2015

NALFA is hosting a series of webinars on attorney fee and legal billing issues throughout 2015.  All our webinars are free for NALFA members and NALFA clients.  So far this year, NALFA has...

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ADR Clauses in Fee Agreements

February 13, 2015

A recent article, “Arbitration Provisions in Fee Agreements,” by Randy Evans and Shari Klevens of McKenna Long in Daily Report write about arbitration provisions in fee agreements. ...

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