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Category: Fee Clause

Federal Circuit Wants Reasons for Mediator’s Fee Denial in EEOC Case

April 1, 2019

A recent Law 360 story by Braden Campbell, “Fed. Circ. Wants Reasons for EEOC Mediator’s Fee Denial,” reports that the Federal Circuit told an arbitrator to reconsider denying fees to a U.S. Equal Employment Opportunity Commission mediator whose firing for a violent outburst the arbitrator reversed, directing him to explain his ultimate decision.  The panel said arbitrator John Dorsey should have explained why he denied mediator David Hamilton's request for fees while granting his request for reinstatement, saying it couldn't do its duty of deciding whether Hamilton abused his discretion with the fee denial because he didn't share his reasoning.

"In some instances, the matter may be so clear that the failure of the adjudicator to provide an explanation for its action will be harmless error, so that this court can enter judgment in accordance with the ruling below despite the absence of an explanation for that ruling," the panel said.  "But this is not such a case."

The EEOC fired Hamilton in 2017 following a mediation in which he "suddenly began to act erratically," hurling racial epithets and "engaging in physical violence" toward the parties in the dispute, according to the ruling.  Hamilton filed a grievance through his union, the American Federation of Government Employees Local 3599, and argued for reinstatement in arbitration.  Dorsey attributed the outburst to a one-time "major physical and/or mental breakdown" and ordered Hamilton be reinstated with back pay.  But Dorsey denied the union's request for arbitration costs and fees without explanation, and, after he reaffirmed his ruling following the EEOC's request for reconsideration, the union appealed to the Federal Circuit.

The panel frames the union as making three arguments on appeal: that Dorsey had to award fees "under the applicable standards," that he deviated from his merits decision by denying fees, and that his failure to explain the denial means it must be reversed.  The panel dispensed with the union's first two arguments briefly, saying the first amounted to a request that it find Dorsey abused his discretion "regardless of any findings," and that arbitrators can consider other factors than those behind their merits ruling in denying fees.  The panel said the third argument "has more force," discussing it in detail.

The panel said appeals ordinarily require that the adjudicator explain their reasoning "even on a matter as to which the adjudicator is given broad deference" because the reviewing body otherwise can't say whether the ruling was well reasoned.  This case illustrates why such reasoning "is typically critical to judicial review," the panel said.

The panel noted the EEOC argued in its bid for reconsideration that Dorsey rightly denied fees for two reasons: awarding fees would have been unjust, and its collective bargaining agreement with Local 3599 holds that parties in arbitration bear "fees and expenses" equally.  The EEOC later backed off the second argument, which omitted that this portion of the CBA spoke to arbitrators' fees only.  But because Dorsey did not explain his reasoning, it's unclear whether that argument factored into his fee decision, the panel said.

"Because the EEOC invited the arbitrator to deny fees on that ground, the agency is not well situated to argue that the arbitrator must have denied fees based on a valid ground, rather than on the invalid ground that the agency itself proposed," the panel said.

Barbara Hutchinson, who represents the union, said the panel's ruling "is consistent with the law, which requires an arbitrator state the findings and conclusions when ruling on a request for attorney fees and costs in arbitration cases appealable to MSPB." 

SCOTUS Considers Attorney Fee Caps in Social Security Disability Claims

November 5, 2018

A recent SCOTUS Blog post by Kathryn Moore Guest, “Argument Preview: Justices Consider Cap on Attorney’s Fees for Successful Representation of Social Security Disability Claimants,” reports that attorney Richard Culbertson successfully represented several Social Security disability claimants both before the Social Security Administration and in federal court.  Prior to his representation, he entered into fee agreements that provided that the clients would pay him attorney’s fees equal to 25 percent of past-due benefits for successful representation before the court as well as separate attorney’s fees for successful representation before the agency.  Following longstanding precedent of the U.S. Court of Appeals for the 5th Circuit, adopted by the U.S. Court of Appeals for the 11th Circuit, the court below capped his attorney’s fees at 25 percent of past-due benefits for representation before both the Social Security Administration and the court.

In granting certiorari, the Supreme Court agreed to resolve a split among the federal courts of appeals as to whether the Social Security Act imposes an aggregate cap on attorney’s fees of 25 percent of past-due benefits for representation before both the court and the Social Security Administration, or instead the 25 percent cap applies separately to representation before the court.

The Social Security Act regulates the amount and manner in which an attorney may collect fees from a disability claimant for successful representation before the agency and the court.  42 USC § 406(a) governs attorney’s fees for successful representation before the agency, while 42 USC § 406(b) governs attorney’s fees for successful representation before the court.  The Equal Access to Justice Act also authorizes a court to order recovery of “reasonable attorney’s fees” from the government in certain cases in which the claimant is successful and the government’s position was not “substantially justified.”  If attorney’s fees are awarded under the EAJA and under Section 406(b), the attorney must refund the lesser fee to the claimant.  The Social Security Administration withholds a single pool of 25 percent of past-due benefits from which to certify for payment any and all attorney’s fees awarded under Section 406(a) and/or 406(b).

Section 406(a) authorizes two avenues for recovery of attorney’s fees from a claimant for successful representation before the agency.  Under Section 406(a)(1), an attorney may file a “fee petition” with the Social Security Administration.  Alternatively, under a more recent and more commonly used, streamlined process, an attorney may seek approval of a “fee agreement” with a claimant under Section 406(a)(2).  No cap is imposed under Section 406(a)(1).  Section 406(a)(2) limits attorney’s fees to the lesser of 25 percent of past-due benefits or a specified dollar amount, currently set at $6,000.

For successful representation before a court, Section 406(b)(1)(A) provides in relevant part:

Whenever a court renders a judgment favorable to a claimant under [Title II] who was represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment.  Section 406(b)(1)(A) further provides that “no other fee may be payable or certified for payment for such representation except as provided in this paragraph.”

Focusing on the “plain meaning” of Section 406(b), Culbertson argues that the term “such representation” in Section 406(b)(1)(A) clearly refers to the antecedent phrase “represented before the court,” and thus under the plain meaning of Section 406(b), the 25 percent cap applies to representation “before the court by an attorney” and does not include representation before the agency.  Culbertson also argues that a separate cap on attorney’s fees for representation before the court is consistent with the structure of Section 406 as well as the purpose of the statute and its legislative history.

Almost 40 years ago, in the first circuit-court decision to address this issue, Dawson v. Finch, the 5th Circuit held that Section 406(b) imposes an aggregate cap on attorney’s fees for representation in the administrative proceedings as well as before the court.  In reaching this result, the 5th Circuit looked to the legislative history of the provision in order to discern Congress’ intent.  Specifically, the court focused on the fact that Congress added Section 406(b) to address two goals.  First, Congress sought to encourage effective legal representation by “insuring lawyers that they will receive reasonable fees directly through certification by the Secretary.”  Second, Congress sought to protect claimants against excessive attorneys’ fees, which in the past had reached one-third to one-half of claimants’ past-due benefits, by imposing the 25 percent cap on fees.  In 1982, the U.S. Court of Appeals for the 4th Circuit also looked to this legislative history to hold in Morris v. Social Security Administration that Section 406(b) imposes a cumulative 25 percent cap on attorney’s fees.

More recently, the U.S. Courts of Appeals for the 6th, 9th and 10th Circuits have focused on the text of section 406(b) to hold that the 25 percent cap only applies to representation before a court.  See Horenstein v. Secretary of Health and Human Services; Clark v. Astrue; and Wrenn v. Astrue, respectively.

The commissioner’s position on this issue has flipflopped over the years. Almost 40 years ago, the commissioner sided with the 5th Circuit in interpreting Section 406(b) to impose an aggregate cap and opposed the grant of certiorari in Dawson.  Then about 15 years later, the commissioner sought and obtained 6th Circuit en banc review of the panel’s decision in Horenstein v. Secretary of Health and Human Services based on arguments that were logically inconsistent with an aggregate 25 percent cap.  Almost 15 years after that, the commissioner argued in briefs before the 9th and 10th Circuits that an aggregate cap honors congressional intent and it would be inappropriate to permit attorneys to potentially collect up to 25 percent of a disability claimant’s past-due benefits at both the agency and court levels.

In this case, the acting commissioner initially supported the 11th Circuit’s rule imposing an aggregate cap.  Then, after requesting four extensions to file a response, the acting commissioner filed a response siding with Culbertson and arguing that the text of Section 406(b) unambiguously applies the 25 percent cap only to attorney’s fees for representation before a court.  The acting commissioner further argues that a 25 percent cap would be inconsistent with other provisions of Section 406(a) and that the absence of an aggregate cap does not mean that the agency and courts should approve fees that in the aggregate are equal to or greater than 50 percent of a claimant’s past-due benefits.

Because the acting commissioner agrees with Culbertson, the Supreme Court appointed Amy Levin Weil, an experienced 11th Circuit appellate litigator, to serve as amicus curiae in support of the 11th Circuit’s decision. Weil argues that the statute itself does not specifically state whether combined attorney’s fees may exceed 25 percent, and that the text of Section 406(a) and Section 406(b), read together, supports the aggregate rule.  She also points to the legislative history on which the 4th and 5th Circuits relied in support of an aggregate 25 percent cap.  She contends that permitting attorney’s fees to exceed 25 percent in the aggregate could lead to attorneys suing their clients to collect fees out of their present or future Social Security benefits contrary to the Social Security Act’s purpose of ensuring beneficiaries a protected source of income.  She also argues that rejecting the 25 percent aggregate rule would lead to absurd results, with fees of up to 75 percent of past-due benefits if a favorable district court opinion is appealed and the applicant is successful in the court of appeals.  She contends that the aggregate cap allows a logical division of agency and court fees from the 25-percent-of-accrued-benefit pool in a manner that recognizes that a portion of the accrued benefits is attributable to the time that the case was pending before the agency while the other portion is attributable to the time the case was pending before the court.

The National Organization of Social Security Claimants’ Representatives filed an amicus brief in the case.  The NOSSCR does not address the plain meaning of the statute.  Instead, it contends that Section 406(b) cannot impose an aggregate 25 percent cap on attorney’s fees for representation before a court and the agency because Section 406(a)(1) does not impose a cap on fees before the agency.  NOSSCR further argues that a court has no discretion to impose an aggregate cap.  NOSSCR informs the court that in circuits without an aggregate cap, the prevailing market rate includes a cumulative cap either by contract or in practice.

Weil faces an uphill battle in convincing the Supreme Court to uphold the 11th Circuit’s decision.  The plain-meaning approach to statutory interpretation currently favored by the court supports Culbertson’s position.  Moreover, amici curiae appointed by the Supreme Court typically only win about 25 percent of their cases.  If, however, Weil can convince the court to look beyond the text of the Section 406(b) in isolation, it may, like Chief Judge Geoffrey Crawford of the District of Vermont, find that “it would be strange indeed to believe that Congress would in 1965 denounce 50% contingency fees as excessive and enact a statute to stop them, and then, in 1968, pass a law with the effect of permitting 50% contingency fees.”

Fee Request Denied Because Neither Party Prevailed

January 9, 2018

A recent Delaware Business Court Insider by Tom McParland, “Seven-Figure Fee Request Crumble as Bouchard Calls Cookie Contract Case a Draw” reports that the Delaware Court of Chancery denied multimillion-dollar requests for attorney fees from Mrs. Fields Brand Inc. and Interbake Foods, ruling that neither party had prevailed in a dispute over a contract to sell Mrs. Fields cookies in grocery and convenience stores.

Chancellor Andre G. Bouchard said the baked-goods companies had fought to a draw on the two main issues of a 2016 trial, where Interbake argued that it could exit a five-year licensing agreement to sell Mrs. Fields’ products.

In June, Bouchard ruled in favor of Mrs. Fields, saying that Interbake could not rely on its “material adverse change” argument to escape the deal.  But he also rejected Mrs. Fields’ “astounding” claim for $28.7 million in damages in the case.

Both sides later moved for attorney fees under a provision of the contract that required the “prevailing” party to be reimbursed for costs and expenses of litigation stemming from the licensing agreement.  Interbake asked for $2.6 million, and Mrs. Fields requested $5.3 million for its efforts.

In an 11-page letter opinion, Bouchard said Interbake’s attempts to validate its exit from the agreement spawned a slew of related legal questions, which accounted for the bulk of his 108-page ruling in June.  But he also noted that Mrs. Fields made its losing push for money damages a “central focus” of its litigation strategy, despite a standstill agreement that ensured the licensing agreement would remain in place throughout the case.

“In sum, because each side both won and lost on one of the two equally core issues in this case, I hold that neither Mrs. Fields nor Interbake predominated in the litigation and thus neither is entitled to an award of attorneys’ fees or expenses as the ‘prevailing party’ under [the licensing agreement],” the chancellor wrote.

NJ Justices Hears $2M Fee Dispute in Employment Case

January 3, 2018

A recent New Jersey Law Journal story by Michael Booth, “Justices Hear Dispute Over $2 Million Fee Award in Employment Case” reports that a Princeton financial services company asked the New Jersey Supreme Court to reinstate a more than $2 million attorney fee award for defeating an ex-employee's lawsuit.

Noren was employed by Heartland 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 court documents.  Another contract provision awarded fees and costs “[i]n any suit, action or proceeding arising out of or related to this agreement.”

Noren was fired 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.

Bank Blocked From Billing for In-House Counsel Work

August 10, 2017

A recent Legal Intelligencer story by Lizzy McLellan, “Bank Blocked From Billing for In-House Counsel’s Work,” reports that Enterprise Bank has lost an appellate-level bid to charge counsel fees to a client in foreclosure for work completed by an in-house attorney and paralegal.  That work is not included in the description of legal fees contained in Enterprise's loan documents, the Pennsylvania Superior Court ruled Aug. 8, affirming a trial court decision.  However, the court did not address whether companies generally may bill clients for the work of in-house lawyers and legal staff.

"After careful consideration, we conclude that the language 'hire or pay someone else' is, at best, ambiguous," Judge Geoffrey Moulton wrote in a 10-page opinion.  "Frazier makes a strong case for the proposition that 'someone else' necessarily means someone not then in Enterprise's employ.  Otherwise, the meaning of the term is difficult to discern."

The Frazier family, a limited partnership, executed a business loan, promissory note and mortgage from Enterprise in 2012, the opinion said.  Within the agreement was a provision regarding attorney fees and expenses, which said Frazier would be responsible for all attorney fees, including those used to "hire or pay someone else" to enforce the mortgage agreement.

In January 2014, Enterprise filed a mortgage foreclosure nearly equal in amount to the principal on the three loans.  The foreclosure complaint included a request for reasonably incurred counsel fees.

Frazier filed preliminary objections, arguing that in-house counsel was not included in the attorney fee provision.  Enterprise provided documentation of the hours billed by an in-house lawyer and paralegal and argued that they were clearly counsel fees.  "Enterprise further asserted that it 'hired' in-house counsel 'to collect the debt and in this case, file a mortgage foreclosure' action," the opinion said.

But the Allegheny County Court of Common Pleas sided with Frazier, denying Enterprise's request for counsel fees.  The trial court said any ambiguity in the loan agreements should be construed against Enterprise, since Enterprise drafted the agreements.

The Superior Court agreed on appeal.  However, the court noted, there is a larger issue raised by the dispute on which the court was unable to rule.  "Because we find the contract language ambiguous, and construe it against Enterprise, we need not reach the broader question, briefed by the parties, of whether a lender in Pennsylvania may recover for the work of salaried, in-house counsel," Moulton wrote in a footnote.