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Category: Fee Clause

Article: The Need For Attorney Fee Expertise

February 20, 2020

A recent AI article by John D. O’Connor, “The Need For Attorney Fee Expertise (pdf),” reports on the need for attorney fee expertise to prove reasonable attorney fees and proper billing practices in underlying litigation.  This article was posted with permission.  The article reads:

Most corporate clients today have access to excellent litigation counsel in each particular area of concern.  However, as attorney fee disputes are increasingly becoming a by-product of the main litigation event, few clients and few otherwise excellent litigators truly understand when and how to use attorney fee experts.

Although the “American Rule” provides that each litigating party bears its own fees, there are exceptions to this rule.  Successful class actions; employment and governmental discrimination cases; eminent domain suits; RICO claims; and other cases result in legally-sanctioned attorney fees claims.  Promissory notes, guarantees, real estate purchase agreements, and corporate acquisition contracts often contain attorney fee clauses.  High-stakes insurance coverage litigation usually features a battle over fees incurred in the underlying case(s).  It is common for a case with a small monetary award to result in an extremely high request for fees.

Typically in fees proceedings, the party with a claim to fees files a motion detailing the amount it requests, accompanied at a minimum by a Declaration of the main litigating attorney attaching a statement of his billings, detailing hours and rates for which payment is sought.  The main billing attorney will normally justify the requested billing rate, which can be his actual rate or a rate claimed to be prevailing in the community for one of similar skill and experience. The motion, usually accompanied by a brief summarizing the law of fees in that type of case, includes the statutory or contractual authority for same.

When the responding party files its submission, the contours of the ultimate dispute take shape.  It is common for the respondent to challenge the billing rates as unduly high; the number of lawyers assigned as excessive; the hours spent as inefficient; the number and length of conferences and meetings as unnecessary; the billing form as improperly “blocked” and “vague” in description; many of the tasks billed as being unwisely or improvidently chosen; certain work as not related to prevailing claims; and generally excessive fees for the type of litigation involved.  Often this opposition is accompanied by a request for limited discovery regarding fees.

As objections are detailed in various cases, the challenging lawyer is usually able to write an impressive brief in support.  These objections can be made without an expert witness, except as to prevailing billing rates, which the responding lawyer is qualified to opine.  The responding party will have made a serious mistake, however, if it did not bolster its objections with a detailed opinion of an experienced fee expert.  Often, the reviewing Court has witnessed the work of the petitioning lawyers and formed a positive opinion of them. Indeed, the reviewing Court in the underlying case would often have ruled in favor of the petitioner and against the respondent.  Even if not, the respondent must labor against the human assumption that established, competent lawyers have billed in accordance with community standards.

However, surprisingly, it is common for responding parties to put forth objections without an expert.  We have seen cases where fees sought into eight figures, where no expert has been retained, with unenviable results. Most experts have the capability of presenting a computer analysis isolating hours and tasks, which can claim to isolate amounts of “block” entries, incompensable “clerical” time, and other practices.  Such a presentation, though, is often superficial, and may not impress a reviewing Court seeking a principled basis upon which to reduce fees for the prevailing party.

Whatever the case, any attack on the requested fees should call for a rebuttal by a qualified attorney fee expert on behalf of the petitioner.  However, this guideline is frequently observed in the breach.  Even if the Court had been inclined to a favorable opinion of the petitioning firm, even a superficial attack on the petitioning lawyers’ fees can be facially effective, and thus the petitioner would need to blunt effectively any such attack.

A qualified expert can help by suggesting needed discovery from the responding party of information regarding that party’s billings which supports the petitioner’s request.  More importantly, an expert employed correctly will go beyond the glittering generalities put forth in these disputes.  They would show why a particular billing rate is justified with specific reference to specific firms doing nearly identical work or why a particular task was necessarily and properly time-consuming.

Most reviewing Courts are experienced at resolving factual disputes based on a presentation of specific compelling facts.  A wise litigation party, in short, should employ an expert to do just that. 

John D. O’Connor is a NALFA member and the Principal of O’Connor & Associates in San Francisco.  For more on John D. O’Connor, visit www.joclaw.com.

Eleventh Circuit: Arbitration Fee Clause Violates FLSA

November 26, 2019

A recent Law 360 story by Adam Lidgett, “11th Circ. Says Arbitration Fee Clause Violates FLSA,” reports that a clause in a Florida pest-control company’s employment agreement requiring each side to cover their own attorney fees in arbitration can’t be enforced because it conflicts with a Fair Labor Standards Act (FLSA) provision that allows workers who win suits to recoup legal costs, the Eleventh Circuit ruled.

A three-judge panel agreed with a lower court’s finding that the attorney fee and cost provisions in the arbitration pact contained in employee commission agreements allegedly signed by a trio of PIP Inc. technicians weren’t enforceable.  The panel said that under the FLSA, workers are allowed to collect attorney fees and expenses as part of a possible award.  “A mandatory ‘pay your own’ fees and costs clause removes the arbitrator’s ability to award a plaintiff what is provided by statute if the plaintiff is successful,” the panel wrote.

The lower court had found that the attorney fee and cost provision’s inclusion had doomed the entirety of the arbitration clause.  But the appellate panel said that the lower court needs to take another look at whether Florida law allows for the offending language to be severed from the rest of the arbitration provision.  “Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision,” the appellate panel wrote.  “The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law.”

According to a single-count, third amended complaint from the former PIP service technicians, the company improperly didn’t pay them time-and-a-half when they worked more than 40 hours a week.  They sought damages and also interest, and attorney fees and costs, according to court documents.  The company pushed for arbitration in January, citing the arbitration clause in the employee commission agreements it said the workers signed.

But U.S. Magistrate Judge Barry S. Seltzer found in February that the arbitration provision couldn’t be enforced because it denies plaintiffs their right under the FLSA to collect fees and costs and because there wasn’t any severability provision, according to court documents.  About a month later U.S. District Judge Federico A. Moreno adopted the magistrate judge’s recommendation in the case and denied the company’s bid to compel arbitration.

Article: Consider Attorney Fee Litigation When Drafting Business Contracts

September 2, 2019

A recent Daily Business Review article by Noah B. Tennyson, “Consider Potential Litigation Fees, Costs When Drafting Business Contracts,” reports on attorney fee dispute litigation in business contracts in Florida.  This article was posted with permission.  The article reads:

Before you sue someone, it may be prudent to consider potential litigation fees and costs.  This is because, unless your claim arises from a Florida statute or contract that entitles you to recoup attorney fees, each side will bear their own regardless of who prevails.  Thus, you may find that prevailing in court results in the type of victory lamented by Plutarch during the Pyrrhic war: “if we are victorious in one more battle with the Romans, we shall be utterly ruined.”

Ask yourself this question: If I wound up in a lawsuit, would I want there to be a basis for legal fees to be awarded to the prevailing party?  Of course, if you expect to prevail in future lawsuits, then the answer is easy.  But, few truly know what tomorrow brings and simply hoping that your side will prevail in future lawsuits is likely just wishful thinking.  So, to help mitigate the risk of an uncertain future, it may be helpful to consider various legal fee language to insert into some of your business’ most important documents—its contracts.

As a starting place, look at the agreements that you executed with your landlord, vendors, bank, and other parties in order to run your business.  What does the legal fee language say?  Does it provide that any party that prevails in any dispute arising from the contract can recoup its legal fees?  If not, to what extent did your counterpart create an attorney fees clause which favors its side?  Finally, which state laws are to be applied to the contract if there is a lawsuit?

You may have chafed at these terms but signed anyway, perhaps because you saw signing as but one more requirement to get your business up and running.  Whether you signed or not, in your future contract negotiations, consider using legal fee language which may favor your business as opposed to your counterpart’s.  Aside from your own scruples, the limit to how unfair you can be is the reasonable likelihood that a judge will enforce your contract as you intended.

To determine whether a judge will enforce your legal fee language, it can be helpful to look at what Florida courts have decided in the past.  For instance, let’s say your new business is a franchise.  As noted in prior Florida cases, Subway Restaurants (Subway) has written into in its contracts that its franchisee “agrees to pay the cost of collection and reasonable attorney fees on any part of its rental that may be collected by suit or by attorney, after the same is past due.”  In other words, Subway, and only Subway, can recoup its legal fees if they arise from the franchisee failing to pay rent.

This provision appears to be an illicit one-way fee clause which Florida courts have ruled permits either side to seek a fee award, so long as that side prevails in the lawsuit.  Thus, in a dispute between Subway and one of its franchisee Florida stores, the franchisee sought attorney fees from Subway after prevailing in its claim for wrongful eviction.  However, the Florida court ruled that the franchisee’s lawsuit never triggered an entitlement to attorney fees because the legal fee language limited awards to matters involving the collection of rental payments.  Put another way, even if this fee clause were a two-way street, the lanes would still be confined to matters involving the collection of the franchisee’s rent.  Therefore, the franchisee was not entitled to recoup its legal fees even though it won its case.

As seen above, a careful examination of contract language can uncover provisions that might go unnoticed by most, but are duly noted by those seasoned in business disputes.  As another example, contracts made in Florida can be written to have the laws of other states, such as New York or Virginia, be used to resolve disputes.  This might seem innocuous, but the impact can be severe because the treatment of one-way attorney fees clauses varies from state-to-state.

In one Florida case, stockbrokers put into their brokerage agreement that New York law would govern the agreement’s terms.  The agreement also stated that stock purchasers who signed it in order to purchase stock would reimburse the brokers for any debts owed, which included related attorney fees.

When a stock trading error cost a group of purchasers more than $70,000, the purchasers sued the brokers and won damages totaling $81,500.  Yet, the Florida court refused to award the purchasers their attorney fees even though the agreement’s legal fee clause applied to their lawsuit, and even though Florida law requires a two-way street for such fee clauses.

The Florida court’s reasoning was simple: New York law does not require that one-way fee clauses be made into two-way clauses.  Because New York—and not Florida—law applied, the Florida court had no authority to grant a fee award to the stock purchasers.

You should examine proposed contracts with care because established corporations have legal teams crafting contracts which benefit them.  Bear that in mind if you consider signing.  Conversely, when drafting your own contracts, heed your lawyer’s advice.  Otherwise, you, too, may fall victim to unintended consequences.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens.  His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners’ association issues, construction defect litigation and employment issues.

Attorney Fees May Be Awarded Even When Fee-Shifting Provision was in Indemnity Clause

July 30, 2019

A recent Metropolitan News story, “Attorney Fees May Be Awarded Based on Indemnity Clause Where Party Itself Sues,” reports that Kerri Walsh Jennings, a beach volleyball player who has captured three Olympic gold medals and a bronze medal, was properly awarded attorney fees in an action against a company to which she leased her name and likeness, the Court of Appeal for this district has held, declaring that it doesn’t matter that a contractual fee-shifting provision was contained in an indemnification clause.  Justice Brian S. Currey of Div. Four wrote the unpublished opinion, filed Monday. It affirms a judgment by Los Angeles Superior Court Judge William F. Fahey who awarded the plaintiff attorney fees in the amount of $92,726.

In reaching that figure, Fahey held that the expertise of Century City attorney Alan Jay Weil of Kendall Brill & Kelly LLP rendered reasonable the hourly rate of $850 he charged Jennings last year (discounted from his normal $950 per hour rate) and $790 an hour he assessed for services in 2017.

The litigation was based on the Association of Volleyball Professionals (“AVP”) having failed to pay Jennings the $150,000 it was contractually bound to provide in exchange for permission to use her name and likeness.  She sued it, but AOS Group, LP was substituted for a Doe defendant based on its purchase of all of AOS’s assets.

After the action was filed, AOS handed over the sum claimed, plus $27,792 in interests and costs—but there remained a dispute as to whether attorney fees were owed.  AOS maintained that a fee-shifting provision would have come into play only if it had been obliged to defend Jennings, based on its breach, in an action against her by a third party.

An indemnification clause in her contract with AVP says that the licensee “agrees to defend, indemnify and hold harmless” Walsh Jennings, “her agent, representatives and employees from and against any and all damages, claims, suits, actions, judgments, costs and expenses including reasonable attorney’s fees, arising out of: (a) any material breach by AVP of this Agreement or any representation or warranty made hereunder.”

On Oct. 24, 2017, Fahey denied AOS’s motion to strike a demand for attorney fees, saying that the 2000 opinion of this district’s Court of Appeal in Wilshire-Doheny Associates, Ltd. v. Shapiro “was correctly-decided and controls here.”  In that case, a corporation bound itself, in three agreements, to indemify two corpotate officers—including payment of their attorney fees—in the event they were sued in connection with the discharge of their duties. As it happened, it was the corporation, itself, that sued them.

Resisting payment of attorney fees, the corporation argued that indemnification, necessarily, entails an action by a third party. Disagreeing, Div. One’s presiding justice, Vaino Spencer (now deceased), said:  “There is nothing in the language of any of the three indemnity provisions specifically limiting their application to third party lawsuits. Respondents point to no extrinsic evidence introduced to demonstrate that the parties intended these provisions to apply to third party lawsuits only….  Thus, it has not been shown the indemnity provisions are inapplicable merely because appellants seek indemnification for attorney’s fees and costs incurred in an action brought by the indemnitor….”

In awarding fees after AOS paid what was owed, Fahey stuck to his view that Wilshire-Doheny dictates the result.  In his opinion affirming Fahey’s decision. Currey quoted the language in the agreement between Jennings and AVP and declared:  “[T]his language does not limit indemnification to third party claims and extends indemnification to ‘any and all’ damages incurred by Walsh Jennings arising out of AOS’s breach of the Agreement…. Had the parties intended to narrow the clause to cover only third-party claims, they could have done so expressly.”

He added:  “The indemnity provision here expressly permits recovery of attorneys’ fees arising out of ‘any material breach by AOS of this Agreement.’  Accordingly, we conclude the trial court properly interpreted the indemnity provision to provide for attorneys’ fees in this case.”

AOS asserted that Fahey abused his discretion as to the amount awarded in attorney fees. Currey responded that the “very experienced trial judge found ‘the hourly rates and hours are reasonable,’ ” quoting Fahey as explaining:  “I am very familiar with the market rates of lawyers in this town.  And there are few of them that have been members of the Bar longer than I have.  Mr. Weil is one of them.”

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 17, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees.  While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case.  Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong.  The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher.  After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.”  Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict.  Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order.  Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request.  That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed.  The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.”  Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute.  There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs.  Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety.  The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either.  Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition.  And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation.  The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses.  On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.  In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant.  But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure.  Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice.  The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.”  Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case.  Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed.  So, why do these cases—and understanding how they were decided and why—matter to me?  There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees.  Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded.  This is equally true before the trial court in the first instance and on appellate review.  Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment.  It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court.  On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost.  From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows.  As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions.  The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy.  And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources.  In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions).  By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group.  He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.