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Category: Fee Doctrine / Theory

Judge Denies Fee Award to State AGs in Antitrust Case

March 2, 2017

A recent NLJ story by C. Ryan Barber, “Judge Refuses Fee Award to State AGs in Antitrust Case,” reports that nearly a year after striking down Staples Inc.’s proposed takeover of Office Depot, a federal judge in Washington refused to award $175,000 in legal fees to the Pennsylvania and District of Columbia attorneys general for their role in challenging the office supply chains’ $6.3 billion deal.

The two offices teamed up with the Federal Trade Commission (FTC) in a suit that alleged the proposed deal would hurt competition in the market for office supplies sold in bulk to large corporate clients.  In May, U.S. District Judge Emmet Sullivan sided with regulators and granted a preliminary injunction.  Staples and Office Depot abandoned their merger plans.

Pennsylvania and D.C. argued they were entitled to fees under a provision of the Clayton Act that allows for the reimbursement of legal costs when the plaintiff “substantially prevails.”  Sullivan said there was one problem: Regulators prevailed not under the Clayton Act but the FTC Act, which does not grant legal fees to winning plaintiffs.

"Simply put, moving plaintiffs cannot have it both ways,” Sullivan wrote in a 10-page opinion.  “They cannot ride the FTC’s claim to a successful preliminary injunction under the more permissive [FTC Act] standard and then cite that favorable ruling as the sole justification for fee-shifting under the more rigorous Clayton Act standard."

Pennsylvania and District of Columbia offices had argued that the preliminary injunction directly broke up the merger, allowing them to recoup costs under the so-called “catalyst rule.”  But Sullivan was not persuaded.

As Staples and Office Depot pointed out, Sullivan wrote, “the catalyst rule as a mechanism for obtaining attorneys’ fees in certain circumstances was rejected by the Supreme Court in 2001,” in the case of Buckhannon Board and Care Home, Inc. v. West Virginia Department of Health and Human Resources.

The FTC had taken the lead in the antitrust challenge—a fact Staples and Office Depot raised to belittle the two offices’ role in the case.  The two companies described the work from Pennsylvania and D.C. as duplicative of the FTC’s, poorly documented and “largely spent on non-determinative issues (to the extent it is possible to determine what they worked on with any specificity at all).”

The Pennsylvania attorney general’s office requested $142,548, the District of Columbia $33,547—amounts that, if granted, would have represented an “unprecedented windfall,” Staples and Office Depot argued.  Weil, Gotshal & Manges represented Staples, and Simpson, Thacher & Bartlett represented Office Depot.

Sullivan said Pennsylvania and D.C. “effectively ask this court to take an unprecedented step.”  The choice to challenge the deal under the FTC Act was a “strategic one,” Sullivan wrote.  “Nonetheless, moving plaintiffs cannot bring a petition for fee-shifting under a provision under which they did not prevail,” he wrote.

Fee Allocation Dispute in NCAA Antitrust Case

February 28, 2017

A recent New York Law Journal by Charles Toutant, “Suit Says Lawyer Has Been Shortchanged on Fees in $60M Video Game Settlement,” reports that a New Jersey lawyer claims in a suit that class action firm Hagens Berman Sobol Shapiro shortchanged him on fees from a $60 million settlement of class action suits on behalf of college athletes over the use of their names and likenesses in video games.

Timothy McIlwain of Linwood claims Hagens Berman breached a contract between plaintiffs lawyers concerning sharing of fees in his suit against the firm and three principals, which was filed in federal court in the District of New Jersey.  In addition to the firm, the suit names managing partner Steven Berman and partners Leonard Aragon and Robert Carey as defendants.  Aragon said he had not had a chance to review the lawsuit, but said any claim contradicting a Northern District of California judge who awarded fees would be "frivolous."

The suit claims Hagens Berman breached a contract it entered into with McIlwain concerning division of fees from class action litigation against video game maker Electronic Arts and the National Collegiate Athletic Association.  Roughly 24,000 class members received payments averaging $1,600 each for appearing in a series of video games produced by EA between 2003 and 2014.  In July 2015 a U.S. judge in San Francisco approved the $60 million settlement, which was brought on behalf of college football and basketball players who said their rights of publicity were violated by unauthorized depictions of them in video games.

U.S. District Judge Claudia Wilken of the Northern District of California awarded $5.7 million in attorney fees to Hagens Berman in the combined settlement of three suits against EA and the NCAA on Dec. 10, 2015.  The judge awarded $696,000 to McIlwain after concluding that his fee application sought payment for several items that were unrelated to the case.

But McIlwain's suit cites an agreement between plaintiffs firms in the video game litigation that called for the pooling of any fee award, and a division giving 60 percent to Hagens Berman and 40 percent to McIlwain and his co-counsel, the Lanier Law firm.  Berman agreed to those terms in a Sept. 24, 2013, email that is included in an exhibit to McIlwain's complaint.

McIlwain brings counts for breach of contract, breach of the covenant of good faith and fair dealing, and interference with prospective economic advantage.  He seeks compensatory and punitive damages as well as costs, interest and legal fees.

McIlwain filed suit in state court on behalf of former Rutgers University football player Ryan Hart in 2009.  EA removed the case to U.S. District Court for the District of New Jersey.  Around the same time, Hagens Berman's attorneys filed suit in the Northern District of California on behalf of Sam Keller, who was a quarterback at Arizona State University and the University of Nebraska.

McIlwain's case, Hart v. Electronic Arts, was dismissed by a federal judge in New Jersey who found EA's use of the plaintiff's likeness was protected by the First Amendment. But t hat decision was overturned by the U.S. Court of Appeals for Third Circuit, which sent the case back to District Court in May 2013.

Meanwhile, in Keller v. NCAA, EA appealed a District Court judge's ruling denying its motion to strike right-of-publicity claims asserted by Keller.  EA claimed that its use of the player's likeness and jersey numbers was a transformative use and therefore protected by the First Amendment.  But the Ninth Circuit affirmed the lower court in July 2013.

Lawyers for those cases and for a similar suit, O'Bannon v. NCAA, signed their fee-splitting agreement on Sept. 24, 2013.  And two days later, on Sept. 26, 2013, EA agreed at a mediation session to settle the three suits for $40 million.  In June 2014, the NCAA agreed to pay $20 million to settle the three suits.

Hagens Berman argued before Wilken that it should receive the largest portion of the fee award in the case because a ruling it obtained from the Ninth Circuit in Keller was the catalyst for the $60 million settlement.  McIlwain, for his part, maintains that a ruling he received from the Third Circuit in Hart was the catalyst for the settlement and, therefore, he is entitled to over $4 million in fees.

But Wilken said in a Dec. 10, 2015, order that the right-of-publicity claims raised under California law in Keller exposed EA to the greatest liability.  That finding weighed in favor of a finding that the Keller case made the most significant contribution to the settlement, Wilken said.

Aragon, who is in Hagen Berman's Phoenix office, said his firm has not been served with the complaint yet, but added that the fee distribution was resolved by Wilken.  "Any attempt to bypass the court's order is frivolous.  If we are served, we will move to dismiss the case and will seek fees and costs against Mr. McIlwain."

Aragon said the email cited by McIlwain was "part of a much larger agreement and that agreement never came to fruition.  I would suggest to him that he re-read Judge Wilken's order and dismiss his case."

The litigation was notable because it marked the first time the NCAA paid for the use of the name, image and likeness rights of student athletes.  "Many students received thousands of dollars from the NCAA as a result of the Hagens Berman's work, and the settlement was universally well received by the athletes," he said.

Best Practices Strengthen Your Standing in Legal Fee Analysis

February 5, 2017

Legal fee analysis is the comprehensive review and analysis of attorney fees and costs in an outside legal matter.  Professionals who perform outside legal fee analysis include attorney fee experts, special fee masters, bankruptcy fee examiners, fee dispute mediators, and legal bill auditors.  Once known as legal auditing, a rather groundless, self-qualifying, and haphazard field, legal fee analysis has now matured and expanded into a new fully developed practice area of law, thanks in part to organization and professionalization.

Any new field of analysis, let alone one that deals with the sometimes contentious aspects of legal fees, requires some manner of professional ethics.  Emerging professions, like legal fee analysis must be grounded by some degree of qualification and some elements of generally accepted principles.  Indeed, professional standards can help ensure that professionals within a given field are qualified, competent, and ethical.

As part of our mission, NALFA has established Best Practices in Legal Fee Analysis.  This professional code of conduct was developed over several years with input and consensus from thought leaders from across the profession.  These peer review driven standards strengthen the legal fee analysis profession by ensuring integrity in the process and reliability in the results.  These best practice measures promote values such as ethics, independence, and professional development.  These best practice measures represent the mainstream of legal fee analysis.

As a 26 U.S.C. § 501(c)(6) organization, NALFA's statutory obligation is to improve the lines of business within the legal fee analysis profession.  Yet some old vestiges from the legal auditing era still remain.  As such, we encourage all within the legal fee analysis profession (whether a member or not) to read, understand, and follow Best Practices in Legal Fee Analysis.  Following these best practice measures only strengthens your standing within the legal fee analysis community.  We'd also encourage clients of outside legal fee analysis to choose a professional who follows Best Practices in Legal Fee Analysis.

For more on Best Practices in Legal Fee Analysis, visit http://www.thenalfa.org/Best-Practices/

Florida Justices Say Insurer Must Pay Legal Fees

October 3, 2016

A recent CBS Miami story, “Justices Say Insurer Required to Foot Legal Fees,” reports that the Florida Supreme Court said a property insurer must pay the attorneys’ fees of a homeowner who successfully challenged the company’s contention that her home was not damaged by a sinkhole.

The court, in a 6-1 ruling in a Marion County case, sided with homeowner Kathy Johnson, who filed a claim in 2010 with Omega Insurance Co. because of extensive damage that included cracks in walls and separations between walls and ceilings.  Justices pointed to a need for policyholders to be able to recoup legal fees if they successfully fight insurance companies over claims.

“The need for fee and cost reimbursement in the realm of insurance litigation is deeply rooted in public policy.  Namely, the Legislature recognized that it was essential to ‘level the playing field’ between the economically advantaged and sophisticated insurance companies and the individual citizen,” said the majority opinion, written by Justice R. Fred Lewis and joined fully by Chief Justice Jorge Labarga and justices Barbara Pariente, Peggy Quince and James E.C. Perry.

“Most assuredly, the average policyholder has neither the finances nor the expertise to single-handedly take on an insurance carrier.  Without the funds necessary to compete with an insurance carrier, often a concerned policyholder’s only means to take protective action is to hire that expertise in the form of legal counsel.  Counsel then have the ability and knowledge to hire an independent engineer or other expert to prepare a report that either confirms or denies the policyholder’s view of the cause of damages.  For this reason, the Legislature recognized that an insured is not made whole when an insurer simply grants the previously denied benefits without fees.”

The legal dispute began after Omega Insurance hired a consulting firm that said the damage to Johnson’s home was not caused by a sinkhole.  Johnson retained a law firm, which in turn hired a consultant who concluded a sinkhole was responsible.

Johnson filed a breach-of-contract lawsuit against Omega.  After another consulting firm said the damage was caused by a sinkhole, Omega agreed to pay for repairs, which totaled $213,465, according to the Supreme Court ruling.  Johnson then sought to require the insurer to pay her attorneys’ fees.

A circuit judge ruled that the insurer should pay the legal fees, but the 5th District Court of Appeal disagreed.  It said the insurer could only be forced to pay the fees if it initially denied the claim in “bad faith.”

The Supreme Court’s 27-page majority opinion overturned that ruling.  “We cannot, as the (appeals) court below held and Omega requests here, discourage insureds from seeking to correct the incorrect denials of valid claims and allow insurers to deny benefits to which insureds are entitled without ramifications,” the opinion said.  “Johnson proceeded with the only action that a non-expert claimant in conflict with a major insurance company could take:  She retained counsel and thus obtained access to an independent expert.”

Plaintiffs’ Counsel Win Fees Under Catalyst Theory in Ford Pump Defect Class Action

June 1, 2016

A recent Law 360 story, “Ford Hybrid Drivers Win $850K Atty Fees in Pump Defect Row,” reports that a California federal judge handed a victory to a group of Ford drivers that secured a recall of hybrids with allegedly defective engine coolant pumps when he awarded the group nearly $850,000 in attorneys' fees over the automaker’s staunch opposition.

Although Ford Motor Co. attempted to argue that the drivers’ proposed attorneys' fees were too high and the 10 person legal team that handled the case was too many, U.S. District Judge Jon S. Tigar disagreed for the most part, awarding the class $843,433 of their requested $876,523 in legal fees.

Judge Tigar’s reduction in the fees came from a detailed cutting of several hours of “unreasonable” time billed for actions like drafting a first amended complaint that was essentially unchanged and preparing plaintiffs' discovery responses, but he refused to reject the 2.0 multiplier for the proposed billing.

“The court concludes that a positive multiplier of 2.0 is appropriate for the ‘merits’ work expended by counsel,” Judge Tigar said.  “As plaintiffs point out, Ford has remedied at least 33,873 defects in customers’ automobiles.”  At a proposed cost of $375 per coolant pump that needs to be replaced, the value drivers will receive through the recall is “at least” $12.7 million, the judge noted.

However, he rejected a request that the three lead plaintiffs in the suit receive incentive fee awards of $2,500 each out of hand, finding “they are not merited here even if they are legally allowable,” according to the order.

“Plaintiffs have submitted no declarations to support their requests, have provided no estimate of the time they claim to have spent on this litigation, do not contend they faced financial or reputational risk in bringing this action, and do not raise other policy considerations justifying an incentive award,” Judge Tigar said.

The drivers launched the suit in 2013, claiming the Escape Hybrid and Mercury Mariner vehicles were prone to shutting down unexpectedly due to a defective coolant pump.  After little more than a year of litigating the case however, Ford issued a recall of the potentially affected vehicles rendering the instant suit essentially moot.

However, the drivers claimed they were still entitled to payment of legal fees under a so-called “catalyst theory” because it was the litigation that instigated the recall.

While the automaker attempted to argue the recall was announced of its own volition, the court agreed with the drivers and in November ordered Ford to cover the fees, after Judge Tigar found the automaker couldn’t demonstrate that it was its independent work, not the lawsuit, that triggered its decision to call back the cars.

The case is Jean MacDonald et al. v. Ford Motor Co., case number 3:13-cv-02988, in the U.S. District Court for the Northern District of California.