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Category: Fee Shifting

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 Four wrote the unpublished opinion, filed Monday.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.”

Eleventh Circuit Scraps Attorney Fee Award in Home Depot Litigation

July 26, 2019

A recent Daily Report story by R. Robin McDonald, “11th Circuit Scraps $15M Attorney Fee Award in Home Depot Litigation” reports that a federal appeals court has vacated a $15.3 million legal fee award and remanded it with instructions to reduce it in litigation stemming from a  2014 data breach that impacted 56 million Home Depot customers.  The U.S. Court of Appeals for the Eleventh Circuit determined that the fee award to counsel representing a slate of financial institutions that sued Home Depot over the breach should have been based solely on the lawyers’ hourly rates and time spent litigating the case and should not have included any financial enhancement.

Holding that the legal fees were part of a separate contractual deal not included in the final settlement, Judge Gerald Tjoflat wrote that, “It was an abuse of discretion to use a multiplier to account for risk in a fee-shifting case.”  Tjoflat was joined by Judge William Pryor and Judge Ronald Lee Gilman of the U.S. Court of Appeals for the Sixth Circuit.

Ken Canfield, a partner at Atlanta’s Doffermyre Shields Canfield & Knowles, and co-class class counsel for the financial institutions, said, “The Eleventh Circuit affirmed that Judge Thrash was correct in deciding every argument that was presented to  him.  The fee award was vacated based on a new argument Home Depot made for the first time on appeal.  We are confident that Judge Thrash will again make the right calls on remand after a complete record is put before him.”  Canfield argued the case at the 11th Circuit and is co-lead counsel for the consumer plaintiffs in the Equifax data breach litigation.

The legal fees at issue were calculated as a lodestar, which is based on lawyers’ hourly rates and time but traditionally includes a financial enhancement to compensate plaintiffs lawyers for the risk they assumed when they signed onto the litigation.

The multidistrict litigation on behalf of financial institutions that sought damages stemming from the data breach settled in 2017 for $25 million.  U.S. District Court Chief Judge Thomas Thrash Jr., who presided over the Home Depot data breach cases, set the fee award after plaintiffs attorneys agreed, at the request of Home Depot lawyers, to negotiate the specifics of “reasonable legal fees,” costs and expenses after closing the settlement deal.  But Home Depot reserved the right to object to any fee request—and ultimately did so after class counsel requested $18 million, according to Tjoflat.  Home Depot countered that reasonable legal fees should be about $5.6 million.

Thrash stepped in after lawyers on both sides were unable to agree on a dollar amount.  He accepted the lodestar proposed by class counsel—about $11.7 million—as “an appropriate measure of the time expended by the plaintiffs in this case,” Tjoflat said.  Thrash then applied the same 1.3 multiplier that had been used in a parallel settlement compensating Home Depot consumers whose financial and personal data had been compromised by the breach, bringing the total to $15.3 million.

“The Home Depot argued that class counsel was not entitled to a multiplier,” Tjoflat said.  “Home Depot did not suggest that a multiplier was prohibited, only that it was not warranted” and that financial institution  lawyers “did not achieve a great result.”  Thrash also rejected arguments by Home Depot lawyers that counsel for the financial institutions should be the same as the fees paid to consumer class counsel

Thrash said in awarding the fees that financial institution counsel expended more effort and more time than consumer lawyers in settling the cases and that “dealing with [banks] rather than consumers added difficulty to the process of litigating this case.”  Thrash also cross-checked his lodestar award, including the fee enhancement, against a separate percentage calculation based on the class settlement benefits.  Thrash ultimately found that the $15.3 million award was only slightly more than one-third of the settlement benefits, which Thrash determined was reasonable.

“It is hard to imagine how the settlement agreement could be any clearer that Home Depot will pay the attorney’s fees, and that payment will not come out of the class fund,” Tjoflat said.  “A settlement agreement is a contract, … and the parties’ intent seemed to be for the fees to be paid separately by Home Depot—i.e., a fee-shifting arrangement.”

“The District Court’s only stated reason for using a multiplier was the exceptional risk taken by counsel in litigating the case,” Tjoflat continued.  “And risk, according to the Supreme Court, is not an appropriate basis for enhancing an attorney’s fee in statutory fee-shifting cases.”

ABA Calls USPTO Attorney Fee Rule ‘Radical’

July 22, 2019

A recent Law 360 story by Bill Donahue, “ABA Rips USPTO Attorney Fee Rule as ‘Radical’,” reports that the American Bar Association asked the U.S. Supreme Court to strike down the U.S. Patent and Trademark Office's "radical" and "unprecedented" policy of seeking attorney fees regardless of the outcome of a case.  In an amicus brief, the ABA told the justices that the fees policy — rooted in reinterpretation of a century-old statute — was clearly not what Congress had in mind when it authorized USPTO to recoup “all expenses” after certain types of appeals.

“Congress does not hide elephants in mouseholes,” the group wrote.  “Here, it did not hide an unprecedented government-only, regardless-of-outcome, attorney-fee-shifting intent in the word ‘expenses.’”  The filing came in the closely watched case of Iancu v. NantKwest, which will determine the legality of the USPTO’s fee policy.  Federal appeals courts have split on whether the fee policy violates the American Rule, a doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.

First rolled out in 2013, USPTO's fee policy is rooted in a novel interpretation of so-called de novo appeals — a longer and more fact-intensive route that allows a dissatisfied patent or trademark applicant to appeal to a district court rather than simply asking the Federal Circuit to review a refusal.  Crucially, both the Patent Act and the Lanham Act say that applicants who choose the de novo appellate route must reimburse "all expenses of the proceeding," and that requirement applies regardless of whether applicants win or lose their appeals against the USPTO.

For decades, the agency interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  But that changed in 2013, when USPTO started demanding that applicants reimburse the substantially larger cost of the salaries paid to agency attorneys.  That figure can be tens of thousands of dollars, and the agency has sought — and won — such fees even when it loses a case.

The USPTO has argued that the change was justified to pay for a more expensive type of appellate process, but critics say the rule will make the de novo appeals too expensive for all but the wealthiest patent and trademark applicants.  In the filing, the ABA echoed those access-to-justice concerns, saying the policy would have the “intolerable results."

“The PTO’s interpretation would mean that applicants’ wealth would determine their access to the pathway to justice provided by Congress,” the group wrote.  “Those benefits would remain open to large corporations and affluent individuals able to shoulder the burden of paying for the government’s lawyers.”

No Fee Award for Winning ADA Award After Judge Tosses It?

July 19, 2019

A recent Law 360 story by Matthew Santoni, “Don’t Give Attys Fees for Losing ADA Award ‘Win’. Co. Says,reports that a Pittsburgh claims administration and management company said that attorneys for a woman denied extra breaks for her post-traumatic stress disorder shouldn't get to claim a "win" and seek fees after a federal judge vacated a jury's $285,000 damage award in May.

Premier Comp Solutions said that under a contingency fee structure, Stember Cohn & Davidson-Welling LLC shouldn't be able to ask for the company to pay almost $312,000 in fees and $24,000 in costs, since their client, former billing assistant Beth Schirnhofer, hadn't actually won the case after the judge tossed the award.

"Having lost the case, they want to be rewarded while their client receives nothing," said Premier's brief in opposition to the fees.  "If a contingent fee lawyer does not win money for the client, he or she does not get paid a fee.  For some reason, plaintiff's counsel believe they should get paid a fee even though they lost."

U.S. District Judge Billy Roy Wilson had erased the jury's award of $35,000 in back pay and $250,000 in noneconomic damages following a trial in April, citing its affirmative answer to the question of whether the company would have fired Schirnhofer regardless of her alleged disability.

Under the Americans with Disabilities Act, Judge Wilson said, the court could grant declaratory relief, injunctive relief and attorney fees in verdicts, but not any compensatory or punitive damages when the jury believed there could have been some other reason for firing Schirnhofer, also known as a "mixed motive."

Premier argued Monday that fees were inappropriate if there were no awards for Schirnhofer.  "Plaintiff's counsel took the risk that they would not win.  They should not be allowed to avoid the consequences of losing," Premier's brief said.  "By requesting a mixed-motive instruction on plaintiff's disability discrimination claims, plaintiff's counsel caused plaintiff to lose out on the $285,000 jury verdict and potential punitive damages."

Schirnhofer sued Premier in 2016, saying her doctor had provided the company with paperwork detailing her need for extra breaks due to PTSD, but Premier refused to provide them.  Premier allegedly decided Schirnhofer's PTSD was a disability, but it just didn't warrant accommodation, her suit said.  Her later firing, the company said, was because she violated its social media policy with Facebook comments about committing suicide, complaints about her coworkers, and a picture of a woman with a gun — not out of retaliation for her complaints.

Stember Cohn had claimed that the ADA and case law had shown the firm could still seek compensation for fighting the contentious case, since the jury had rejected Premier's claims it did no wrong.

"In mixed motive cases the award of attorney's fees is a matter left to the discretion of the district court," the firm wrote in its June 11 brief. "A court may award fees absent monetary or other tangible relief."

Premier countered that there had been no relief at all for Schirnhofer, since all she had sought was money damages. Five of her 11 claims were tossed before trial, three were determined in Premier's favor, and the three disability discrimination claims were not an "outright win" for her because of the mixed-motive verdict, the company said. After the judge had thrown out the award, nothing had changed for Schirnhofer; no precedents had been set and no declaratory judgments were made, Premier argued.

"Plaintiff and her counsel's principal purpose in bringing this lawsuit was to recover money from defendant ... Plaintiff did not make any specific claim for declaratory, injunctive, or any other kind of equitable relief," Premier's brief said.  "Plaintiff received none of the relief she sought in her complaint.  Such a result could not, with a straight face, be called a 'success.' ... Accordingly, plaintiff's counsel should not be rewarded with fees or costs."

Premier also said Stember Cohn's strategy had harmed its client's case because they had asked for the mixed-motive jury question rather than trying to present the social-media policy issue as a pretext for Schirnhofer's firing.  The firm could not then claim fees for work that had cost its client an award in her favor, the company said.

Article: Rohrmoos Highlights Steps to Securing Attorney Fees in Texas

July 8, 2019

A recent Law 360 article by Amy Anderson, Tiffany Raush and Joshua Norris, “Rohrmoos Highlights Steps to Securing Atty Fees in Texas,” reports on the recent Texas Supreme Court case, Rohrmoos Venture v. UTSW DVA Healthcare.  This article was post with permission.  The article reads:

In Rohrmoos Venture v. UTSW DVA Healthcare LLP, the Supreme Court of Texas has finally thrown down the gauntlet for attorney fees claims: Submit your billing records or else!

While the court’s opinion issued April 26, 2019, stopped short of actually mandating submission of billing records in support of an attorney fees request, “billing records are strongly encouraged.”  In reality, nothing short of contemporaneous billing records would likely satisfy the stringent evidentiary requirements articulated in Rohrmoos.

In Rohrmoos, the lessee prevailed in a lease dispute against its landlord; however, it supported its attorney fees claim only with the testimony of its attorney.  The attorney testified as to the mountain of documents, emails and depositions he reviewed, prepared for and completed in addition to time spent in trial.  He also testified regarding his rate, why that rate was reasonable and why the fees in this case (about $800,000) were so high compared to the total amount in dispute (about $300,000).

He did not introduce his billing records, which would have certainly been voluminous, and instead asserted before the court that the billing records would give the jury no additional basis on which to award his client attorney fees.  The jury awarded the lessee $800,000 for fees incurred in addition to conditional amounts for appeal.  The landlord challenged the fee award and, in particular, the failure to produce billing records in support.  The court of appeals affirmed the award concluding that billing records were not required to prove attorney fees in this case.

The Supreme Court of Texas disagreed.  The court issued a lengthy, 20-plus page opinion to address the issue of the attorney fees claim, apparently flummoxed that practitioners, parties and lower courts did not understand that Texas exclusively subscribed to the lodestar method following City of Laredo v. Montano.

The lodestar method requires the calculation of reasonable hours multiplied by a reasonable rate, producing the “lodestar.”  From there, adjustment up or down is possible depending on particular circumstances not already accounted for in the lodestar calculation.  If it was unclear before, it is clear now — the lodestar method applies to every claim for attorney fees in Texas.  And, as the Rohrmoos court sees it, there is little to no reason for an award to ever deviate from the lodestar.

Attorney fees claims are valuable to parties because they constitute an entirely separate claim for damages.  An award of fees is meant to compensate the winning party and make that party whole.  The award is not intended to punish the losing party, nor is it intended to benefit the attorney.  The contours of the court’s Rohrmoors opinion provide important clarifications, reminders and cautions on the issue of attorney fees, several of which are highlighted in the following practice pointers.

Get Your Ducks in a Row Ahead of Time — Chapter 38 (Probably) Won’t Save You

Texas follows the “American Rule” regarding attorney fees recovery — each party pays its own way.  To “shift” the payment of attorney fees, parties must point to either a contract provision or a statute.  In Texas, we have long revered Chapter 38 as the attorney fees saving grace for oral contracts or the occasional contract without an attorney fee provision.  But Chapter 38 has fallen from grace over the past decade following several state and federal court opinions holding that it does not apply to limited liability companies or limited partnerships.

Even before that spate of decisions, however, Chapter 38 had its limitations.  As discussed in Rohrmoors, to prevail on an attorney fees claim under Chapter 38, parties have to show (1) they prevailed on a claim entitling them to attorney fees, and (2) they recovered damages for that claim.  Thus, while a party who successfully pursued a breach of contract claim for damages can recover attorney fees under Chapter 38, a party who successfully defended a breach of contract claim cannot.

It is imperative that attorney fees are properly addressed in a contract. Among other things, the Rohrmoors decision demonstrates that contractual fee-shifting provisions should specify when a party is a “prevailing party.”  If the contract is silent, the trial court will likely apply Chapter 38 prevailing party law — meaning that your successful defense of a breach of contract claim will not yield an attorney fee award.

Parties should also consider whether fee recovery should be limited to fees “incurred.”  In Rohrmoors, the court explained that use of the word “incurred” limits the amounts of fees to only those fees for which the requesting party is liable.  Without using “incurred,” a party may recover attorneys’ fees that are reasonable and necessary to the representation without a showing that they were “incurred.”  While broader is better if you are seeking the fees, and limited is better if you are defending against fees, what is best is to predictably know how the fee provision will be interpreted and applied by the court.  Therefore, clarity is king.

Litigation Is Nigh — Now What?

When the parties to a contract find themselves staring down inevitable litigation, the focus is naturally on the claims giving rise to the litigation: breach of contract, breach of warranty, fraudulent conduct, etc.  Early on, attorney fees may not be foremost in mind, but they should be.  Informed consideration of likely avenues for recovery of attorney fees will help the parties evaluate their potential damages and their potential risks in litigating.

In addition, Chapter 38 has “presentment” requirements and other fee-shifting statutes, such as the Deceptive Trade Practices Act, may have similar preconditions.  Developing your attorney fees claim, or defending against the opposing party’s fee claim, is often overlooked until trial approaches when the costs have already been incurred and discovery is coming to a close.  Understanding the fee claim and developing or defending it alongside the core claims will pay dividends in the long run.

Proving It Up for the Win

Rohrmoors clears up any lingering mystery: Plan to submit your attorneys’ billing records to support your fee claim.  “Sufficient evidence [to support a fee claim] includes, at a minimum, evidence of (1) particular services performed, (2) who performed those services, (3) approximately when the services were performed, (4) the reasonable amount of time require to perform the service, and (5) the reasonable hourly rate for each person performing such services.”

From that, the factfinder determines the reasonable hours times the reasonable hourly rate resulting in the lodestar.  Only in extremely limited and unusual circumstances may the factfinder apply a multiplier upward or downward to account for factors not otherwise baked-in-the-cake of the lodestar.

Thus, when proving up your attorney fees, it is critical to provide accurate and complete billing records in support of your claim.  The Supreme Court of Texas stated this was “strongly encouraged” in Rohrmoos, but the clear implication of that opinion as a whole is that it is indispensable to recovery of fees.

That means the attorneys’ time entries should be detailed enough to provide sufficient information for review and payment, but not so detailed that extensive redacting is going to be required to protect work product or attorney-client privileged information.  Such extensive redaction may fall short of the Rohrmoors’ requirement that the evidence show the particular services performed and may also fail to satisfy segregation requirements.

Also consider whether a fee claim will require a separate, retained expert.  The attorney in Rohrmoors opted to testify as his own expert, which is fairly common.  There are multiple schools of thought on this.  The attorney who generated the fees is going to have a better grasp on the facts and nuances of the case, especially in complex litigation where the total hours and requested award might be especially large.  Most judges know that a retained expert is no less self-interested than the lawyer in the case.  On the other hand, to a jury, a retained expert may appear at least somewhat less self-serving.  If the attorney’s rate is particularly high, it may be helpful to have another attorney explain why that rate is reasonable.  Finally, if there is a great degree of tension between opposing lawyers related to the litigation, cross examination of the lawyer in the case on the issue of fees could get heated.  In that case, it may be better to have one degree of separation with a retained expert.

Amy K. Anderson and Tiffany C. Raush are associates and Joshua A. Norris is a partner at Jones Walker LLP in Houston.