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Category: Fee Shifting

PA Enviro Board Can Weigh ‘Bad Faith’ in Awarding Attorney Fees

February 17, 2021

A recent Law 360 story by Matthew Santoni, “Pa. Enviro Board Can Weight ‘Bad Faith’ in Awarding Attorney Fees,” reports that the administrative board that hears appeals of decisions by Pennsylvania's Department of Environmental Protection was justified in denying attorney fees to environmental groups that reached a settlement with Sunoco over its Mariner East 2 pipeline, since the board found neither side acted in "bad faith," a state appellate court ruled.

A majority of the Commonwealth Court ruled the state's Environmental Hearing Board could deny a petition for fees from the Clean Air Council, The Delaware Riverkeeper Network and Mountain Watershed Association Inc. based on the so-called bad faith standard, since neither the environmental groups nor Sunoco had acted in bad faith through the groups' appeal of the DEP granting permits for the pipeline, which resulted in a settlement between the groups and the state.

The environmental groups had argued that the board should have applied the looser "catalyst test," which would have only required them to show that their appeal was the motivating factor behind some benefit conferred by the other side in order to trigger fee-shifting provisions in the state's Clean Streams Law and have Sunoco pay their nearly $230,000 legal bill.

"Contrary to objectors' assertions, the catalyst test is not the sole and exclusive standard that EHB may employ in disposing of a request for costs and fees against a permittee under ... the Clean Streams Law.  Indeed, we have specifically recognized that EHB's 'broad discretion includes the authority to adopt standards by which it will evaluate applications for costs and fees,'" wrote Judge Michael H. Wojcik for the majority.  "It was entirely within EHB's discretion, and eminently appropriate, to apply the instant bad faith standard in deciding whether or not to impose costs and fees upon a private party permittee."  The court ruled that the EHB had wide discretion when weighing whether and how to award fees, and in a separate decision it upheld another EHB ruling that had cut the fees awarded to a family that challenged the DEP permits for another part of the pipeline crossing their land.

The environmental groups had challenged 20 permits the DEP had granted Sunoco for construction of a pipeline linking gas wells in Western Pennsylvania to a refinery in the east. The matter wound its way through various proceedings before the EHB until the challengers reached a deal with the DEP in which it would establish a "stakeholder group" on pipeline construction and would put more of its permitting documents online in exchange for the groups dropping their challenge.  The DEP also agreed to pay $27,500 of the challengers' legal fees.

But the challengers then asked the EHB to make Sunoco pay additional legal bills related to their appeal, and Sunoco filed its own petition to make the environmental groups pay nearly $300,000 toward what it had spent defending the permits.  The EHB was split, with the majority saying it could apply the bad-faith standard and find that neither side had "engaged in dilatory, obdurate, vexatious, or bad faith conduct in the course of prosecuting or defending" the appeals.  The minority had agreed that neither side was entitled to fees, but said the bad-faith test was not necessary and the board had broad discretion to award fees as it saw fit.

The environmental groups and the DEP both appealed, though the Commonwealth Court found the DEP lacked standing and granted Sunoco's bid to quash that side of the appeal because the state agency hadn't formally intervened in the fee debate and would not have been affected by the EHB ruling against the private parties.

President Judge P. Kevin Brobson wrote a concurring opinion, joined by Judge Renée Cohn Jubelirer, expressing concerns that the EHB's discretion might be so broad that the particular section of the Clean Streams Law might run afoul of the state constitution's requirement that the law contain standards to "guide and restrain" the administrative board's decision-making.  But because that issue wasn't brought up on appeal, and the EHB had denied either side any fees, this wasn't the case to address that with, Judge Brobson wrote.  In this case, there was no reason Sunoco should have been required to pay, he said.

"There is absolutely no basis in the record upon which the EHB could have exercised its discretion below in such a way as to compel Sunoco to pay objectors' legal fees," he wrote. "Sunoco was not a party to the settlement agreement between objectors and DEP that essentially ended objectors' appeals.  Moreover, Sunoco gave up nothing in the settlement or otherwise.  Sunoco kept its permits, unaltered, as if objectors had not even filed their appeals with the EHB."

A dissenting opinion from Judge Ellen Ceisler said the courts shouldn't apply a tougher standard to permit holders when the DEP itself could have been made to pay fees under the catalyst test.  "It does not therefore seem reasonable that, in theory, the DEP could be saddled with fees and costs in response to inadvertent mistakes or good faith, negotiated compromises or settlements, while a permittee could get off scot-free under similar circumstances unless it has conducted itself in a dilatory, obdurate, or vexatious way," she wrote.

The court then applied its ruling to a separate appeal by the DEP of another EHB order, which said the state had to pay about $13,000 of a family's requested $266,000 in fees from the DEP and Sunoco.  Huntingdon County landowners Stephen and Ellen Gerhart had convinced the EHB in 2019 that the DEP had misclassified a wetland on their property and that Sunoco had to do more work to restore it after completing the pipeline's construction.  But the EHB held Sunoco to the bad-faith standard and the DEP to the catalyst test in parceling out who was responsible for the reduced fee award.

Following the same logic as its ruling in the Clean Air Council case, the court affirmed that the EHB had the discretion to apply both standards in awarding fees.  "We agree that the statute and the case law grant broad discretion to the EHB in setting the standard and applying it," said Robert Fox of Manko Gold Katcher & Fox LLP, representing Sunoco in both cases.  An attorney for the environmental groups said they were weighing the decision and their options.

The attorney for the Gerharts said he thought the court correctly balanced the different standards for fee-shifting against the state and against private actors, but noted that in cases like his where the DEP and Sunoco essentially worked together to defend the permits, the state would have to be mindful of whether it would need to build a record to establish that the permit-holder was acting in bad faith.

Illinois Court Weighs if Wage Law Provides for Attorney Fees

February 10, 2021

A recent Law 360 story by Celeste Bott, “Court Must Weigh if Ill. Wage Law Provides For Atty Fees”, reports that an Illinois appellate court held that a former police officer isn't entitled to attorney fees under the settlement reached in his wage suit with a Chicago-area village, instructing the circuit court to consider on remand whether he can recover the fees under the Illinois Wage Payment and Collection Act.

Former officer David Graham contends he's entitled to attorney fees under the Illinois wage law, which provides workers can recoup fees in a successful civil action brought by "any employee not timely paid wages, final compensation, or wage supplements by his or her employer." Graham, who reached a settlement with the village of Dolton after a benefits dispute, argues that Employee Disability Act benefits constitute "wages," according to the appellate court.

The village had countered that Employee Disability Act benefits are not considered "wages" because they do not compensate employees for work "actually performed," according to the opinion.  The panel said the circuit court never addressed Graham's arguments that he is entitled to attorney fees under the Wage Payment and Collection Act, remanding with directions to consider whether he could recover attorney fees and costs pursuant to the statute.

In Illinois, each party is responsible for his own attorney fees, and the settlement agreement didn't contain a contractual fee-shifting provision that puts the village on the hook for more than $100,000 in fees and costs, the panel said.  Graham had argued that the entire agreement constituted a "contractual undertaking," and that the lower court had relied on a section of that agreement that states that the parties acknowledged he was "the prevailing party for purposes of his petition for [attorney] fees and costs," according to the opinion.

"Although this provision provides that plaintiff is the prevailing party for purposes of his fee petition, it does not expressly provide that the parties agreed that plaintiff, as the prevailing party, is entitled to recover attorney fees from defendant in the underlying action," the panel said.  But in the very next section of the agreement, the parties did expressly set forth which party was responsible for attorney fees if either side has to file suit for a breach of the settlement deal, the court said.

"If a party is forced to file a breach of contract action, the agreement provides that the prevailing party in that action would be entitled to reasonable attorney fees," the court said.  "Because this case is not an enforcement action, section six of the agreement does not apply."

Virtu Financial Fights for $3.2M Fee Award in Trade Secret Case

January 7, 2021

A recent Law 360 story by Adam Lidgett, “Virtu Fights for $3.2M Fee Award Against Ex-Worker” reports that a unit of high-frequency trading firm Virtu Financial has shot back at a recommendation that it should only get about $401,500 in attorney fees and costs after scoring a win in a trade secret case against an ex-employee, arguing it should be able to collect millions of dollars.

KCG Holdings Inc., which prevailed in its trade secret misappropriation case in March against Rohit Khandekar, filed an opposition to U.S. Magistrate Judge Gabriel W. Gorenstein's recommendation that it only get about $401,500 in fees and costs.  KCG said it should get more than $3.18 million in fees and costs — less than the nearly $3.6 million it initially asked for.  The firm said it wasn't challenging every reduction in the recommendation, but it did have issues.  While the magistrate judge said that "the relief KCG ultimately obtained was 'limited as compared to the relief sought,'" KCG said it actually was quite successful, for instance.

"This result was not the inevitable conclusion of a routine breach-of-contract lawsuit, as the report contends," KCG said.  "It was the exhausting finish to a hard-fought legal battle wherein Khandekar employed every litigation tool available to him."  Khandekar also hit back at the magistrate judge's recommendation, saying the court should cut the recommended amount down to something more "reasonable."  That $401,500 figure accounts for 80% of his entire wealth, and the court should reduce what is recommended so "Khandekar does not need to sell his home," he said.

In his early December report and recommendation, Judge Gorenstein said the rates KCG proposed were out of step with precedent requiring the court to consider rates in relation to attorneys of "average skill and ordinary competence."  Judge Gorenstein also found that the amount of hours KCG billed for was "vastly excessive," as was the number of attorneys on the case.

In opposing KCG's June motion for attorney fees, Khandekar had argued it should be rejected in its entirety for being "so outrageously excessive and unreasonable that it could not possibly have been made in good faith."  But Judge Gorenstein had rejected that argument, saying a case Khandekar relied on to support it involved a party that made repeated misrepresentations to the court.

Article: Granting Arbitrators the Power to Award Attorney Fees

January 4, 2021

A recent Legal Intelligencer article by Abraham J. Gafni, “Unintentionally Granting Arbitrators the Power to Award Attorney Fees” reports on granting the power to award attorney fees in arbitration.  This article was posted with permission.  The article reads:

In this pandemic period, as courts are limited in their ability to conduct civil trials, parties increasingly consider whether and how to settle their disputes through arbitration.  In his article last month in the Legal Intelligencer, “How Pre-Lawsuit Demand Letters Can Undermine Arbitration” (Nov. 16, 2020), Charles Forer, through his erstwhile attorney foil Bob, explained how a party who had entered into an agreement providing for mandatory arbitration almost suffered the unintended consequence of forfeiting that right by threatening litigation in court.

Yet another area in which this “law of unintended consequences” appears to be regularly occurring these days is when a party unintentionally extends authority to the arbitrator to award attorney fees.  The general “American Rule,” of course, is that, in the absence of a contractual agreement or statutory provision, each party is responsible for its own attorney fees.  Similarly, arbitrators generally lack the authority to award attorney fees.  Nonetheless, parties often determine that it is within their interests to include a provision in the arbitration agreement allowing the arbitrators to award them.

Even when the parties have not included such authority in the arbitration agreement, however, they may unexpectedly find that through their arbitration pleadings or other actions during the arbitration proceeding, they have granted such authority and become responsible for the payment of their successful adversaries’ attorney fees.

A recent opinion of the Massachusetts Superior Court, business litigation session, reflected how a party’s own actions authorized an arbitration panel to award attorney’s fees even though the contract did not provide that authority. See Credit Suisse Securities (USA), (Credit Suisse) v. Galli, No. 2020-0709-BLS 2 (Aug. 31, 2020).  The case involved employees who were formerly employed by Credit Suisse.  They filed an arbitration demand against Credit Suisse alleging a violation of the Massachusetts Wage Act (Wage Act) and related contract claims, asserting that Credit Suisse had failed to pay them earned deferred compensation.

Credit Suisse denied these allegations and filed a counterclaim claiming that the employees had breached their contracts with Credit Suisse.  Consequently, in addition to asserting a claim of millions of dollars in compensatory damages it sought “transaction costs, interest and fees.”  In closing arguments, the employees’ counsel specifically sought attorney fees, asserting that the arbitrators could award them pursuant to the Wage Act, and “because we believe that Credit Suisse, in filing their counterclaims … are requesting” not only millions of dollars in compensatory damages but also “related transaction costs and fees.”  Employees’ position was that since both parties were requesting attorney fees and costs, the arbitrators had the authority to award such fees to the successful party.

In response, in its closing arguments, Credit Suisse’s counsel stated that “we do not think there is any legal basis for an award of fees and expense in this case,” but added that if the arbitration panel were to award fees to the employees, the fee application was insufficiently itemized.  However, they did not directly contest the assertion that Credit Suisse had itself requested attorneys’ fees or that by so doing it had given the arbitrators the authority to award such fees even without a finding of a Wage Act violation.  Moreover, at no time in the proceedings, did they make clear to the arbitrators that they were withdrawing any claim for attorneys’ fees should they prevail.

The arbitration panel awarded the employees compensatory damages as well as over $100,000 in attorney fees.  Credit Suisse appealed, arguing that the panel had exceeded its powers in awarding such fees.  In considering this contention, the court noted that judicial review of an arbitral decision “is extremely narrow and exceedingly deferential.”  Among the limited bases for vacating an award under both the Federal Arbitration Act, 9 U.S.C. Section 10(a)(4) and the Wage Act, however, is where the arbitrators have exceeded the scope of their arbitral authority.

Had the arbitration panel found violations of the Wage Act, the employees would have been entitled to attorney fees pursuant to that statute. The court noted, however, that it was unclear whether the findings of the panel had been based upon violations of the Wage Act.

Critically, however, the arbitration panel did not cite the Wage Act as the basis for its award of attorney fees.  Rather, according to the Massachusetts Superior Court, “the panel stated that it had the authority to award fees because each side had requested its fees.  Where the parties mutually request attorney’s fees in an arbitration, courts have concluded that this mutual request can provide the requisite legal basis for an award of fees, even though the general rule is that each party pays its own attorney fees.  This is precisely what happened here.”

In citing other cases containing a similar holding, the court noted that Rule 43(d) of the Commercial Arbitration Rules of the American Arbitration Association at Rule 43(d) also authorizes the award of attorney fees where all parties have requested it.  In short, “by expressly demanding attorney’s fees and then submitting that demand (through its counterclaim) to arbitration, Credit Suisse effectively gave the arbitrators the authority they would not have otherwise had to award such fees to the prevailing party.”

The court distinguished this situation from Matter of Stewart Abori & Chang, 282 A.D. 2d 385, 723 N.Y.S. 2d 492 (App. Div. 2001), in which the court vacated the arbitrator’s award of attorney fees to the prevailing party because prior to the rendering of the award, the opposing party withdrew its claim to recover its own attorney fees and objected to the opponent’s claim for such relief. It was not deemed, therefore, to have acquiesced in the arbitrator’s consideration of that claim.

Finally, Credit Suisse sought to escape this conclusion by arguing that its counterclaim only asked for “fees,” not “attorney fees.”  This contention was also rejected by the court.  It noted that it was clear from the employees’ closing argument that the employees understood the Credit Suisse counterclaim to be seeking attorney fees and the employees’ own counsel were also seeking attorney fees, regardless of whether an award in its favor was based on a Wage Act violation.  In the face of these contentions by the employees, however, Credit Suisse was silent, neither correcting the supposed mischaracterization of its counterclaim nor making clear that Credit Suisse was not seeking attorney fees.  In addition, its only expressed opposition to the award of attorney fees was based solely on the sufficiency of the fee application submitted by the employees.

Otherwise stated, while Credit Suisse did not actively litigate the issue of its own fees, it never expressly withdrew that claim.  In addition, Credit Suisse did not dispute the employees’ assertion in closing arguments that the parties had agreed to submit the question of attorney fees for resolution by the panel.

In summary, whether arbitrators should be granted the authority to award attorney fees is an issue that must always be considered when drafting an arbitration agreement; and, of course, as the nature of any future dispute is not yet known and the incorporation of such a provision will be adopted without any knowledge of the potential financial burden that may result , counsel must always evaluate the likelihood of success in the arbitration, the relative financial situations of the parties, and the ability to bear such further expense in the event of an adverse result.

What has been further demonstrated here is that parties must remain wary of the possibility of becoming responsible for attorney fees, even when the arbitration agreement does not provide for such by making or joining in such a demand or, perhaps, by simply remaining silent and not objecting in the face of the other side’s request for attorney fees.  Unfortunately, this often occurs merely because parties wish to demonstrate that their aggressiveness and confidence match that of their adversaries.  Ignoring the potential risk of this unintended consequence, however, may result in a significant award well beyond what was contemplated by the parties when they agreed to arbitration.

Abraham J. Gafni is a retired judge and mediator/arbitrator with ADR Options.  He is also a professor of law emeritus at the Villanova University Charles Widger School of Law.

UBS Whistleblower Awarded $1.8M in Fees in $1M Jury Verdict

December 16, 2020

A recent Law 360 story by Jack Queen, “UBS Whistleblower Naps $1.8M in Atty Fees on $1M Jury Win,” reports that a Manhattan federal court awarded a former UBS Securities analyst who won a $1 million retaliatory firing verdict $1.77 million in attorney fees and costs, granting half the sum requested by his lawyers at Stulberg & Walsh LLP and Herbst Law PLLC.  U.S. District Judge Katherine Polk Failla said the case was one of the "closest [her] court has ever observed" in her 74-page order, which parsed seven years of tenacious litigation between Trevor Murray and UBS in two separate cases that yielded five published opinions and a $3.2 million request for fees that the investment bank pilloried as "jaw-dropping" and "excessive."

Judge Failla slashed Murray's fee request for both of his firms, finding that while he notched a victory in a developing area of the law against a well-armed opponent, there were "enormous disparities" between what Murray sought, what he got and what his attorneys ultimately asked for.  "Putting to the side the policy goals ostensibly vindicated by the jury's verdict, the fact remains that plaintiff obtained significantly less relief, quantitatively and qualitatively, than he sought," Judge Failla said.

Murray sought $14 million in damages under the Sarbanes-Oxley Act in a case Judge Failla described as "far from a slam dunk."  Jurors awarded the former mortgage-backed securities analyst about $1 million in 2017, finding he was fired for refusing to skew his research to impress investors but concluding he wasn't entitled to damages for future wages.  Murray argued that substantial fees were warranted because he secured an extremely rare trial win on a Sarbanes-Oxley retaliation claim after weathering a years-long onslaught from UBS' legal team.  Healthy compensation for his attorneys would encourage other lawyers to represent whistleblowers, he said.

UBS countered that Murray's lawyers "wasted countless hours in pursuing losing positions" and won only a "'success' worse than defeat" after years of fighting.  Murray won $653,300 in back pay and $250,000 in noneconomic damages plus interest while striking out on future pay and reinstatement, UBS noted.  Judge Failla found merit in both positions but still trimmed Murray's hours significantly, pointing to the gulf between his demand and award, the "top-heavy" billing practices of his lawyers and their litigation and staffing strategies, which she said led to wasted effort.

Murray waited until the eve of trial to hire Herbst Law because Stulberg & Walsh had inadequate trial experience to argue the case, which Judge Failla said led to duplicative billing.  Murray also mothballed his initial claim under the Dodd-Frank Act when it went to arbitration only to see it gutted by the U.S. Supreme Court's decision in Digital Realty Trust Inc. v. Somers , which found plaintiffs can only qualify as whistleblowers under Dodd-Frank if they go directly to the U.S. Securities and Exchange Commission.

"The court does not fault plaintiff or his counsel for not being prescient," Judge Failla wrote.  "That said, plaintiff and his counsel made strategic litigation decisions that had dramatic impact on his legal bills."  In a statement to Law360, Murray's attorney Robert L. Herbst said the "huge reduction disincentivizes civil rights lawyers and their clients to take on these difficult and protracted legal struggles against major law firms whose billings and hourly rates are double ours."  Robert Stulberg concurred, adding that "if courts do not believe that vindication of a whistleblower's rights, and a million-dollar judgment, are a 'success,' then the reason for fee-shifting in civil rights statutes has not been served."