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Category: Fee Statute

In-House Counsel Can and Should Collect Attorney Fees

August 21, 2017

A recent Corporate Counsel article by Daniel K. Wiig, “In-House Counsel Can and Should Collect Attorney Fees,” writes about attorney fee entitlement for in-house counsel work.  This article was posted with permission.  The article reads:

When weighing his post-Senate career options, then-U.S. Sen. Howard "Buck" McKeon rejected an offer from a prominent law firm, opting not to "live his life in six-minute increments."  Indeed, it is with fair certainty to state a top reason lawyers in private practice transition to in-house is to escape the billable hour.  And while the imminent death of the billable hour may have been highly exaggerated (again and again), it remains the predominate metric for private-practice attorneys handling commercial work to track their time and collect fees.

Numerous reports suggest the in-house lawyer is "rising," with companies opting to retain more and more legal work within their law departments, and decreasing the amount of work they disseminate to outside counsel.  Sources cite various reasons from cost to the intimate knowledge in-house lawyers possess regarding their employer vis-à-vis outside counsel.  Whatever the genesis, it reasons that in-house lawyers morphing into the role traditionally held by outside lawyers should assume all such components of the role, which, when possible, can include recovering attorney fees for actual legal work performed, as noted in Video Cinema Films v. Cable News Network, (S.D.N.Y. March 30, 2003), (S.D.N.Y. Feb. 3, 2004), and other federal and state courts.

Recovering attorney fees is that extra win for the victorious litigant, whether provided by statute or governed by contract.  It leaves the client's bank account intact (at least partially) and gives the prevailing attorney additional gloating rights.  For the in-house lawyer, recovering attorney fees can also occasionally turn the legal department from a cost center to a quasi-profit center.  In-house lawyers can and should collect attorney fees.

To be clear, recovering attorney fees is not available for in-house lawyers functioning in the traditional role of overseeing outside counsel's work.  As noted in Kevin RA v. Orange Village, (N.D. Ohio May 4, 2017), a court will not award fees to in-house lawyers that are redundant, i.e., those which reflect work performed by outside counsel.  Indeed, when in-house counsel is the advisee of litigation status rather than drafter of the motion or attends the settlement conference as one with authority to settle rather than to advocate more advantageous settlement terms, she functions as the client rather than lawyer, of which attorney fee are unavailable.

Unlike their counterparts in private practice, in-house counsel do not have set billing rates, although an exception may exist if internal policies permit the legal department to invoice the department that generated the legal matter.  Even in such a situation, as with law firm billing rates, the actual fees/rates are considered by the court but not determinative in awarding fees, as noted in Tallitsch v. Child Support Services, 926 P2d. 143 (Colo. App. 1996).  In determining what constitutes an appropriate and reasonable attorney fee award, courts frequently apply the "reasonably presumptive fee" or the "lodestar" method.  Under the lodestar method, as explained in Earth Flag v. Alamo Flag, 154 F.Supp.2d 663 (S.D.N.Y. 2001), fees are determined by "multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate."

Reasonableness is a question of fact for the trial court.  In determining a reasonable hourly rate, federal courts look to those reflected in the federal district in which they sit, while state courts consider the prevailing rates in their respective city and geographical area.  Courts will also consider other factors such as the complexity of the case, the level of expertise required to litigate the matter, and the fees clients in similar situations would be willing to pay outside counsel in determining the appropriate hourly rate for the in-house lawyer.  Determining whether the tasks performed by the in-house lawyer were reasonable is left to the court's discretion.

Recognizing legal departments do not necessary operate in lockstep fashion as a law firm, courts will consider the "blended" rate in the lodestar calculation.  Here, a court will combine or "blend" the reasonable rates for associates, partners, counsel and paralegals in their locale to devise the appropriate hourly rate for the in-house lawyer.  The premise is in-house lawyers generally take on less defined roles in litigating a matter than their counterparts in private practice, performing a combination of litigation tasks that may be more clearly delineated among law firm staff.

In order to successfully receive an award of attorney fees, the in-house lawyer must maintain a record akin to a law firm's billing sheet of her time spent on the matter, as reflected in Cruz v. Local Union No. 3 of International Brotherhood of Electrical Workers, 34 F.3d 1148 (2d Cir. 1994).  Consequently, an excel spreadsheet, or similar document, enumerating the time and task, with as much detail as possible, is required to sustain a court's scrutiny in looking for tasks that were "excessive, redundant or otherwise unnecessary," as noted in Clayton v. Steinagal, (D. Utah Dec. 19, 2012).  Moreover, the in-house attorneys who worked on the matter must execute affidavits attesting to the accuracy of their time records, and include the same in their moving papers.

As the legal profession changes and corporate legal departments retain more of their work, in-house should take advantage of statutory or contractual attorney fees provisions, notably for the litigation they handle internally.  In so doing, the in-house lawyer may find a number of benefits, such as approval to commence litigation that they may have otherwise shied away from because of the possibility to recoup attorney fees and the benefit of essentially obtaining payment for the legal work performed.

Daniel K. Wiig is in-house counsel to Municipal Credit Union in New York, where he assists in the day-to-day management of the legal affairs of the nearly $3 billion financial institution.  He is also an adjunct law professor at St. John's University School of Law.  Wiig successfully moved for in-house attorney fees in Municipal Credit Union v. Queens Auto Mall, 126 F. Supp. 3d 290 (E.D.N.Y. 2015).

Federal Circuit: No Right to Jury Trial on Patent Fee Awards

August 11, 2017

A recent NLJ story by Scott Graham, “No Right to Jury Trial on Patent Fee Shifting, Federal Circuit Rules,” reports that there is no Seventh Amendment right to a jury trial on the issue of attorney fee awards in patent cases.  Not even when $12 million is at stake.  So ruled the U.S. Court of Appeals for the Federal Circuit in a notorious pair of cases involving the rights to a scientific breakthrough on Alzheimer's disease research.

The Alzheimer's Institute of America, also known as AIA, argued that the jury that heard its patent validity case should also have decided whether it acted in bad faith.  Instead, U.S. District Judge Timothy Savage of Philadelphia made that finding and socked AIA with a $3.9 million fee award.  U.S. Magistrate Judge Elizabeth Laporte in the Northern District of California followed with a $7.8 million award predicated on Savage's findings.

The Federal Circuit affirmed the fee awards.  “The Seventh Amendment right to a jury trial does not apply to requests for attorney’s fees under Section 285 of the Patent Act,” Judge Todd Hughes wrote in AIA America v. Avid Radiopharmaceuticals.  Savage “did not err by making factual findings not foreclosed by the jury’s verdict.”

The two cases are among many the institute brought against university and pharmaceutical researchers over the last decade.  Some companies settled for millions of dollars, while others fought back.  Avid argued that AIA never owned the patent on a genetic defect known as the Swedish mutation that’s associated with Alzheimer’s disease.  A Philadelphia federal jury agreed that AIA did not have standing to assert the patent.

Savage then ruled that “the evidence at trial amply showed” that AIA's principal, businessman Ronald Sexton, conspired with two scientists to hide their blockbuster Alzheimer’s discovery from their university employers.  At oral arguments in June, Buckley told the Federal Circuit that Sexton had been acting on advice of counsel and that Savage's finding of bad faith could not be squared with the trial evidence.

Hughes wrote that Federal Circuit case law does forbid trial judges from making findings that are inconsistent with issues “necessarily and actually decided by the jury.”  But that wasn't the situation here.  “These decisions do not prevent a court, when deciding equitable issues, from making additional findings not precluded by the jury’s verdict,” Hughes wrote.

Ninth Circuit Upholds Fees for Fees Under Statute

April 24, 2017

A recent Metropolitan News story by Kenneth Ofgang, “Panel Upholds Award of ‘Fees-on-Fees’ Under Statute” reports that a statute that permits federal judges to sanction attorneys for vexatious litigation permits an award of fees to opposing counsel for litigating the right to fees, the Ninth U.S. Circuit Court of Appeals ruled.

In a published order, the panel—Judges Alex Kozinski, Richard A. Paez, and Marsha S. Berzon—denied reconsideration of the appellate commissioner’s ruling calculating sanctions against Boston attorney Michael J. Flynn and his client, Timothy Blixseth.  The two were ordered to pay nearly $192,000 in fees and costs incurred by several creditors of Blixseth, a co-founder of the bankrupt Yellowstone Mountain Club.  Blixseth was found jointly liable for all but around $34,000 of the award, for which Flynn was found separately liable by statute.

Blixseth and one of his ex-wives developed the Yellow Mountain Club as an exclusive resort for “ultra-wealthy” golfers and skiers.  He has blamed the 2008 mortgage crisis for the collapse of his finances.  His wealth was estimated by Forbes magazine at $1.3 billion when it named him one of the 400 wealthiest Americans in 2006.  Creditors have claimed Blixseth has hidden assets.

Blixseth, represented by Flynn, appealed the denial of a motion to recuse the District of Montana bankruptcy judge assigned to his case.  The Ninth Circuit affirmed, agreeing with the district judge that Blixseth’s accusations were “a transparent attempt to wriggle out of an unfavorable decision by smearing the reputation of the judge who made it.”

In August 2015, the Ninth Circuit panel said Blixseth and Flynn were subject to attorney fees incurred by creditors on that appeal, citing Rule 38 of the Federal Rules of Appellate Procedure and 28 U.S.C. §1927.  “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”

Section 1927 provides: “Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

In the order, the panel agreed with the appellate commissioner that fees incurred in litigating the right to fees, or “fees on fees,” cannot be awarded under Rule 38, but may be awarded under §1927.  The panel also denied, without comment, Flynn’s motion that the judges recuse themselves.

Because Rule 38 refers to “damages,” the judges said, it is not a fee-shifting statute, and the only attorney fees that may be awarded under the rule are those “incurred in defending against the frivolous issues or frivolous portions of an appeal.”

Section 1927, by contrast, “may be characterized as a fee-shifting provision, despite its sanctions trigger,” the panel said.  The legislation’s purpose, the judges said, it to shift the burden of the vexatious litigation onto the vexatious lawyer, noting that fee-shifting statutes generally are interpreted as permitting the award of “fees on fees.”

The case is Blixseth v. Yellowstone Mountain Club, LLC, 12-35986.

Federal Circuit: EAJA Fee Awards Must Use Local Rates

March 16, 2017

A recent Law 360 story by Chuck Stanley, “Fed. Circuit Says EAJA Legal Fees Must Use Local Costs,” reports that awards for attorneys’ fees under the Equal Access to Justice Act (EAJA) must be calculated based on the location where the work was done, a Federal Circuit panel said in a precedential ruling.

The federal circuit rejected a veteran’s widow’s claim that ambiguity in the statute allows her to adjust upward the hourly rate for calculating attorneys’ fees in a benefits suit based on the consumer price index (CPI) in Washington, D.C., where the case was heard but little other work was done.

Instead, the panel ruled that Paula Parrott should have provided individual rates for work done in Dallas, San Francisco and Washington in order to win an adjustment from the statutory rate of $125 per hour, rather than using the CPI for a single city or the national CPI to calculate a single rate.

The decision upheld the Veterans Court’s decision to award Parrott fees based on the statutory rate because she failed to provide rates for each city where work had been done on the case.

“We think the local CPI approach, where a local CPI is available … is more consistent with EAJA than the national approach.  We therefore hold that the Veterans Court did not err in ruling that the local CPI approach represented the correct method of calculating the adjustment in Ms. Parrott’s attorney’s hourly rate,” the decision states.

Parrott had claimed more than $7,200 in legal expenses in a suit over benefits for her husband, a deceased veteran, based on an upward adjustment from the statutory hourly rate based on the cost of living in Washington, D.C.  Language in the EAJA, which provides for an award of attorneys’ fees to victorious parties fighting agency action, stipulates that a $125 cap on hourly rates can be adjusted upward due to an increase in the cost of living.

But Parrott argued the statute is ambiguous regarding the method used to calculate such an increase.  She further claimed the Veterans Court was obliged to accept her cost estimate because ambiguity in a statute related to veterans benefits must be construed in favor of the veteran.

However, the panel ruled the EAJA is not ambiguous because using the national CPI rather than local numbers would incentivize more attorneys to accept cases challenging government agencies in low-cost areas rather than pricier areas.  Further, the panel found Parrott’s claim the Veterans Court was required to side with her is not applicable to the EAJA since it is not a veterans benefit statute, but applies to all litigants against executive agencies.

The case is Parrott v. Shulkin, case number 2016-1450, in the U.S. Court of Appeals for the Federal Circuit.

Attorney Fees Not Subject to Damages Cap in Wage Case

March 8, 2017

A recent Legal Intelligencer story by Zack Needles, “Attorney Fees Not Subject to Damages Cap in Wage Case, Court Says,” reports that attorney fees can be awarded under the Pennsylvania Wage Payment and Collection Law (WPCL), even if they cause the total recovery to exceed a voluntary $25,000 damages cap, the Pennsylvania Superior Court ruled in a case of first impression.

Under Pennsylvania Rule of Civil Procedure 1311.1, a plaintiff can elect to limit the maximum amount of damages recoverable to $25,000 in exchange for looser evidence admission requirements at a trial following compulsory arbitration.  In a published opinion in Grimm v. Universal Medical Services, a three-judge Superior Court panel unanimously ruled that such a cap does not preclude an award of attorney fees under the WPCL that pushes the total recovery above $25,000.

The decision affirmed a Beaver County trial court's award of $43,080.66, comprising an $11,683.92 jury award, plus $2,920.98 in liquidated damages and $28,475.76 in attorney fees and costs under the WPCL.  The appeals court upheld Beaver County Court of Common Pleas Judge James J. Ross' ruling, which reasoned that attorney fees in excess of the damages cap should be permitted because "a prevailing plaintiff in a [WPCL] claim must be made whole and not be required to expend his or her award to pay his or her attorney."

Judge John T. Bender, writing for the Superior Court, agreed with Ross' rationale, noting that Rule 1311.1 is intended to streamline litigation in order to make it more economically feasible for plaintiffs, while the WPCL is meant to allow plaintiffs to collect unpaid wages and compensation without having to spend their entire recovery on legal fees.

"In this way, both Rule 1311.1 and the WPCL aim to make litigation more accessible and affordable to aggrieved litigants, particularly those with meritorious claims," Bender said.  "In this case, we believe we are promoting this overarching policy by interpreting 'damages recoverable' in Rule 1311.1(a) to exclude attorneys' fees under the WPCL."  Bender was joined by Judges Mary Jane Bowes and Carl A. Solano.

In Grimm, plaintiff Jeffrey P. Grimm sued defendants Universal Medical Services Inc. and Roderick K. Reeder, alleging breach of contract against Universal for failure to reimburse business expenses and a WPCL claim against both defendants on the same basis, according to Bender.

The case proceeded to compulsory arbitration, with an award in favor of the defendants.  Grimm appealed to the Beaver County Court of Common Pleas, electing to cap damages at $25,000 under Rule 1311.1, and the case proceeded to a jury trial, Bender said.

The jury awarded damages to Grimm in the amount of $11,683.92 and, finding that Universal acted in bad faith in failing to reimburse him, the court added 25 percent, or $2,920.98, to the jury award, resulting in a total of $14,604.90, according to Bender.  Grimm then sought attorney fees in the amount of $25,946.25 and litigation costs in the amount of $2,529.51 under the WPCL.

While the defendants argued that the phrase "damages recoverable" in Rule 1311.1 encompassed attorney fees, Grimm contended that attorney fees are payments in addition to a jury award intended to make the plaintiff whole.

Bender noted that Ross, in his analysis, looked first at the analogous 2001 Pennsylvania Supreme Court case Allen v. Mellinger, in which then-Justice Ralph Cappy wrote in a concurring and dissenting opinion that delay damages in cases involving bodily injury, death or property damage under Pa.R.Civ.P. 238 should not be subject to the statutory cap of $250,000 when the state is a defendant in a bodily injury claim.

In the 2005 case LaRue v. McGuire, as Ross also noted in his opinion, the Superior Court relied on Cappy's reasoning in Allen to find that delay damages under Rule 238 were not subject to the Rule 1311.1 damages cap.

While the defendants attempted to distinguish Grimm from Allen and LaRue by arguing that delay damages are an extension of compensatory damages intended to make the plaintiff whole, while attorney fees serve no such purpose, Bender disagreed.

"It is clear that the award of attorneys' fees under the WPCL accomplishes the purpose of making a plaintiff whole, just like the delay damages in Allen and LaRue," Bender said.