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Category: Fee Statute

Federal Circuit: Attorneys Lack Standing to Recover Attorney Fees for Veteran

January 13, 2020

A recent Law 360 story by Kevin Penton, “Fed Circ. Won’t Let Attys Get Fees From Feds on Vet’s Behalf, reports that attorneys lack standing under federal law to sue the federal government on their own to recover fees for work they performed on behalf of a veteran, the Federal Circuit held in a precedential opinion.  The appellate panel rejected arguments by attorneys Meghan Gentile and Harold H. Hoffman III of the nonprofit Veterans Legal Advocacy Group that they could collect over $4,000 in fees after their former client, Matthew Shealey, prevailed in his case, even though he had fired them and had opposed their attempt to collect the money.

The Federal Circuit noted that in a 2010 case known as Astrue v. Ratliff, the U.S. Supreme Court held that under the Equal Access to Justice Act, the “prevailing party” is the actual party in a case, not the individual’s attorneys.  “The fact that the statute awards to the prevailing party fees in which [its] attorney may have a beneficial interest or a contractual right does not establish that the statute ‘awards’ the fees directly to the attorney,” the Federal Circuit said, quoting the Supreme Court.

The Federal Circuit also rejected an alternative argument by Gentile and Hoffman that they had a right to the money under the fee agreement that they had inked with Shealey, as “the fee agreement on its face does not purport to assign Mr. Shealey’s [Equal Access to Justice Act] claim to intervenors, and the intervenors expressly disclaimed such a theory at oral argument.”  The appellate panel also rejected the argument that the attorneys had so-called third party standing to sue for fees on their former client’s behalf, as Shealey revoked his authorization for them to apply for the fees and costs, according to the opinion.

“The interests of a client such as Mr. Shealey — including the ability to resolve their fee claim by settlement with the government and the ability to decline pursuing an [Equal Access to Justice Act] claim at all — would be impaired if their attorneys were afforded standing to file a claim on their behalf when that authority has been revoked,” the Federal Circuit wrote.

SCOTUS Strikes Down USPTO Attorney Fee Rule

December 16, 2019

A recent Law 360 story by Bill Donahue, “Supreme Court Strikes Down USPTO Atty Fee Rule,” reports that the U.S. Supreme Court struck down an unusual U.S. Patent and Trademark Office policy that saw the agency automatically demand repayment of its legal bills, ruling that it ran afoul of the centuries-old rule that U.S. litigants must usually pay their own lawyers.  Ruling unanimously in favor of a drugmaker called NantKwest Inc., the justices rejected the agency's recent reinterpretation of a decades-old provision in the federal Patent Act that says companies must pay "all expenses" incurred by USPTO in certain types of appeals — regardless of who wins the case.

Affirming a lower court's ruling last year, the high court said that term should not be read to cover the salaries paid to USPTO attorneys who worked on a particular case.  Writing for the court, Justice Sonia Sotomayor said that the agency's approach would violate the so-called American Rule, a doctrine that says litigants must pay for their own attorneys unless Congress expressly says otherwise.

"The [American Rule] presumption against fee shifting not only applies, but is particularly important because [the Patent Act] permits an unsuccessful government agency to recover its expenses from a prevailing party," Justice Sotomayor wrote.  "Reading [the statute] to award attorney's fees in that circumstance would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts."  The ruling had stakes for trademark lawyers, too.  The Lanham Act contains an identical provision and the USPTO has also asked for such attorney fees in trademark cases.

First rolled out in 2013, USPTO's policy was rooted in a novel interpretation of decades-old statutory language.  When the USPTO refuses to grant a patent, the Patent Act allows the applicant to file a streamlined appeal on the existing record directly to the Federal Circuit, or it can file a "de novo" appeal in a district court — a more robust process that allows the applicant to enter new evidence into the record.

The law says that applicants who choose the de novo route must pay "all expenses" of the proceeding, regardless of who wins the appeal.  The provision makes no mention of winning or losing; the applicant pays no matter what.  For decades, the USPTO had only interpreted "expenses" to mean relatively small things, like travel expenses, expert fees and copying.  But that changed in 2013, when the agency started arguing that the expenses provision also covers attorney fees, which are typically far larger.

In the years since, courts have split over the policy.  While the Fourth Circuit ruled that the policy was a fair rereading of the statute, the Federal Circuit ruled that it violated the American Rule.  On appeal to the high court, USPTO had argued that the American Rule didn't apply at all to the unusual Patent Act provision in question.  The rule only covers awards of fees to prevailing parties, the agency argued, and the “expenses” provision applies regardless of who wins a case.

The high court flatly rejected that argument.  “That view is incorrect.  This Court has never suggested that any statute is exempt from the presumption against fee shifting,” Justice Sotomayor wrote.  “Nor has it limited its American Rule inquiries to prevailing-party statutes.  Indeed, the Court has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to the prevailing party.”

Analyzing the provision under the American Rule — which requires clear authorization from Congress — the high court said Patent Act was not explicit enough to cover attorney fees.  "The reference to 'expenses' in [the Patent Act] does not invoke attorney's fees with the kind of clarity we have required to deviate from the American Rule," Justice Sotomayor wrote.  "Simply put, in common statutory usage, the term 'expenses' alone has never been considered to authorize an award of attorney's fees with sufficient clarity to overcome the American Rule presumption," the justice wrote.

Federal Judges Question Attorney Fee Formula in Florida Coverage Cases

December 12, 2019

A recent Daily Business Review story by Steven Meyerowitz, “Florida Split: Should Attorney Fees Count Toward Federal Amount in Controversy?,” reports that a decision by a Miami federal judge highlights a split among Florida district courts on whether to include statutory attorney fees when calculating whether an insurance coverage case removed from state court meets the federal minimum for the amount in controversy.

On Sept. 10, 2017, Hurricane Irma struck South Florida and damaged the home owned by Jaclyn and Xavier Caceres. The Cacereses submitted a claim to their insurer, Scottsdale Insurance Co.  Scottsdale assigned a claim number and issued the Cacereses a check for $10,975, reflecting a wind deductible in the amount of $5,854.

In May 2019, after renewing their policy, the Cacereses submitted a separate claim for property damage due to heavy rain and roof collapse. Scottsdale assigned a claim number and issued the Cacereses a check for $7,975.  On June 22, 2019, the Cacereses presented Scottsdale with a repair estimate for $91,863 that covered the estimated damages for both claims.

On Sept. 5, 2019, the Cacereses sued Scottsdale in state court. Their complaint alleged they were seeking damages in excess of $15,000, and they sought to recover attorney fees and costs under Florida Statutes Section 627.428.  Scottsdale removed the state court action to federal court, indicating among other things that the amount in controversy was $75,034 based on the $91,863 repair estimate minus the $10,975 check paid and the wind deductible.

The Cacereses moved to remand, arguing the amount in controversy did not exceed $75,000.  Specifically, they contended Scottsdale could not use a pre-suit damage estimate as a basis for establishing the amount in controversy and, even using the pre-suit damage estimate, Scottsdale failed to account for the second check to the Cacereses, which decreased the amount in controversy from $75,034 to $67,059.

For its part, Scottsdale countered the amount in controversy requirement was satisfied because the Cacereses sought to recover attorney fees and costs, which through trial could easily exceed the remaining $7,941 needed to establish the amount in controversy under the Cacereses’ interpretation.  U.S. District Judge Beth Bloom granted the Cacereses’ motion to remand.  In her decision, she ruled  district courts may consider pre-suit demands in evaluating whether a case has been properly removed.

The district court then observed the Cacereses’ total estimate of damages for the claims from both the Sept. 10, 2017 loss and the May 13, 2019 loss amounted to $91,863, Scottsdale issued two checks to the Cacereses for the losses, and the wind deductible of $5,853.68 was applied to the 2017 claim.  The district court said it was “clear” the amount in controversy was $67,059.

Bloom next considered whether the Cacereses’ bid for attorney fees counted toward the amount in controversy.  She noted the issue has caused a split in district courts within the U.S. Court of Appeals for the Eleventh Circuit, citing a 2017 Middle District of Florida decision discussing the divide and a 2010 Southern District of Florida case discussing the “conflicting case law” on whether the amount of  should be calculated on the date of removal or through the end of the case.

The district court then ruled the amount in controversy did “not include highly speculative, prospective amounts” of attorney fees but rather only those fees accrued at the time of removal.  According to the district court, this ruling was in line with a 1994 Eleventh Circuit precedent establishing “jurisdictional facts are assessed on the basis of plaintiff’s complaint as of the time of removal.”

The district court noted Scottsdale provided no evidence to establish the Cacereses accrued $7,941 in attorney fees by the removal.  Accordingly, the district court concluded Scottsdale had not satisfied its burden of establishing the amount in controversy exceeded $75,000.

Attorney Fee Award Analysis in Section 285

December 10, 2019

A recent Mintz law firm blog post by Andrew H. DeVoogd and Kara E. Grogan of Mintz Levin PC, “Counterproductive and Cost-Increasing Litigation Tactics are Objectively Unreasonable in Section 285 Attorney Fee Award Analysis,” reports on attorney fee awards under Section 285.  This story was posted with permission.  The post reads:

Nearly six years ago, the Supreme Court in Octane Fitness v. ICON Health & Fitness promulgated a “totality of the circumstances test” for awarding reasonable attorney fees to the prevailing party in exceptional cases under 35 U.S.C. §285.  As lower courts have applied this standard, it has become clear that the motivation and conduct of the losing party is a focal point of the exceptionality analysis.  However, two recent decisions emphasize that bad faith arguments and litigation tactics—by both parties and in all stages of litigation—are critical to the exceptionality analysis in Section 285 attorney fee awards. 

By way of background, Section 285 permits courts, in exceptional cases, to award reasonable attorney fees to the prevailing party.  Using the totality of the circumstances test, courts consider factors such as frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case).  However, exceptional cases are rare—reserved for circumstances where a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify an award of fees. 

First, the Western District of Louisiana in Total Rebuild Inc. v. PHC Fluid Power, LLC, concluded that although the plaintiff’s patent was found unenforceable due to inequitable conduct, the case was not exceptional, due to the defendant’s “counter-productive and cost-increasing litigation tactics.”  The defendant’s unscrupulous actions included: (1) not informing the court in its opening brief that the plaintiff proposed a “walkaway” settlement offer; (2) evidence suggesting that the defendant’s motive was to deny the “walkaway” settlement, seek judgment against the plaintiff, and file a motion for sanctions to hit the plaintiff—a competitor—with a large judgment; and (3) not engaging in any meaningful settlement discussions.  This amounted to “objective unreasonableness.”  Due these bad faith litigation tactics, the court refused to allow the defendant to “benefit from fueling an environment that increased the cost to litigate this case.”  

Second, a magistrate judge in the Southern District of New York in EMED Technologies v. Repro-Med Systems, recommended finding the case exceptional and granting nearly $1 million in attorney fees due to the plaintiff’s bad faith shortly after granting a summary judgment of noninfringement.  Surprisingly, the magistrate judge based its attorney fee analysis in large part on the plaintiff’s claim construction position.  According to the magistrate, based on Federal Circuit precedent and the patent’s prosecution history, it was bad faith to initiate the litigation despite knowing the “conventional” construction of the claim term “consisting of” as used in the claim.  And, although the court ruled in plaintiff’s favor on other claim terms, “EMED’s success in that regard does not render any less unreasonable its objectively baseless construction and application of the closed mechanical fastener element.”  The court also cited additional examples of the plaintiff’s bad faith, including: (1) filing the action in the incorrect venue; (2) filing a motion for preliminary injunction; and (3) pressing on with the litigation “even after claim construction and the Court’s ruling against it.”  Although the district court judge has yet to affirm this report and recommendation, the magistrate’s opinion is instructive.

Taken together, these cases illustrate that practitioners should be mindful of reasonableness and decorum.  Courts are unlikely to find a case exceptional and award attorney fees if the prevailing party refuses reasonable requests for extensions of time or calls opposing counsel inappropriate names, as in Total Rebuild.  Along those same lines, practitioners should also avoid counterproductive and cost-increasing litigation tactics.  Tactics such as filing useless motions, taking objectively unreasonable positions, refusing to engage in meaningful settlement discussions, and excessive billing are all not only unprofessional (and potentially unethical), but may be used as fodder by an adversary to support an exceptional case fee award.  It is important to also remember that the entire record is scrutinized in a Section 285 analysis.  Baseless or unsupportable motions or positions, even at the start of a case, may come back to bite you and your client.

Andrew H. DeVoogd is a Member at the Boston office of Mintz Levin. Drew is an experienced intellectual property litigator and trial attorney whose work encompasses a broad range of technologies.  He regularly represents clients in high stakes patent disputes, including at the International Trade Commission, involving some of the world's largest technology companies. Kara E. Grogan is an Associate at the Boston office of Mintz Levin.  Kara focuses her practice on Section 337 cases in the International Trade Commission and district court patent litigation.  She has experience in, for example, motion practice, written discovery, and drafting license agreements.

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.