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Category: Fee Statute

Judge Blasts Attorney for Wasting Time, Awards $1.6M in Fees

January 29, 2019

A recent Law 360 story by Daniel Siegal, “Judge Blasts Atty for Wasting Time, Awards $1.6M in Fees,reports that a Denver federal judge awarded a host of insurance companies nearly $1.6 million in attorneys' fees for defeating allegations that they unfairly denied coverage to homeowners, holding the plaintiffs’ attorney personally liable for most of the fees and blasting his “prolix, redundant and meandering” filings that wasted the insurers’ time.  In a 22-page ruling, U.S. District Judge John Kane granted the consolidated bid for attorneys' fees filed by dozens of defendants, including Allianz Life Insurance Co. of North America Inc., Chubb Corp. and insurance standards organization ACORD, finding that their request for about $1.6 million in fees was “fully foreseeable” and reasonable given the sprawling allegations.

“Plaintiffs initiated this litigation and were in control of its course.  There is no indication defendants’ counsel acted unreasonably or stepped outside the bounds of competent representation of their clients,” Judge Kane wrote.  “Plaintiffs cannot now complain that the fees incurred by defendants are excessive because such an inordinate number were forced to take part … They have imposed costs on virtually the entire insurance industry, and under the law, they must shoulder the result.”

Judge Kane wrote that the plaintiffs’ attorney, Josue David Hernandez of the Law Office of Josue David Hernandez, must personally bear liability for the attorneys' fees incurred by the defendants in the district court, given “his incessant filing of absurdly lengthy and legally incorrect briefs” and vexatious conduct throughout the litigation.  Some fees were incurred by the defendants on appeal, and Judge Kane asked them to file only the amount of fees that applied to the district court proceeding.

Judge Kane said he analyzed the plaintiffs' positions only to the extent that he could “extract them from the morass” of the briefing filed by Hernandez.  “I have struggled to decipher plaintiffs’ legal arguments throughout this case,” Judge Kane wrote.  “Those that pertain to the attorney fee award are no exception.”  The judge sided with the defendants’ expert witness’ testimony that the hours of legal work they expended defending the case were reasonable and necessary over the plaintiffs’ argument, which was based not an expert’s testimony but an “unreliable and bewildering” 24-factor test of Hernandez’s own concoction.

Judge Kane also noted that throughout the litigation, the plaintiffs had repeatedly made extra work for the defendants, such as filing a 40-page motion for more time to respond to the defendants’ motion to dismiss.  After the defendants filed a seven-page opposition to that motion, the plaintiffs followed with a 47-page reply brief that “illustrates a system gone mad,” the judge said.

Terence Ridley of Wheeler Trigg O’Donnell LLP, who represented First American Property and Insurance Co. and argued on behalf of all fee-seeking defendants, told Law360 that he was honored to argue the motion for the numerous insurers, saying that “the language of the order is important, and the order is important.”  Hernadez told Law360 via email that Judge Kane's ruling had failed to address key issues, including whether Colorado's attorneys fee statute was preempted by federal law, and the fact that the defendants had filed more papers and other documents in the case than the plaintiffs. 

"If one were to take the time to review the actual documents on the public record (which is something I would encourage anyone truly interested in the case to do), they would likely find that the ruling failed to include the necessary treatment of at least eight extremely significant issues raised," he said. 

Named plaintiff Dale Snyder and 17 others filed suit in June 2014, and in a 260-page amended complaint asserted 23 claims against 113 defendants, alleging a broad, multi-decade conspiracy to deny homeowners coverage of damages from floods and fires.  In January 2016, Judge Kane dismissed the suit due to the plaintiffs' failure to include a “short and plain statement of the claim showing that the pleader is entitled to relief” in the complaint.  The Tenth Circuit affirmed that ruling in May 2017 and ordered appellate attorneys' fees to be awarded to the defendants.

The case is Dale Snyder et al. v. ACORD Corporation et al., case number 1:14-cv-01736, in the U.S. District Court for the District of Colorado.

Article: When Is a Prevailing Party Not a Prevailing Party for Purposes of Awarding Fees?

January 14, 2019

A recent Daily Business Review article by Richard Bec, “When Is a Prevailing Party Not a Prevailing Party for Purposes of Awarding Attorney Fees,” reports on prevailing party attorney fees.  This article was posted with permission.  The article reads:

The court just entered judgment in favor of your client after prevailing on its breach of contract action.  As you savor the victory, your lawyer brain begins outlining a motion for prevailing party attorney fees.  You notice, however, that the judge has reduced the damages award due to a “diminution of value” defense raised by defendant.  Following the reduction in the amount of damages, you question whether your client may still be the prevailing party for purposes of attorney fees under the subject agreement.

First thing first, look at the subject agreement.  If a clear reading of the attorney fees provision applies to the context and type of contract claim of your case, then you are off to a good start.  In Dear v. Q Club Hotel, Ltd. Liability Co., No. 15-CV-60474, 2017 U.S. Dist. LEXIS 181905 (S.D. Fla. Nov. 1, 2017) the Southern District refused to grant prevailing party attorney fees to a defendant that could not show how the subject attorney fees provision “clearly” and “unambiguously” authorized an award of attorney fees and costs for the type of contract claim at issue.

Your next question should be whether the only significant issue is, without a doubt, the one in which your client prevailed.  Does your case involve a clear-cut breach of contract by the defendant and nothing else, or was it more complicated?  The Eleventh Circuit Court of Appeals construes the term “prevailing party” to be the party that has prevailed on the “significant issues in the litigation.”

It is important to remember that it is not mandatory for courts to decide on a prevailing party.  The Florida Supreme Court has made clear that trial courts have the discretion to determine that there is no prevailing party and, thus, to decline to award attorney’s fees to either party, see Trytek v. Gale Industries, 3 So. 3d 1194, 1196 (Fla. 2009).  Rather, where one is determined to exist, “… the entitlement to attorneys’ fees is mandatory.”

Sometimes when parties win and lose on significant issues, the court will just pass on deciding who is the prevailing party.  That is what happened in Schoenlank v. Schoenlank, 128 So. 3d 118 (Fla. 3d DCA 2013).  There, neither party had completely prevailed on either major issue of the case.  The Third DCA stressed that an attorney fee award is not required whenever a contract provides for prevailing party fees and made clear that a trial court retains the discretion to deny fees to both parties when each has prevailed and lost on significant issues.

The same applies to federal courts applying Florida law. In R.S.B. Ventures v. Federal Deposit Insurance, 2014 U.S. Dist. LEXIS 188109, 2014 WL 11598000 (S.D. Fla. May 20, 2014), the federal court concluded that where one party had prevailed on some issues and another party had prevailed on another issue, neither party should be deemed the prevailing party for purposes of fees, and it declined to make an award to either party.

More recently, in Winn-Dixie Stores v. Big Lots Stores, 2016 U.S. Dist. LEXIS 65508, 2016 WL 2918152 (S.D. Fla. May 18, 2016) (Middlebrooks, D.J.), the court concluded that because neither party had recovered on a claim or counter-claim and because neither party had been without fault, neither was a prevailing party and neither was entitled to an award of fees.

Returning to our hypothetical at the top of this article, assuming your client’s win on the breach of contract claim is the only significant issue of the case, and your client has an applicable fee-shifting provision in the governing agreement, it is likely that your client is indeed the prevailing party.  However, a very limited result in comparison to the scope of the litigation as a whole may affect the amount of attorney fees your client may ultimately be able to recover from the court in a subsequent motion for fees see Rodriguez v. Super Shine & Detailing, No. 09-23051-CIV, 2012 U.S. Dist. LEXIS 80214, at *22 (S.D. Fla. June 11, 2012).  A setoff or reduction of damages is secondary to the significant issue of the case and generally will not affect your client’s status as the prevailing party for purposes of recovery of attorney fees.

Richard Bec is an attorney with the Miami intellectual property boutique law firm of Espinosa Martinez.  He focuses his practice on practice on intellectual property and commercial litigation, real estate law and bankruptcy matters.

SCOTUS Rules for Separate Fee Awards in Social Security Benefit Cases

January 8, 2019

A recent Law 360 story by Emily Brill, “High Court Grants Win to Social Security Atty in Fee Row,” reports that the U.S. Supreme Court ruled 9-0 that the Social Security Act allows disability benefit recipients’ attorneys to receive entirely separate fee awards for their work before the Social Security Administration and their work in court.   The high court reversed the Eleventh Circuit, which held that Social Security disability attorneys should receive smaller awards for litigating cases if they’ve already been paid for their agency-level work.

In an opinion delivered by Justice Clarence Thomas, the court held that the wording of Social Security Act sections 406(a) and 406(b) entitles attorneys to separate fee awards for their work at each level of the disability claim dispute process.  The court also pointed out that 406(a) and 406(b) put forth different methods for calculating fees, so it didn’t make sense for the Eleventh, Fourth and Fifth circuits to hold that 406(b)’s cap on court-stage fees should apply to agency fees, which are calculated under 406(a). 

“Subsections (a) and (b) address different stages of the representation and use different methods for calculating fees.  Given this statutory structure, applying §406(b)’s 25 [percent] cap on court-stage fees to §406(a) agency-stage fees, or the aggregate of §§406(a) and (b) fees, would make little sense,” the court wrote.  “Had Congress wanted agency-stage fees to be capped at 25%, it presumably would have said so directly.”

The high court’s decision affirmed the line of thinking adopted by the Sixth, Ninth and Tenth circuits, which all held that Section 406(b)'s language capping court fees at 25 percent of the total disability benefit award does not apply to fees for agency-level work, which are capped at 25 percent of total benefits or $4,000, whichever is less. 

The case arose from a dispute between Richard Culbertson, a Florida Social Security benefits attorney, and a Florida federal judge over the amount of fees owed to Culbertson after he prevailed in four cases involving Social Security claimants.  Culbertson represented his four clients before both the Social Security Administration and a Florida federal judge. In each case, the Social Security commissioner denied his client benefits, and the judge reversed that decision.

Culbertson said he was entitled to two sets of fees — one set for representing his client before the SSA, as allowed for in 42 USC 406(a), and the other for representing his client before the court, as allowed for in 42 USC 406(b).  In each of the four cases, the judge denied his request.

When the case went to the Eleventh Circuit, the appellate court referred to its own precedent when deciding which fees to give Culbertson.  The Eleventh Circuit, like the Fourth and Fifth Circuits, had held that because both Section 406(a) and Section 406(b) limit the fees that can be taken from a claimant’s benefit award to 25 percent of the total award, attorneys are limited to just one set of fees totaling no more than 25 percent of the benefits awarded.

Culbertson argued that Section 406 limits only the amount of fees that can be taken from a client's benefit award; it does not limit the amount of fees that can be authorized, he said.  He said that the Equal Access to Justice Act provides another method for Social Security attorneys to receive fees — from the government — so fees do not need to be limited only to what a client can provide.  Therefore, when an attorney represents a client before both the SSA and a court, federal statutes authorize fees for each type of work done and it is improper to lump both fees together and apply a single cap, Culbertson argued.  The high court agreed with Culbertson, writing that the statutory language of Section 406 supported his argument.

“Section 406(b) provides that a court rendering a favorable judgment to a claimant ‘represented before the court by an attorney’ may award ‘a reasonable fee for such representation, not in excess of 25 percent’ of past-due benefits.  Here, the adjective ‘such’ … refers to the only form of representation ‘already described’ in §406(b) — i.e., ‘represent[ation] before the court.’  Thus, the 25% cap applies only to fees for representation before the court, not the agency,” Justice Thomas wrote for the unanimous court.

Culbertson himself was pleased with the outcome of the suit, telling Law360 that he thinks it will have a positive impact on Social Security claimants' ability to obtain legal representation.  "Right now, it’s difficult for people who’ve been denied disability to find attorneys that will take their case to federal court.  There’s very few of us in central Florida.  This will help those people to be able to find attorneys willing to take their cases and be paid a reasonable fee for that service," Culbertson said. 

The case is Richard Allen Culbertson, Petitioner v. Nancy A. Berryhill, Acting Commissioner of Social Security, case number 17-773, in the U.S. Supreme Court.

Article: Challenge Calif. Insurer Limits on Independent Counsel Rates

November 12, 2018

A recent Law 360 article by Susan P. White, “Challenge Calif. Insurer Limits on Independent Counsel Rates,” reports on hourly rates and independent counsel in insurance coverage litigation in California.  Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  This article was posted with permission.  The article reads:

When a liability insurer agrees to defend its insured after the insured has been sued, this is often cause for celebration, as the insured believes its defense will be paid.  The insurer may reserve its rights to deny coverage, and advise that such reservation creates a “conflict of interest” entitling the insured to “independent” counsel.  Thus, instead of the insurer selecting the insured’s defense counsel, which is common under a duty to defend policy, the insured gets to choose its own counsel.  Still reason to celebrate, right?  But, as you may suspect, this selection right comes with a catch.  The insurer advises that while the insured can choose its own counsel, the insurer only agrees to pay a very low hourly rate, maybe $225 or $250 per hour (it varies, sometimes dramatically so), which is much less than what is being charged by the insured’s independent counsel.  If the litigation against the insured is significant, the delta between the rate the insurer agrees to pay and counsel’s actual rate can add up to millions of dollars.

An insurer claims it need only pay these low hourly rates pursuant to the requirements set forth in California Civil Code section 2860(c), which governs the financial relationship between an insurer and an insured’s independent counsel. Section 2860(c) states:

The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.

While section 2860(c) allows an insurer to only pay independent counsel the same rates it pays to other lawyers to defend similar actions in the same locale, an insured should not simply accept the insurer’s say so on this.  There are several ways to both challenge an insurer’s unilaterally imposed rates.  This article addresses a few such ways.

First, an insured should demand that the insurer produce detailed information about the counsel to whom it is paying these low rates.  An insurer often imposes “panel counsel rates” in these situations, which are rates that an insurer pays to certain law firms that have special agreements with the insurer, often in writing.  In these agreements, the panel counsel often agree to charge the insurer reduced hourly rates, regardless of the type of case, or location of the litigation, typically in exchange for the anticipation of a large volume of work from the insurer.  Under such a situation, an insured can argue that there is no “similarity” of actions as mandated by the statute.  Instead, the panel counsel’s rates are unaffected by the complexity, sophistication, nature of the allegations, legal claims, factual circumstances, location or any other factors of the cases in which they are appointed.  Thus, such rates provide no support under the § 2860 requirements.

Second, an insured should demand that the insurer provide detailed information about the specific cases that the insurer is touting as “similar actions in the community where the claim arose or is being defended,” to support the low hourly rates imposed.  With this information, an insured can ascertain whether such cases are, in fact, “similar” or not.  For example, are these purported “similar” actions less complex than the lawsuit against the insured? Do they involve different legal and/or factual issues?  What about the amounts in controversy — are they dramatically less and thus, the exposure potentials are not even comparable?  Also, where are these other actions pending?  Are they in different communities?  The more an insured can demonstrate dissimilarities the better to demonstrate that the insurer cannot support the hourly rate it seeks to impose pursuant to § 2860.

Third, if the parties cannot informally agree on an acceptable hourly rate for independent counsel, either party can seek to resolve the dispute through final and binding arbitration pursuant to § 2860.  And, in any arbitration, if the arbitrator determines that insurer’s evidence does not satisfy the § 2860 requirements, the insured should argue that a “reasonableness” standard should be applied to determine the appropriate rate for the insured’s independent counsel (with evidence to support that independent counsel’s actual rates are “reasonable”).  Indeed, a “reasonableness” standard is a ubiquitous standard for attorneys’ fees in insurance litigation and other contexts.

An insured need not simply accept its insurer’s word when it imposes inappropriately low hourly rates on an insured’s independent counsel.  Instead, an insured should challenge such rates, when appropriate, either informally or in arbitration.

Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  Susan resolves complex insurance coverage disputes through litigation, arbitration and mediation.  These include bad faith claims, as well as other commercial and contract matters.  She has also successfully recovered millions in attorneys’ fees and costs for her insured clients.

SCOTUS Considers Attorney Fee Caps in Social Security Disability Claims

November 5, 2018

A recent SCOTUS Blog post by Kathryn Moore Guest, “Argument Preview: Justices Consider Cap on Attorney’s Fees for Successful Representation of Social Security Disability Claimants,” reports that attorney Richard Culbertson successfully represented several Social Security disability claimants both before the Social Security Administration and in federal court.  Prior to his representation, he entered into fee agreements that provided that the clients would pay him attorney’s fees equal to 25 percent of past-due benefits for successful representation before the court as well as separate attorney’s fees for successful representation before the agency.  Following longstanding precedent of the U.S. Court of Appeals for the 5th Circuit, adopted by the U.S. Court of Appeals for the 11th Circuit, the court below capped his attorney’s fees at 25 percent of past-due benefits for representation before both the Social Security Administration and the court.

In granting certiorari, the Supreme Court agreed to resolve a split among the federal courts of appeals as to whether the Social Security Act imposes an aggregate cap on attorney’s fees of 25 percent of past-due benefits for representation before both the court and the Social Security Administration, or instead the 25 percent cap applies separately to representation before the court.

The Social Security Act regulates the amount and manner in which an attorney may collect fees from a disability claimant for successful representation before the agency and the court.  42 USC § 406(a) governs attorney’s fees for successful representation before the agency, while 42 USC § 406(b) governs attorney’s fees for successful representation before the court.  The Equal Access to Justice Act also authorizes a court to order recovery of “reasonable attorney’s fees” from the government in certain cases in which the claimant is successful and the government’s position was not “substantially justified.”  If attorney’s fees are awarded under the EAJA and under Section 406(b), the attorney must refund the lesser fee to the claimant.  The Social Security Administration withholds a single pool of 25 percent of past-due benefits from which to certify for payment any and all attorney’s fees awarded under Section 406(a) and/or 406(b).

Section 406(a) authorizes two avenues for recovery of attorney’s fees from a claimant for successful representation before the agency.  Under Section 406(a)(1), an attorney may file a “fee petition” with the Social Security Administration.  Alternatively, under a more recent and more commonly used, streamlined process, an attorney may seek approval of a “fee agreement” with a claimant under Section 406(a)(2).  No cap is imposed under Section 406(a)(1).  Section 406(a)(2) limits attorney’s fees to the lesser of 25 percent of past-due benefits or a specified dollar amount, currently set at $6,000.

For successful representation before a court, Section 406(b)(1)(A) provides in relevant part:

Whenever a court renders a judgment favorable to a claimant under [Title II] who was represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment.  Section 406(b)(1)(A) further provides that “no other fee may be payable or certified for payment for such representation except as provided in this paragraph.”

Focusing on the “plain meaning” of Section 406(b), Culbertson argues that the term “such representation” in Section 406(b)(1)(A) clearly refers to the antecedent phrase “represented before the court,” and thus under the plain meaning of Section 406(b), the 25 percent cap applies to representation “before the court by an attorney” and does not include representation before the agency.  Culbertson also argues that a separate cap on attorney’s fees for representation before the court is consistent with the structure of Section 406 as well as the purpose of the statute and its legislative history.

Almost 40 years ago, in the first circuit-court decision to address this issue, Dawson v. Finch, the 5th Circuit held that Section 406(b) imposes an aggregate cap on attorney’s fees for representation in the administrative proceedings as well as before the court.  In reaching this result, the 5th Circuit looked to the legislative history of the provision in order to discern Congress’ intent.  Specifically, the court focused on the fact that Congress added Section 406(b) to address two goals.  First, Congress sought to encourage effective legal representation by “insuring lawyers that they will receive reasonable fees directly through certification by the Secretary.”  Second, Congress sought to protect claimants against excessive attorneys’ fees, which in the past had reached one-third to one-half of claimants’ past-due benefits, by imposing the 25 percent cap on fees.  In 1982, the U.S. Court of Appeals for the 4th Circuit also looked to this legislative history to hold in Morris v. Social Security Administration that Section 406(b) imposes a cumulative 25 percent cap on attorney’s fees.

More recently, the U.S. Courts of Appeals for the 6th, 9th and 10th Circuits have focused on the text of section 406(b) to hold that the 25 percent cap only applies to representation before a court.  See Horenstein v. Secretary of Health and Human Services; Clark v. Astrue; and Wrenn v. Astrue, respectively.

The commissioner’s position on this issue has flipflopped over the years. Almost 40 years ago, the commissioner sided with the 5th Circuit in interpreting Section 406(b) to impose an aggregate cap and opposed the grant of certiorari in Dawson.  Then about 15 years later, the commissioner sought and obtained 6th Circuit en banc review of the panel’s decision in Horenstein v. Secretary of Health and Human Services based on arguments that were logically inconsistent with an aggregate 25 percent cap.  Almost 15 years after that, the commissioner argued in briefs before the 9th and 10th Circuits that an aggregate cap honors congressional intent and it would be inappropriate to permit attorneys to potentially collect up to 25 percent of a disability claimant’s past-due benefits at both the agency and court levels.

In this case, the acting commissioner initially supported the 11th Circuit’s rule imposing an aggregate cap.  Then, after requesting four extensions to file a response, the acting commissioner filed a response siding with Culbertson and arguing that the text of Section 406(b) unambiguously applies the 25 percent cap only to attorney’s fees for representation before a court.  The acting commissioner further argues that a 25 percent cap would be inconsistent with other provisions of Section 406(a) and that the absence of an aggregate cap does not mean that the agency and courts should approve fees that in the aggregate are equal to or greater than 50 percent of a claimant’s past-due benefits.

Because the acting commissioner agrees with Culbertson, the Supreme Court appointed Amy Levin Weil, an experienced 11th Circuit appellate litigator, to serve as amicus curiae in support of the 11th Circuit’s decision. Weil argues that the statute itself does not specifically state whether combined attorney’s fees may exceed 25 percent, and that the text of Section 406(a) and Section 406(b), read together, supports the aggregate rule.  She also points to the legislative history on which the 4th and 5th Circuits relied in support of an aggregate 25 percent cap.  She contends that permitting attorney’s fees to exceed 25 percent in the aggregate could lead to attorneys suing their clients to collect fees out of their present or future Social Security benefits contrary to the Social Security Act’s purpose of ensuring beneficiaries a protected source of income.  She also argues that rejecting the 25 percent aggregate rule would lead to absurd results, with fees of up to 75 percent of past-due benefits if a favorable district court opinion is appealed and the applicant is successful in the court of appeals.  She contends that the aggregate cap allows a logical division of agency and court fees from the 25-percent-of-accrued-benefit pool in a manner that recognizes that a portion of the accrued benefits is attributable to the time that the case was pending before the agency while the other portion is attributable to the time the case was pending before the court.

The National Organization of Social Security Claimants’ Representatives filed an amicus brief in the case.  The NOSSCR does not address the plain meaning of the statute.  Instead, it contends that Section 406(b) cannot impose an aggregate 25 percent cap on attorney’s fees for representation before a court and the agency because Section 406(a)(1) does not impose a cap on fees before the agency.  NOSSCR further argues that a court has no discretion to impose an aggregate cap.  NOSSCR informs the court that in circuits without an aggregate cap, the prevailing market rate includes a cumulative cap either by contract or in practice.

Weil faces an uphill battle in convincing the Supreme Court to uphold the 11th Circuit’s decision.  The plain-meaning approach to statutory interpretation currently favored by the court supports Culbertson’s position.  Moreover, amici curiae appointed by the Supreme Court typically only win about 25 percent of their cases.  If, however, Weil can convince the court to look beyond the text of the Section 406(b) in isolation, it may, like Chief Judge Geoffrey Crawford of the District of Vermont, find that “it would be strange indeed to believe that Congress would in 1965 denounce 50% contingency fees as excessive and enact a statute to stop them, and then, in 1968, pass a law with the effect of permitting 50% contingency fees.”