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Category: Fee Statute

Article: Courts Finally Taking Unreasonable Contest Counsel Fees Seriously

November 20, 2020

A recent Law.com article by Christian Petrucci, “Courts Finally Taking Unreasonable Contest Counsel Fees Seriously,” reports on attorney fee claims in workers’ compensation cases.  This article was posted with permission.  The article reads:

Absent the legal mechanism to pursue a bad faith claim against a workers’ compensation carrier, one of the only weapons in a claimant’s arsenal to discourage the baseless denial of claims is that of the unreasonable contest counsel fee demand.  Tragically, it is commonplace for an overly aggressive defendant to deny a claim with no factual or legal basis to do so.  Claimants are routinely forced to needlessly prosecute a petition for benefits or otherwise oppose baseless defense petitions, which causes precious judicial resources to be misallocated and inflicts significant undue stress, mental anguish and financial distress on the injured worker.

Of course, the humanitarian nature of the Workers’ Compensation Act is supposed to prevent any delay in the payment of benefits or the baseless denial of claims.  The law directs that the act be liberally construed to be remedial in nature, although one would never know it from the paucity of unreasonable contest counsel fee awards at the trial level.  The actual law provides that awarding counsel fees is to be the rule and excluding fees the exception to be applied only where the factual record establishes a reasonable contest. See Millvale Sportmen’s Club v. Workers’ Compensation Appeals Board, 393 A.2d 49 (Pa. Commw.1978).  It is also important to note that the question of whether a reasonable basis exists for an employer to have contested liability is fully reviewable on appeal as a question of law to be based upon findings supported by substantial evidence.  See Kuney v. Workers’ Compensation Appeals Board, 562 A.2d 931 (Pa. Commw. 1989).

The Pennsylvania Workers’ Compensation Act provides in pertinent part: In any contested case where the insurer has contested liability in whole or in part … the employee, or his dependent, as the case may be, in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for costs incurred for attorney fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings: Provided, That cost for attorney fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer.

Despite the plain reading of the statue, unreasonable contest attorneys fees are almost never awarded and even in the most egregious situations, are awarded in a nominal amount which is stayed pending appeal in every instance.

Given this background, Gabriel v. Workers’ Compensation Appeals Board (Procter and Gamble Products), decided by the Commonwealth Court in September, offers significant hope that the tide will be turning in the effort to police instances of bad faith in the workers’ compensation world.  At a minimum, Gabriel affords a heightened expectation that an attorney can be compensated in cases which lack a wage-loss benefit award, which is the normal corpus on which contingency fees are based.

In Gabriel, the claimant injured his arm at work and notified his employer.  The claimant treated with doctors based at the company’s plant and the employer’s insurance carrier actually paid medical expenses associated with the claim.  However, the employer inexplicably failed to file a bureau document either accepting or denying the claim within 21 days, as required by the act.  Consequently, the injured worker was forced to retain an attorney and file a claim petition, which was summarily denied by the employer.

Before the WCJ, both parties presented evidence over the course of a number of hearings and the record was eventually closed.  Perhaps sensing what was about to happen, the employer finally issued a medical only notice of compensation payable toward the end of the litigation.  The filing date was more than two years after the date of injury.

The WCJ granted the claim petition, but as is normally the case consistent with the above background, did not award unreasonable contest counsel fees or grant a penalty for failure to file a bureau document within 21 days as required by law.  The WCJ reasoned that the employer “was paying the claimant’s medical bills,” and “it was not until the last hearing in this matter that the claimant produced any medical evidence establishing a specific diagnosis for his work injury other than a puncture wound.”

The claimant appealed the denial of attorney fees and penalties, but the board affirmed the WCJ’s decision.  The board held that the WCJ did not err or abuse his discretion in not awarding a penalty or attorney fees since although the employer paid for the claimant’s medical  expenses, doing so is not an admission of liability.  The board also found that the claimant was seeking a description of injury different than what was listed on the NCP.

Following the board decision, the claimant petitioned for review by the Commonwealth Court.  The court reversed the decisions of the WCJ and the board, finding that the employer presented an unreasonable contest in defending the claim petition because it had, in fact, violated the act by failing to timely issue a bureau document.  The court also noted that the employer denied all allegations in the claim petition, including ones it knew to be true, forcing the claimant to commence needless litigation.  Moreover, the employer did not  present any evidence to contest the claim petition.  Had the employer filed a bureau document timely, the claim petition would have had to be filed.

Similarly, the court found a penalty award to be appropriate, since the employer violated the act when it did not timely issue the medical only NCP as required under Section 406.1(a) of the act, thus forcing the claimant to hire an attorney, produce evidence of the injury of which it had notice, and hire an expert to review the medical records of the employer’s own company doctors who had treated him.  The act was intended to avoid this.

As a practice tip, it is vital that claimants’ attorneys zealously demand the imposition of unreasonable contest counsel fees in almost every case.  Until insurance companies actually begin to risk the forfeiture of entire counsel fee awards during the pendency of a two-year petition, they will continue to have little incentive to voluntarily accept claims that have no defense but are denied anyway for a variety if bogus reasons.  Gabriel demonstrates that a new day may have arrived in this battle.

Christian Petrucci of the Law Offices of Christian Petrucci, concentrates his practice in the areas of workers’ compensation and Social Security disability.  He also counsels injured workers in matters involving employment discrimination and unemployment compensation benefits.

Florida High Court Considers Attorney Fee Calculation in Settlement Law

October 7, 2020

A recent Law 360 story by Carolina Bolado, “Fla. High Court Weights Atty Fee Calculation in Settlement Law,” reports that a condominium association that won a legal battle with a pest control company asked the Florida Supreme Court to buck precedent and include prejudgment interest when determining if a judgment triggers a party's entitlement to attorney fees under the state's proposal-for-settlement statute.

In videoconferenced oral arguments, CCM Condominium Association Inc. attorney Shea Moxon told the high court that prejudgment interest accrued after the association made a settlement offer to Petri Positive Pest Control Inc. should be included in the "net judgment" for the purposes of calculating whether it can be awarded attorney fees under the statute.

The Fourth District Court of Appeal ruled that this interest should not be included in the judgment, but the appeals court said it based its decision on language in Florida Supreme Court precedent, even though it would reach the opposite conclusion based on its own interpretation of the term "judgment entered" in the offer-of-judgment statute, found in Section 768.79 of the Florida Statutes.

Those previous opinions, particularly the 2002 decision in White v. Steak & Ale of Florida, have "turned into a judicial rewriting of the statute," according to Moxon.  "There is nothing in the statute that suggests 'net' is going to be referring to a deduction of costs or prejudgment interest," Moxon said.  "Net judgment means the real judgment, the judgment entered at the end of the case."

The appeal arose from a 2013 lawsuit that CCM, which does business as Country Club Manor Condominium Association, filed against Petri for negligence and breach of contract after Petri tented the complex for termites.  CCM offered to settle all of its claims for $500,000, but Petri rejected the offer, according to court documents.  At trial in November 2016, a jury awarded CCM $551,881 in damages.  The trial court entered a judgment of $636,327, which included the jury's damages award plus $84,446 in prejudgment interest.

CCM then moved to recover attorney fees based on that figure, which exceeded its settlement offer by more than 25%, the statutory threshold to trigger its entitlement to attorney fees.  Petri objected, pointing to the 2002 White decision, which it said defined the plaintiff's total recovery as including only attorney fees, costs and prejudgment interest accrued up to the date of its settlement offer. That would push CCM's recovery below the 25% threshold.

But the trial court disagreed and awarded CCM $73,579 in post-offer attorney fees and costs.  At oral arguments, Petri's attorney, Thomas Hunker, said the formula that the Supreme Court set out in the White case is the "backbone for how this statute has worked for the last 18 years" and is an important tool.

It is unfair and unreasonable, he said, to impose upon a party potential sanctions for failing to predict how long a case will take or what the interest rate, which fluctuates with the market, will be in the months or years after an offer of settlement.  "But the problem is we have to apply the statute, not ourselves determine what's fair, do we not?" asked Justice Ricky Polston.

Attorney Fees Under CA Trade Secrets Act Belong to Attorney, Not Client

September 16, 2020

A recent Metropolitan News-Enterprise story, “Attorney Fees Under Trade Secrets Act Belong to Attorney, Not Client—C.A.,” reports that attorney fees awarded to a “prevailing party” under the California Uniform Trade Secrets Act belong to the attorney and not the attorney’s client absent an enforceable agreement providing otherwise, the Third District Court of Appeal held.  The opinion by Acting Presiding Justice Coleman Blease affirms a judgment by Sacramento Superior Court Judge Alan G. Perkins who determined that the law firm of Porter Scott, P.C. was entitled to the attorney fees paid by the opposing party in litigation in which the firm successfully represented defendant Johnson Group Staffing Company.

The amount that was awarded initially, pursuant to Civil Code §3426.4, was $735,781.27; appeals ensued and, when paid, the fees had expanded to $917,811.48; after Perkins deducted sums which the Johnson Group had paid to Porter Scott, the remainder was $827,938.17, to which the judge added 90 percent of the interest that accrued while the money was in a blocked account.  Blease pointed to the California Supreme Court’s 2001 decision in Flannery v. Prentice.  The issue was whether the client or her former lawyers and their firms had entitlement to attorney fees that were awarded under Government Code §12900, a portion of the California Fair Employment and Housing Act.

Then-Justice Kathryn Werdegar (now retired) wrote, over the lone dissent by then-Justice Joyce Kennard (also retired): “[W]e conclude that attorney fees awarded pursuant to section 12965 (exceeding fees already paid) belong, absent an enforceable agreement to the contrary, to the attorneys who labored to earn them.”

Blease declared in yesterday’s opinion: “We thus conclude that attorney fees awarded under section 3426.4 (exceeding fees the client already paid) belong to the attorneys who labored to earn them, absent an enforceable agreement to the contrary.”

He went on to say: “Reading section 3426.4 to vest awarded ‘attorney’s fees’ in counsel would be consistent with the ordinary view that attorney fees compensate attorneys, not litigants… Reading the statute to vest fee awards in litigants, on the other hand, would at times stray from that ordinary understanding of attorney fees.”

The Johnson Group argued that Porter Scott had agreed to forego an award by consenting, in writing, to forfeit its entitlement to the past-due amount of $92,845.86, except for $25,000 of that amount, and to provide pro bono representation.  Blease noted that a footnote in the agreement provides: “Should the Johnson Group or Chris Johnson be awarded fees in the future based on Porter Scott’s underlying representation, all fees shall be reimburseable [sic] at that point and this waiver shall not apply.”

Blease added: “[A]s the Flannery court recognized, even attorneys who perform services pro bono may obtain ‘reasonable’ attorney fees under a fee-shifting statute.”

Five policies discussed by the Flannery court in support of such fees belonging to attorneys and not litigants were: 1) to encourage representation of legitimate FEHA claims and discourage frivolous suits; 2) to avoid unjust enrichment where an attorney had not been paid for services rendered; 3) to ensure fairness that the losing party pays only fees incurred and not a punitive penalty; 4) to avoid attorney fee-splitting; and 5) to avoid wrongly punishing attorneys who fail to secure written fee agreements.

Article: A Mixed Ruling on Coupon Redemption Rates and Attorney Fees

September 8, 2020

A recent Law.com article by Diane Flannery, Trent Taylor, Frank Talbott, and Andrew Gann of McGuireWooods LLP, “A Mixed Ruling on Coupon Redemption Rates and Atty Fees,” reports on the recent Sixth Circuit ruling on coupon settlements and awarding attorney fees.  This article was posted with permission.  The article reads:

In an Aug. 12 ruling in Linneman v. Vita-Mix Corp., the U.S. Court of Appeals for the Sixth Circuit joined the U.S. Court of Appeals for the Seventh Circuit in holding that the Class Action Fairness Act, or CAFA, does not require that a court consider coupon redemption rates when assessing an award of attorney fees under Title 28 of the U.S. Code, Section 1712, and that a court may instead choose to utilize a lodestar method alone.

The Sixth Circuit, however, did not write off analysis of coupon redemption rates wholesale.  Instead, it held that those rates may be relevant to the overall reasonableness of the award.  In so doing, the Sixth Circuit deepened a circuit split — and offered a reminder to litigants that coupon redemption rates may still play an important role in determining an appropriate attorney fee award in class action settlements.

Accordingly, litigants should be cognizant of practical implications that result if courts require the use of redemption rates in class action coupon settlements — including the potential chilling effect of lengthening litigation for years, in order to analyze such rates to determine any attorney fee award.

The litigants in Linneman originally settled the underlying claims related to defective blenders for two classes of plaintiffs: a household class and a commercial class.  The household class would be eligible for a $70 gift card or replacement blade assembly for their blenders, while the commercial class would only be eligible for a replacement blade assembly.  Although the settlement provided for an award of attorney fees, the parties could not agree on a specific amount.  The parties "then spent most of the next two years arguing about attorney's fees."

Ultimately, the U.S. District Court for the Southern District of Ohio applied a lodestar analysis to the issue.  The calculation resulted in a $2.2 million award, which the district court then enhanced by 75%, for a final award of approximately $4 million.

The parties did not seriously contest that the settlement qualified as a coupon settlement, but Vita-Mix argued that the district court erred by applying a lodestar analysis without consideration of the coupon redemption rate as required under Section 1712.  Subsection (a) provided that in coupon settlements, "the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed."

Subsection (b), however, provided that if "a portion of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee award shall be based on the amount of time class counsel reasonably expended working on the action."

Section 1712, as the Sixth Circuit noted, "is not a model of draftsmanship."  Although subsection (a) seemingly required an analysis of what may be "attributable to" any coupon, Congress gave courts an escape hatch in subsection (b).

According to the Sixth Circuit, that subsection makes it clear: (1) that a district court might not "use ... " a portion of a coupon award "to determine the attorney's fee" and (2) that in such cases the court should determine the fee "based upon the amount of time class counsel reasonably expended working on the action" (i.e., the lodestar method).

Subsection (c) only reinforced this view, because it required that when awarding attorney fees on a "mixed basis" (some based on coupon value, some not), the portion not attributable to the coupon value should be calculated under a lodestar analysis.  Thus, the Sixth Circuit followed the Seventh Circuit's holding in In re: Southwest Airlines Voucher Litigation in finding that a district court could utilize a lodestar method to calculate an attorney's fee award under Section 1712.

In so doing, the Sixth Circuit rejected the U.S. Court of Appeals for the Ninth Circuit's holding in In re: HP Inkjet Printer Litigation, stating that the Ninth Circuit's interpretation that subsection (a) prohibited the utilization of a lodestar analysis would "erase" subsection (b) completely.  The Sixth Circuit then tweaked the Ninth Circuit for "disregarding its own admonition that 'intelligent drafters do not contradict themselves.'"

Although the Sixth Circuit endorsed the lodestar method as appropriate under Section 1712, it did not completely toss out the notion that redemption rates need not be considered when assessing an attorney's fee award.  A district court still must ensure that an attorney's fee award is reasonable — an analysis that includes assessing the value of the settlement to the class, "the most critical factor" being "the degree of success obtained."

And a district court "will often abuse its discretion if it fails to consider the redemption rate as part of that analysis."  That is because courts "know from experience (and Congress) that the face value of a coupon may be quite different from its actual value to the class members — even if the coupon is for more than an 'illusory amount.'"

Because "the district court failed to make any specific findings about the value of the settlement," the Sixth Circuit found error.  The "most straightforward way" to remedy this would include evidence regarding the coupon redemption rate, but the Sixth Circuit did not "rule out the possibility that a court might be able to determine the reasonableness of an award . . . without reference to redemption rates."

In Linneman, the Sixth Circuit deepened the circuit split regarding whether Section 1712 permitted a purely lodestar analysis, or required only an assessment of redemption rates in coupon settlements.  Although the Sixth Circuit endorsed the view that the lodestar analysis was permissible, it did not enunciate a rule that said coupon redemption rates were not important.

In fact, the Sixth Circuit endorsed that these rates were likely the best indicator of what value the class received in a settlement — and, therefore, were relevant to any attorney's fee award.  Thus, litigants should be cognizant that while a lodestar analysis alone under CAFA is likely permissible, redemption rates may still play an important role in determining whether any ultimate attorney's fee award is reasonable.

At first blush, this may not appear to be a significant issue for class action defendants, especially given the fact that such analysis is cabined to the award of attorney fees for plaintiffs' counsel.  But practical considerations make this decision potentially important.

First, any redemption rate requirement could drag out litigation for years past final approval.  For example, many coupons provided in litigation can be redeemed for years after receipt.  Thus, the parties may be waiting two, three, five or more years until it is possible to clearly determine the redemption rate.

Second, and related, a redemption rate requirement could have a chilling effect on the use of coupons in settlement.  In some cases, a coupon provides the only possibility of settlement.  If plaintiffs counsel know that the redemption of these coupons will determine their fees, it is likely they will begin to not accept these settlements — resulting in prolonged litigation that is not beneficial to either party.  While other practical considerations likely exist, these two prove the potential import of resolution of the circuit split.

Diane P. Flannery and R. Trent Taylor are partners, and Frank Talbott V and Andrew F. Gann Jr. are associates, at McGuireWoods LLP.

Federal Circuit: No Supplemental Fees in IP Government Loss

July 30, 2020

A recent Law 360 story by Dave Simpson, “Fed. Cir. Won’t Add to $4.4M Atty Fee in IP Suit Gov’t Lost,” reports that the Federal Circuit refused to tack supplemental attorney fees onto a $4.4 million fee award and a $200,000 judgment against the government in a patent case out of the U.S. Court of Federal Claims, ruling that only the claims court has the authority to grant such fee requests.  In a unanimous unpublished decision, the panel rejected the government to pay appellate fees accrued by Hitkansut LLC and Acceledyne Technologies Ltd. LLC, which had argued that Section 1498 of the Patent Act provides the Federal Circuit with such authority.

"Section 1498 is a limited waiver of sovereign immunity, and waivers of sovereign immunity are construed narrowly in favor of the government," the panel said. "Section 1498's text contains no unequivocal expression by Congress that the United States is subject to the type of fees Hitkansut is seeking in this court."

The companies, owned by late inventor Donna Walker, who passed away in 2018, asked the appeals court for supplemental attorney fees after a three-judge panel on May 1 affirmed the U.S. Court of Federal Claims' March 2019 grant of fees.  The lower court found in 2017 that government researchers at the Oak Ridge National Laboratory directly took Hitkansut's patent-pending technology, which can be used to relax stressed metal in large metal structures like airplanes, without giving Walker any credit, funding or contracts.

Hitkansut and Acceledyne were able to recoup fees at the claims court under a provision of the Patent Act that allows independent inventors, nonprofits and small businesses to recover fees when the government infringes, provided they can show the United States' position was not "substantially justified."

The Federal Circuit said in its May 1 opinion that the government's litigation position was not substantially justified because its arguments were contrary to the evidence in the case and the testimony of government employees, and that its invalidity argument was "contradicted by its own expert witness." The court, however, instructed the parties to bear their own costs.

But Hitkansut and Acceledyne contended that the court has the authority to order the government to pay additional fees under Section 1498, which they argued is not limited to the claims court action, thereby entitling them to recoup all of their costs, including those associated with defending their initial fee bid.  And although the appeals court hadn't previously addressed whether fees for defending an initial fee bid can be recouped under Section 1498, Hitkansut and Acceledyne argued that the court has done so in Wagner v. Shinseki under an analogous law — the Equal Access to Justice Act.

The court in Wagner said that because he partially prevailed in defending against the government's challenge to his initial bid for fees, "he was entitled to supplemental fees."  The Wagner court reasoned that a prevailing party can recoup fees not just for underlying litigation but also for defending an initial EAJA fee request.

Hitkansut and Acceledyne urged the court to apply the same reasoning it did in Wagner to this case, but the government contends its reliance on Wagner is "misplaced" because it says the EAJA is "fundamentally different" from Section 1498, which doesn't give the Federal Circuit jurisdiction over supplemental fee requests.

Congress enacted the Section 1498 fee provision because it believed the EAJA was unavailable for such claims, the government said.  "Had it wanted to do so, Congress had a clear model in EAJA to [ensure] recovery of appellate fees and costs. But Congress selected a different path," the government said.

The panel said that it cannot derive fee authority simply from the reviewed tribunal's ability to award fees, also noting that the circuit has recognized that EAJA and Section 1498 have substantial differences.  "And unlike EAJA, which empowers 'any court having jurisdiction,' Section 1498 authorizes an infringement action against the government only in the Court of Federal Claims, empowering only that tribunal to award reasonable costs, which includes reasonable fees for attorneys, as part of the 'reasonable and entire compensation' for the underlying use of the patent," the panel said.