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Category: Fees as Sanctions / Bad Faith

Federal Circuit Denies Request to Rehear Attorney Fee Ruling in IP Matter

January 10, 2019

A recent Law 360 story by Christopher Cole, “Fed. Circ. Denies Rembrandt Bid to Rehear Atty Fee Ruling,” reports that the Federal Circuit has denied Rembrandt Technologies LP's request for rehearing in its bid to escape paying a massive sum in attorneys’ fees for alleged misconduct while pursuing intellectual property claims in multidistrict litigation against several cable companies.  The circuit said that there would be no rehearing from either the full bench or the original three-judge panel, which had upheld a district court ruling ordering Rembrandt to pay the cable companies' legal fees but had struck a $51 million fee award. 

The ruling dashes an effort by Rembrandt to convince the appeals judges that the earlier decision drew conclusions the lower court never reached about alleged misconduct during the patent enforcement actions, including improper payment of witnesses and document spoliation.  “Upon consideration … the petition for panel rehearing is denied,” the court said in a non-precedential ruling in which the judges offered no further comment.  “The petition for rehearing en banc is denied.”

Rembrandt had sought to reverse the July decision by a circuit panel affirming a Delaware federal judge’s ruling that the firm litigated a long-running patent dispute with multiple cable providers in an “unreasonable manner,” partly by paying witnesses based on the contingency of winning the case.  The firm also either engaged in or failed to stop spoliation, the federal judge found.  The patent actions that led to the dispute over attorneys’ fees stretch back more than 10 years and roped in dozens of cable providers, equipment makers and broadcast networks that Rembrandt accused of infringing several patents, most of which covered cable modem technology.

In August 2015, U.S. District Judge Gregory M. Sleet fount that the long-running multidistrict litigation, involving allegations of infringement of broadcasting and cable transmission patents, was exceptional and ordered Rembrandt to pay attorneys’ fees and costs.

While the Federal Circuit panel agreed with the trial court’s characterization of Rembrandt’s conduct as “exceptional” in justifying a fee award, the appeals judges in the July ruling reversed a $51 million award — equal to almost all the cable companies’ fees — saying the district judge did not explain why that amount was warranted, sending the fee determination back to the judge.  But Rembrandt argued in court papers filed in September that the panel only upheld that the conduct was “exceptional” based on findings that it believed the judge “could have” made to justify such an award but did not actually make.

The case is In Re: Rembrandt Technologies LP Patent Litigation, case number 17-1784, in the U.S. Court of Appeals for the Federal Circuit.

Seventh Circuit: EEOC Should Not Be Sanction with Attorney Fees in CVS Win

November 15, 2018

A recent Law 360 story by Emma Cueto, “7th Circ. Again Rejects CVS’ Atty Fee Win Against EEOC,” reports that a Seventh Circuit panel has preserved its rejection of an attorneys' fee award in favor of CVS Pharmacy Inc. against the U.S. Equal Employment Opportunity Commission in a suit over the company’s severance agreements, saying that using a novel legal theory that was ultimately shot down did not make the suit frivolous.

Despite arguments that the decision would extend fee fights, the panel reiterated that the district court made an error in awarding $307,000 in attorneys' fees to CVS.  The panel said that even though the EEOC did not prevail in its argument that the regulatory language allowed it to file the suit without going through an initial conciliation process, the commission has a “legal hook on which to hang its case,” and that it should not be sanctioned for bringing the suit.

“[The district court] reasoned that the EEOC should have realized even before filing the suit that EEOC regulations required initial conciliation before it could proceed with an enforcement action,” the decision said.  “But that was not at all clear at the time the EEOC acted.”

The dispute between CVS and the EEOC stems from an employee agreement that the agency claimed was meant to confuse employees and to have a chilling effect on employees' rights to lodge discrimination claims with the agency.  The agency sued over the agreement in February 2014.  The district court granted CVS summary judgment in September 2014, finding that the EEOC hadn't met its obligations to conciliate the dispute before suing and therefore wasn't authorized to bring the action in court.  Another Seventh Circuit panel affirmed the dismissal in 2015, and a full Seventh Circuit declined to hear the case.

On remand, the trial court awarded CVS $307,902 in attorneys' fees, finding that the EEOC should have known before suing that its regulations required initial conciliation before it could proceed with an enforcement action.  In June, a new Seventh Circuit panel threw out the attorneys' fees, saying it took more than a loss on the merits to justify awarding the fees and that the district court's decision "impermissibly rested on hindsight,” a phrase it used again in its decision.

The panel was asked to revisit the case in July, when attorneys with Jones Day argued that the court used an improper standard and that the decision would unleash a wave of prolonged fee fights.  The EEOC argued in favor of the panel’s original decision, saying it was in keeping with past case law.  In its amended decision, the panel ruled that it had been correct to use a more permissive standard instead of reviewing the district court ruling only for an abuse of discretion, explaining that the lower court had made a legal error, meaning the abuse of discretion standard was not the correct one to use.

It then said that the question as to whether the EEOC should have to pay attorneys' fees rested on whether its legal theory — which relied on a novel interpretation of the unique wording in a subsection of Title VII of the Civil Rights Act of 1964 — was “far enough afield” as to be unreasonable.  The panel noted that there was a difference in the wording of the subsection the EEOC highlighted and no clear precedent that shut down its theory.  In addition, it added, CVS by its own admission spent more than 800 hours defending against the suit and specifically told the district court the questions required a deep understanding of Title VII.

The case is the U.S. Equal Employment Opportunity Commission v. CVS Pharmacy Inc., case number 17-1828, in the U.S. Court of Appeals for the Seventh Circuit.

Judge Levies $260K in Fees Against Company That Fought Arbitration Award

September 27, 2018

A recent BNA story by Greg Land, “Judge Levies $260K in Fees Against Company That Fought Arbitration Award,” reports that a federal judge awarded more than $260,000 in legal fees to a Georgia company that had already won nearly $900,000 after an Israeli business partner lost an arbitration battle and a subsequent court challenge to that decision.  The earlier award itself included nearly $235,000 in fees for OA Development Inc. and its lawyers, Simon Bloom and Troy Covington of what is now the Bloom Parham firm.         

The order issued Aug. 23 by Judge Eleanor Ross of the U.S. District Court for the Northern District of Georgia gave the Israeli company, Bamberger-Rosenheim, 30 days to pay $261,000 in fees to OAD.  Bloom said the order was a victory for the arbitration process and that the challenge should never have been filed.

“I have said from the very beginning that Bamberger’s strategy of re-litigating and incessantly appealing a final arbitration award, confirmed by the U.S. district court, flies in the face of the essence of alternative dispute resolution,” Bloom said via email.  “The jurisprudence on arbitration is designed to pay heightened deference to arbitrators faithfully executing their job,” he said.  “What is the point of choosing a forum like the [International Court of Arbitration] if the two year process to get to a supposed ‘final award’ is anything but,” Bloom said.

Bamberger is represented by Greg Hecht and Jon Jordan of Hecht Walker.  In an email, Jordan said they respect Ross, but do not agree with her ruling.  “In regard to the appeal itself, our client wanted this jurisdictional issue to go to the U.S. Supreme Court in relation to forum selection clauses in international commercial contracts,” Jordan said.

In their view, the arbitration forum selection portion of the underlying agreement “specified that the forum for OAD’s claims in arbitration should be in Israel, our client’s home country.”  “There was a conflict in circuits on this exact forum selection issue, and Profimex hoped the U.S. Supreme Court would take up this issue to clarify the dispute,” he said.

A Bamberger subsidiary, Profimex, had partnered with OAD several years ago on several development projects, but in 2014 the Israeli company filed a breach of contract complaint against Norcross-based OAD over the division of proceeds from the sale of one of the properties.  OAD counterclaimed, charging Profimex with defamation for telling investors it was dishonest and circulating emails decrying OAD as “crooks in Atlanta,” among other things.  

As per their contract, the case was sent to mediation in Georgia as the venue of the nonfiling party, and both parties were awarded damages.  But Profimex filed a lawsuit to void the award against it, arguing that their 2008 contract mandated any dispute be arbitrated in the challenged company’s chosen venue and that OED’s counterclaims should have been arbitrated in Tel Aviv instead of Atlanta.

In 2016, Ross sided with OED, confirming the arbitrator’s award and ordering Profimex to pay $469,697 in general damages; $187,879 in punitive damages and $234,848 in attorney fees.  The U.S. Court of Appeals for the Eleventh Circuit upheld Ross’ order last year, and the U.S. Supreme Court declined to hear Profimex’s appeal.  OED filed for fees related to the appeals litigation, and Ross’ recent order granting them makes clear that they are not a sanction.

Bankruptcy Attorney Sanctioned for Improper Billing Practices

September 25, 2018

A recent BNA story by Daniel Gill, “Bankruptcy Attorney Sanctioned for Sloppy, Improper Billing,” reports that a consumer bankruptcy attorney has to return client payments in 17 Chapter 7 cases where he improperly billed for services and failed to provide appropriate required disclosures, an Oklahoma bankruptcy judge ruled.

Attorney J. Ken Gallon failed to properly disclose his compensation to the court or the source of such payments; he charged unreasonable fees; and he allowed legal fees to be paid before case filing fees were paid in full, Chief Judge Terrence L. Michael of the U.S. Bankruptcy Court for the Northern District of Oklahoma wrote in his Sept. 4 opinion.

At the center of the court’s problems with Gallon’s practices was his use of what the court called the “BK Billing Model.”  BK Billing is a Utah company that factors receivables for consumer bankruptcy attorneys.  It essentially buys the attorneys’ receivables for about 75 percent of their face value.  BK Billing was created to benefit debtors who lacked the resources to pay all their attorneys fees for filing a Chapter 7 prior to filing the case, the company’s president, Sean Mawhinney, previously told Bloomberg Law.

Many, including the American Bankruptcy Institute’s Commission on Consumer Bankruptcy, have highlighted the problem of access to Chapter 7 for consumers unable to pay fees up front, because an attorney can’t collect on a pre-petition debt after the case is filed.  Currently many of these debtors are compelled to file Chapter 13, which allows for paying attorneys fees over time, but which is also significantly more expensive, time consuming (up to five years for Chapter 13 compared to less than one for Chapter 7), and far less successful in discharging, or wiping out, debts.

BK Billing proposes a system where the debtor enters into two separate agreements with his bankruptcy attorney—one for services rendered prior to the filing and another for post-filing, or post-petition, services.  The first contract would be for no or little money, with the bulk of the attorneys’ fees loaded into the post-petition agreement.  As a post-petition debt, the Chapter 7 attorney wouldn’t be barred from collecting.

“If debtors had the money upfront to afford a bankruptcy attorney they would pay upfront,” Mawhinney said in a Sept. 5 email to Bloomberg Law.  "[B]ifurcation of services allows desperately-needed Chapter 7 cases to be filed quickly without debtors resorting to filing an unnecessary Chapter 13 case, or facing a continued wage garnishment, with no relief in sight,” he said.  But it remains unclear whether courts will ultimately approve of the bifurcating of a Chapter 7 case to pre- and post-petition services.

Gallon had sloppy record keeping, the court said. The required disclosures he filed were often inaccurate and failed to indicate when he was paid from advances by BK Billing, which would subsequently collect monthly payments from the client.  Worse, the court was “troubled by Gallon’s practice of charging a higher fee to his clients that use the BK Billing Model than to his conventional clients.”  BK Billing cautions lawyers not to charge clients a premium when they use the company’s services, Mawhinney said.

Attorneys’ fees must always be reasonable and properly disclosed, Mawhinney told Bloomberg Law.  He suggests that attorneys can avoid problems by filing a motion for approval of the fee agreement, or by stipulating with the U.S. Trustee’s office in advance or at the beginning of the case, he said.

While expressing reservations regarding the validity of bifurcating fees in Chapter 7, Judge Michael declined to make a ruling on the issue, instead finding that Gallon failed in his duties to properly disclose the details of his fee arrangement with his clients, as required by the Bankruptcy Code and applicable rules.  The court voided Gallon’s post-petition contracts and ordered him to return whatever the debtors wound up paying to BK Billing. He could keep the funds that were paid by the clients directly to him, it said.

The case is In re Wright, 2018 BL 318559, Bankr. N.D. Okla., 17-11936, 9/4/18.

Law Firm Seeks $1.2M in Fees Against CFPB’s ‘Bad Faith’

August 27, 2018

A recent Law 360 story by Jon Hill, “CFPB’s ‘Bad Faith’ Merits $1.2M Atty Fees, Law Firm Says,” reports that a law firm that recently beat a Consumer Financial Protection Bureau (CFPB) lawsuit accusing it of illegal debt collection practices wants the agency to pay for its attorneys’ fees, asking an Ohio federal judge for more than $1.2 million because the agency “brought and prosecuted this case in bad faith.”  The CFPB was handed a rare defeat in July when U.S. District Judge Donald C. Nugent ruled against the agency in its suit alleging Weltman Weinberg & Reis Co. violated the Fair Debt Collection Practices Act and Consumer Financial Protection Act through the millions of collection letters it sent consumers. 

According to the CFPB, the letters gave the impression that attorneys were “meaningfully involved” in the debt collection process when they actually weren’t in most cases, but after a four-day trial before an advisory jury this spring, the judge ruled that the agency had “failed to prove its case by a preponderance of the evidence.”  But Weltman Weinberg argued that Judge Nugent should go further and sanction the CFPB for “abusing its unparalleled power to pursue a meritless case,” arguing that the agency knew its claims wouldn’t hold water long before it dragged the firm through more than a year of litigation.

“Though Weltman prevailed at trial, the bureau’s blind pursuit of its groundless case cost Weltman dearly, both in terms of the substantial expense Weltman incurred in its defense and the reputational harm that cost the firm valued clients and employees,” the firm said.  “Weltman, as the prevailing party, respectfully requests an award of its reasonable attorney’s fees of $1,207,481.25 … because the bureau brought and prosecuted this case in bad faith.”  The CFPB filed its suit against Weltman in April 2017, after what the firm said was more than two years of investigation that involved four civil investigative demands and extensive productions of documents and other materials.

“From that investigation, the bureau knew no consumer had been harmed, misled, or confused by Weltman’s practice of truthfully identifying itself as a law firm,” the firm said.  “Indeed, if the bureau had any evidence to support its claims, it surely would have presented it during motion practice or at trial.”

The complaint initially asserted six counts of FDCPA and CFPA violations, covering both the firm’s allegedly misleading collection letters as well as collection calls it placed to consumers.  According to the CFPB, these calls were also misleading because they referred to Weltman as a law firm, implying an attorney had reviewed a customer’s file beforehand when usually that wasn’t the case.  Yet the agency went on to drop its three claims related to the calls — half the case — as well as its request for disgorgement as the advisory jury trial cranked up, a move that Weltman argued underscored the CFPB’s awareness of how hollow its case was.

In July, Judge Nugent ultimately ruled in Weltman’s favor on the remaining three counts, finding that attorneys were meaningfully involved in the debt collection process and that there wasn’t any evidence showing the letters’ lawyerly trappings had improperly influenced anyone to make a payment.  But the damage was done, according to Weltman.  In addition to the legal expenses it incurred defending itself, Weltman said it lost clients and revenue from having its name dragged through the mud by the lawsuit, creating financial pressures that forced downsizing and layoffs at the firm.

“This case is the concrete example of what happens when the bureau ‘pushes too hard’ and subjects an innocent company to unwarranted scrutiny in an attempt to regulate by litigating, rather than by establishing rules before charging a company with allegedly breaking them,” Weltman said in its filing, alluding to CFPB acting Director Mick Mulvaney’s pledge earlier this year to shift the agency away from what he described as its “push the envelope” governing philosophy under former CFPB director Richard Cordray.

Cordray, who led the agency when the suit against Weltman was filed, knew about the firm’s debt collection practices from back when he was the attorney general of Ohio, according to Weltman  The firm said he approved very similar letters that it used to collect debts for the state.  “This court has the inherent authority to sanction the bureau for abusing its unparalleled power to pursue a meritless case, and the court should exercise that power to award Weltman its reasonable attorney’s fees,” the firm said.

The case is Consumer Financial Protection Bureau v. Weltman Weinberg & Reis Co., case number 1:17-cv-00817, in the U.S. District Court for the Northern District of Ohio.