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Category: Fees as Sanctions / Bad Faith

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.

Samsung Opposes Attorney Fees in “Duplicative Suit”

November 9, 2017

A recent Delaware Business Court Insider story by Tom McParland, “Samsung Opposes Fees in ‘Duplicative’ Suit, Citing Appeal” reports that Samsung Electronics Co. Ltd. told a federal judge in Delaware that any decision on Imperium IP Holdings’ motion for sanctions for having to defend a “duplicative” suit should be delayed pending an appeal to the U.S. Court of Appeals for the Third Circuit.

In a 23-page filing, Samsung said that a decision from the appeals court could moot Imperium’s request for $247,000 in the case, which followed a $20 million patent infringement ruling against Samsung in a Texas federal court.  Last month, U.S. District Judge Mark A. Kearney dismissed Samsung’s second-filed case in Delaware and criticized the electronics giant for “duplicating” the earlier litigation in order to attack the result in the U.S. District Court for the Eastern District of Texas.

Imperium filed its motion for attorney fees two weeks later, arguing that Samsung’s “bad-faith” tactics had qualified the case as exceptional under U.S. patent law.  The court, Imperium said, also had the authority to award fees based on Samsung’s decision to “unreasonably and vexatiously” multiply proceedings.

Samsung notified Kearney that it was appealing the Oct. 10 order and asked that consideration of motion for attorney fees be deferred until after the Third Circuit could weigh in.  Even then, Samsung said, the “exceptional” designation did not apply to a breach-of-contract suit, and Imperium had failed to prove bad faith conduct that would trigger the court’s discretion in granting sanctions.

“Samsung and Imperium have been engaged in hard-fought litigation for over three years, and Samsung’s filing and prosecution of this action in good-faith reliance on the forum selection clause is nothing more than vigorous advocacy,” attorneys for the company wrote.  ”Awarding attorneys’ fees under these circumstances will only serve to promote what courts strive to avoid: a chilling effect on an attorney’s legitimate ethical obligation to represent clients zealously.”

The case is Samsung Electronics v. Imperium IP Holdings.

Court Ordered Attorney and Client to Pay Opposing Counsel

November 6, 2017

A recent Daily Business Review story by Samantha Joseph, “Attorney and Client Ordered to Pay Opposing Counsel Over Frivolous Lawsuit,” reports that the litigation in Palm Beach County alone has cost about $4,000, with a mounting legal bill of about $20,000 for the Broward case.  A state appellate court sanctioned Palm Beach attorney Guillermo J. Farinas, holding him personally responsible for half of an attorney fee award against his client.

Florida’s Fourth District Court of Appeal held Farinas and client Joseph Manzaro equally liable for “frivolous and completely meritless” filings in a child custody case that jumped from Broward to Palm Beach County.  It remanded the case to the lower court with instructions to divide the opposing side’s attorneys fees between Farinas and Manzaro, then took the additional step of making an allowance for future litigation expenses.

“If a motion for rehearing is filed in this court, then services rendered in connection with the filing of the motion, including, but not limited to, preparation of a responsive pleading, shall be taken into account in computing the amount of the fee,” the court ordered.  It was an unusual sanction, but ethics lawyer Andrew Berman has seen it employed with growing frequency as judges order attorneys to explain why courts shouldn’t sanction them along with their clients.

“Appellate courts have become frustrated with frivolous appeals and motions,” said Berman, senior partner at Young Berman Karpf & Gonzalez in Miami and Fort Lauderdale, who was not involved in the litigation.  “It’s done as a method to dissuade people from taking frivolous positions.”

Court records show Farinas turned to the Palm Beach Circuit in 2016 to file a complaint for relief from a 2012 agreed final order from Broward County, claiming extrinsic fraud and lack of personal jurisdiction.  Litigants typically have a one-year window to seek to set aside an order, with exceptions for fraud, mistakes and other causes under Florida Rule of Civil Procedure 1.540(b).

Farinas’ filings suggest he anticipated two hurdles: a potential deadline impediment and the leap from one county—which still maintained jurisdiction—to another.  To mitigate these, he brought the fraud claim and pitched his Palm Beach filing as an independent action.  But the appellate court rejected both strategies, citing precedent requiring litigants to raise fraud claims in the original court.

“The appellant has had multiple opportunities to raise the issues presented in his complaint to the Broward Circuit Court and, in fact, has done so,” Judge Jeffrey T. Kuntz wrote in a unanimous decision with Judges Carole Taylor and Dorian Damoorgian.  “His attempt at filing a new lawsuit in a different circuit, after those prior attempts were rejected and while other new attempts still remain pending in the Broward Circuit Court, is completely devoid of merit.”

Insurer’s Fee Request Challenged by Film Producer

September 8, 2017

A recent Law 360 story by Rick Archer, “Producer Fights Insurer’s $1.9M Fee Bid in Film Accident Row,” reports that the producer of an Allman Brothers biopic objected to a demand it pay $1.9 million in attorneys’ fees for its unsuccessful attempt to win more insurance coverage for a fatal filming accident, saying it had done nothing worthy of sanction.

Film Allman LLC denied accusations by New York Marine and General Insurance Co. Inc. that the producer’s suit seeking additional coverage for the 2014 accident had been filed in bad faith, saying it had good-faith arguments for all its claims it was owed more coverage than New York Marine provided and should not be expected to pay the insurer’s claimed legal fees.

“Film Allman has a good faith belief in each of its claims, and there is evidence to support them.  Moreover, even if New York Marine is unhappy about some of the results, there is absolutely no evidence that Film Allman did anything for an improper purpose such as harass New York Marine or to cause undue delay or cost,” it said.

An Occupational Safety and Health Administration investigation showed Film Allman didn’t warn crew members working on the film “Midnight Rider” in February 2014 that they were filming on live train tracks or that CSX had denied a filming permit for the tracks prior to an accident on the first day of shooting that killed 27-year-old Sarah Jones and seriously injured several other workers.

In March 2015, the film’s director, assistant director and executive producer, respectively, pled guilty to, was found guilty of and entered an Alford plea to charges of involuntary manslaughter and criminal trespass.  A defendant entering an Alford plea acknowledges that the prosecution has the evidence necessary to prove guilt beyond a reasonable doubt, but nevertheless maintains that he is innocent.  New York Marine provided a defense to Film Allman, paid $5 million of a $6.5 million settlement to Jones' family, and then bowed out because policy limits were exhausted.

Film Allman filed suit against New York Marine in September 2014.  In May U.S. District Judge Otis Wright II ruled New York Marine was entitled to bow out under the terms of the commercial general policy, despite the fact that there are other suits remaining.  In December he had found coverage under a separate motion picture producers policy was barred by a criminal acts exclusion.  In August, New York Marine moved for more than $1.9 million in attorneys’ fees, claiming that as there was no dispute of either the criminal convictions or the policy limits, Film Allman had brought the suit in bad faith.

“As reflected by the record in this case, including in the court’s summary judgment rulings, Film Allman’s claims were fundamentally lacking any legal or evidentiary support and were, instead, based on assertions that it knew were false,” New York Marine said.

Film Allman, however, argued it did have good-faith arguments that Jones’ death did not trigger the exclusion because it had evidence there was genuine confusion over whether permission had been granted to film on the tracks and the death was not directly caused by an intentional criminal act.  It said it also had good-faith arguments that California insurance law required New York Marine to defend it from all of the suits arising from the accident, regardless of the policy limit.

“New York Marine asserts that if Film Allman had only accepted the fact that there was no coverage, it could have saved New York Marine all of its exorbitant litigation expenses.  But the same could be true of any policyholder seeking defense or coverage that an insurer denies,” it said.

The case is Film Allman LLC v. New York Marine and General Insurance Co. Inc., case number 2:14-cv-07069, in the U.S. District Court for the Central District of California.

Judge Denies Fee Request, Refers Matter to Ethics Board

September 6, 2017

A recent Legal Intelligencer story by Max Mitchell, “Judge Tosses $1M Fee Request, Refers Matter to Ethics Board,” reports that a Scranton attorney who recovered $125,000 for his client in a bad-faith case wanted $1.12 million in fees, costs and interest, but the presiding judge has instead awarded his firm nothing and referred the case to the Disciplinary Board of the Supreme Court of Pennsylvania.

U.S. District Judge Malachy E. Mannion of the Middle District of Pennsylvania issued an order chiding attorneys Michael Pisanchyn and Marsha Lee Albright over their handling of the case Clemens v. New York Central Mutual Fire Insurance, and saying their request for fees and costs was "outrageous and abusively excessive."

Mannion's 100-page opinion went line-by-line through the request, slashing billed fees he deemed vague, duplicative and excessive.  Mannion also took issue with how the firm recreated its timesheets, saying that, while recreating timesheets is allowable if the attorneys did not make them contemporaneously, a number of the entries appeared to be based on guesswork.

Mannion ended his opinion by saying that, "given the conduct of the plaintiff's counsel and the exorbitant request for fees in this case, a copy of this memorandum will be referred to the Disciplinary Board of the Supreme Court of Pennsylvania for their independent determination of whether disciplinary action should be taken against attorney Pisanchyn and/or attorney Albright."

Pisanchyn, the name partner of Pisanchyn Law Firm, said that, while he tried the case, he had not been involved in preparing the attorney fees petition.  However, he said, both he and Albright conducted themselves according to the Rules of Professional Conduct.

"I believe that either no action will be taken, or if a complaint is opened, it will be dismissed," Pisanchyn said.  He added he did not think the fees were unreasonable, since the case had been litigated for nearly nine years.  "The defendants took the position of a scorched earth litigation, and we had to go toe-to-toe with them every step of the way," he said.  "I certainly tried the case to the jury. I didn't try the case to the judge.  The jury obviously liked my presentation and obviously thought it was effective."

According to Mannion, plaintiff Bernie Clemens' bad-faith claims came before a jury in November 2015, and ended with a $100,000 award.  The defendants had settled Clemens' uninsured motorist claim for $25,000.  When it came to the attorney fees, according to Mannion, the plaintiff's attorneys sought $48,050 for their work on the UIM claim, $827,515 for working on the bad-faith claim and $27,090 for preparing the fee petition, for a total of $902,655 in fees.  Except for awarding $4,986 in interest, Mannion denied the requests entirely.

"In addition to the unconscionable number of vague entries which had been billed for (or more accurately guessed about) by the plaintiff's counsel, there also appear to be a number of duplicative entries in the bad faith time logs for which no explanation is provided," Mannion said.  Mannion said one of the most "egregious" requests included billing 562 hours for trial preparation, with the plaintiff's attorneys entering between 20 and 22 hours per day on some days.

"If counsel did nothing else for eight hours a day, every day, this would mean that counsel spent approximately 70 days doing nothing but preparing for the trial in this matter—a trial in which the only issue was whether the defendant had committed bad faith in its handling of the UIM claim; a trial which consisted of a total of four days of substantive testimony; a trial which involved only five witnesses; a trial during which trial counsel had to be repeatedly admonished for not being prepared because he was obviously unfamiliar with the Federal Rules of Evidence, the Federal Rules of Civil Procedure and the rulings of this court," Mannion said.  "For this, the plaintiff's counsel are billing $196,700."