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Category: Fees & Bad Faith

Article: When is ‘No Fee’ a Reasonable Fee?

March 6, 2021

A recent article by Karen M. Morinelli and Samantha E. Dunton-Gallagher, “When Is ‘No Fee’ a Reasonable Fee? 11th Circuit’s Guidance on Reasonableness in FLSA Attorneys’ Fees Cases,” reports on a recent FLSA fee ruling in the Eleventh Circuit Court of Appeals.  This article was posted with permission.  The article reads:

On February 1, 2021, in an unpublished opinion resolving a Fair Labor Standards Act (FLSA) attorney’s fees dispute, the Eleventh Circuit Court of Appeals, in Batista v. South Florida Womans Health Associates, Inc., struck another blow against unreasonable plaintiffs’ counsel seeking “reasonable” fees.  Mitzy Batista appealed the district court’s finding that it would be unreasonable to award her counsel, Elliot Kozolchyk, any attorney’s fees given his conduct during litigation filed under the FLSA.  Ultimately, the Eleventh Circuit remanded the case to the district court to make necessary findings of fact and to issue its ruling regarding whether the employer had mailed a replacement check.  However, in doing so, the Eleventh Circuit provided additional analysis as to when reasonable attorneys’ fees in an FLSA case may be no fee at all.

Background

Mitzy Batista was employed for slightly over two weeks in January 2018 by South Florida Woman’s Health Associates, Inc., when she was discharged for missing work.  Batista claimed that she never received her last paycheck and was owed $275.50 for the 38 hours she worked.  South Florida Woman’s Health Associates claimed that Batista’s last paycheck was mailed to her last known address and that because the check was not returned, and because Batista did not contact the company, South Florida Woman’s Health Associates assumed that all was well.  Batista, however, claimed that she called her former employer’s office the day after she was fired and asked for her final paycheck.  She alleged that at first she was told she would be paid by direct deposit, only to be told a few days later by the receptionist that the owner of the clinic, Edward D. Eckert, was not going to pay her at all.

Batista met with her counsel, Kozolchyk, three weeks after her employment was terminated.  But in the three months that followed, neither Batista nor Kozolchyk contacted her former employer to ask about the missing check.  In May 2018, Batista sued her former employer, raising claims under the FLSA including violations of the minimum-wage provision, liquidated damages, and attorneys’ fees and costs.  After receiving notice of the lawsuit, Eckert offered to send Batista a check for her unpaid wages but not her attorney’s fees.  Kozolchyk ignored Eckert’s initial offer.  When the counsel for South Florida Woman’s Health Associates and Eckert himself reached out again, they offered to clear up the matter and offered to pay the unpaid wages and court costs.

Kozolchyk initially ignored their communications and about a month later rejected the settlement offer.  Kozolchyk insisted on receiving attorney’s fees in an amount greater than what Eckert believed to be reasonable, stating, “my client cannot agree to shoulder the fees in this case … [for] those are recoverable against the defendants above and beyond the value of the claim.”  Kozolchyk then demanded his fees in the amount of $3,200, and Eckert counteroffered $1,100 in attorney’s fees.  Ultimately, the parties settled and agreed that Batista was to be paid $551 in unpaid wages, liquidated damages, and costs in the amount of $523, and that “the task of deciding the question of reasonable attorney’s fees” would be left to the district court.  The settlement was approved and Batista filed her motion for attorneys’ fees, seeking $10,675 in fees for the 30.5 hours Kozolchyk claimed to have expended litigating the case.  The district court referred the motion to a magistrate judge for a report and recommendation.

The magistrate judge, although “acknowledging the general requirement that prevailing plaintiffs in FLSA actions receive some award of attorney’s fees,” recommended that the court deny Batista’s motion and not award her attorney’s fees.  “Specifically, the magistrate judge found that (i) Defendants timely issued and mailed Plaintiff her final paycheck to the address she provided, (ii) Kozolchyk made no effort to contact Defendants to inform them that Plaintiff had not received her check before suing, and (iii) had he done so, he would have discovered that Defendants had sent Plaintiff’s paycheck to her address and were willing to issue another.”  Accordingly, the magistrate judge deemed Batista’s fee demands to be “excessive relative to the minimal work [i.e., a brief phone call] necessary to resolve the matter and make his client whole.”  The district court adopted the factual determinations and legal conclusions contained in the report and recommendation and rejected Batista’s objections, which included an affidavit in which she averred that she had telephoned someone in South Florida Woman’s Health Associates’ payroll department to request her last paycheck.  South Florida Woman’s Health Associates did not provide an affidavit to support its own allegations.

The Court’s Analysis

In determining whether the district court abused its discretion when it determined that a reasonable attorney’s fee in the case was no fee, the Eleventh Circuit reviewed guidance provided by analogous case law in the Southern District of Florida—including cases where plaintiffs were also represented by Kozolchyk.

Initially, the court discussed the “seminal district court case” of Goss v. Killian Oaks House of Learning, which was decided in 2003.  There, the plaintiff was a former employee who alleged she was owed two days of pay.  The former employer had issued a check and told her to pick it up, but instead of doing so, she hired a lawyer who sued the former employer for failure to pay wages.  The plaintiff’s lawyer asked for over $16,000 in attorneys’ fees where the matter settled for slightly over $300 for unpaid wages.  The Goss court stated that regardless of “the FLSA’s provision for a mandatory award of attorney’s fees for a prevailing plaintiff, ‘an entitlement to attorney’s fees cannot be a carte blanche license for Plaintiffs to outrageously and in bad faith run up attorney fees without any threat of sanction.’”  The Goss court “concluded that there are ‘special circumstances’ that can render the award of attorney’s fees unjust and that ‘so-called nuisance settlements represent such a circumstance.’”

The Eleventh Circuit also discussed Nelson v. Kobi Karp Architecture & Interior Design, Inc., a 2018 case in which “the [district] court denied in its entirety a fee request by counsel in [the] case, Mr. Kozolchyk.”  The plaintiff in Nelson had sued for two days of unpaid wages equaling $116, and after settlement, Kozolchyk had sought more than $9,000 in attorney’s fees.  In Nelson, the employer had immediately tried to resolve the matter after suit was filed by paying the unpaid wages at issue, plus $1,500 in attorney’s fees and costs, which Kozolchyk declined.  The employer, through counsel, then physically tendered the money in question and offered $2,000 in fees and costs, but Kozolchyk still declined.  The Nelson court ultimately determined that ‘Kozolchyk’s “sole intent [at that point] was to run up his bill.’”  Therefore, the Nelson court concluded, awarding any attorney’s fees would be “unreasonable, unjust, and inequitable.”

Similarly, in the 2019 case of Olguin v. Florida’s Ultimate Heavy Hauling, after Kozolchyk had filed suit, “the employer unconditionally tendered to Kozolchyk all the wages requested by the plaintiff, but Kozolchyk refused to accept the tendered paycheck” and lengthy litigation ensued on a separate claim, which he ultimately abandoned.  Kozolchyk ultimately sought attorney’s fees of over $36,000.  The Olguin court denied the request for attorney’s fees, finding that Kozolchyk’s “conduct was part of a strategy to churn the file and create unnecessary attorney’s fees.”

The Eleventh Circuit, analyzing the prior case law, clarified that the absence of any inquiry by counsel notifying an employer prior to filing an FLSA action was not in and of itself sufficient to deny attorney’s fees.  Specifically, the court noted that although it had denied fees in Sahyers v. Prugh, Holliday & Karatinos, P.L., a 2009 case in which the plaintiff’s counsel had filed a lawsuit without contacting the prospective defendants to resolve the matter extrajudicially, the holding was limited to the facts of that case—“an FLSA suit filed against fellow attorneys as defendants.”  Indeed, the court emphasized that an attorney is required under the Federal Rules of Civil Procedure “to make reasonable inquiry into the facts underlying a claim.”  That is, “litigation in which the defendant-employer has done what it should reasonably do to get payment to a former employee, but in which the employee or her attorney has made no pre-suit effort to inform the employer that the payment was never received creates a scenario fitting into the … ‘nuisance litigation’ category.”

Ultimately, the Eleventh Circuit remanded the case because the primary reason for the district court’s holding that attorney’s fees should not be awarded rested on “the finding that Defendants had actually mailed a final check to Plaintiff prior to her lawsuit.”  However, the record lacked evidence to support this finding because “Defendants had never supported their factual position with an affidavit, [so] their assertions were likewise insufficient to create an adequate evidentiary basis for findings that Plaintiff ultimately contested.”

Key Takeaways

The decision provides helpful guidance to employers.  In instances in which an employee is seeking unpaid wages where the amount of wages sought is partly or fully contested, the employer may want to consider tendering payment in full pre-suit where such sum is nominal.  Providing full tender of the payment may assist in preventing an overinflated award of attorneys’ fees and costs where the employee’s counsel’s primary intent is to “churn the file” and gain fees in bad faith.  When considering their options, employers may want to take heed that FLSA cases are fact-specific.

Karen Morinelli is the Office Managing Shareholder of Ogletree Deakins’ Tampa office.  As a former General Counsel and Vice President of Human Resources, she brings a strong business perspective to both client relations and in her approach to manage client issues.  She counsels employers in all aspects of labor and employment law including employer/employee relations, litigation, and alternative dispute resolution.

Samantha Dunton-Gallagher is Of Counsel in Ogletree Deakins’ Miami office and represents employers in cases that involve, among other things, alleged wrongful termination, harassment, discrimination, wage and hour violations and unfair business practices.  She regularly interacts with state and federal agencies, such as the U.S. Department of Labor and the Equal Employment Opportunity Commission (EEOC).

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm representing management, and is reprinted with permission.  This information should not be relied upon as legal advice.  

Nelson Mullins Discloses Hourly Rates in Patent Fee Request

March 1, 2021

A recent Law.com story by Mike Scarcella, “Denied a Seal, Nelson Mullins Reveals Rates in Fee Petition in Patent Suit,” reports that, for at least the second time in the span of a year a federal trial judge refused to let a major U.S. law firm keep hourly rates and other billing-related information secret as part of an effort in court to squeeze legal fees from an opponent.

Denied its bid for secrecy, one of the firms, Nelson Mullins Riley & Scarborough, last week resubmitted its attorney fee petition fully unredacted in the U.S. District Court for the Western District of North Carolina.  The other firm, King & Spalding, abandoned an effort last year in Washington’s federal trial court after a judge said he would unseal supporting records showing hourly rates if the firm wanted to press its fee request.

Nelson Mullins sought $292,340 from a private plaintiff who filed patent claims against the motorsports company Simpson Performance Products and an engineer there.  The law firm won a key ruling in early February, but the court, just one day after the fee petition was filed, denied the request.  King & Spalding had sought $665,000 from the U.S. Department of Health and Human Services after successfully obtaining records in a federal Freedom of Information Act lawsuit.

Specific hourly billing rates and other internal records about fees generally are not things that law firms and lawyers are eager to discuss out in the open.  Indeed, both Nelson Mullins and King & Spalding had argued hourly rates and other billing documents were sensitive business records that should be kept confidential.  Still, information about billing often becomes public as a matter of routine in any number of settings, including in bankruptcy filings, certain types of litigation and in some law firm contracts with government clients.

A bankruptcy case in the U.S. District Court for the Northern District of Texas recently showed hourly rates for Kirkland & Ellis partners to be between $1,085 and $1,895, and associates’ hourly rates between $625 and $1,195.  In California, a federal judge last month ordered legal fees to be paid to a team from Gibson, Dunn & Crutcher that successfully represented Rachel Maddow as a defendant in a defamation case.  Gibson Dunn partner Theodore Boutrous Jr., prominent for his First Amendment advocacy, was shown as billing $1,525 hourly last year.

Nelson Mullins “asks the court to seal the amount of attorneys’ fees being requested—the very substance of the relief that it is seeking from the court—along with how it calculated the fees (counsel’s hourly rates and the time expended during their representation),” U.S. District Judge Kenneth Bell wrote in a Feb. 24 order.  “Thus, the effect of a request to seal this information is tantamount to a request to issue a secret order, as the court could not even grant much less fully discuss the merits of [the legal fee] request without disclosing the amount of fees requested along with counsel’s hourly fees, etc.”

In the King & Spalding matter, U.S. District Judge Amit Mehta said “the records that plaintiff asks to keep under seal go to the very heart of what is before the court: questions concerning the reasonableness of plaintiff’s counsel’s hourly rates and the reasonableness of the time they expended on this matter.”

Both judges declined the invitation to seal the law firms’ hourly rates and other records.  In the case involving King & Spalding, the firm dropped its move to get fees after Mehta said he would unseal rate information if the firm moved forward.  Those details remained sealed.  “Once a matter is brought before a court for resolution, it is no longer solely the parties’ case, but also the public’s case,” wrote Bell, a former McGuireWoods partner who’d spent more than 10 years in the firm’s Charlotte office before joining the bench in 2019.

Bell said that “except in very limited circumstances, the court’s business must be conducted openly, with public access guaranteed to instill confidence in the fairness of the proceedings and inform the public about the law.” He added: “[B]y choosing to seek attorneys’ fees in an open court, Simpson must necessarily disclose the amount of the award it seeks and the underlying basis for its fees.”  To “avoid any surprise,” Bell said he would allow Nelson Mullins to withdraw its motion for legal fees or refile it in an unredacted form.  That firm submitted 85 pages of arguments, declarations and billing records to back its request for fees.

“The rates charged by defendants’ counsel were well within, if not below, the range typically charged for complex litigation in North Carolina,” wrote Charlotte-based Nelson Mullins partner Craig Killen, who said he billed at $425 hourly for the case.  Another partner, Robert McWilliams, billed at $405 on the case.  Three associates billed at hourly rates between $320 and $345, according to the law firm’s motion for fees.

In arguing for fees, the Nelson Mullins team trumpeted the “unusual questions” raised during the patent litigation.  “This case was pending over two years and proceeded through the extended period of discovery,” Killen wrote in a court filing.  Nelson Mullins said its request for fees “is made with some reluctance because Simpson has no interest in ‘punishing’ an individual plaintiff.”  But, the law firm said in its court filing, “much of the expense incurred by the defense could have been avoided if plaintiff had not pressed unreasonable and objectively baseless positions.”

On the day after refusing to allow Nelson Mullins to file its billing records under seal, Bell, the trial judge, rejected the firm’s request.  “In the exercise of its discretion, the court does not find this case to be exceptional,” Bell wrote in an order last week.  “While the court determined that defendants were fully entitled to summary judgment (and to be clear does not intend by this decision to indicate that it has any uncertainty over that conclusion), defendants have not shown that plaintiff pursued her claims frivolously, for an improper purpose or in bad faith.”

Article: Since When Do Attorneys Have to Pay the Opposing Counsel Fees?!

February 20, 2021

A recent article by Deena Duffy, “Since When Do Attorneys Have to Pay the Opposing Counsel Fees?! reports on how attorneys can be held responsible for opposing counsel fees in Ohio.  This article was posted with permission.  The article reads:

Attorneys can be Held Responsible for Opposing Legal Fees if Discovery Rules are Neglected

This may be a question that has never crossed your mind.  If so, then good for you. It means you’ve likely never been faced with sanctions.  However, just because you haven’t, doesn’t mean you shouldn’t be aware of the possibility.

What happens when your client is served discovery requests that require review of a large number of documents prior to production to the other side, yet, your client refuses to be involved in the review?  What if not only does your client refuse to engage in the review, but also refuses to engage in any negotiations aimed at making the review more manageable?  Quite clearly, these actions likely won’t bode well for your client.  Even more unfortunately for you, as this client’s attorney, you yourself could land in hot water with the court, even resulting in you being personally responsible for a portion of opposing counsel’s fees.

As we all know, some jurisdictions are more lenient when it comes to discovery rules while others – not so much.  To that extent, it is crucial to be familiar with not only the discovery rules for the jurisdiction you’re in.  Moreover, the growing importance of becoming aware of the potential ramifications of not complying with those discovery rules cannot be understated.

In a recent case out of Second District Court of Appeals of Ohio, an attorney learned the hard way what happens when you let the client run the show.  As attorneys, our duty is obviously to be zealous advocates for our clients and to provide them with advice and guidance related to their case.  However, we need to recognize that during the course of our representation, it becomes our responsibility to ensure that the client is doing what the court has ordered.

This particular discovery and sanctions issue arose out of a civil action where Plaintiff alleged that Defendant engaged in tortious interference with business relationships, defamation, invasion of privacy, intentional infliction of emotional distress, and civil conspiracy.  During the discovery phase, which began in December 2017, the Defense served Plaintiff with several requests for document production.  In Plaintiff’s interrogatory responses, Plaintiff identified 68 witnesses as having information related to his claims.  Defense counsel proposed that Plaintiff provide his multiple email accounts and their passwords to the Defense’s expert, who would then run searches for the 68 witness names.  The Court approved of the plan; however, the Plaintiff did not, arguing that this approach did not account for the protection of privileged information.

On appeal, the case was remanded and the parties came to an agreement regarding production wherein the first search the expert would conduct would be the names of privileged individuals.  The results of that search would go to Plaintiff counsel to review and produce a privilege log related to those documents.  The remainder of the non-privileged emails that hit on the 68 witness names would then be produced.  Defense counsel provided a list of potential search terms to Plaintiff counsel, who had no objections or modifications to the list.  Herein appears to be the end of Plaintiff’s cooperation in the discovery process.

The search for privileged names returned roughly 3,200 emails.  Plaintiff’s counsel identified roughly 2,700 of them as actually being privileged and produced a privilege log, though woefully insufficient.  The second search, for the 68 witness names, returned roughly 50,000 emails.  Following the second search, Defense counsel requested that Plaintiff modify their discovery responses.  This would assist in modifying the search term list in an attempt to cull out potentially non-responsive results to make the potentially responsive population easier to manage.  Defense counsel didn’t hear anything from Plaintiff counsel for two weeks, at which point the Plaintiff refused to modify the discovery responses.  Plaintiff did suggest that Defense counsel somehow modify the search term list to be able to discern between “material” and “relevant” discoverable information, yet provided no suggestion on how this might be accomplished.  Plaintiff counsel also informed Defense counsel that Plaintiff blatantly refused to review any emails prior to 2013, arguing that there is no way they could be relevant.  Defense counsel continued attempting to negotiate with Plaintiff to methodically deal with the large population of emails; however, Plaintiff counsel never responded to Defense counsel’s suggestions.

After roughly 15 months, the Defense filed a motion for sanctions, arguing that Plaintiff (1) refused to provide a sufficient privilege log, (2) refused to review or provide any emails from pre-2013, (3) refused to review or provide any emails related to the second search, and (4) failed to respond or negotiate regarding any suggestions made by the Defendant to move forward in the discovery phase.  At the sanctions hearing, Plaintiff counsel wasn’t in any position to help himself or his client.  Plaintiff admitted that he didn’t review a single email out of the 50,000 that resulted from the search, saying that he glanced at the list but found it overwhelming, repeatedly stating that the expert never actually ran the search terms.  In response to being asked about the pre-2013 emails, Plaintiff said, “I did not even [expletive] know the defendant during that time and it wasn’t relevant to this particular action.”  The Defense claimed they were relevant for two reasons – first to prove that Plaintiff routinely engaged in vexatious litigation, and second to prove that Plaintiff had been engaging with the witnesses as early as 2010 due to his involvement with the Defendant’s church business.

Eventually, Judge Hall granted the sanctions motion, finding Plaintiff in contempt for failing to comply with the December 2018 agreed discovery order.  A few months later, a hearing was held on the matter of attorneys’ fees, of which the court ordered Plaintiff and Plaintiff counsel, jointly and severally, to pay Defense counsel’s attorney fees, totaling $11,835.00.

In its analysis, the Court routinely returned to the fact that Plaintiff not only failed to review any of the documents, but that he blatantly refused to do so.  The Court noted that the discovery order to which the parties had agreed did not give Plaintiff the option to choose to review the emails but rather the duty to do so.  Plaintiff alleged more than once that the list of documents to review was overwhelming; however, Plaintiff refused to engage in any negotiations with the Defense regarding potential modifications to make the population more manageable.

In Ohio, the civil rules allow for an attorney to be sanctioned for failing to comply with discovery orders per Civ. R. 37(B)(3).  The Court, in granting sanctions against Plaintiff counsel, argued that Plaintiff counsel continued to repeat baseless allegations about Defense counsel’s motives and that it was “especially egregious” for Plaintiff counsel to continually blame the Defendant for Plaintiff’s negligent conduct regarding discovery.

This case, while unfortunate for Plaintiff and Plaintiff counsel, should serve as a reminder to attorneys of the need to be genuine in their efforts regarding discovery.  It should go without saying that, due to attorney ethics and candor requirements, attorneys are responsible for following orders issued by the court and that failure to do so could result in the misbehaving attorney being found personally responsible for a portion of opposing counsel’s fees.

Moral of the Story

Not only is it important to understand what is required with regard to jurisdictional discovery rules, but also to understand what could happen the rules aren’t followed.

Deena Duffy is staff attorney at Spencer Fane LLP in Minneapolis.

PA Enviro Board Can Weigh ‘Bad Faith’ in Awarding Attorney Fees

February 17, 2021

A recent Law 360 story by Matthew Santoni, “Pa. Enviro Board Can Weight ‘Bad Faith’ in Awarding Attorney Fees,” reports that the administrative board that hears appeals of decisions by Pennsylvania's Department of Environmental Protection was justified in denying attorney fees to environmental groups that reached a settlement with Sunoco over its Mariner East 2 pipeline, since the board found neither side acted in "bad faith," a state appellate court ruled.

A majority of the Commonwealth Court ruled the state's Environmental Hearing Board could deny a petition for fees from the Clean Air Council, The Delaware Riverkeeper Network and Mountain Watershed Association Inc. based on the so-called bad faith standard, since neither the environmental groups nor Sunoco had acted in bad faith through the groups' appeal of the DEP granting permits for the pipeline, which resulted in a settlement between the groups and the state.

The environmental groups had argued that the board should have applied the looser "catalyst test," which would have only required them to show that their appeal was the motivating factor behind some benefit conferred by the other side in order to trigger fee-shifting provisions in the state's Clean Streams Law and have Sunoco pay their nearly $230,000 legal bill.

"Contrary to objectors' assertions, the catalyst test is not the sole and exclusive standard that EHB may employ in disposing of a request for costs and fees against a permittee under ... the Clean Streams Law.  Indeed, we have specifically recognized that EHB's 'broad discretion includes the authority to adopt standards by which it will evaluate applications for costs and fees,'" wrote Judge Michael H. Wojcik for the majority.  "It was entirely within EHB's discretion, and eminently appropriate, to apply the instant bad faith standard in deciding whether or not to impose costs and fees upon a private party permittee."  The court ruled that the EHB had wide discretion when weighing whether and how to award fees, and in a separate decision it upheld another EHB ruling that had cut the fees awarded to a family that challenged the DEP permits for another part of the pipeline crossing their land.

The environmental groups had challenged 20 permits the DEP had granted Sunoco for construction of a pipeline linking gas wells in Western Pennsylvania to a refinery in the east. The matter wound its way through various proceedings before the EHB until the challengers reached a deal with the DEP in which it would establish a "stakeholder group" on pipeline construction and would put more of its permitting documents online in exchange for the groups dropping their challenge.  The DEP also agreed to pay $27,500 of the challengers' legal fees.

But the challengers then asked the EHB to make Sunoco pay additional legal bills related to their appeal, and Sunoco filed its own petition to make the environmental groups pay nearly $300,000 toward what it had spent defending the permits.  The EHB was split, with the majority saying it could apply the bad-faith standard and find that neither side had "engaged in dilatory, obdurate, vexatious, or bad faith conduct in the course of prosecuting or defending" the appeals.  The minority had agreed that neither side was entitled to fees, but said the bad-faith test was not necessary and the board had broad discretion to award fees as it saw fit.

The environmental groups and the DEP both appealed, though the Commonwealth Court found the DEP lacked standing and granted Sunoco's bid to quash that side of the appeal because the state agency hadn't formally intervened in the fee debate and would not have been affected by the EHB ruling against the private parties.

President Judge P. Kevin Brobson wrote a concurring opinion, joined by Judge Renée Cohn Jubelirer, expressing concerns that the EHB's discretion might be so broad that the particular section of the Clean Streams Law might run afoul of the state constitution's requirement that the law contain standards to "guide and restrain" the administrative board's decision-making.  But because that issue wasn't brought up on appeal, and the EHB had denied either side any fees, this wasn't the case to address that with, Judge Brobson wrote.  In this case, there was no reason Sunoco should have been required to pay, he said.

"There is absolutely no basis in the record upon which the EHB could have exercised its discretion below in such a way as to compel Sunoco to pay objectors' legal fees," he wrote. "Sunoco was not a party to the settlement agreement between objectors and DEP that essentially ended objectors' appeals.  Moreover, Sunoco gave up nothing in the settlement or otherwise.  Sunoco kept its permits, unaltered, as if objectors had not even filed their appeals with the EHB."

A dissenting opinion from Judge Ellen Ceisler said the courts shouldn't apply a tougher standard to permit holders when the DEP itself could have been made to pay fees under the catalyst test.  "It does not therefore seem reasonable that, in theory, the DEP could be saddled with fees and costs in response to inadvertent mistakes or good faith, negotiated compromises or settlements, while a permittee could get off scot-free under similar circumstances unless it has conducted itself in a dilatory, obdurate, or vexatious way," she wrote.

The court then applied its ruling to a separate appeal by the DEP of another EHB order, which said the state had to pay about $13,000 of a family's requested $266,000 in fees from the DEP and Sunoco.  Huntingdon County landowners Stephen and Ellen Gerhart had convinced the EHB in 2019 that the DEP had misclassified a wetland on their property and that Sunoco had to do more work to restore it after completing the pipeline's construction.  But the EHB held Sunoco to the bad-faith standard and the DEP to the catalyst test in parceling out who was responsible for the reduced fee award.

Following the same logic as its ruling in the Clean Air Council case, the court affirmed that the EHB had the discretion to apply both standards in awarding fees.  "We agree that the statute and the case law grant broad discretion to the EHB in setting the standard and applying it," said Robert Fox of Manko Gold Katcher & Fox LLP, representing Sunoco in both cases.  An attorney for the environmental groups said they were weighing the decision and their options.

The attorney for the Gerharts said he thought the court correctly balanced the different standards for fee-shifting against the state and against private actors, but noted that in cases like his where the DEP and Sunoco essentially worked together to defend the permits, the state would have to be mindful of whether it would need to build a record to establish that the permit-holder was acting in bad faith.

AIG Unit Tells Ninth Circuit Yahoo’s Fee Award is Excessive

February 3, 2021

A recent Law 360 story by Daphne Zhang, “AIG Unit Tells 9th Circ. Yahoo’s Atty Fee Award is Excessive,” reports that an AIG subsidiary has asked the Ninth Circuit to reverse Yahoo Inc.'s award of over $600,000 in attorney fees or grant a new trial altogether, arguing that the tech giant did not present the correct recoverable amount and that the district court failed to guide a jury on how to allocate and award attorney fees.

In a brief filed, National Union Fire Insurance Co. of Pittsburgh, Pa., said the tech giant was not able to show which portions of its legal fees were spent on bad faith claims.  The insurer asked the court to vacate a jury verdict that found it had acted in bad faith by failing to cover Yahoo's costs to defend a consolidated class action.  National Union said that California law has clearly stated that a policyholder seeking to recover attorney fees as bad faith damages may recover only fees spent on insurance coverage issues, not those incurred to litigate the bad faith claim itself.

The carrier said that Yahoo, however, lumped all legal fees together, including those relating to bad faith claims, which are not recoverable.  The company could not present the exact amount of its legal bills spent on coverage issues, which is the only portion of recoverable attorney fees that should have been awarded, it added.  Yahoo showed "large swaths of invoices with minimal, unexplained redactions,"  National Union said. The court should reverse the attorney fee award because the unrecoverable fees must be excluded from the damages calculation, it added.

The coverage dispute goes back to January 2017, when Yahoo filed suit alleging National Union had breached its policy by refusing to cover the company in several class actions accusing it of scanning customers' emails.  In October 2018, U.S. District Judge Edward J. Davila found that National Union largely failed to defend and indemnify Yahoo for $4 million in attorney fees that resulted from the class actions.  The judge said it was up to a jury, though, to decide whether the insurer acted in bad faith in denying coverage.

Following a five-day trial in May 2019, a jury returned a verdict finding that National Union had acted in bad faith and should foot the bill for Yahoo's attorney fees.  "The jury clearly did not perform the allocation that Yahoo neglected to perform," National Union said on Monday, adding that Yahoo's own counsel could not point out how much of the legal fees were incurred on coverage issues and what portion was spent on bad faith claims.

"The district court failed to properly instruct the jury on how to allocate, leading the jury to award 100% of the claimed fees — a plainly excessive amount," the insurer claimed.  Yahoo previously argued that it had correctly allocated the legal fees by only submitting the invoices incurred before the district court's summary judgment order that granted its coverage benefits.  National Union said that since the bad faith claims were also litigated on summary judgment, Yahoo did not conduct a proper fee allocation.  "Yahoo is not entitled to a second bite at the apple to present allocation evidence it opted not to present at trial," the carrier said.

The case is Yahoo! Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., case number 19-16475, in the U.S. Court of Appeals for the Ninth Circuit.