A recent Law 360 story by Rose Krebs, “Del. Justices Clarify Fee-Shifting in Public Interest Cases”, reports that, in a decision offering guidance on attorney fee-shifting in public interest cases, Delaware's Supreme Court reversed a decision that awarded fees to nonprofit organizations that successfully challenged the use of outdated tax assessments in determining funding for the state's public schools.

In a 49-page ruling, the state's high court undid a Chancery Court order from last year that awarded roughly $1.5 million in fees to Delawareans for Educational Opportunity and the NAACP Delaware State Conference of Branches.  Left in place was the award of roughly $73,000 in legal expenses to the two groups, which hadn't been contested by the litigation parties.  "The parties in this appeal raise important questions regarding fee-shifting in the public interest litigation context," Justice Karen L. Valihura wrote for the court.

At issue were legal fees awarded after the two nonprofit organizations brought several lawsuits "that sought increased funding for Delaware's public schools," the Supreme Court said.  "The suits were brought against multiple Delaware public officials in their official capacities, some of whom were responsible for tax collection in Delaware's three counties," Justice Valihura wrote.

In a May 2020 opinion, Vice Chancellor J. Travis Laster ruled in favor of the two organizations, agreeing that the counties' tax assessment methods, which had relied on values from as far back as 46 years ago, treated owners of similar properties unequally.  "Appellees filed suit against the defendants because they believed that Delaware public schools were not providing an adequate education to disadvantaged students," the Supreme Court ruling said. "Appellees pointed to a broken system for funding public schools as one of the reasons why Delaware's public schools have fallen short."  The Supreme Court decision explained that in the state, "approximately one-third of funding for public schools is derived from local taxes levied by individual school districts."

"When school districts in Delaware levy local taxes, they use the county assessment rolls prepared by New Castle County, Kent County, and Sussex County," the ruling said.  "If there are deficiencies or problems with the counties' tax assessment rolls, those deficiencies or problems will affect the school districts' ability to levy taxes."  In his ruling, Vice Chancellor Laster said that "owners whose properties have appreciated more pay a lower effective rate than owners whose properties have appreciated less."

"The counties' outdated assessments conceal a reality of non-uniformity beneath a cloak of uniformity," the vice chancellor said.  His ruling came after the Chancery Court had bifurcated the litigation into a "County Track" to handle claims against county defendants, and a "State Track" to adjudicate claims against state officials, according to the Supreme Court opinion.

The "County Track" litigation was further divided, the Supreme Court said, including a "merits" phase that went to trial in 2019, leading to the vice chancellor's post-trial decision.  As proceedings continued following Vice Chancellor's Laster's ruling, an agreement was reached by the parties "pursuant to which each county agreed to conduct a general tax reassessment," according to the Supreme Court's decision.  The two nonprofit organizations sought an award of attorney fees and expenses in May 2021, and in two separate decisions, the Chancery Court first determined that the groups were entitled to the costs and then subsequently awarded the amounts to be paid by the defendants, the Supreme Court said.

In its ruling, the Supreme Court relied on two of its prior decisions, in Dover Historical Society v. Dover Planning Commission, in 2006, and Korn v. New Castle County, in 2007. In the Dover decision, the Supreme Court "rejected fee-shifting in a non-taxpayer, public interest suit that ultimately caused a government entity to 'perform properly,'" the opinion said.  "In Korn, fees were awarded under the 'common benefit exception' to the American Rule because the plaintiffs created for all taxpayers a tangible benefit that was both 'substantial' and 'quantifiable,'" the Supreme Court said.

The American Rule, which originated in the U.S. Supreme Court's 1796 decision in Arcambel v. Wiseman, provides that "litigants are generally responsible for paying their own legal fees absent certain limited exceptions," the Supreme Court said.  Exceptions for which fees can be shifted include cases in which a litigation party has acted in bad faith or the litigation "creates a common benefit," the high court's opinion said.

The two nonprofit organizations had argued in a filing that the Chancery Court had correctly determined they were entitled to fees and expenses for obtaining benefits "beyond the social good of making the government comply with the law."  Among those benefits were increasing annual tax benefits for school districts due to the agreement to perform updated tax reassessments, as well as "fixing deficiencies in the state equalization funding system," the groups asserted.

In an opening brief, the public officials argued that the Chancery Court had "ignored" Dover and incorrectly applied Korn, and that the court had ordered "defendants to pay fees for benefitting parties with whom those defendants have no identity of interest, which is both unprecedented and unwarranted."  The Chancery Court's "expansion of fee-shifting in public interest litigation should be curtailed," they argued.

In an amicus brief, the Delaware League of Local Governments urged the Supreme Court to reverse the Chancery Court's decision, arguing that it "improperly created a newfound common law exception to the American Rule by allowing fee-shifting ... for 'public benefit' litigation," the Supreme Court said.  On its website, the league describes itself as "a non-partisan, non-profit organization comprised of local government leaders."

The league had argued that a "mere social benefit does not justify an exception to the American Rule and it is up to the legislature, not the courts, to determine whether fee-shifting is appropriate in public interest litigation," the Supreme Court's decision said.  In its ruling, the justices agreed with the public officials and the league, saying the Chancery Court's decision exceeded "the bounds of Dover."  The Chancery Court's decision "omits any discussion of the guidance we offered in Dover as to the narrow parameters of the exception in the public interest context," the court ruled.

"Viewing this litigation through the prism of Dover's guidance, we conclude that the benefits achieved fall within Dover's 'perform properly' bounds," the Supreme Court said.  "Accordingly, we hold that the trial court erred in determining that the common benefit doctrine applied."  The high court said it was "not persuaded that the other benefits identified" warranted an award of fees and called some of the purported benefits "speculative."

The Chancery Court also erred by determining that the Korn decision "was not limited to taxpayer suits, but rather, it applied more broadly to public interest suits," the Supreme Court's ruling said.  "We decline to extend Korn beyond taxpayer suits that confer a quantifiable, non-speculative benefit to all taxpayers," the justices said.

New Castle County Executive Matt Meyer said in a statement: "We are proud that we just saved taxpayers $1.48 million, a substantial portion of which would have been paid to out of state New York lawyers.  This decision, from Delaware's highest court, means countless public funds will be at considerably less risk in future lawsuits against towns, cities, counties and local governments across Delaware."

A recent Law 360 story by Kellie Mejdrich, “9^th Circ. Says DOL Doesn’t Owe Atty Fees in Stock Plan Case”, reports that the U.S. Department of Labor doesn't have to pay an architecture firm's attorney fees after losing its suit accusing the firm of mismanaging an employee stock ownership plan, a split Ninth Circuit panel ruled, saying a lower court didn't abuse its discretion by finding the suit was justified.  In a published opinion, the majority of the three-judge panel affirmed the denial of attorney fees and non-taxable costs that Bowers + Kubota Consulting Inc. and its former owners had sought from a Hawaii federal court under the Equal Access to Justice Act, or EAJA.  The government first sued in 2018, alleging the company and its executives mismanaged the Bowers + Kubota ESOP by overvaluing stock in a $40 million sale, but the DOL lost its case in 2021 following a five-day trial.

In the opinion for the panel's majority, written by U.S. Circuit Judge Kenneth Kiyul Lee, the appellate court criticized the government's case for being "shoddy" and hinging on erroneous ESOP valuation data from a single expert witness that the district court ultimately rejected.  But the panel's majority said the district court didn't abuse its discretion when it denied Bowers + Kubota fees and non-taxable costs.  "The government reasonably relied on its expert's valuation opinion, despite its flaws, as the parties proceeded to trial," the opinion said.

"In short, the government's litigation position at the time of trial was weak on evidence but perhaps not without a reasonable basis," the majority later added. "We recognize that this is a close call."

U.S. District Judge Susan Oki Mollway found in September 2021 that the company and its former owners, Brian Bowers and Dexter Kubota, had complied with the Employee Retirement Income Security Act when structuring a $40 million sale of stock to the ESOP.  The judge ruled that the government's case collapsed because of errors in the expert witness's calculations, which formed the basis of the DOL's allegations that the valuation was too high.  The judge also awarded taxable costs to the firm and its former owners.  In February 2022, Judge Mollway rejected the architecture firm's bid for attorney fees and reduced deposition costs owed by the DOL.  The firm subsequently appealed.

Regarding the award of taxable costs, the panel's majority said that the district court had abused its discretion in reducing the award "by relying on a clearly erroneous finding of fact."  That is, the district court mistakenly believed that depositions for which the firm sought reimbursement had occurred after the court denied a motion for summary judgment, when they had occurred before the ruling, the panel's majority said.  "Because the district court's reduction of costs was mainly based on that clear error, it abused its discretion," the panel's majority said.  "We thus remand the issue of costs so that the district court may reconsider its decision on the corrected record."

A recent Law 360 story by Greg Lamm, “Wash. AG Disputes $5.7M Legal Costs To Thrift Chain”, reports that the Washington Attorney General's Office said a thrift store chain has inflated the legal costs that the state must pay after the state Supreme Court cleared the chain of deceptive advertising charges brought by the state, urging a trial judge to slash nearly $2 million from the chain's $5.7 million claim for attorneys' fees and costs.  The state attorney general's office said Value Village owner TVI Inc. seeks to recover nearly $1 million for more than 1,500 attorney hours for work relating to appellate proceedings, which the company failed to request on appeal, according to a brief filed in Washington state court.

In addition to chopping off the $1 million, the state attorney general's office urged the trial judge to reduce the remaining balance of TVI's fee request by 15%, arguing that TVI used block-billing, which the state called "a disfavored billing practice," according to the brief.  "While the documentation of work performed need not be in minute detail to support a fee petition, practices such block-billing make it virtually impossible to determine how much time was spent on particular activities." the brief said.

In its brief responding to the Bellevue, Washington-based company's fee request, the state attorney general's office also accused TVI of redacting billing entries, which the state said made it impossible to evaluate whether a large portion of billing time was reasonable.  TVI also improperly included thousands of dollars in fees for a federal lawsuit filed against the state in 2017 that was eventually tossed, the brief said.

The state Attorney General's Office sued TVI in 2017 in Washington state court, alleging the Value Village owner ran an aggressive marketing campaign that allegedly deceived consumers and donors into believing that the for-profit company was a charity.  In February, the state Supreme Court sided with TVI, in a unanimous ruling that said the thrift chain's marketing campaign touting its support for its charity partners was protected by the First Amendment.  The state high court sent the case back to the trial court to dismiss the state Consumer Protection Act claims and to rule on attorneys' fees and costs.

On Aug. 9, King County Superior Court Judge David Whedbee ruled that TVI was entitled to recover attorneys' fees and costs in the litigation.  Judge Whedbee said he would determine the exact amount during the second phase of the case.

A recent Law 360 story by Caleb Symons, “California Rebuffs Tribes’ Bid for $1.1M Atty Fee in Gaming Appeal” reports that California and its governor, Gavin Newsom, say five Native American tribes that earlier this year won a Ninth Circuit decision over their gaming negotiations with the state are not entitled to more than $1.1 million in attorney fees, since federal Indian law offers no such relief.  That dispute comes several months after the Ninth Circuit gave the five tribes — the Chicken Ranch Rancheria of Me-Wuk Indians, the Chemehuevi Indian Tribe, the Hopland Band of Pomo Indians, the Robinson Rancheria of Pomo Indians and the Blue Lake Rancheria of the Wiyot, Yurok and Hupa Indians — major leverage in their gaming negotiations.

In the wake of that decision, in which a panel of the appellate court prohibited California from adding to the tribes' new gaming compacts any regulatory topics not directly tied to gambling, tribal leaders have sought to recoup $1,130,679 they estimated spending on the litigation.  California fired back, saying the tribes are ineligible for that relief because the federal Indian Gaming Regulatory Act contains no provision for recovering such expenses.

Nor can the tribes turn to state civil procedure to recoup their attorney fees, Newsom and other state officials argued, since the case involved only questions of the federal Indian gaming law, not state law.  The Ninth Circuit has already determined — in the 2018 case Independent Living Center of Southern California Inc. v. Kent — that such claims are valid exclusively in litigation over state law, according to California.

"The tribes' attempt to expand Kent to permit state law attorneys' fees awards in federal court cases that do not adjudicate a state law claim remains wholly without support," the state said.  In their Sept. 26 motion, the five Native tribes said their request of $1.1 million in attorney fees was based on reduced rates and reflected a proper "lodestar" amount, defined as the product of the number of hours reasonably spent on the litigation and a reasonable hourly rate for the attorneys.

That calculation, on the high end, proposes $980 per hour for Lester J. Marston of Rapport and Marston, which represents all the tribes except the Blue Lake Rancheria.  At the low end, it proposes $300 per hour for Marston's son, a law clerk at the same firm.  But even if the tribes are, in fact, eligible to recoup such expenses, California and Newsom responded, the state is immune from furnishing those funds under the 11th Amendment of the U.S. Constitution.

California never waived its sovereign immunity in the litigation, the state added, calling the tribes "mistaken" for contending that it set aside its immunity under a statute that allows for lawsuits against the state that are related to the federal Indian gaming act.  That statute, known as Section 98005, allows for "good faith" litigation under the Indian gaming act but does not waive California's immunity to attorney fees, according to state officials.  "Because Section 98005 is silent on attorneys' fees, the statute does not 'unequivocally' waive the state's immunity to a claim for such fees," they said.

A recent Law 360 story by Anna Scott Farrell, “Gov’t Ordered To Reimburse NY Hospital $1.7M in Legal Fees” reports that the U.S. Court of Federal Claims ordered the government to reimburse NewYork-Presbyterian Hospital $1.7 million in attorney fees for defending itself against doctors who claimed their payroll taxes were wrongly withheld and eventually settled.  The court's decision answered "a unique question of law" about whether a statute requiring the government to reimburse employers for payroll-tax claims extends to the employer's cost to litigate or negotiate such claims, according to the decision published.  "The short answer is that it does," the court said.

At the center of the decision was a textual parsing of Section 3102(b) of the Internal Revenue Code, which requires the government to indemnify employers against claims for taxes withheld under the Federal Insurance Contributions Act.  The law, as written by Congress, reads, "Every employer required so to deduct the tax shall be liable for the payment of such tax, and shall be indemnified against the claims and demands of any person for the amount of any such payment made by such employer."

The court disagreed with the government's position that the phrasing of "any such payment" should apply in a limited context to the payment for "claims and demands" made by the employer. It sided with the hospital's "most natural reading," which included the last part of the sentence — that the payment should apply to "any such payment made by such employer."  Further, the court said, "the plain meaning of 'indemnified' clearly encompasses attorneys' fees and costs."

The decision is a mile marker in a long battle that started in 2013, when three doctors who had worked as residents at the hospital blamed the hospital for the loss of tens of thousands of dollars in FICA payroll taxes on their wages when they were trainees.  The Internal Revenue Service had recently given the trainees a window of time to claw back their tax contributions for the years when they were considered students who weren't required to pay those taxes.  In their suit against the hospital, the doctors said it should have helped them recover the wages in time by filing protective FICA tax refund claims on their behalf, according to court filings.

The hospital settled with the residents in 2015, agreeing to pay them $4.5 million toward their lost wages plus their attorney's fees, bringing the total settlement amount to $6.6 million.  A year after the settlement, the hospital sued the IRS, seeking reimbursement of the $6.6 million it had paid the residents.  The Court of Federal Claims initially rejected the hospital's bid for reimbursement, but a three-member panel on the Federal Circuit overturned that ruling, saying the hospital was entitled to reimbursement from the government.

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