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Category: Fee Issues on Appeal

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 16, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees. While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case. Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong. The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher. After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.” Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict. Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order. Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request. That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed. The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.” Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute. There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs. Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety. The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either. Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition. And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation. The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses. On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure. In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant. But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure. Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice. The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.” Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case. Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed. So, why do these cases—and understanding how they were decided and why—matter to me? There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees. Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded. This is equally true before the trial court in the first instance and on appellate review. Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment. It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court. On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost. From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows. As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions. The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy. And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources. In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions). By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group. He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.

Eleventh Circuit: No Added Attorney Fees for Defending Fees

April 12, 2019

A recent Law 360 story by Nathan Hale, “No Added Atty Fees in Nationstar Case, 11th Circ. Says,” reports that a Florida woman who won a judgment against Nationstar Mortgage LLC for charging improper fees is not entitled under state law to collect appellate attorney fees for her counsel's work defending an initial attorney fees award in the case, the Eleventh Circuit ruled.  The federal appeals court backed a lower court's decision to deny Sara Alhassid's request for attorney fees covering Nationstar's appeal based on a finding that the benefit would be purely for her attorneys and that she has no obligation to pay them for this work.

The appeals panel said it agreed with the district court that the controlling case on the issue is the Second District of Florida's ruling in B & L Motors Inc. v. Bignotti.  In that case, the state appeals court found that if a plaintiff has no interest in a fee award because it would not affect her payment obligation to her attorneys, then the plaintiff may not receive a fee award under the Florida Deceptive and Unfair Trade Practices Act, according to the opinion.

“B & L Motors is exceedingly clear that a prevailing plaintiff may receive fees under FDUTPA only if a 'fee award is found to be in the interests of the client and if the fee arrangement is found to have contemplated payment for that work,'” the Eleventh Circuit said.  “Because we do not lightly disregard binding, on-point decisions of intermediate state appellate courts, we hold that B & L Motors compels the denial of appellate attorneys’ fees in this case.”

Alhassid's counsel, Reuven T. Herssein of Herssein Law Group PA, said that his side intends to seek an en banc rehearing of the decision, which he said promotes meritless appeals by mortgage companies and other large institutions and has a chilling effect on plaintiffs who bring and litigate these cases.  "In light of this decision, plaintiffs attorneys will shy away from taking on these kind of cases since we won on the merits of the appeal and the appellate court’s decision means we are not paid for the successful result we obtained for our client in the appellate court," he said.

According to the opinion, Alhassid's attorneys had said that they “took this case on a contingency basis,” and the district court found that meant that any fees resulting from the appeal of the fee award would “inure solely to the benefit of plaintiff's attorneys and not to plaintiff herself.”

The dispute stems from Bank of America's decision to place Alhassid’s reverse mortgage in default for failure to pay flood insurance on her property.  After acquiring Alhassid’s mortgage and note in April 2013, Nationstar called her loan due and payable and started a foreclosure action on the property in January 2014, according to case records.  Alhassid filed the suit as a proposed class action against Bank of America NA and Nationstar in February 2014 and was joined by Sarah Drennen in August 2014.  The two women filed their third amended complaint in December 2014, bringing three breach-of-contract claims, a claim for breach of the covenant of good faith and fair dealing, the FDUTPA claim and a claim of violation of the Fair Debt Collection Practices Act.

They alleged the two companies charged improper fees, placed loans in default when borrowers did not pay those fees and then charged more unlawful fees after the defaults, according to the opinion.  The district court in Miami denied class certification in August 2015, finding that the nine class definitions didn’t show commonality and only individualized evidence could prove wrongdoing.  The claims against Bank of America were ultimately dismissed voluntarily, but Alhassid won summary judgment against Nationstar on all but the good-faith and fair-dealing claim, which the court found to be duplicative, the opinion said.

Alhassid was awarded $5,000 in actual damages and $1,000 in statutory damages under the FDCPA, according the opinion.  The district court also found that she was entitled to attorney fees as the prevailing party under the FDUTPA and awarded her $435,704 in fees.  The Eleventh Circuit affirmed the award on appeal.  The case is Alhassid v. Nationstar Mortgage LLC, case number 18-11985, in the U.S. Court of Appeals for the Eleventh Circuit.

Second Circuit Upholds Attorney Fee Reduction in FACTA Settlement

April 10, 2019

A recent New York Law Journal story by Colby Hamilton, “Second Circuit Upholds Judge’s Slashing Attorney Fees in Fair Credit Law Settlement,” reports that the U.S. Court of Appeals for the Second Circuit affirmed a Manhattan federal judge’s order to cut down a fee request in a Fair Credit Reporting Act lawsuit, finding she had properly exercised her discretion, over arguments to the contrary from the plaintiff’s attorneys.  The Second Circuit ruling upheld a decision entered last May in which U.S. District Judge Valerie Caproni of the Southern District of New York refused to allow attorneys to collect approximately $83,000 in fees in their Fair and Accurate Credit Transactions Act (FACTA) case.

The plaintiff in the underlying matter, Joan Pasini, had brought two other suits in Manhattan federal court under the exact same premises.  In the Godiva suit, she ultimately secured a $5,500 settlement with the chocolate maker, after opting out of a class action settlement that would have awarded her up to $80.

As Caproni noted in her order, the Godiva action involved “no motion practice, no discovery, no contested hearings, a single status conference, which lasted less than 30 minutes, two telephone conferences, which also lasted about 15 to 30 minutes each, and one mediation session.”

The district court found there was “nothing reasonable” about the $83,000 figure submitted by Glendale, California, attorney Chant Yedalian and local counsel, attorney Sameer Birring.  Rather, the litigators were using FACTA as a “cudgel to attempt to extract an unreasonable fee.”

“Attorneys who take on consumer protection lawsuits are sometimes pursuing a public good—the individual damages are generally quite modest but there is a public interest in ensuring compliance with federal consumer protection laws,” the district court wrote.  “Counsel is entitled to recover reasonable fees, but this court will not aid and abet extortion.”

The 10-page complaint in the underlying suit replicates claims similar to the other FACTA suits brought by Pasini.  She claimed the chocolatier printed out a receipt for a credit card transaction that included the first six digits and the last four digits of the card number.  Under FACTA, no more than the last five digits of the card number are allowed to be on a receipt provided to the cardholder.

After opting out of the settlement and an initial figure from the chocolatier of the statutory settlement maximum of $1,000, Pasini demanded a $75,000 payment from Godiva, according to court papers.

The suit was filed March 10, 2017. On Sept. 29, the parties alerted the court that the settlement amount for the plaintiff had been agreed to for the far smaller sum of $5,500, but Godiva stated to the court that attorney fees remained an issue.  Attorneys for Godiva argued in opposition to the fees that counsels’ “aim throughout this case has been to generate the maximum amount of attorneys’ fees possible.”

Caproni agreed, finding the hourly rates proposed by opposing counsel in the “exceedingly straightforward case” exorbitant.  She cut Yedalian’s requested fee range of $550 to $650 an hour down to a “generous” $350 an hour, while bringing Birring’s $350 an hour requested rate down to $275.

Similarly, Yedalian’s 152 hours of billable work was “so out of proportion to the tasks he purportedly undertook” that Caproni said she had to “question the accuracy of the bills.”  All but five hours of the claimed time “was spent on low-level work that could have been accomplished by an associate or paralegal; tasks any competent attorney (much less one with 15 years of experience practicing in an area of the law that is neither sophisticated nor intellectually challenging) could have accomplished far more quickly.”

Caproni ultimately cut Yedalian’s hours billable at the new rate by 90 percent, leaving him with an entitled fee of $5,325.83, while Birring was, at a reduction of 65 percent to his hours, granted $1,020.25 in fees.  With the reduced costs of $620 provided to the plaintiff, Caproni’s order amounted to less than 10 percent of what Pasini sought.

On appeal, the panel of Circuit Judges John Walker Jr., José Cabranes and Robert Sack said Caproni was within her right to the substantial reduction “in light of the pervasive errors and exaggerations in the fee application.”  The panel went on to likewise support the district court’s gutting of travel fees for Yedalian, as “there was no reason local counsel could not attend the initial status conference instead of lead counsel from California.”

Federal Circuit Wants Reasons for Mediator’s Fee Denial in EEOC Case

April 1, 2019

A recent Law 360 story by Braden Campbell, “Fed. Circ. Wants Reasons for EEOC Mediator’s Fee Denial,” reports that the Federal Circuit told an arbitrator to reconsider denying fees to a U.S. Equal Employment Opportunity Commission mediator whose firing for a violent outburst the arbitrator reversed, directing him to explain his ultimate decision.  The panel said arbitrator John Dorsey should have explained why he denied mediator David Hamilton's request for fees while granting his request for reinstatement, saying it couldn't do its duty of deciding whether Hamilton abused his discretion with the fee denial because he didn't share his reasoning.

"In some instances, the matter may be so clear that the failure of the adjudicator to provide an explanation for its action will be harmless error, so that this court can enter judgment in accordance with the ruling below despite the absence of an explanation for that ruling," the panel said.  "But this is not such a case."

The EEOC fired Hamilton in 2017 following a mediation in which he "suddenly began to act erratically," hurling racial epithets and "engaging in physical violence" toward the parties in the dispute, according to the ruling.  Hamilton filed a grievance through his union, the American Federation of Government Employees Local 3599, and argued for reinstatement in arbitration.  Dorsey attributed the outburst to a one-time "major physical and/or mental breakdown" and ordered Hamilton be reinstated with back pay.  But Dorsey denied the union's request for arbitration costs and fees without explanation, and, after he reaffirmed his ruling following the EEOC's request for reconsideration, the union appealed to the Federal Circuit.

The panel frames the union as making three arguments on appeal: that Dorsey had to award fees "under the applicable standards," that he deviated from his merits decision by denying fees, and that his failure to explain the denial means it must be reversed.  The panel dispensed with the union's first two arguments briefly, saying the first amounted to a request that it find Dorsey abused his discretion "regardless of any findings," and that arbitrators can consider other factors than those behind their merits ruling in denying fees.  The panel said the third argument "has more force," discussing it in detail.

The panel said appeals ordinarily require that the adjudicator explain their reasoning "even on a matter as to which the adjudicator is given broad deference" because the reviewing body otherwise can't say whether the ruling was well reasoned.  This case illustrates why such reasoning "is typically critical to judicial review," the panel said.

The panel noted the EEOC argued in its bid for reconsideration that Dorsey rightly denied fees for two reasons: awarding fees would have been unjust, and its collective bargaining agreement with Local 3599 holds that parties in arbitration bear "fees and expenses" equally.  The EEOC later backed off the second argument, which omitted that this portion of the CBA spoke to arbitrators' fees only.  But because Dorsey did not explain his reasoning, it's unclear whether that argument factored into his fee decision, the panel said.

"Because the EEOC invited the arbitrator to deny fees on that ground, the agency is not well situated to argue that the arbitrator must have denied fees based on a valid ground, rather than on the invalid ground that the agency itself proposed," the panel said.

Barbara Hutchinson, who represents the union, said the panel's ruling "is consistent with the law, which requires an arbitrator state the findings and conclusions when ruling on a request for attorney fees and costs in arbitration cases appealable to MSPB." 

Federal Circuit Considers How Fee Ruling Can Deny Access to Justice

March 25, 2019

A recent Law 360 story by Anne Cullen, “DC Circ. Dissects Attorney Fee Ruling That Stoked Access Fears,” reports that a D.C. Circuit panel has raised concerns with a survey of lawyers’ rates that a lower court used to pare millions from an attorney fee award in a decision that legal aid and public interest groups fear may undercut their fee awards and ultimately reduce the number of clients they can take on.  The dispute hinges on a new attorney fee matrix put forward by the government that is based on a survey of hourly rates billed by lawyers throughout Washington, D.C., Maryland, Virginia and West Virginia who practice in various legal arenas, including in litigation, wills, bankruptcy cases and real estate closings, among other practices.

A D.C. district court relied on that matrix two years ago to shave just under $3 million from the nearly $10 million in fees and costs a class requested to pay their attorneys after winning a long-running case against the nation’s capital over violations of federal and local disability laws.  D.C. had championed the new data, as it argued the government’s updated rates provide a more reliable and accurate measure of the current market, while the iteration the class prefers is three decades old.

In the class’ appeal, it told the D.C. Circuit that complex litigation attorneys in D.C. shouldn’t be paid from a dataset that includes non-litigation lawyers hailing from more rural areas that charge far less hourly.  And more than a dozen nonprofits that rely on fee-shifting to support their caseloads — including the National Women’s Law Center, AARP and the Animal Legal Defense Fund — lodged their support for the class’ challenge, as they said in an amicus brief that awarding below-market rates curbs the number of clients a public interest organization can afford to represent.

At oral arguments last week, the panel also voiced concerns with the survey’s widely cast net, as Judge Merrick Garland said he couldn’t understand why a lower court would use a broad sweep of rates to pay a set of complex litigation lawyers based out of D.C. whose hourly rates would differ significantly from others included in the survey.  “If you have a dataset that intentionally includes rates that are neither complex nor District of Columbia, I don’t understand how we can give any weight at all to that dataset,” Judge Garland remarked.

And Judge David Tatel echoed his colleague’s thoughts.  “It can’t be that by including huge numbers of lawyers that are not in district and legal work that’s not only not complex but not litigation, that that could conceivably average out to something that’s useful to us,” he said.

The suit originated in 2005 when parents of then-preschool-aged children challenged D.C.’s failure to provide special education services for their kids.  After they won, they asked for $9.8 million to pay their counsel for more than a decade of work, but the lower court ultimately trimmed the fees and costs to $6.9 million to align with averages from the survey.

Assistant Attorney General Lucy Pittman argued for the district in the hearing, and she conceded that the data spans a range of legal specialties, including wills and estates, where attorneys’ rates would clock in on the lower end of the pay scale.  And the judges highlighted the fact that the data includes lawyers’ hourly rates in rural parts of Maryland, Virginia and West Virginia, which would also pull the average down.  But Pittman argued that the bankruptcy attorneys’ fees were also factored in, and as they lie on the other end of the spectrum, she said they balance out the average.

However, Judge Garland said two wrongs don't make a right.  “You don’t get a statistically correct [result] by taking wrong numbers on one side and wrong numbers on the other, and hope that just randomly, or by accident, they average out to something useful,” he said.

The U.S. also waded into the battle to support the district, as U.S. Department of Justice attorney Charles W. Scarborough argued at the hearing that the data isn’t perfect, but emphasized it’s a “reasonable effort” and a “statistically reliable way” to update the decades-old matrix.

Judge Tatel jumped in to say he understands the government's push to set out a fresh data set — which he said is clearly “brand new” and “much more up to date” — however, he’s still not certain it’s useful here.  “The question is, is the data relevant?” he asked.