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Category: Fee Issues on Appeal

Judge Remands Denial of $30M in Attorney Fees in Tribune Bankruptcy

December 11, 2018

A recent Law 360 story by Rose Krebs, “Denial of $30M Attorneys’ Fee Claim in Tribune Ch. 11 Tossed,” reports that a Delaware federal judge overturned a 2015 bankruptcy court order denying Wilmington Trust Co.’s $30 million unsecured claim for post-petition attorneys’ fees in the Tribune Media Co. Chapter 11 that was confirmed in 2012.  In a memorandum order, Judge Richard G. Andrews remanded the matter back to the Delaware bankruptcy court for further consideration, ruling that post-petition attorneys’ fees can be an allowable unsecured claim.

“I agree with the position adopted by every court of appeals faced with this question; [the bankruptcy code] does not limit the allowability of unsecured claims for contractual post-petition attorneys' fees,” Judge Andrews wrote.  Appeals courts have “have unanimously rejected [Tribune Media’s] position and have allowed unsecured claims for contractual attorneys' fees that accrued post-filing of the bankruptcy petition,” the decision said.

In November 2015, U.S. Bankruptcy Judge Kevin J. Carey allowed Tribune to reject Wilmington Trust’s claim, which Tribune had argued was unreasonable given how many of the activities were duplication of work other creditors performed.  The issue stemmed from an unsecured claim Wilmington Trust, as indenture trustee for a group of unsecured bondholders, lodged in the Tribune case seeking $30.3 million in post-petition attorneys' fees and litigation costs.

Wilmington Trust maintained that its fees should be paid because the indenture agreement provided for payment of reasonable fees and expense reimbursement.  “We think that the district court has made a decision that is consistent with the majority of courts that have addressed the issue,” Wilmington Trust’s attorney, James W. Stoll of Brown Rudnick LLP, told Law360.

In his order, Judge Andrews noted that there have been some cases in bankruptcy and district courts that have disallowed attorneys’ fees as unsecured claims, but that he had “nothing new to add to this debate.”  “I merely note that I cannot conclude that [the bankruptcy code] ‘expressly’ disallows the claims at issue here,” the order said.

Tribune — owner of its namesake newspaper in Chicago, as well as the Los Angeles Times and a host of other newspapers and television stations — filed for Chapter 11 protection in 2008 following a disastrous leveraged buyout a year earlier that saddled the media conglomerate with roughly $13 billion in debt.  Tribune's Chapter 11 plan was confirmed in July 2012 and the company exited bankruptcy in December of that year.

The appellate case is In re: Tribune Co. et al., case number 1:15-cv-01116, in the U.S. District Court for the District of Delaware.  The bankruptcy case is In re: Tribune Co. et al., case number 1:08-bk-13141, in the U.S  Bankruptcy Court for the District of Delaware.

Firms Must Evenly Split $11.3M in Fees in Century 21 Class Action

December 6, 2018

A recent Law 360 story by Bill Wichert, “3 Firms Must Evenly Split $11.3M Fees in Century 21 Suit,” reports that three law firms representing Century 21 Real Estate Corp. franchisees in a class action against the company and its former parent must evenly split roughly $11.3 million in attorneys’ fees awarded in connection with a settlement in the case, a New Jersey appeals court ruled in nixing one firm’s bid for a larger share.

A three-judge appellate panel upheld a trial court order that confirmed an arbitration award dividing the money equally between Zwerling Schachter & Zwerling LLP, Keefe Law Firm and Kopelowitz Ostrow PA, rejecting Zwerling Schachter’s argument that it deserved more than a third of the fees due to its work and responsibility in the litigation.  The arbitrator, a former federal judge, correctly found that representation agreements between the firms and franchisees required the firms to equally share the attorneys’ fees even if they did not share the work and responsibility in the class action equally, according to the panel.

The class action, which was initially filed in 2002, alleged that Century 21’s then-parent, Cendant Corp., breached a contract by diverting Century 21 advertising funds to competitors.  The franchisees claimed that Cendant, which also owned Coldwell Banker and ERA Real Estate, misappropriated funds to try to sink Century 21 and build up its other units.  In 2002 and 2004, Zwerling Schachter, Kopelowitz Ostrow and McElroy Deutsch & Mulvaney LLP entered into "attorneys-class representative agreements" with plaintiffs in the case, according to the appellate opinion.

Those agreements said that each firm would receive “33⅓ percent” of any attorneys’ fees awarded in the case and that “each of the law firms named herein shall share the fee which is in accordance with their anticipated division of work and responsibility in this matter,” the opinion said.  McElroy Deutsch withdrew from the matter in 2004, and the firm that ultimately became Keefe Law Firm joined the case, the opinion said.  The parties have agreed that Keefe, Zwerling Schachter and Kopelowitz Ostrow have a right to share in the attorneys’ fees, with McElroy Deutsch to receive its fees out of Keefe’s share, according to the opinion.  After the class action settled in 2012, the three firms could not agree on how to split up the attorneys’ fees, the opinion said.

Zwerling Schachter said the apportionment should be based on the hours worked and the responsibility assumed during the case, while Keefe and Kopelowitz Ostrow said the attorneys-class representative agreements required the firms to divide the money equally.  Keefe and Kopelowitz Ostrow in 2013 made an offer of judgment to Zwerling Schachter, under which that firm would have received $600,000 more than if the firms split the fees equally, but Zwerling Schachter rejected the offer, the opinion said.

The firms agreed in 2014 to submit their fee dispute to arbitration.  In 2016, the arbitrator found that “the attorneys-class representative agreements ‘require[d] the parties to share the attorneys' fee award in equal thirds, even if the parties did not share the work and responsibility in the underlying class action equally,’” the opinion said.

The trial court in June 2016 entered orders confirming the arbitration award and denying Zwerling Schachter’s motion to vacate the award.  In November 2016, the court denied a motion from Keefe and Kopelowitz Ostrow seeking to recoup the attorneys’ fees and costs they incurred after Zwerling Schachter rejected their offer of judgment, the opinion said.  On Zwerling Schachter’s appeal of the June 2016 orders, the appellate panel affirmed those decisions by citing in part the attorneys-class representative agreements, saying the panel agreed with the arbitrator that the first sentence of those agreements “is clear in providing that each of the three firms was to receive one-third of a fee award."

“We also agree with the arbitrator that the key phrase in the second sentence is ‘anticipated division of work and responsibility,’” the panel said.  “Finally, we agree with the arbitrator's reasoning that the second sentence did not undercut or modify the clearer first sentence.”  The panel also noted the arbitrator’s findings that there was no evidence that “any of the firms had ‘failed to contribute at all toward earning the fee award,’” and that “the evidence showed ‘each party contributed thousands of hours to the class litigation.’”

“In short, the plain language of the attorneys-class representative agreements and the extrinsic evidence supports an equal apportionment of the fee award,” the panel said.  Keefe and Kopelowitz Ostrow appealed the November 2016 order, but the panel affirmed that ruling as well, saying “the amount of the arbitration award was not sufficient to trigger the shifting of fees and costs under Rule 4:58, the offer of judgment rule.”

The case is Frank K. Cooper Real Estate #1 Inc. et al. v. Cendant Corp. et al., case numbers A-1482-16T3 and A-1579-16T3, in the Superior Court of New Jersey, Appellate Division.

Eleventh Circuit Reverses Entitlement to Fees in Miami Construction Dispute

November 29, 2018

A recent Daily Business Review story by Katheryn Tucker, “11th Circuit Reverses Fee Award in Miami Construction Dispute,” reports that, in a ruling that the winning lawyer said saved the construction industry from being “turned on its head,” the U.S. Court of Appeals for the Eleventh Circuit has reversed an award of $155,000 in legal fees in a dispute over the superstructure at Miami’s $1 billion Brickell CityCentre.  Senior Circuit Judge Frank Hull wrote the decision joined by Judges Robin Rosenbaum and Julie Carnes.  The panel reversed a ruling from U.S. District Judge Marcia Cooke of the Southern District of Florida granting $154,536 in attorney fees to International Fidelity Insurance Co. and Allegheny Casualty Co. — referred to jointly by the court as Fidelity.

On the winning side is Americaribe-Moriarty Joint Venture, a general contractor on the massive mixed-use development.  The dispute arose when the contractor replaced a subcontractor, Certified Pool Mechanics, called “CPM” in the opinion.  The contractor contended the sub failed to perform and then sought relief under a Fidelity performance bond.  Fidelity sought a declaratory judgment that Americaribe was not entitled to assert a claim against the performance bond and won at the district court level. The Eleventh Circuit upheld that ruling.

But then Fidelity asked for the fee award, which the district judge granted.  “In the first appeal, we affirmed the district court’s grant of summary judgment to Fidelity, holding Fidelity had no liability under its performance bond,” Hull wrote.  “Subsequently, the district court awarded attorney’s fees to Fidelity against Americaribe.”

On a second appeal, Americaribe argued Fidelity wasn’t entitled to recover fees  because the performance bond and the subcontract didn’t provide for it, and the panel agreed.  Richard Chaves of Ciklin Lubitz in West Palm Beach represented the Americaribe-Moriarty Joint Venture, or AMJV.  “The unchecked effect of the district court’s decision would impact not just our client (AMJV) but contractors and subcontractors across the state of Florida,” Chaves said in an email.

“Contractors and subcontractors routinely enter into bonded contracts which contain prevailing party attorneys’ fee provisions and/or separate indemnity provisions, and have asserted (and likely will assert in the future) claims against performance bonds which are typically challenged by the issuing surety,” he said.  “Fidelity’s position that — despite not having performed their surety obligations under their performance bond — they were entitled to prevailing party attorneys’ fees from AMJV under the indemnity provision of the underlying subcontract (to which Fidelity was not a party) is contrary to Florida’s public policy and, if made into legal precedent, would have turned the construction industry on its head.”

Chaves also suggested Hull’s decision may have helped avoid trouble beyond disputes over performance bonds.  “Contracts are governed by common law,” Chaves said. “An errant decision can create havoc in existing commercial relationships and create uncertainty in future ones.”

The case is Fidelity v. Americaribe-Moriarty JV, No. 17-10814.

No Attorney Fees for Cruise Line Despite Win in $5M Diamond Sale

November 26, 2018

A recent Law 360 story by Carolina Bolado, “No Fees for Starboard Despite Win in $5M Diamond Sale Row,” reports that a Florida appeals court affirmed the denial of an attorneys’ fee award for Starboard Cruise Services Inc., ruling that the company’s offer to settle a dispute over the onboard sale of a $5 million diamond was not valid and therefore Starboard is ineligible for fees under Florida’s offer-of-judgment statute.  Florida’s Third District Court of Appeal said that because the settlement offer from Starboard, which operates retail concessions on cruise ships, was conditioned on plaintiff Thomas DePrince releasing all claims, including those for monetary damage and equitable relief, the offer was not valid under Florida Supreme Court precedent.

“The proposal for settlement was meant to resolve all claims, no matter their nature, arising from the parties’ transaction,” the appeals court said.  “Although the structure of the proposal directed payment to only counts II and III (breach of contract and conversion), the proposal was conditioned upon a release and dismissal of DePrince’s equitable claim seeking specific performance as well as his damages claims.”  Starboard therefore cannot collect fees under Florida’s offer-of-judgment law, which allows a defendant that offered to settle earlier in the litigation an opportunity to collect attorneys’ fees and costs if there is a defense verdict or if a judgment for the plaintiff is at least 25 percent less than the settlement offer.

DePrince sued after Starboard unilaterally reversed the credit card charges for his 2013 purchase of a 20.64-carat diamond for the listed price of $235,000.  That price was actually the price per carat, not for the rock as a whole, which is valued at $4.85 million.  The incident arose during a 2013 cruise out of Miami. DePrince visited an onboard jewelry store wholly owned by Starboard and expressed his interest in buying a loose diamond of 15 to 20 carats, according to the opinion.  Starboard salesperson contacted the company’s supplier, which said two diamonds were available that met those specifications and emailed descriptions that listed prices of $235,000 and $245,000.

After he was quoted the prices, DePrince consulted with his partner and his sister, both of whom are gemologists and said the price was too good to be true.  But he decided to move forward with the purchase and arranged to have the stone shipped to the Gemological Institute of America laboratory in New York for verification.  But that shipment would never be made.  Starboard soon discovered that the price quoted by the supplier was per carat and contacted DePrince.  The company offered him discounted cruise fares as compensation for the inconvenience, but DePrince insisted the deal stay in place.

Starboard then unilaterally reversed the charges and rejected the sales agreement, prompting DePrince’s lawsuit.  In October 2015, Starboard offered to settle the breach of contract and conversion claims for $75,000, according to the opinion.  The proposal required a release and dismissal with prejudice of all of DePrince’s claims.  He never responded to the offer, according to the opinion.

Just before trial, DePrince voluntarily dismissed his claims for specific performance and conversion, leaving only the breach of contract claim for trial.  The jury returned a verdict in favor of Starboard.  After the defense verdict, Starboard moved for fees based on the offer-of-judgment statute, but the trial judge said the settlement proposal was invalid under the Florida Supreme Court’s 2013 decision in Diamond Aircraft Industries Inc. v. Horowitch.

In that case, over a disputed contract to buy an airplane, the Supreme Court found that the statute does not apply to cases that seek both equitable relief and money damages and that there is no exception to this rule for equitable claims that lack merit, according to the opinion.  Starboard argued that the Diamond Aircraft case did not apply because the offer was not a general one and was directed only at DePrince’s monetary claims, but the Third District disagreed because the offer clearly was a proposal to settle all claims with prejudice.

Eric Isicoff of Isicoff Ragatz, who represents Starboard, said he was disappointed that fees were not awarded after all of the expenses the company had to incur to fight this lawsuit, but said they plan to pursue a cost award “which will not be insignificant.”  DePrince’s attorney Mario Ruiz of McDonald Hopkins LLC said that the Third District’s ruling confirms that though offers of judgment are important tools in promoting settlement, they have to be used correctly.

The case is Starboard Cruise Services Inc. v. DePrince, case number 3D16-2009, in the Third District Court of Appeal of Florida.

Ninth Circuit: Big City Rates Proper Where Local Counsel Unavailable

November 21, 2018

A recent Metropolitan News story, “Award of Attorney Fees at ‘Big City’ Rate Proper Where Local Counsel Unavailable,” reports that the Ninth U.S. Circuit Court of Appeals has upheld a $135,876.75 attorney fee award to a special-needs student’s mother who prevailed in an administrative proceeding under the Individuals with Disabilities Education Act, rejecting the contention of the defendant, Tehachapi Unified School District, that fees should be set at a rate no higher than what local lawyers charge.

The district is located in a sparsely populated 522 square-mile mountainous area of Kern County, west of the Mojave Desert.  Plaintiff Charis Quatro, whose son suffers from a birth defect affecting the spine—resulting in his needing to use a walker and wear foot braces—engaged the services, on a contingency-fee basis, of attorney Andréa Marcus, whose office is in the City of Santa Barbara, to pursue remedies based on a refusal by the district to provide tutoring to the boy while recuperating from surgery.

District Court Judge Donald W. Molloy of the Eastern District of California set the fees for Marcus at $450 an hour, and the appeals court, in a memorandum opinion found that to be “a reasonable hourly rate” for her.  The panel was comprised of Circuit Judges Raymond C. Fisher and Milan D. Smith Jr., joined by District Court Judge Elaine E. Bucklo of the Northern District of Illinois, sitting by designation.

Marcus had sought $475 for her own work in connection with the administrative proceeding and her services in seeking an order for fees in the District Court, and less for hours put in by associates who devoted time to the case. Molloy found that that Marcus, in light of her experience in special education matters, was entitled to $450 an hour.  The judge multiplied the rate by the number of hours, but made some downward adjustments.

Responding to the district’s argument that it should not have to pay at big-city rates, and that fees should be set at $300 per hour or less, the opinion declares:  “The district court did not abuse its discretion in calculating the lodestar using rates from outside the local market.”  The opinion points to the Ninth Circuit’s 1997 decision in Barjon v. Dalton—which did not depart from the “local forum rule,” under which fees are ordered in accordance with the prevailing rates in the community—but it differentiates the factual circumstances.

The court in Barjon rejected the prevailing plaintiffs’ contention that their San Francisco attorney should be paid in accordance with the prevalent San Francisco rate—then $250 an hour—rather than the rate prevailing in the forum, Sacramento, which was $200 an hour. In that case, the plaintiffs did not show unavailability of local counsel capable of handling employment discrimination cases.  “Without evidence that Sacramento rates preclude the attraction of competent counsel, their argument remains too theoretical to warrant departure from the local forum rule…,” the 1997 opinion says.

By contrast, Monday’s opinion sets forth that Quatro provided her own declaration and that of two other persons, each a parent of a special needs pupil, to the effect that local counsel was unavailable to serve them.  It says Quatro presented “reports describing the limited access to legal representation in rural California and declarations describing the lack of local attorneys who were willing and qualified to represent clients in special education matters.”

In her trial brief, Marcus provided this factual summary: “The Defendant abandoned Plaintiff for 21-weeks (out of a 35-week school year), while he was recovering from multiple surgeries—dis-enrolling him from school, instead of providing home instruction while he recuperated from surgery, as is required by law.  This is the core of the dispute, as this child is bright and capable, yet lost most of a school year when the Defendant shrugged its legal duty to R.Q., a child with grave disabilities.  At the time of the underlying hearing, R.Q. was five years old, and had already undergone multiple complicated and painful surgeries in his short life.”  Following a four-day hearing, an administrative law judge awarded the boy 105 hours of instruction and ordered that Quatro be reimbursed for her transportation costs.

In an amicus curiae brief filed in the Ninth Circuit, the Council of Parent Attorneys and Advocates. Inc. said: “Here, Appellant Tehachapi Unified School District…seeks an outcome with potentially far-reaching and dangerous consequences for students with disabilities.  It seeks to slash the court-awarded hourly rate of $450 for an experienced special education attorney, by as much as two-thirds because it claims that $150-300 is the prevailing rate in Tehachapi without any proof that there was another equally qualified attorney in that underserved area willing to serve R.P. on a contingent basis….

“Essentially, the District is asking this Court to hold that, even when families cannot find local counsel willing and able to capably represent students in special education matters, attorneys who leave their own (more remunerative) markets to provide much needed legal support in underrepresented communities should never receive awards at their standard hourly rate.  Such a precedent would require attorneys working outside their standard markets to take on matters in underrepresented markets at a rate dramatically lower than they could command in their own markets, where attorneys are already in high demand.  Such a precedent would have a chilling effect on the willingness of qualified special education attorneys to take cases on in underrepresented markets.”

Both that brief and the one filed in the Ninth Circuit by Quatro make reference to a discovery response from the school district listing 35 attorneys it deemed qualified to handle special-needs cases; only four were located in Kern County, one having only four years’ experience in law practice, two with three years’ experience, and one who had resigned from the State Bar with charges pending.

Marcus asserted in her brief that the school district’s appeal “is pursued merely for the purpose of delay which has the real effect of discouraging other civil rights attorneys from practicing special education law on a pure contingency basis, further prejudicing families like the Quatro’s who would not have meaningful access to the judicial system otherwise.”

The case is Quatro v. Tehachapi Unified School District, 17-16210.  In a memorandum decision filed yesterday in Wright v. Tehachapi Unified School District, 17-16970, the same panel affirmed an award of attorney fees to parents who prevailed in an administrative action under the Individuals with Disabilities Education Act.  There, however, the school district acknowledged that local counsel was not available.  Marcus was also the attorney in that case.

Magistrate Judge Jennifer L. Thurston of the Eastern District of California made an award of $99,330.00 for services in the administrative proceeding and $39,087.50 for work done in the District Court.  She based the award on prevailing rates in the Central District.