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Category: Fee Issues on Appeal

Mass. Supreme Court Sets Standard for Attorney Fees in Wage Suits

February 19, 2019

A recent Law 360 story by Chris Villani, “Mass. Top Court Sets Standard for Atty Fees in Wage Suits,” reports that an employee suing an employer for unpaid wages can recover attorneys' fees when winning a "favorable settlement," even when a court does not sign off on the deal, according to a Massachusetts Supreme Judicial Court ruling with potentially wide-ranging implications.

The appeals court affirmed a lower court ruling and sided with a pair of former employees of a Boston dry cleaner who claimed they were denied about $28,000 owed to them in wages and overtime and ultimately settled for more than 70 percent of that figure. The top court said the so-called catalyst test should apply when assessing whether to tack on attorneys' fees.

Under this standard, fee-shifting can occur if a lawsuit is a "necessary and important factor" in causing a defendant to fork over a "material portion" of relief requested by a plaintiff through a settlement agreement, even if there is no judicial involvement in the accord. The bar, which is lower than federal fee-shifting standard, is necessary to avoid needlessly long and costly litigation, the top court said.

"The catalyst test best promotes the purposes of fee-shifting statutes by encouraging attorneys to take cases under such statutes to correct unlawful conduct and rewarding them accordingly when they do so," Associate Justice Scott L. Kafker wrote in the unanimous opinion. "The catalyst test also promotes the prompt settlement of meritorious cases, avoiding the need for protracted litigation, superfluous process, or unnecessary court involvement solely to 'prevail' in a formalistic sense to ensure an award of attorney's fees and costs."

The dry cleaner, Sturgis Cleaners Inc., had sought to enforce the federal standard set in 2001 by the U.S. Supreme Court in Buckhannon Board and Care Home v. West Virginia Department of Health & Human Resources, which said a party is required to win an enforceable judgment or a consent decree before being eligible to be the "prevailing party" and having the chance to collect attorneys' fees.

But the Massachusetts high court disagreed, seeing the catalyst test as a better method because it provides two crucial incentives related to all wage litigation: giving attorneys a reason to take cases where individual employees claim to have been denied wages, and adding, the opinion said, "a powerful disincentive for employers to withhold the wages in the first place."

"If such settlements did not result in the obligation to pay attorney's fees, there would be a disincentive to bring such cases in the first place, thereby leaving other unlawful conduct unaddressed and uncorrected," Justice Kafker wrote.

The former employees, Belky Ferman and Veronica Guillen, filed suit in 2014. After two years of litigation, including the entry and lifting of a default judgment against the dry cleaner, the case settled through mediation for $20,500. The attorney fee issue was left to the court, and a Suffolk County Superior Court judge, applying the catalyst test, ruled in favor of the employees.

"The catalyst test thus recognizes that successful litigation may be reflected in settlements as well as court rulings," Justice Kafker wrote, "as settlements are often 'the products of pressure exerted by [a] lawsuit.'"

The employees’ case was presented to the high court by Liz Soltan, a Harvard Law School student arguing as a student practitioner with the Harvard Legal Aid Bureau. She told Law360 Tuesday the court's decision might help combat wage theft, which studies have suggested may be problem costing workers in the Commonwealth $700 million annually. 

“Wage theft is such an epidemic in Massachusetts, especially among low income and immigrant workers, this is the kind of ruling we needed for access to justice,” Soltan said. “I am hoping it'll mean more lawyers are going to feel secure in taking these cases.”

The case is Belky Ferman & another vs. Sturgis Cleaners Inc. & another, case number 12602, in the Supreme Judicial Court of Massachusetts.

Fee Dispute Delays Delaware High Court Fee Ruling

February 7, 2019

A recent Law 360 story by Rose Krebs, “Attys’ Fee Fight Delays Forum Appeal at Del. High Court,” reports that the Delaware Supreme Court dismissed an appeal of a Chancery Court ruling that struck down three state-chartered companies’ bylaws mandating that federal district court handle Securities Act complaints, because it has yet to be decided if attorneys’ fees will be awarded to the lead plaintiff in the lower court case.  A three-justice panel ruled that since there remains an open issue about attorneys’ fees in the Chancery case decided in December that challenged whether a company could require Securities Act cases to play out in federal court, it was rejecting the appeal because the matter is not yet terminated at the lower court level.  The lead plaintiff is seeking $3 million in attorneys’ fees, according to court filings.

“This court has consistently held that a judgment on the merits is not final and appealable until the trial court has ruled on an outstanding application for attorneys’ fees,” the panel ruled.  In a Dec. 19 decision, Vice Chancellor J. Travis Laster invalidated federal forum requirements adopted by Blue Apron Inc., Roku Inc. and Stitch Fix  Inc., and cautioned other companies that adopted similar measures or are contemplating them.

Behind the decision and bylaw measures is a running battle over forum provisions for corporate litigation, with the U.S. Supreme Court declaring earlier this year in Cyan v. Beaver County Employees Retirement Fund that state and federal courts have concurrent jurisdiction over private securities claims.  Corporations have tended to favor litigation in federal courts rather than dealing with stockholders’ ability to shop around for more plaintiff-friendly states, Vice Chancellor Laster observed. Under the Cyan decision, however, defendants are barred from moving state court cases once they are filed by removing them to federal courts.

Attorneys for lead plaintiff Matthew Sciabacucchi argued that the three companies — in which he holds stocks — failed to identify a clear authority for forum selection rules that extend beyond matters involving the internal affairs of a Delaware company, such as alleged violations of corporate duty by a current or former director, officer or stockholder.  The proposed class sought summary invalidation of the forum selection clauses, while the companies sought an immediate summary judgment ruling in their favor and dismissal of the challenge.

On Jan. 11, Sciabacucchi filed a request for $1 million in attorneys’ fees from each of the companies claiming that the decision “resulted in a benefit for the stockholders” of the companies.  The companies appealed Vice Chancellor Laster’s decision to the Supreme Court on Jan. 17, according to court filings.  In a brief filed with the Supreme Court, the companies contended that Sciabacucchi’s request for fees was not timely since there was no pending application or “any reference” there would be a request for the award of fees when the decision was entered.

They also took issue with the request being made 23 days after the decision in a “one-paragraph motion ... which did not set forth any substantive grounds entitling him to an award of fees.”  In its order, the Supreme Court ruled it had no jurisdiction to hear the appeal since “it was taken from an interlocutory order.”  “This was no surprise," Sciabacucchi’s attorney Kurt M. Heyman of Heyman Enerio Gattuso & Hertzel LLP said in an emailed comment to Law360.  "The Supreme Court followed nearly 30 years of precedent in requiring the appeal to come after the resolution of the fee application."

During arguments in September in the Chancery case, former Delaware Chancellor William B. Chandler III, now of Wilson Sonsini, argued that the federal forum provisions imposed no restrictions on stockholder rights.  Chandler, counsel to Roku and Stitch Fix, said the measures only specify the arena for disputes.  In his opinion, Vice Chancellor Laster said that current Delaware Supreme Court Chief Justice Leo E. Strine held in the 2013 Chancery case of Boilermakers Local 154 Ret. Fund v. Chevron that Delaware companies can adopt forum selection clauses for internal affairs claims, but not for disputes external to the corporation, such as those created by federal law.

Relying on Boilermakers, the vice chancellor found that the Delaware forum selection provisions cannot govern Securities Act claims, "because a 1933 act claim is external to the corporation. Federal law creates the claim, defines the elements of the claim and specifies who can be a plaintiff or a defendant.”

The case on appeal is Salzberg et al. v. Sciabacucchi, case number 25, 2019, in the Supreme Court of the State of Delaware.  The underlying case is Sciabacucchi v. Salzberg et al., case number 2017-0931, in the Court of Chancery for the State of Delaware.

Judge Blasts Attorney for Wasting Time, Awards $1.6M in Fees

January 29, 2019

A recent Law 360 story by Daniel Siegal, “Judge Blasts Atty for Wasting Time, Awards $1.6M in Fees,reports that a Denver federal judge awarded a host of insurance companies nearly $1.6 million in attorneys' fees for defeating allegations that they unfairly denied coverage to homeowners, holding the plaintiffs’ attorney personally liable for most of the fees and blasting his “prolix, redundant and meandering” filings that wasted the insurers’ time.  In a 22-page ruling, U.S. District Judge John Kane granted the consolidated bid for attorneys' fees filed by dozens of defendants, including Allianz Life Insurance Co. of North America Inc., Chubb Corp. and insurance standards organization ACORD, finding that their request for about $1.6 million in fees was “fully foreseeable” and reasonable given the sprawling allegations.

“Plaintiffs initiated this litigation and were in control of its course.  There is no indication defendants’ counsel acted unreasonably or stepped outside the bounds of competent representation of their clients,” Judge Kane wrote.  “Plaintiffs cannot now complain that the fees incurred by defendants are excessive because such an inordinate number were forced to take part … They have imposed costs on virtually the entire insurance industry, and under the law, they must shoulder the result.”

Judge Kane wrote that the plaintiffs’ attorney, Josue David Hernandez of the Law Office of Josue David Hernandez, must personally bear liability for the attorneys' fees incurred by the defendants in the district court, given “his incessant filing of absurdly lengthy and legally incorrect briefs” and vexatious conduct throughout the litigation.  Some fees were incurred by the defendants on appeal, and Judge Kane asked them to file only the amount of fees that applied to the district court proceeding.

Judge Kane said he analyzed the plaintiffs' positions only to the extent that he could “extract them from the morass” of the briefing filed by Hernandez.  “I have struggled to decipher plaintiffs’ legal arguments throughout this case,” Judge Kane wrote.  “Those that pertain to the attorney fee award are no exception.”  The judge sided with the defendants’ expert witness’ testimony that the hours of legal work they expended defending the case were reasonable and necessary over the plaintiffs’ argument, which was based not an expert’s testimony but an “unreliable and bewildering” 24-factor test of Hernandez’s own concoction.

Judge Kane also noted that throughout the litigation, the plaintiffs had repeatedly made extra work for the defendants, such as filing a 40-page motion for more time to respond to the defendants’ motion to dismiss.  After the defendants filed a seven-page opposition to that motion, the plaintiffs followed with a 47-page reply brief that “illustrates a system gone mad,” the judge said.

Terence Ridley of Wheeler Trigg O’Donnell LLP, who represented First American Property and Insurance Co. and argued on behalf of all fee-seeking defendants, told Law360 that he was honored to argue the motion for the numerous insurers, saying that “the language of the order is important, and the order is important.”  Hernadez told Law360 via email that Judge Kane's ruling had failed to address key issues, including whether Colorado's attorneys fee statute was preempted by federal law, and the fact that the defendants had filed more papers and other documents in the case than the plaintiffs. 

"If one were to take the time to review the actual documents on the public record (which is something I would encourage anyone truly interested in the case to do), they would likely find that the ruling failed to include the necessary treatment of at least eight extremely significant issues raised," he said. 

Named plaintiff Dale Snyder and 17 others filed suit in June 2014, and in a 260-page amended complaint asserted 23 claims against 113 defendants, alleging a broad, multi-decade conspiracy to deny homeowners coverage of damages from floods and fires.  In January 2016, Judge Kane dismissed the suit due to the plaintiffs' failure to include a “short and plain statement of the claim showing that the pleader is entitled to relief” in the complaint.  The Tenth Circuit affirmed that ruling in May 2017 and ordered appellate attorneys' fees to be awarded to the defendants.

The case is Dale Snyder et al. v. ACORD Corporation et al., case number 1:14-cv-01736, in the U.S. District Court for the District of Colorado.

No Attorney Fees for Non-Class Counsel in VW Settlement

January 23, 2019

A recent Metropolitan News-Enterprise story, “No Fees for Non-Class Counsel in Volkswagen Settlement,” reports that the Ninth U.S. Circuit Court of Appeals yesterday rejected a bid by several law firms to claim attorneys’ fees in connection with the recent multi-billion dollar Volkswagen diesel vehicle class action settlement despite not being class counsel because the firms didn’t provide a compensable benefit to the class.

The opinion was written by Circuit Judge Milan D. Smith Jr. It affirms the denial by U.S. District Judge Charles R. Breyer of the Northern District of California of 244 separate attorneys fee applications in the multidistrict litigation (“MDL”), consolidating seventeen of the eighteen appeals from those fee motions (the eighteenth firm filed a notice of appeal but did not join either of the two briefs submitted on appeal).

The litigation against Volkswagen was sparked by accusations in a notice of violation (“NOV”) by the U.S. Environmental Protection Agency that the company had utilized a device designed to spoof emissions tests in 500,000 of its diesel vehicles.  Those accusations were prompted by a study commissioned by the California Air Resources Board to look into discrepancies between the emissions numbers of American and European models of certain vehicles.  Audi and Porsche, two German marques also owned by the Volkswagen Group, were also sued in the class action, which resulted in a settlement of more than $7 billion, as well as $175 million in class counsel fees, agreed to by the parties.

Breyer, responding to several motions for attorney fee liens from lawyers who were not class counsel, noted that the purpose of the settlement was to give class members opting into the agreement’s buyback program “sufficient cash to purchase a comparable replacement vehicle and thus facilitate[] removal of the polluting vehicles from the road.”

He continued: “An attorneys’ lien on a Class Member’s recovery frustrates this goal. By diverting a portion of Class Members’ compensation to private counsel, a lien reduces Class Members’ compensation and places them in a position where they must purchase another vehicle but lack the funds to do so.  Put another way, attorneys—notably, attorneys who did not have a hand in negotiating the Settlement—stand to profit while their clients are left with inadequate compensation.”

The judge enjoined state court proceedings related to any class member’s attorney’s lien on his or her recovery, but noted that some lawyers “may have provided Class Members with compensable services,” and implemented a procedure whereby such attorneys could apply for reimbursement.  That scheme resulted in the 244 applications for fees.

Nagel Rice LLP of New Jersey wrote the lead brief on appeal, joined by 15 other firms. They argued that the appeal presented “an issue of first impression in the Ninth Circuit: whether Independent Counsel who performed services and incurred costs in a multi-district litigation prior to the appointment of Lead Counsel are entitled to an award of fees and costs, or are only the firms appointed to leadership roles entitled to a fee award for services performed prior to their appointment.”  Smith responded: “In truth, however, the central issue before us is narrower: whether the district court abused its discretion when it denied Appellants’ motions for attorneys’ fees.”

The jurist noted that under Federal Rule of Civil Procedure 23, courts are permitted to award attorneys fees “authorized by law or by the parties’ agreement,” and that such awards are available even to non-class counsel in class actions.  Nevertheless, he said, a trial court must determine whether an attorney fee award is reasonable.  According to Nagel Rice, its commencement of hundreds of lawsuits against Volkswagen before the class action was commenced, its filing of discovery and other motions, and other research and communications benefitted the class.

Smith agreed with the plaintiffs in the case as to the pre-trial work done by Nagel Rice and its co-objectors, who noted on appeal that “even assuming these activities are all attributable to the Appellants, [they] fail to establish how, precisely, these activities benefitted the Class.”

He wrote: “Appellants may have filed complaints and conducted preliminary discovery and settlement work on behalf of their clients before consolidation of the MDL and appointment of Class Counsel, but they do not appear to have discovered grounds for suit outside of the information contained in the widely publicized NOVs, or otherwise provided guidance or insights that were later used in securing the Settlement.  In short, Appellants have not demonstrated that, in Plaintiffs’ words, ‘they engaged in serious settlement efforts, much less that any such efforts contributed to the class settlement framework that was ultimately reached, approved, and successfully implemented.’ ”

He also rejected the appellants’ claim that their work after class counsel was appointed, consisting largely of actions to “remain updated on the case,” helped the class, especially in light of a pretrial order stating: “Only Court-appointed Counsel and those attorneys working on assignments therefrom that require them to review, analyze, or summarize those filings or Orders in connection with their assignments are doing so for the common benefit.  All other counsel are reviewing those filings and Orders for their own benefit and that of their respective clients and such review will not be considered Common Benefit Work.”

Smith said: “We are sympathetic to Appellants, and have no doubt that many of them dutifully and conscientiously represented their clients. This is not necessarily a case where latecomers attempt to divide spoils that they did not procure. But Appellants’ efforts do not entitle them to compensation from the MDL, when the record indicates that they did not perform work that benefited the class, and that they neglected to follow the protocol mandated by the district court. We commend the district court’s efforts to successfully manage a massive and potentially ungainly MDL, and conclude that the court did not abuse its discretion when it determined that Appellants were not entitled to compensation.”

The opinion also rejects the attorneys’ contentions that Volkswagen had agreed to pay fees to them or that they were entitled to recovery on a theory of quantum meruit, which would itself require them to have benefitted the class by their work.  The case is Bishop, Heenan & Davies v. Volkswagen Group of America, No. 17-16020.

Federal Circuit Upholds Fee Award that Exceed Damages in FLSA Case

January 17, 2019

A recent Daily Report story by Greg Land, “Panel Upholds $119K Fees/Expenses for $12K Verdict,” reports that a federal appeals panel upheld lawyers receiving $119,000 in fees and expenses in a case where their client, a waitress, received $12,000 in improperly denied tips and wages.  The unpublished per curiam opinion of the U.S. Court of Appeals for the Eleventh Circuit noted that there was “room to quibble” whether the trial judge should have awarded the full amount of fees sought in the case, and that the “fee-to-judgment ratio is large.”  Nonetheless, Judges Jill Pryor, Britt Grant and R. Lanier Anderson held that the trial judge did not abuse his discretion by awarding the fees, particularly after ruling that the hours billed were due to the club-owners’ “obstreperous conduct and the case having gone to trial.”

“We just had to be persistent,” said Kevin Fitzpatrick Jr., who represented the plaintiff with partner Charles Bridgers of DeLong Caldwell Bridgers & Fitzpatrick.  After Judge Mark Cohen of the U.S. District Court for the Northern District of Georgia ordered a mediation, “The other side said they weren’t going to offer any money at all,” he said. “They wanted to fight.”  Mableton solo McNeill Stokes, represented the defendants, Lacura Bar and Bistro, and owners  Alonzo Ross and Lamarcus Allison.  Stokes could not be reached to comment.  

According to court filings, Shatrailia Jackson worked at the Metropolitan Parkway nightspot from 2014 to 2015, working three or fours shifts a week.  She was supposed to be paid $25 per shift plus tips but testified that sometimes she was only paid $20 and was frequently not paid at all.  “Lacura did not record the tips its servers made, did not issue paychecks or paystubs, did not issue tax documents to employees, and did not use a timeclock,” the opinion said.  “It operated as a cash-only business and lacked traditional employment records.”

In March 2015, Jackson filed a putative collective action against Lacura and its owners, asserting counts for failure to pay the minimum wage under the Fair Labor Standards Act, failure to pay other employees similarly situated and retaliatory termination.  According to Lacura’s defense filings, the club fully informed Jackson of its pay and tip policy.  The defense also claimed that the club was not subject to the FLSA because its annual gross receipts were below the $500,000 threshold to trigger the law.

Fitzgerald explained how the plaintiff’s side shot the gross receipts argument.  “First, they showed us figures saying they made like $96,000 a year,” he said.  “We subpoenaed the records of every liquor distributor in town and came up with about $350,000 in liquor costs alone.”  “We added up the lease, employee pay and security and got way over the $500,000 that way,” he said.

At trial, he said, the jury was also shown Facebook and Instagram postings “where they’re swimming in cash and having money drops,” referring to events in which cash was dropped for patrons.  By the time the case went to trial, only Jackson’s FLSA claims remained.  The retaliation claim was dismissed prior to trial, and Fitzpatrick said his team made a strategic decision not to pursue the collective action claim.  Following a two-day trial, a jury awarded her $6,308 in unpaid wages.  After the verdict, Jackson filed a motion for liquidated damages and for attorney fees and expenses of $118,894.  Cohen granted both requests, doubling Jackson’s damages to $12,616 and awarding the full sum sought by her lawyers.

In upholding Cohen’s order, the appellate panel brushed aside Lacura’s arguments that it had acted in good faith in compensating Jackson.  “Lacura barely attempts to demonstrate good faith, opting instead to argue that its violation ‘cannot be willful’ because Jackson ‘was paid more than the minimum wage,’” the opinion said.  “This argument is essentially a denial of liability and amounts to an attempt to relitigate the jury’s verdict.”  “Lacura kept no payroll records, produced no evidence that it sought or relied upon legal guidance, and did not even track how much money its employees were making in tips.”

The outsize fee award relative to the judgment is not too unusual in FLSA cases, Fitzpatrick said.  “People force us to go to trial on low-dollar wage and hour cases all the time,” he said.  “The fee usually greatly exceeds the amount awarded by the jury.”  Noting that Lacura is still obviously a money-making concern, Fitzpatrick nonetheless said collecting the judgment is another matter.  Sounding resigned, he said, “I never know what we’re going to collect.”