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Category: Lawyering

Judge Slashes Attorney Fee Request for Unnecessary Delays

May 7, 2019

A recent Law 360 story by Carolina Bolado, “Fla. Judge Slashes Atty Fee Request For Unnecessary Delays,” reports that a Florida federal judge slashed in half a request for over $130,000 in attorney fees, finding that a defendant's attorneys needlessly delayed ending litigation after they learned that their client had been wrongly sued by porn producer Malibu Media LLC for copyright infringement.  U.S. District Judge James S. Moody Jr. said defendant Roberto Roldan was entitled to some attorney fees and awarded him $69,084 after he was incorrectly named as a defendant in the case, which accused him of downloading copyrighted videos.

But the fees award was just over half of the $130,651 that Roldan’s attorneys had requested because the judge found that the number of hours they worked on the case was unreasonable.  Judge Moody determined that Roldan’s counsel collected information from their client and his friends, including affidavits making clear that he wasn’t a proper defendant in the case, but continued to litigate the lawsuit instead of revealing the information and ending the litigation against their client.

And when Malibu Media expressed concern to Roldan’s attorneys that he may not be a proper defendant in the lawsuit and asked to depose him, they objected and instead filed a motion for summary judgment a few days later, according to the order.  “None of these actions, among others discussed, demonstrate a good faith effort to resolve the case on the merits,” Judge Moody said.

The judge stood by a prior conclusion that Malibu Media bears some responsibility for failing to investigate simple facts about Roldan that would have ruled him out as a defendant.  But it was Roldan’s counsel that caused delays, he said.  “Ultimately, much of the work done in this case was unnecessary, and costly,” Judge Moody said.

Frequent litigant Malibu Media filed its copyright suit, one of many against users of file-sharing service BitTorrent, in November 2013.  The porn producer alleges the defendants downloaded at least 40 of its copyrighted videos.  Malibu Media asked for sanctions against Roldan’s attorneys, claiming they withheld key information, namely that Roldan, the person suspected of infringement, wasn’t home when it happened and that his father was.  The porn producer said the attorneys did it to drive up the company’s litigation costs in chasing the wrong target and said they filed a frivolous 281-page motion to dismiss.

In his order, Judge Moody declined to sanction Roldan’s attorneys, pointing out that he had already made an “across-the-board cut” in the attorney fees award and that further reduction was unnecessary.

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

April 17, 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.

$15M Fee Request Called ‘Exorbitant’ in Shareholder Class Action

April 16, 2019

A recent Law 360 story by Vince Sullivan, “Globalstar Called Shareholder $15M Fee Request ‘Exorbitant’,” reports that satellite communications company Globalstar Inc. said a $15 million attorney fee request from shareholder Mudrick Capital Management LP is far too high given the quick settlement reached in Mudrick’s Delaware Chancery Court suit over a proposed $1.6 billion insider transaction.  In an objection to the fee request, Globalstar said the fee application claimed that a substantial increase in the company’s stock trading price resulted from the announcement of the case's settlement in December, but that claim is based on “unsubstantiated conjecture” and results in an "exorbitant" request for fees.

“Setting aside that there is no precedent for awarding fees based on a claimed stock price increase, plaintiffs’ valuation is based on an expert report that is untethered from reality, as it incorrectly analyzes Globalstar’s stock price movement … ,” the objection said.

Mudrick Capital and Warlander Asset Management LP filed suit in September accusing Globalstar’s directors of acting disloyally in agreeing to a $1.6 billion transaction with Thermo Capital Partners, in which Thermo would be given additional shares of Globalstar.  At the time the deal was proposed, Globalstar board Chairman James Monroe III controlled both Globalstar and Thermo.  He held 53 percent of Globalstar stock and sought to increase his holdings to 90 percent through the transaction, according to court filings.

The fee request claims Globalstar’s market value increased by $80 million upon announcement of the suit’s settlement, which came less than two months after the minority investors’ suit was filed and five months after the Thermo merger was terminated.  The $15 million fee request was based on receiving a percentage of the alleged $80 million in value created by the settlement.

Globalstar argued in its objection that it announced several other pieces of company news that impacted its stock price the same day the settlement was made public.  The objection claims that Globalstar announced the settlement on Dec. 17, but also announced a new financing deal that would stave off loan obligation defaults and that Globalstar had achieved a significant developmental milestone by having its wireless spectrum approved for terrestrial network use.

“Plaintiffs’ experts’ dismissal of the effect of the latter two announcements on the company’s stock price is both illogical and inconsistent with his own analysis,” the objection said.  “It also ignores the pressure that the lawsuit itself put on the company’s share price … ”  Globalstar claimed that its shares were trading at $0.50 each when the Mudrick suit was filed, but the price had dropped to $0.30 by the time the settlement was announced.  These issues create doubt about whether the settlement created any value for the company that can be the basis for an award of attorney fees from a common fund, the objection said, and raises questions about the amount of work actually done by the shareholders' attorneys.

Globalstar said the fee request indicates those attorneys incurred $1.5 million in actual fees based on more than 2,700 hours of work on the case, but doesn’t provide any details on the work performed.  The objection said that figure is significantly inflated because the lawyers only drafted a complaint and negotiated a settlement.  The defense counsel in the case incurred $260,000 to review the complaint and negotiate the settlement, which, if extrapolated to the plaintiffs, would call for a much smaller fee accrual of $530,000, Globalstar claims.

Plaintiff attorney Gregory V. Varallo of Richards Layton & Finger PA said the benefits realized in the settlement are unprecedented and warrants an award of the requested fees.  "From the defendants' argument, you'd think this was a run of the mill settlement," Varallo told Law360. "But it's unprecedented.  Nothing like this has happened before."

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.”

Class Counsel Seek $12M in Attorney Fees in VW Settlement

April 9, 2019

A recent Law 360 story by Reenat Sinay, “Bernstein Litowitz Seeks $12M in Atty Fees for VW Deal,” reports that Bernstein Litowitz Berger & Grossmann LLP has requested $12 million in attorney fees in California federal court for securing a $48 million settlement for a class of Volkswagen AG investors, ending claims in multidistrict litigation that VW misled them in its financial reporting about its environmental compliance.

U.S. District Judge Charles R. Breyer gave the initial nod to the deal in November and conditionally certified the proposed class of investors who purchased American depositary receipts through VW between November 2010 and January 2016.  According to the terms of the agreement, lead counsel for the investors said they would ask for no more than 25% of the settlement fund.

The investors’ attorneys at Bernstein Litowitz said their request of 25% of the settlement in attorney fees, which amounts to $12 million, was “fair and reasonable.”  Lead counsel also asked for $296,879.86 in reimbursement for litigation expenses and a total of $7,328 to be split between the two class representatives.

“The significant monetary recovery was achieved through the skill, tenacity, and effective advocacy of lead counsel, who litigated this action on a fully contingent basis against highly skilled defense counsel,” the attorneys said.  “The settlement was reached only after nearly three years of hotly contested and difficult litigation, including substantial fact discovery, which required lead counsel to dedicate a significant amount of time and resources to the action.”

In their bid for final approval of the settlement, lead plaintiff Arkansas State Highway Employees Retirement System and named plaintiff Miami Police Relief and Pension Fund told the court that the deal represented “an excellent result” for the investors and requested that Judge Breyer grant final certification of the settlement class.  “Plaintiffs respectfully submit that the proposed settlement is an excellent result for the settlement class and satisfies the standards for final approval under Rule 23 of the Federal Rules of Civil Procedure,” the institutional investors said.  “The proposed settlement represents approximately 33% of the likely maximum recoverable damages in the action, which is an excellent recovery for the settlement class.”

The litigation stems from the revelation in September 2015 that Volkswagen was equipping some of its diesel vehicles with devices that would allow the cars to pass government-mandated emissions tests, then emit more pollution once they hit the roads.  Soon after the U.S. Environmental Protection Agency went public with the allegations, the company acknowledged it had installed the defeat device software in at least 11 million vehicles, nearly 600,000 of which had been sold in the U.S.  The government filed a Clean Air Act suit against VW and its subsidiaries in January 2016.  Several class actions, filed by drivers, dealerships and stockholders, followed.

The instant suit was first filed in Virginia federal court in September 2015 by the City of St. Clair Shores Police and Fire Retirement Systems, asserting on behalf of investors that the carmaker and several executives violated federal securities laws, according to court records.  Along with several similar cases, it was moved to California in December 2015 by the U.S. Judicial Panel on Multidistrict Litigation.

Under the terms of the agreement, the funds allocated to each class member will be determined through a series of calculations.  The value of each ADR purchased will be calculated through artificial inflation estimates and data tracking to determine when each claimant bought and sold VW's ADRs, according to the motion.  Each claim will then be established by subtracting the claimant's gains from their losses, and the distribution amount will be set by dividing the claim amount by the total recognized claims of all recognized claimants, multiplied by the net amount of the settlement fund, the investors said.

Lead counsel highlighted the “significant risk” they faced in litigating the class action against “determined adversaries,” and noted that the 25% fee request is in line with awards granted in similar cases.  Attorneys put in 14,000 hours of work despite the risk of no recovery, they said.  “The 25% fee requested by lead counsel, which has the full support of the institutional-investor plaintiffs, is also well within the range of percentage fees that have been awarded in securities class actions and other complex class actions in the Ninth Circuit with recoveries of comparable size,” they said.

The case is In re: Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation, case number 3:15-md-02672, in the U.S. District Court for the Northern District of California.