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Category: Legal Bills / Legal Costs

PA Enviro Board Can Weigh ‘Bad Faith’ in Awarding Attorney Fees

February 17, 2021

A recent Law 360 story by Matthew Santoni, “Pa. Enviro Board Can Weight ‘Bad Faith’ in Awarding Attorney Fees,” reports that the administrative board that hears appeals of decisions by Pennsylvania's Department of Environmental Protection was justified in denying attorney fees to environmental groups that reached a settlement with Sunoco over its Mariner East 2 pipeline, since the board found neither side acted in "bad faith," a state appellate court ruled.

A majority of the Commonwealth Court ruled the state's Environmental Hearing Board could deny a petition for fees from the Clean Air Council, The Delaware Riverkeeper Network and Mountain Watershed Association Inc. based on the so-called bad faith standard, since neither the environmental groups nor Sunoco had acted in bad faith through the groups' appeal of the DEP granting permits for the pipeline, which resulted in a settlement between the groups and the state.

The environmental groups had argued that the board should have applied the looser "catalyst test," which would have only required them to show that their appeal was the motivating factor behind some benefit conferred by the other side in order to trigger fee-shifting provisions in the state's Clean Streams Law and have Sunoco pay their nearly $230,000 legal bill.

"Contrary to objectors' assertions, the catalyst test is not the sole and exclusive standard that EHB may employ in disposing of a request for costs and fees against a permittee under ... the Clean Streams Law.  Indeed, we have specifically recognized that EHB's 'broad discretion includes the authority to adopt standards by which it will evaluate applications for costs and fees,'" wrote Judge Michael H. Wojcik for the majority.  "It was entirely within EHB's discretion, and eminently appropriate, to apply the instant bad faith standard in deciding whether or not to impose costs and fees upon a private party permittee."  The court ruled that the EHB had wide discretion when weighing whether and how to award fees, and in a separate decision it upheld another EHB ruling that had cut the fees awarded to a family that challenged the DEP permits for another part of the pipeline crossing their land.

The environmental groups had challenged 20 permits the DEP had granted Sunoco for construction of a pipeline linking gas wells in Western Pennsylvania to a refinery in the east. The matter wound its way through various proceedings before the EHB until the challengers reached a deal with the DEP in which it would establish a "stakeholder group" on pipeline construction and would put more of its permitting documents online in exchange for the groups dropping their challenge.  The DEP also agreed to pay $27,500 of the challengers' legal fees.

But the challengers then asked the EHB to make Sunoco pay additional legal bills related to their appeal, and Sunoco filed its own petition to make the environmental groups pay nearly $300,000 toward what it had spent defending the permits.  The EHB was split, with the majority saying it could apply the bad-faith standard and find that neither side had "engaged in dilatory, obdurate, vexatious, or bad faith conduct in the course of prosecuting or defending" the appeals.  The minority had agreed that neither side was entitled to fees, but said the bad-faith test was not necessary and the board had broad discretion to award fees as it saw fit.

The environmental groups and the DEP both appealed, though the Commonwealth Court found the DEP lacked standing and granted Sunoco's bid to quash that side of the appeal because the state agency hadn't formally intervened in the fee debate and would not have been affected by the EHB ruling against the private parties.

President Judge P. Kevin Brobson wrote a concurring opinion, joined by Judge Renée Cohn Jubelirer, expressing concerns that the EHB's discretion might be so broad that the particular section of the Clean Streams Law might run afoul of the state constitution's requirement that the law contain standards to "guide and restrain" the administrative board's decision-making.  But because that issue wasn't brought up on appeal, and the EHB had denied either side any fees, this wasn't the case to address that with, Judge Brobson wrote.  In this case, there was no reason Sunoco should have been required to pay, he said.

"There is absolutely no basis in the record upon which the EHB could have exercised its discretion below in such a way as to compel Sunoco to pay objectors' legal fees," he wrote. "Sunoco was not a party to the settlement agreement between objectors and DEP that essentially ended objectors' appeals.  Moreover, Sunoco gave up nothing in the settlement or otherwise.  Sunoco kept its permits, unaltered, as if objectors had not even filed their appeals with the EHB."

A dissenting opinion from Judge Ellen Ceisler said the courts shouldn't apply a tougher standard to permit holders when the DEP itself could have been made to pay fees under the catalyst test.  "It does not therefore seem reasonable that, in theory, the DEP could be saddled with fees and costs in response to inadvertent mistakes or good faith, negotiated compromises or settlements, while a permittee could get off scot-free under similar circumstances unless it has conducted itself in a dilatory, obdurate, or vexatious way," she wrote.

The court then applied its ruling to a separate appeal by the DEP of another EHB order, which said the state had to pay about $13,000 of a family's requested $266,000 in fees from the DEP and Sunoco.  Huntingdon County landowners Stephen and Ellen Gerhart had convinced the EHB in 2019 that the DEP had misclassified a wetland on their property and that Sunoco had to do more work to restore it after completing the pipeline's construction.  But the EHB held Sunoco to the bad-faith standard and the DEP to the catalyst test in parceling out who was responsible for the reduced fee award.

Following the same logic as its ruling in the Clean Air Council case, the court affirmed that the EHB had the discretion to apply both standards in awarding fees.  "We agree that the statute and the case law grant broad discretion to the EHB in setting the standard and applying it," said Robert Fox of Manko Gold Katcher & Fox LLP, representing Sunoco in both cases.  An attorney for the environmental groups said they were weighing the decision and their options.

The attorney for the Gerharts said he thought the court correctly balanced the different standards for fee-shifting against the state and against private actors, but noted that in cases like his where the DEP and Sunoco essentially worked together to defend the permits, the state would have to be mindful of whether it would need to build a record to establish that the permit-holder was acting in bad faith.

Utah Sues Insurer Over Coverage of Defense Fees

February 4, 2021

A recent Law 360 story by Daphne Zhang “Utah Asks Insurer To Pay $1.8M Atty Fee in Trade Secrets Suit”, reports that Utah's Department of Administrative Services sued an AIG subsidiary, seeking to compel the carrier to cover the $1.8 million it spent defending Utah State University in an underlying trade secrets suit.  The department told a Utah federal judge that Lexington Insurance Co. breached the insurance contract by refusing to reimburse its legal bills incurred in defending Utah State University Research Foundation against global weather analytics company GeoMetWatch in the underlying suit.

According to the suit, AIG has asserted that the fee incurred by the Utah Attorney General's Office from defending the university in the underlying litigation is defined as "employees salary" under its policy and contended that it will not pay for the state's defense costs.  Utah and its state administrative department said AIG has denied coverage for the underlying defense costs without any written explanation.  The Beehive State is alleging breach of contract and breach of good faith and fair dealing, and asking the court to hold that AIG should cover it in the underlying litigation and pay damages.

The department said its risk management division insures the state of Utah and its agencies for property and personal injury up to $1 million.  The state also held an excess liability policy from Lexington that covers loss once the $1 million primary policy is exhausted.

In March 2018, the division notified AIG that it had incurred over $1.195 million of legal bills in the underlying action and requested reimbursement under the policy.  The federal claims in the underlying case are currently pending in the Tenth Circuit and state claims are pending in Utah state court.  As of the filing of the suit, Utah has incurred over $1.8 million in attorney fees, according to the complaint.

AIG then requested documentation of attorney fees.  The underlying case was under a protective order, requiring the AIG staff to sign a non-disclosure agreement before reviewing the documents.  In November 2018, one of the attorneys representing Utah State University sent AIG the requested documents and reminded AIG to sign the agreement to comply with the protective order.  In May 2019, the division asked AIG to respond to its defense cost claim and made the request again a month later.  In April, the director of the division wrote to AIG regarding its alleged failure to pay the defense costs in the underlying litigation.

AIG Unit Tells Ninth Circuit Yahoo’s Fee Award is Excessive

February 3, 2021

A recent Law 360 story by Daphne Zhang, “AIG Unit Tells 9th Circ. Yahoo’s Atty Fee Award is Excessive,” reports that an AIG subsidiary has asked the Ninth Circuit to reverse Yahoo Inc.'s award of over $600,000 in attorney fees or grant a new trial altogether, arguing that the tech giant did not present the correct recoverable amount and that the district court failed to guide a jury on how to allocate and award attorney fees.

In a brief filed, National Union Fire Insurance Co. of Pittsburgh, Pa., said the tech giant was not able to show which portions of its legal fees were spent on bad faith claims.  The insurer asked the court to vacate a jury verdict that found it had acted in bad faith by failing to cover Yahoo's costs to defend a consolidated class action.  National Union said that California law has clearly stated that a policyholder seeking to recover attorney fees as bad faith damages may recover only fees spent on insurance coverage issues, not those incurred to litigate the bad faith claim itself.

The carrier said that Yahoo, however, lumped all legal fees together, including those relating to bad faith claims, which are not recoverable.  The company could not present the exact amount of its legal bills spent on coverage issues, which is the only portion of recoverable attorney fees that should have been awarded, it added.  Yahoo showed "large swaths of invoices with minimal, unexplained redactions,"  National Union said. The court should reverse the attorney fee award because the unrecoverable fees must be excluded from the damages calculation, it added.

The coverage dispute goes back to January 2017, when Yahoo filed suit alleging National Union had breached its policy by refusing to cover the company in several class actions accusing it of scanning customers' emails.  In October 2018, U.S. District Judge Edward J. Davila found that National Union largely failed to defend and indemnify Yahoo for $4 million in attorney fees that resulted from the class actions.  The judge said it was up to a jury, though, to decide whether the insurer acted in bad faith in denying coverage.

Following a five-day trial in May 2019, a jury returned a verdict finding that National Union had acted in bad faith and should foot the bill for Yahoo's attorney fees.  "The jury clearly did not perform the allocation that Yahoo neglected to perform," National Union said on Monday, adding that Yahoo's own counsel could not point out how much of the legal fees were incurred on coverage issues and what portion was spent on bad faith claims.

"The district court failed to properly instruct the jury on how to allocate, leading the jury to award 100% of the claimed fees — a plainly excessive amount," the insurer claimed.  Yahoo previously argued that it had correctly allocated the legal fees by only submitting the invoices incurred before the district court's summary judgment order that granted its coverage benefits.  National Union said that since the bad faith claims were also litigated on summary judgment, Yahoo did not conduct a proper fee allocation.  "Yahoo is not entitled to a second bite at the apple to present allocation evidence it opted not to present at trial," the carrier said.

The case is Yahoo! Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., case number 19-16475, in the U.S. Court of Appeals for the Ninth Circuit.

Legal Fees To Top £5M in Credit Suisse Espionage Suit

January 29, 2021

A recent Law 360 story by Christopher Crosby, “Legal Fees To Top £5M in Credit Suisse Espionage Suit,” reports that legal fees are expected to top more than £5 million ($6.9 million) as a former Credit Suisse employee heads to trial seeking £60.3 million from the lender after he was imprisoned in Romania on charges of espionage over his work.  Judge Roger ter Haar QC signed off the costs in a short judgment at the High Court, approving hourly rates of £780 for top-tier barristers and £515 for their lieutenants.

Credit Suisse had budgeted some £3.8 million in time and costs for defending itself against allegations by Vadim Benyatov that the bank is liable to cover his lost earnings and costs arising from his conviction in 2013 by Romanian authorities. He was sentenced to 10 years in prison on charges of espionage and establishing an organized criminal group.

Benyatov, meanwhile, has estimated spending in excess of £2.3 million for the lawsuit. But despite the complexity and "considerable skill" involved in the case the judge trimmed the bank's budget for costs nearer to £3.1 million and Benyatov's to £2.1 million.  There are "big issues" with the disparity between the two estimates, the judge told the court.

Most of the trimming — more than £300,000 — came from the Swiss bank's preparation and budget for trial, which is expected to begin in late April.  Benyatov, who ran the lender's emerging markets desk in Europe, inflated the size of the dispute to £60.3 million from £39 million in November, when Judge ter Haar said he could add 10 years onto his projected retirement age.

At the time, the former banker had also sought to amend his 2018 lawsuit against Credit Suisse Securities (Europe) Ltd.  He was prevented from adding claims that the bank breached its duty to undertake a risk assessment on work in Romania.

However the judge allowed him to claim loss over the Financial Conduct Authority's decision to revoke his authorization in 2013.  Judge ter Haar rejected the Swiss bank's attempt to strike out the allegations, saying in December that it had applied the wrong legal test.

The former director worked for the bank from around 2005 on the proposed privatization of a Romanian state-owned energy producer by an Italian company.  He alleges that Romanian officials were concerned about potential Russian influence in its energy sector and scrutinized him because of his Russian family name and birth place inside the former Soviet Union.

Benyatov also claims that the bank should have tipped off Romania's intelligence services about its business plans.  He said after he was arrested in 2006 that Credit Suisse paid for his legal expenses but failed to cover his "enormous losses."  The bank disputes Benyatov's claim for repayment, and has said there is no obligation for it to indemnify him simply because his work for the lender led to his arrest.

The case is Vadim Don Benyatov v. Credit Suisse Securities (Europe) Ltd., case number QB-2018-001043, in the Queen's Bench Division, the High Court of Justice of England and Wales.

Defense Firms and Clients Can Boast About Attorney Fee Wins

January 25, 2021

A recent Law.com story by Christine Simmons, “Both Law Firms and Clients Can Boast About Fee Wins,” reports that, several organizations have reported that, despite the Am Law 200’s worst fears, the legal industry enjoyed growth in 2020.  Citi Private Bank Law Firm Group and Hildebrandt Consulting have projected mid-single digit growth in revenue and mid to high single digit growth in profits. 

Last year, large firms managed to raise rate about 5%, according to James Jones, a senior fellow at the Georgetown Law Center on Ethics and the Legal Profession.  That’s remarkable considering the chaotic and depressing environment of 2020, and even more remarkable that the average annual rate increase for firms since 2008 has been about 3%.

But weren’t general counsel in cost control mode?  After all, according to survey data collected in June 2020 from 223 corporate legal departments, 89% of respondents said controlling outside counsel costs was a high priority.  So what gives?  How could law firms push through high rates at a time of such fee pressure?

Reconciling legal departments’ pressing need to cut costs with law firms’ revenue, profit and rate growth in 2020 requires a closer look at law firm segmentation, sector performance and the trajectory of the year.  But in the legal industry, 2020 is also a story about demand and the benefits of close cooperation on fee agreements, allowing both law firms and legal departments to have some bragging rights.

The Conversation

The lucrative year extended up and down the Am Law 100 and likely into the Second Hundred, but it came at different client relations strategies.  For the elite, rate and fee pressure was so little they could give out double bonuses to associates without billable hour requirements.  Wall Street firms and the Am Law 20 saw the benefit of ‘fight to quality” during an unpredictable year in business.  Meanwhile, some law firms did work with their clients on a mix of fee strategies and arrangements, to the benefit of both.

For instance, at Akerman, ranked No. 88 in the Am Law 100 last year, CEO Scott Meyers said collections remained steady last year, although Akerman worked with its clients to help them meet their own budgets while paying their legal bills.  “We’re close to our clients,” he said.  “We reached out to each one to understand, ‘what’s your financial position?  What’s your cash position?  What can you do, what can’t you do?’”  At the end of the financial year, the firm said it had a 6.5% increase in gross revenue in 2020.

Fee pressure, of course, depends on the industry.  And those with insurance industry clients and municipal clients are among those seeing the most discount pressure.  Mark Thompson, president and CEO of Marshall Dennehey Warner Coleman & Goggin, said while the firm’s hospital clients have returned to their pre-COVID payment rates, the firms’ base of municipal government clients haven’t yet returned to pre-COVID fee arrangements as a result of financial distress. “That is going to remain a problem going forward,” Thompson said in a Dec. 22 article. 

But nearly all sectors saw pressure in the beginning of the pandemic. At General Motors, the automaker reached out to the 19 firms on its panel of “strategic legal partners.” The second quarter presented an enormous, worrisome question mark, and the automaker—like so many businesses of all sizes—was looking to preserve cash.

GM general counsel Craig Glidden said the company didn’t know what would happen in the auto markets, which meant asking firms for help. And those firms stepped up, agreeing to deferred billing and alternative fee arrangements to relieve some of the company’s pressure.

The Significance

Yes, law departments are seeking high cost savings.  The 2021 Report on the State of the Legal Market from Thomson Reuters and Georgetown Law said spending on outside counsel did, in fact, decrease in the second and third quarters of 2020.  The report said 81% of legal departments found that general enforcement of billing guidelines, including reductions of invoice fees and expenses, was the most effective way to keep billing down.  Meanwhile, 53% of respondents requested standard discounts; 49% of respondents reduced timekeeper rate increases; and 45% used volume discounts.

At the same time work, the report shows that the average daily demand for law firm services per lawyer, based on billable hours, increased in the second half of the year, picking up in November to almost match the previous two year average.  So what happened to the portrait of the general counsel scrutinizing every line item and grilling firms about rate increase and discounts?

That picture is becoming increasingly faint.  Instead, the portrait emerging from 2020 is one of cooperation and demand.  Clients rushed to law firms for urgent legal advice during the pandemic, including counseling for workplace laws, PPP loans, restructuring and data security concerns.  Secondly, the circumstances from the pandemic gave rise to conversations about pricing, driving both sides of the law firm-client relationship to seek common ground—both in the form of tried-and-true alternative fee arrangements and those that reflect a more innovative approach.

Law firms have some leverage.  Just because a client wants a discount doesn’t mean a firm has to provide it.  “Clients understand the difficulty of onboarding new external counsel,” says McKinsey & Co. senior partner Alex D’Amico.  “There’s a real cost to bringing on a new firm.”