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Category: Prevailing Party Issues

USPTO to SCOTUS: We’re Entitled to Attorney Fees Win or Lose

May 22, 2019

A recent Law 360 story by Ryan Davis, “USPTO Tells Justices Law is Clear-Cut on Win-Or-Lose Fees,” reports that the U.S. Patent and Trademark Office told the U.S. Supreme Court that it is entitled to recover attorney fees whenever it is sued over rejected applications, even if it loses, saying that outcome is "unambiguously" required by the statute.  The office made the argument in its opening brief for a case the justices agreed to hear in March to resolve a circuit split over whether disappointed applicants who file suit must pay the office's legal bills.

The statute governing such suits states that the applicant must pay "all the expenses" of the proceeding.  The Federal Circuit ruled last year that the phrase is not specific enough to include the USPTO's attorney fees, but in its brief, the office said "that reasoning is unsound."  "Both in its ordinary usage and in the specific context of civil litigation, the term 'expenses' unambiguously encompasses the increments of employee salary that the USPTO seeks to recoup," the office said.

Citing dictionary definitions of the word "expenses" as the expenditure of money, time or resources to accomplish a result, the office said it is clear that the money the office spends defending lawsuits count as expenses, and "that observation resolves this case."  While the Federal Circuit said the office's reasoning runs afoul of the "American Rule" that each side pays its own attorney fees, the office said the expenses requirement is not a fee-shifting provision that triggers the rule.

Fee-shifting typically applies based on which party prevails in a case, but since the expenses requirement is imposed on all applicants who sue the agency, even if they prevail, the American Rule is not implicated, the USPTO said.  Even if it were, the meaning of the word "expenses" is clear enough to show that Congress intended to override the rule and require applicants to pay the office's attorney fees, it said.

When the USPTO rejects an application for a patent or trademark, the applicant has two options.  The first is a Federal Circuit appeal, which does not require the applicant to pay the office's expenses but is decided only on evidence that the office considered, and the second is to file suit in district court, which carries the expense requirement but permits new evidence that wasn't before the office.  For years, the office only sought relatively minor expenses like travel costs and expert fees in district court cases, but it reversed course in 2013 and began seeking attorney fees from applicants, which can be much more substantial.

The Fourth Circuit blessed that practice in a trademark case in 2015, saying the provision is not a fee-shifting statute that implicates the American Rule.  The high court took the case after the Federal Circuit, sitting en banc, reached the opposite conclusion last year in a case where NantKwest Inc. unsuccessfully appealed the office's rejection of a cancer drug patent and was ordered to pay the USPTO's attorney fees of over $78,000.

The USPTO's brief said the office began seeking attorney fees in 2013 because such cases had become increasingly complex and expensive to defend, and because Congress had recently granted the office the authority to set its own fees, which officials wanted to ensure just recouped the cost of its services.  By seeking attorney fees when it is sued, "the agency has attempted to recoup those expenses from the particular applicants who cause the agency to incur them, rather than from other fee-paying users of the USPTO's services," it said.

In its January brief urging the Supreme Court not to hear the case, NantKwest argued that the American Rule applies whenever a litigant seeks attorney fees from opponents, not just when the award is based on who prevailed, as the USPTO contends.  The word "expenses" is too ambiguous to overcome the rule, it said.  "That 'expenses' could plausibly be understood to encompass attorneys' fees is not enough," it said.

Also last week, the USPTO urged the justices not to consolidate the NantKwest case with an appeal by Booking.com raising the same issue in a trademark case.  Instead, the court should just apply the outcome in NantKwest to that case, the office said.  Earlier this month, the title of the NantKwest case was changed when USPTO Director Andrei Iancu was recused from the case and substituted as the petitioner by USPTO Deputy Director Laura Peter.

The case is Peter v. NantKwest Inc., case number 18-801, in the Supreme Court of the United States.

Texas Legislation Changes Fee-Shifting Provision in Dismissals

May 17, 2019

A recent Texas Lawyer story by Angela Morris, “Why Are Civil Defense Lawyers Thrilled the Texas House Passed This Bill?,” reports that, just as lawmakers are pushing to narrow Texas’ anti-SLAPP motion to dismiss, the Texas House also passed a bill that would sweeten the deal for civil defense attorneys to make more use of a different type of motion to dismiss.

Under current law, this motion, known as the “91a motion to dismiss” because it’s located in Texas Rules of Civil Procedure Rule 91a, allows attorneys to argue for the dismissal of a case that has no basis in law or fact.  There’s a mandatory loser-pays provision that says the prevailing party collects attorney fees from the losing party.  Defendants have not used the motion too frequently because they don’t want to risk paying attorney fees to plaintiffs if they lose a dismissal fight.

House Bill 3300, which the Texas House passed 136-5, proposes a small but significant tweak to the law.  In the loser-pays provision, it changes the word “shall” to “may,” which gives a judge discretion to decide to award fees.  The bill heads to the Senate where, in the final weeks of the session, it must get a public hearing in committee, pass committee and pass the full Senate.

Texas Lawyer asked attorneys on Twitter whether this legislation, if passed, might lead defendants to file 91a motions to dismiss more often.  Here are a handful of the tweets we got in reply, edited for style and grammar.

“Yes — no question. Loser-pays is the only disincentive to filing a 91a motion in every case.  And defendants often waive their fee recovery from plaintiffs because courts are more likely to grant 91a dismissal if it doesn’t require saddling plaintiffs with fees,” tweeted Anne Johnson, a partner in Haynes and Boone in Dallas.

“As things stand, TRCP 91a creates a sort of game of chicken: A lot of defendants will file the motion but then pull it down before it is heard, unless they are almost 100% confident they will prevail.  With mandatory fees, the risk of paying the other side money is just too high,” tweeted Christopher Kratovil, managing member of Dykema’s Dallas office.

“As someone who works more in federal court — where 12(b)(6) reigns — I’ve always thought 91[a]‘s mandatory fee-shifting was a big problem.  This would be helpful.  I suspect more plaintiff oriented folks strongly disagree,” tweeted Raffi Melkonian, a partner in Wright, Close & Barger in Houston.

“I’m against the mandatory fees provision.  The fees usually aren’t too high, but it still discourages the use of an otherwise valuable tool,” tweeted Jadd Masso, a member of Clark Hill Strasburger in Dallas.

“This is a welcome change, though the Rule 91a standard itself should be clarified and improved,” tweeted Lee Whitesell, an associate with Hogan Lovells in Houston.

Florida Legislation Changes Fee-Shifting Rule in Insurance Coverage

May 15, 2019

A recent Law 360 story by Jeff Sistruck, “4 Things Attys Need to Know About Fla’s ‘AOB’ Reform Bill,” reports that Florida Gov. Ron DeSantis gave the insurance industry cause for celebration when he said he would sign legislation aimed at curbing what carriers call an epidemic of abusive litigation by repair contractors seeking payment under property policies.  Here, Law360 breaks down four key provisions of the so-called Assignment of Benefits reform bill.

Fee-Shifting Switch

The bill passed by the Florida Legislature is expected to have a significant impact on long-standing insurance practices in the Sunshine State, where homeowners often assign their insurance benefits to contractors working on hurricane-damaged houses.  Once signed by the governor, it will take effect July 1.

In recent years, insurers have complained that some contractors have abused the Assignment of Benefits, or AOB, system by accepting assignments from policyholders and then performing excessive repairs or imposing inflated charges, leading to widespread coverage litigation.  Reform advocates have blamed that spike in litigation for increases in insurance premiums.  According to attorneys and experts interviewed by Law360, the surge in AOB actions was attributable in large part to Florida’s “one-way” attorney fee rule, which required an insurance company to pay an assignee’s costs to litigate a coverage suit, regardless of which side prevailed in court.

The new bill replaces that rule with a formula that allows for an award for either the assignee or the insurer — or neither — based on a comparison of a court’s judgment and pre-suit settlement offers.  That change doesn’t apply to policyholders who sue their insurers directly.  The formula for determining attorney fee awards compares the gap between the insurer's pre-suit settlement offer and the assignee's pre-suit demand, dubbed the "disputed amount," and the difference between the judgment obtained and the settlement offer.  If the difference is less than 25% of the disputed amount, the insurer is entitled to attorney fees.  If the difference is 25% to 49% of the disputed amount, neither party gets fees.  And if the difference is 50% or more, the assignee is entitled to a fee award.

Beth A. Vecchioli, senior director for government consulting at Carlton Fields, said the new fee shifting provision is an attempt to “level the playing field so everyone has skin in the game.”  “The current one-way attorney fee provision was always originally designed to help consumers who don't have the same financial resources as their insurers to go through litigation,” Vecchioli said.  “Once these assignments started popping up, though, the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.  It didn't seem fair or right that the insurance industry still had to deal with this one-way attorney fee provision in those situations."

However, Rob Friedman of Friedman PA, who represents policyholders, said that while the bill’s fee shifting provision applies only to contractors wielding AOBs, he is concerned that insurers may use their legislative success to try to curtail or eliminate the one-way fee rule in disputes with policyholders, too.  “[The one-way fee provision] has been one of the most important protections insurance consumers have under the law,” Friedman said.  “While this erosion of that protection is limited to assignment of benefits situations, I am concerned the industry is targeting the one-way fee provision more broadly.  This may be a slippery slope for the industry to push for doing away with that provision altogether or to erode it in other contexts as well."

Pre-suit Protocol

The new bill states that assignees must give insurance companies notice of intent to file a suit and cannot serve the insurer before it has a chance to make a coverage determination within the statutory time frame.  The insurer must respond within 10 days with a settlement offer or a demand for appraisal or other alternative dispute resolution.

Fred Karlinsky, co-chair of Greenberg Traurig LLP's insurance regulatory and transactions practice, said that in the past, some contractors have quickly filed suit before even giving insurers the chance to perform their own investigations.  “Under this legislation, we will hopefully avoid some of these 'gotcha'-type situations,” he said.  As Friedman sees it, though, the new raft of pre-suit requirements may discourage contractors, particularly smaller operations, from taking on repair jobs.  Companies will have to “lawyer up” at the outset of a job just to understand their rights and obligations under the AOB reform bill, he said.

“A small 'mom and pop' contractor isn't going to want to take on a $1,000 roof repair under an assignment of benefits if they have to hire a lawyer just to tell them what their rights and obligations are,” Friedman said.  “There are so many pitfalls in this statute that a contractor could wind up facing a coverage denial for violating any number of requirements."

Limiting AOBs

In another notable change, the bill opens the door for insurers to offer policies that cannot be assigned to a third party as long as they clearly provide notice to prospective policyholders of those restrictions and also offer assignable policies with the same coverage.  If an insurer opts to sell both types of policies, the restricted policy must cost less.  In addition, an insurer must notify its policyholders “at least annually” of the coverage options it is making available.

According to attorneys and experts, that provision provides clarity for the insurance industry, which had faced confusion about whether insurers can ever place restrictions on AOBs.  “This concept was originally developed by the [Florida] House under the theory that it is better for consumers to have more options than less,” said Vecchioli of Carlton Fields.  “They recognized that they couldn't completely restrict all assignments.  This is a smart, consumer choice-driven option, allowing insurers to offer both options."

Assessing the Impact

The new bill also contains a built-in mechanism for assessing the effectiveness of the AOB reforms.  Starting on Jan. 30, 2022, insurers must submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year.

According to attorneys and experts, those numbers will give the Florida Legislature concrete information to decide whether additional measures are needed to further rein in abuses of the AOB system.  The true test of the legislation will come when the next major hurricane or other catastrophe hits the Sunshine State, yielding huge quantities of AOB-related claims data, sources said.  "We would welcome the Legislature continuing to monitor AOB fraud and making any changes they feel are appropriate,” Greenberg Traurig's Karlinsky said.

Texas Justices Clarify Evidence Needed to Prove Attorney Fees

April 26, 2019

A recent Law 360 story by Michelle Casady, “Texas Justices Clarify Evidence Needed for Atty Fees,” reports that the Texas Supreme Court clarified what evidence lawyers must present to support their claims for attorney fees and costs, saying an $800,000 fee request in a dialysis center lease dispute was "too general."  A private dialysis center affiliated with the University of Texas Southwestern Medical School, UTSW DVA Healthcare LP, didn’t present specific-enough evidence to support its attorney fee request after the clinic won a lease dispute with landlord Rohrmoos Venture, the court said.

The court also remanded a second fee dispute case, Barnett v. Schiro, to a lower court for reconsideration under its Rohrmoos ruling.  In the decision, the court sought to dispel what it said was confusion on the part of lawyers and courts about two methods of calculating fees — the “Arthur Andersen method” and the lodestar method.  It said the lodestar method of calculating attorney fees was “never intended to be a separate test or method” from eight factors the court set forth in its 1997 ruling in Arthur Andersen & Co. v. Perry Equip. Corp.

Instead, lodestar was developed as a shorthand version of the Andersen factors, the court explained.  The starting point for calculating fees is determining the reasonable hours worked, multiplied by a reasonable hourly rate, and it's the burden of the party seeking those fees to prove up the request, the court said.  The lodestar method arrives at the fee amount by multiplying the number of hours spent working on the case by a reasonable hourly rate.  The Arthur Andersen method requires a court to consider eight factors in awarding fees, including time and labor, how difficult a case is, what a customary rate is, the results obtained and the skill of the attorney.

In the Rohrmoos case, UTSW attorney Wade Howard of Liskow & Lewis, sought about $800,000 in fees, plus conditional fees for any appeal.  Howard testified that his hourly rate is $430, and that the number of hours spent on this case was between 750 and 1,000.  While that would mean his fees were between $300,000 and $400,000, he said his fees were closer to or exceeded $800,000 in this case because the discovery and deposition process was so intensive.

The Texas Supreme Court wrote it understood Howard's argument that the actions of opposing counsel caused the cost of litigation to increase.  “However true this may be, Howard’s justification for why his fees should be $800,000 — searching through 'millions' of emails and reviewing 'hundreds of thousands' of papers in discovery, more than forty depositions taken, and a forty-page motion for summary judgment — is too general to establish that the requested fees were reasonable and necessary,” the high court wrote.  “Without detail about the work done, how much time was spent on the tasks, and how he arrived at the $800,000 sum, Howard’s testimony lacks the substance required to uphold a fee award.”

Howard told Law360 that during oral arguments before the court he tried to stress that putting hundreds of pages of detailed billing records before the jury would “do nothing” to help them determine what costs are reasonable and necessary.  But he said the ruling was “about as painless as possible” because he kept detailed, contemporaneous billing records and now will just have to present those — which were already produced in discovery to the other side — to the trial court.  “The reality is this is a conservative court and they don't like the award of attorneys fees with limited proof,” he said.  “We had a strong suspicion that the court was going to start requiring more than the Arthur Andersen factors ... but for anyone who keeps billing records, it's not an issue.”

Citing the Rohrmoos ruling, the court also decided another case.  In that dispute, attorney Richard Schiro represented Daniel Barnett in a lawsuit brought by Kirtland Realty Group in 2011 that ended in a settlement agreement.  Schiro then sued to recover from Barnett $183,673 in unpaid legal fees, which the jury awarded him.  Schiro also sought “reasonable attorneys' fees and costs” in the suit, and the jury awarded him $131,786.

Barnett appealed, arguing there was insufficient evidence to support that award of fees and costs, and the lower appellate court affirmed the ruling.  But the Texas Supreme Court reversed that ruling and sent the case back to the trial court to redetermine what fees should be awarded in light of its holding in Rohrmoos.  Charles W. McGarry of Law Office of Charles McGarry, who represents Barnett, told Law360 he'll likely ask the Texas Supreme Court for rehearing because part of his argument was that the court should have rendered judgment in his favor rather than send it back to the trial court.

According to court documents, in the lease dispute between Rohrmoos and UTSW a jury found both parties breached the lease, but that Rohrmoos had breached first.  As the prevailing party, a jury awarded UTSW $800,000 in fees, and a conditional $150,000 for representation in the court of appeals, and $75,000 for representation in the Texas Supreme Court, totaling a little more than $1 million.  On appeal, Rohrmoos argued the evidence wasn't enough to support that total, but the lower appellate court disagreed and upheld the award.  On appeal to the Texas Supreme Court Rohrmoos again challenged the sufficiency of the evidence and argued that UTSW wasn't actually a prevailing party since the jury found both parties breached the lease, and therefore wasn't entitled to fees.

In its opinion, the Texas Supreme Court held that UTSW was a prevailing party in the lawsuit because it successfully defended against a counterclaim from Rohrmoos seeking $250,000 in unpaid rent.  The cases are Rohrmoos Venture et al. v. UTSW DVA Healthcare LLP, case number 16-0006, and Daniel S. Barnett et al. v. Richard B. Schiro, case number 18-0278, in the Supreme Court of Texas.

NCAA Seeks Billing Records in $45M Attorney Fee Dispute

April 22, 2019

A recent Law 360 story by Christopher Cole, “NCAA Demands Billing Records in $45M Atty Fees Fight,” reports that the NCAA is fighting a push for almost $45 million in attorney fees by the legal team that scored a March antitrust victory against the organization in California federal court on behalf of student athletes, saying the players’ lawyers won’t disclose their billing records.  The two sides filed joint legal papers laying out their positions on paying the lawyers after they won a groundbreaking decision that limits the college sports organization from enforcing rules that cap compensation for student athletes.

While the players’ side has asked the court for a baseline figure of $29.9 million to cover their fees, plus a multiplier of 1.5 based on the outcome, the NCAA’s lawyers said there is no way to justify that amount without actually seeing figures on paper as to how much the opposing lawyers worked on the case.  So far, they said, the plaintiffs have been unwilling to share those records.

The damages phase of the litigation has already wrapped up, with attorneys for the student athletes already getting more than $44 million from a settlement, the NCAA said.  Now the organization says it is critical to find out how much time the plaintiffs' lawyers spent on winning the injunction on grant-in-aid rules, as opposed to time spent on the earlier damages part of the lawsuit.  “Ninth Circuit law is clear that the burden is on the prevailing party to support their request for attorneys’ fees with detailed billing records,” the NCAA said.  “Plaintiffs’ failure to provide [them] is grounds to reduce their fee award or dismiss their motion entirely.”

In deciding what to do with the dueling stances on attorney fees, the court will have to figure out how to pin a dollar figure to the key injunction that the student athletes won in March.  U.S. District Judge Claudia Wilken in that 104-page order rejected the NCAA’s arguments that its compensation rules promote the demand for college sports and justify its antitrust violations.  She prohibited the association from enforcing rules that she considered “overly and unnecessarily restrictive.”

Following that major win, the players’ attorneys sought the compensation package of $29.9 million plus the multiplier for what they said was the economic value of the injunction, and submitted an economist’s declaration to bolster their argument.  But the NCAA said that wasn’t enough to show how much of the opposing legal team’s billable hours included in the requested total were actually spent on the injunction phase, and without the records, there is no way to tell for sure.  “Plaintiffs simply ask this court and defendants to take them at their word that all judgment calls have been made correctly, and seek to deny defendants the right to review and, where necessary, challenge the appropriateness of plaintiffs’ counsel’s assessments,” the NCAA said.

The players’ lawyers called the argument about the damages phase a “red herring” by the NCAA because they have already excluded time attributable to the damages portion of the case.  “Defendants never provided any compelling reason why [we] should be forced to turn over these voluminous records, which would require plaintiffs’ counsel to expend significant time and resources reviewing and redacting for attorney-client privilege and work product,” they said.