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Category: Prevailing Party Issues

Article: Paying for Claimants’ Attorney Fess is the Exception to the Rule in DC

October 11, 2019

A recent Lexology article by Meredith L. Pendergrass of Goldberg Segalla LLP, “Paying for Claimants’ Attorney Fees is the Exception to the Rule in D.C.,” reports on a recent appellate decision on attorney fee entitlement and recovery in workers’ compensation claims before the federal circuit.  The article was posted with permission.  The article reads:

The D.C. Court of Appeals was recently presented with the opportunity to weigh in on the prerequisites for ordering employers and insurers to pay for claimants’ litigation fees and costs in workers’ compensation claims.  In the case of Kelly v. D.C. Dep’t of Employment Servs., No. 18-AA-13, 2019 WL 4073672 (D.C. Aug. 29, 2019), the court refused to require the employer and insurer to bear the cost of the claimant’s attorney fees.

In Washington, D.C., there are only two limited circumstances where the employer and insurer will pay attorney fees for the claimant. D.C. Code Section 32-1530 (a) provides the ability for the claimant to seek payment of his attorney fees if employer and insurer do not pay any compensation within 30 days for the claim being filed and the claimant uses the services of an attorney to subsequently obtain benefits.

D.C. Code Section 32-1530 (b) further provides that attorney fees may be awarded against the employer and insurer in a specific set of circumstances.  This subsection requires the employer and insurer to have initially paid compensation in the claim and then a controversy arises as to the amount of further benefits due.  In order to be held to pay the claimant’s attorney’s fee in this situation, the employer and insurer have to reject a recommendation by the Mayor regarding resolution of the amount in controversy, and the claimant needs to then utilize the services of the attorney to obtain a greater amount than the employer and insurer offered to pay.  The attorney fee awarded would only apply to the difference in the amount the employer and insurer offered to pay and the amount ultimately obtained through litigation.

The only way to obtain a recommendation from the Mayor is to attend an Informal Conference and have a claims examiner issue a Memorandum of Informal Conference.  In the Kelly case, the claimant’s attorney applied for an Informal Conference to resolve a dispute regarding permanency benefits, but the employer and insurer applied for a Formal Hearing before the Informal Conference occurred.  The D.C. Court of Appeals found that since the employer and insurer did not reject a recommendation from the Mayor as subsection (b) requires, then attorney fees could not be awarded against them.  The D.C. Court of Appeals held that it was irrelevant that the employer and insurer made it impossible for the claimant to participate in the Informal Conference by applying for the Formal Hearing.  The court cited to the American Rule for litigation, which generally requires each party to bear the burden of their own litigation costs, as well as the specificity in which the act outlines the exceptions to this rule in coming to their decision.  With the Kelly case clarifying this issue, we will likely see fewer Informal Conferences going forward when it comes to litigating additional benefits owed in a claim as a way to limit overall exposure.

Meredith L. Pendergrass is an Associate at Goldberg Segalla LLP in Baltimore.  She focuses her practice on defending employers, insurance carriers, and third-party administrators in workers’ compensation matters throughout Maryland and the District of Columbia.  She regularly appears in both Maryland and the District of Columbia at agency-level proceedings all the way through each jurisdiction’s highest court system on appeals.

Can Insured Recover Attorney Fees From Public-Private Insurers?

October 10, 2019

A recent Law 360 article by Alexander Cogbill, “Can Insureds Recover Atty Fees From Public-Private Insurers?,” reports on the recent case law on attorney fee entitlement and recovery in insurance coverage litigation.  This article was posted with permission.  The article reads:

In 2009, the U.S. Court of Appeals for the Fifth Circuit definitively foreclosed awards of attorney fees in coverage litigation against insurance companies arising out of flood claims under policies written under the National Flood Insurance Program (NFIP) with its decision in Dwyer v. Fidelity National Property & Casualty Insurance Co.

This appeared to be the final word on the subject until 2019, when, in a series of three opinions, the United States District Court for the Middle District of Florida held otherwise.  These recent decisions have revived a decade-old argument about whether public-private partnerships — in this case, the NFIP — trigger a distinct federal civil rights statute: the Equal Access to Justice Act.

The National Flood Insurance Program: On the Radar

The NFIP was signed into law in 1968 as a response to endemic underinsurance which had been laid bare by a series of disastrous river floods and hurricanes in prior years.  The NFIP has enabled more than 5,000,000 homeowners and small businesses within 18,000 communities to purchase insurance for flooding annually at discounted premiums.

Although the federal government subsidizes all of the policies underwritten within this program, the Federal Emergency Management Agency, which runs the program, does not administer most NFIP policies.  Instead, FEMA engages the expertise and resources of private insurance companies as “fiscal agent[s]."  By this arrangement, the federal government accepts the insureds’ risk but delegates underwriting and claim administration.

Although the program has been a success in terms of enrolling policy holders, resultant expenses and risk accepted by the NFIP has grown unwieldy.  Presently, the program owes more than $25 billion dollars and continues to underwrite trillions of dollars of additional risk.  Accordingly, the future of the program is uncertain.

For purposes of the following discussion, understanding several key features of NFIP policies is useful.  First, FEMA receives most of the premiums (after a fee from the participating insurers) and pays the costs of claims, investigation and litigation, albeit indirectly.  Second, because NFIP policies are governed by federal common law, suits regarding these policies are properly asserted in federal court, without consequential damages.

Equal Access to Justice Act: All Hands on Deck

The American Rule dictates that litigants pay their own attorney fees unless fee-shifting is prescribed by contract or statute.  The EAJA is a substantial statutory exception to this default rule. Under the EAJA, a party that prevails in litigation against “the United States or any agency or official of the United States” may recover attorney fees except when a court finds that the position of the United States was “substantially justified or [] special circumstances make an award unjust."  Notably, there is no fee-shifting provision when a plaintiff is unsuccessful.

The EAJA was enacted in 1980 to assist litigants, particularly civil rights litigants, in accessing the court systems so that they would be on equal footing with the government and would be able to pursue their rights without being deterred by the cost of legal representation.  The legislative history specifically states that the EAJA is not to burden private parties with attorney fees, but is silent about the application to the NFIP.

FEMA is an agency of the United States, and suits against them allow for attorney fees unless defenses are “substantially justified."  However, whether a private insurer is an agent of the United States for the purpose of this section is more nuanced.  Hurricane Katrina litigation in the Eastern District of Louisiana highlighted this confusion, with decisions repeatedly flip-flopping on the issue over three years.

Dwyer v. Fidelity: The Eye of the Storm

The Katrina decision on this topic to filter to a higher court was Dwyer v. Fidelity National Property and Casualty Insurance Co.  At the trial court level, the Federal District Court for the Eastern District of Louisiana held that insurers participating in the NFIP were acting as “an instrumentality of the United States” and, as such, qualified for the EAJA fee shifting.  In its opinion, the Dwyer trial court observed that the organizing statute of the NFIP utilizes the term “agent” to describe participating insurers qualifying them as “agencies” as contemplated by the EAJA for the purposes of fee shifting.

On appeal, the Fifth Circuit Court of Appeals reversed.  The Dwyer appellate court began its discussion by observing that Title 28 defines “agency” for the purpose of the EAJA as “any department, independent establishment, commission, administration, authority, board or bureau of the United States or any corporation in which the United States has a proprietary interest…”  The court further noted that none of these categories describe a private insurer subsidized by FEMA.

The court next looked to the NFIP regulations which describe the role of a private insurer as a "fiscal agent" rather than an "agent" for the purposes of the EAJA.  The court found support for this conclusion in Supreme Court of the United States precedent which similarly cautions that mere contractual relationships do not transform all federal contractors into governmental “agen[cies].”  Summarizing their opinion, the court stated, “[t]he District Court might be correct in concluding that allowing suit against private insurers is a mere formality imposed by regulation, but regardless, the EAJA must be applied according to its terms.”

Since Dwyer, no appellate court has revisited this issue, and when trial courts — with the notable exception of the Middle District of Florida — have confronted the issue with NFIP participating insurers, they have adopted Dwyer’s reasoning.

Middle District of Florida’s Storm Surge

Initially, the Middle District of Florida capitulated to Dwyer.  In 2017, citing Dwyer, the court decided Chatman v. Wright National Flood Insurance Co. in favor of the private NFIP-insurer dismissing claims for attorney fees.

However, this year, courts in this one federal district have latched onto a novel argument and are going against the current.  In these cases, the courts determined that although the insurer was not an agency of the United States, the payment made under a FEMA policy is functionally remitted by the United States government.  Under this reasoning, this connection with U.S. Department of the Treasury funds is sufficient to survive an initial motion to dismiss.

These decisions rely on the U.S. Court of Appeals for the Eleventh Circuit opinion Newton v. Capital Assurance Co., which assessed whether prejudgment interest is appropriate under the NFIP.  In reaching its decision, the Newton court reasoned that the United States retained a financial stake in litigation against NFIP insurers.  Therefore, its sovereign protection from prejudgment interest extends to suits against its insurer partners as any interest charges are, in reality, “direct charges against FEMA.”  Newton holds “the line between a [NFIP insurer] and FEMA is too thin to matter for the purposes of federal immunities such as the no-interest rule.”  As is evident, Newton’s reasoning diverges from Dwyer’s even if they address slightly different issues.

In January of 2019, the Middle District of Florida first began its swim against the current by declining to dismiss attorney fees entirely and only eliminating state claims of attorney fees in Lovers Lane LLC v. Wright National Flood Insurance Co.  This decision cited but did not explicitly rely upon Newton in permitting a claim for attorney fees under the EAJA to survive an initial pre-answer motion.  In fact, the Lovers Lane court failed to discuss its reasoning except to acknowledge pre-Dwyer decisions ruling in favor of insurers on the same issue.

In April, the court issued a second decision departing from Dwyer.  In Collier v. Wright National Flood Insurance Co. the court again declined to dismiss a claim of attorney fees, citing Lovers Lane LLC without further discussion.  On June 13, the court committed to this interpretation in Arevalo v. American Bankers Insurance Co. of Florida. The court held:

Based on the principles and regulations discussed by the Eleventh Circuit in Newton, the determining factor is not so much whether [the insurer] is an “agency” of the United States under the Act.  Rather, it seems to matter more whether the government is the source of the funds or who would pay an award of attorney’s fees.  Here, payment of attorney’s fees may be a direct charge on federal funds if FEMA approves [the insurer’s] request for reimbursement of the attorney’s fees incurred defending this NFIP litigation.

This is of course assuming that [the insurer] seeks reimbursement for its defense costs from FEMA and otherwise has an arrangement with FEMA whereby it is entitled to reimbursement.  Either way, it is at least plausible at this point in the litigation that attorney’s fees may be paid from federal funds by FEMA.

Notably, however, the Middle District’s reasoning has already been rejected by the Southern District of Florida in its Aug. 12 decision in Hampson v. Wright National Flood Insurance CoHampson dismissed Arevalo in a footnote, holding without further discussion, “this Court disagrees [with Arevalo’s conclusion that the source of the funds plausibly relates to fee shifting] and declines to depart from case law in this circuit and other courts finding that a WYO carrier is not an agency of the United States as required by the EAJA.”

Next Steps: Batten Down the Hatches

At this point, it is unclear whether other districts will join the Middle District of Florida in applying Newton to the EAJA. Even if the trend were isolated to this single court — which is by no means guaranteed — it represents a district split on this critical issue.  Moreover, this conflict may portend a circuit split between the U.S. Court of Appeals for the Fifth Circuit (Dwyer) and the Eleventh Circuit (Newton).

The consequences of this nascent split are not purely academic.  One-way fee shifting agreements — where only the defendant is potentially liable for their adversary’s attorney fees — such as the EAJA, are understood to raise settlement values in favor of defendants (and their attorneys) and increase the likelihood of settlements on otherwise questionable claims.  Accordingly, the practical effect of this line of cases in the Middle District of Florida may be increased payments to NFIP insureds throughout the United States.  For all the legitimate policy calculations undergirding the EAJA, this effect on the financially strapped NFIP was not clearly intended.

Given the existing financial vulnerabilities of the NFIP, the sheer number of policy holders (greater than 5,000,000), and the predictions of increasing intensity of hurricanes and flooding because of climate change, this trend merits close monitoring.  NFIP insurers and United States taxpayers alike have a vested interest in its outcome.  These cases from the Middle District of Florida may be a drop in the ocean or could foreshadow a change in the weather.

Alexander Cogbill is an associate at Zelle LLP in New York.

SCOTUS Questions Seem to Doubt USPTO’s Attorney Fee Claim

October 9, 2019

A recent Law 360 story by Jimmy Hoover and Bill Donahue, “Justices Question USPTO’s Bold Pursuit of Atty Fees,” reports that the U.S. Supreme Court appeared skeptical of the U.S. Patent and Trademark Office’s recent practice of seeking attorney fees from parties that take the agency to court, given that the USPTO paid for its own lawyers for more than a century.  At oral arguments in the case Peter v. NantKwest, the justices, minus an ailing Justice Clarence Thomas, peppered an attorney from the U.S. Solicitor General’s Office with questions about the USPTO’s new and aggressive pursuit of attorney fees, which extends even to cases that the agency loses.

The Federal Circuit ruled last year that the policy violates the so-called American Rule, a deep-rooted doctrine that litigants must pay their own attorneys unless Congress expressly says otherwise.  Several members of the Supreme Court seemed sympathetic to that view.  “What sense does it make to think that Congress wanted the winning party to turn around and pay the government's legal fees, given how unusual that is?” Justice Brett Kavanaugh asked. “Why would Congress have thought to do it that way?”

The case revolves around de novo appeals, which allow dissatisfied patent or trademark applicants to effectively relitigate their application in district court rather than merely appeal to the Federal Circuit.  Both the Patent Act and the Lanham Act say that for applicants who choose the de novo route, “[a]ll the expenses of the proceedings shall be paid by the applicant.”

USPTO long interpreted that to cover things like travel expenses and copying, but started arguing in 2013 that the “expenses” provision covers attorney fees too.  In the case at hand from NantKwest Inc., that included over $78,000 for the cost of the agency attorneys who defended the company’s lawsuit over a rejected cancer treatment patent.

At arguments, Justices Neil Gorsuch and Stephen Breyer homed in on the fact that the USPTO had long declined to pursue attorney fees from applicants under the current statute or its predecessors.  “How did the government just figure this out?” Justice Gorsuch asked.  While Deputy Solicitor General Malcolm Stewart admitted — to laughter in the courtroom — that the abrupt change was “an atmospherically unhelpful point for us,” he denied that this historical record doomed his case.  “For that 170-year period we were foregoing a source of income that we were entitled to get,” he said.

Defending the policy, Stewart said that collecting attorney fees is “consistent with the overall statutory scheme” whereby the USPTO is supposed to cover aggregate costs, including personnel costs.  He also pointed out that NantKwest’s lawsuit “caused us to incur 30 times the expenses that would ordinarily be the fees for the patent application and examination.”

“It seems fair and appropriate to make the applicant pay,” he said.  Morgan Chu of Irell & Manella LLP, representing the company, disagreed.  “The government is arguing for a radical departure from the American Rule,” Chu said.  “It is arguing that when a private party sues the government for its improper action, then that private party must pay for the government's attorneys, even if the government and its attorneys are flatly wrong.”

Feds Oppose Environmental Groups Fee Request in Fracking Case

September 4, 2019

A recent Law 360 story by Michael Philliis, “Feds Slam Enviros’ Atty Fees Bid in Offshore Permit Case,” reports that the Environmental Defense Center and another group that successfully blocked fracking permits for offshore California are prematurely seeking attorney fees, inflating their billing, and seeking reimbursement for matters on which they lost, the federal government told a California federal court.  Not only did the EDC and Santa Barbara Channelkeeper ask for attorney fees before a slew of complicated issues can be hashed out on appeal, but their request also represented an inflated bid to recover money that should never be the taxpayers' obligation to pay, the government said in a brief opposing the groups' fee request.

The environmental groups' hourly rate was allegedly puffed up; they billed some duplicated hours; they wanted reimbursement on claims that had been dropped or where they had lost; and they asked for costs that weren't allowed, including more than 10,000 pages of copying that the federal government painted as outlandish, according to the brief.  And no, talking to the media isn't something the groups can charge the government for, the response said.

"It makes little sense at this time to invest more of the court's or the parties' time and effort into briefing and deciding whether an award of fees under the [Endangered Species Act] is appropriate and, if so, what the amount of any award should be," the government said, asking the court to stay the fees request.  "The myriad potential outcomes on appeal counsel against the duplication of effort inherent in addressing the issue of fees now."

In November, U.S. District Judge Philip Gutierrez blocked the federal government from approving any offshore fracking permits in the state in a consolidated case brought by environmental groups and California.  He said the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement violated the Endangered Species Act and another law in crafting an environmental assessment of a plan to allow offshore well-stimulation treatments, also known as fracking or acidizing, in the state.  The BOEM and BSEE violated the ESA by failing to consult with other parts of the government, the judge said.

The Ninth Circuit will now hear appeals and cross-appeals in the case.  Any number of decisions in that venue could impact a fee award, and the EDC and Santa Barbara Channelkeeper moved too soon in their request for money, according to the government.  The move "risks putting the court in the awkward position of having to supervise plaintiffs' repayment in the event that federal defendants prevail on appeal," the government's brief said.

The environmental groups asked for $360,263.  The government, while noting that not all the environmental groups had requested attorney fees, said if the court does decide to award fees, it should provide a maximum of $229,814.  While the environmental groups won on their ESA claims, they lost on their National Environmental Policy Act claims and should not be paid for that part of their work.  The government also said that nearly 25 of the hours requested were duplicative and represented hours when multiple attorneys conferred.

The EDC and Santa Barbara Channelkeeper submitted their request in early August.  After winning the case, they argued the ESA provides them an opportunity to collect fees and costs.  "Plaintiffs achieved the requisite degree of success on their ESA claims" to make a fee award appropriate, they argued.  They added that the request was correct and that they had reduced the amount of hours in their request to make sure it was reasonable and did a line-by-line review to ensure that the time billed wasn't inflated.

Margaret Morgan Hall, an attorney for the Environmental Defense Center, called the government's framing of the fee request "overstated and incorrect."  "We are only seeking recovery of reasonable hours spent on the litigation, after taking significant reductions of our time to avoid any potential duplication of hours.  We likewise only seek to recover reasonable costs that we are entitled to under the Endangered Species Act citizen suit provision," Hall said in an email to Law360.

Article: Consider Attorney Fee Litigation When Drafting Business Contracts

September 2, 2019

A recent Daily Business Review article by Noah B. Tennyson, “Consider Potential Litigation Fees, Costs When Drafting Business Contracts,” reports on attorney fee dispute litigation in business contracts in Florida.  This article was posted with permission.  The article reads:

Before you sue someone, it may be prudent to consider potential litigation fees and costs.  This is because, unless your claim arises from a Florida statute or contract that entitles you to recoup attorney fees, each side will bear their own regardless of who prevails.  Thus, you may find that prevailing in court results in the type of victory lamented by Plutarch during the Pyrrhic war: “if we are victorious in one more battle with the Romans, we shall be utterly ruined.”

Ask yourself this question: If I wound up in a lawsuit, would I want there to be a basis for legal fees to be awarded to the prevailing party?  Of course, if you expect to prevail in future lawsuits, then the answer is easy.  But, few truly know what tomorrow brings and simply hoping that your side will prevail in future lawsuits is likely just wishful thinking.  So, to help mitigate the risk of an uncertain future, it may be helpful to consider various legal fee language to insert into some of your business’ most important documents—its contracts.

As a starting place, look at the agreements that you executed with your landlord, vendors, bank, and other parties in order to run your business.  What does the legal fee language say?  Does it provide that any party that prevails in any dispute arising from the contract can recoup its legal fees?  If not, to what extent did your counterpart create an attorney fees clause which favors its side?  Finally, which state laws are to be applied to the contract if there is a lawsuit?

You may have chafed at these terms but signed anyway, perhaps because you saw signing as but one more requirement to get your business up and running.  Whether you signed or not, in your future contract negotiations, consider using legal fee language which may favor your business as opposed to your counterpart’s.  Aside from your own scruples, the limit to how unfair you can be is the reasonable likelihood that a judge will enforce your contract as you intended.

To determine whether a judge will enforce your legal fee language, it can be helpful to look at what Florida courts have decided in the past.  For instance, let’s say your new business is a franchise.  As noted in prior Florida cases, Subway Restaurants (Subway) has written into in its contracts that its franchisee “agrees to pay the cost of collection and reasonable attorney fees on any part of its rental that may be collected by suit or by attorney, after the same is past due.”  In other words, Subway, and only Subway, can recoup its legal fees if they arise from the franchisee failing to pay rent.

This provision appears to be an illicit one-way fee clause which Florida courts have ruled permits either side to seek a fee award, so long as that side prevails in the lawsuit.  Thus, in a dispute between Subway and one of its franchisee Florida stores, the franchisee sought attorney fees from Subway after prevailing in its claim for wrongful eviction.  However, the Florida court ruled that the franchisee’s lawsuit never triggered an entitlement to attorney fees because the legal fee language limited awards to matters involving the collection of rental payments.  Put another way, even if this fee clause were a two-way street, the lanes would still be confined to matters involving the collection of the franchisee’s rent.  Therefore, the franchisee was not entitled to recoup its legal fees even though it won its case.

As seen above, a careful examination of contract language can uncover provisions that might go unnoticed by most, but are duly noted by those seasoned in business disputes.  As another example, contracts made in Florida can be written to have the laws of other states, such as New York or Virginia, be used to resolve disputes.  This might seem innocuous, but the impact can be severe because the treatment of one-way attorney fees clauses varies from state-to-state.

In one Florida case, stockbrokers put into their brokerage agreement that New York law would govern the agreement’s terms.  The agreement also stated that stock purchasers who signed it in order to purchase stock would reimburse the brokers for any debts owed, which included related attorney fees.

When a stock trading error cost a group of purchasers more than $70,000, the purchasers sued the brokers and won damages totaling $81,500.  Yet, the Florida court refused to award the purchasers their attorney fees even though the agreement’s legal fee clause applied to their lawsuit, and even though Florida law requires a two-way street for such fee clauses.

The Florida court’s reasoning was simple: New York law does not require that one-way fee clauses be made into two-way clauses.  Because New York—and not Florida—law applied, the Florida court had no authority to grant a fee award to the stock purchasers.

You should examine proposed contracts with care because established corporations have legal teams crafting contracts which benefit them.  Bear that in mind if you consider signing.  Conversely, when drafting your own contracts, heed your lawyer’s advice.  Otherwise, you, too, may fall victim to unintended consequences.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens.  His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners’ association issues, construction defect litigation and employment issues.