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Seventh Circuit Tosses $11M Attorney Fee Award

May 20, 2022

A recent Law 360 story by Hailey Konnath, “Seventh Circ. Throws Out $11M Fee Award For Bernstein Litowitz” reports that the Seventh Circuit vacated an $11 million fee award for Bernstein Litowitz Berger & Grossmann LLP's work on a $45 million settlement between waste disposal company Stericycle and its shareholders, finding that the district court "did not give sufficient weight" to points raised in a class member's objection.  The three-judge panel said the Illinois federal court overseeing the case should've more seriously considered evidence of related fee agreements, all the work that Bernstein Litowitz inherited from earlier litigation against Stericycle and the early stage at which the settlement was reached.

"The cumulative effect of these issues leads us to conclude that the district court's analysis did not sufficiently 'reflect the market-based approach for determining fee awards that is required by our precedent,'" the Seventh Circuit said.  The panel added, "We vacate the fee award and remand for a fresh determination more in line with what an ex ante agreement would have produced."

Objector Mark Petri appealed a 25% cut that Bernstein Litowitz got from representing investors claiming that Stericycle falsely inflated its financial results through fraudulent pricing.  In particular, Petri argued that the attorney fees were potentially inflated by a pay-to-play scheme and the case never proceeded past the motion-to-dismiss stage.

In the underlying case, lead plaintiffs Public Employees' Retirement System of Mississippi and the Arkansas Teacher Retirement System had pointed to briefing in a study conducted by Nera Economic Consulting.  According to that study, for securities class action cases that settled between 2014 and 2018 in amounts ranging from $25 million to $100 million, the median attorney fee award was 25%, like the share awarded to Bernstein Litowitz.

Bernstein Litowitz asked the court to approve its $11 million fee request in June 2019, and the court gave its blessing in May 2020.  But the Seventh Circuit said that the district court's analysis was incomplete.  Notably, the court didn't address a 2016 retention agreement between the firm and the Mississippi attorney general, under which Bernstein Litowitz was authorized to represent the Mississippi fund and seek a percentage of the recovery achieved for the class as compensation.  That percentage, however, was supposed to be limited to the percentage corresponding to the fund's estimated individual recovery, the panel said.

At oral argument, Bernstein Litowitz had said that the sliding scale structure outlined in that agreement only applies to the amount recovered by the fund itself, not to the total amount recovered by the class.  The Seventh Circuit said that interpretation is "improbable, arbitrary, unreasonable and not consistent with a class representative's fiduciary duty to class members."

Additionally, the district court's assessment of the risk of non-payment also didn't give sufficient weight to prior litigation involving Stericycle, litigation that substantially reduced the risk of non-payment, the panel said.  The court had found that the risk of non-payment was "substantial," but that earlier litigation demonstrating Stericycle's billing practices and other settlements signaled that class counsel was not actually taking on much risk, the Seventh Circuit said.

And on top of that, the court didn't properly consider just how early on in the litigation the case was settled, according to the decision.  At the very least, the district court should've considered whether the preliminary stage of the litigation warranted a reduction in the requested fee, it said.  The Seventh Circuit also remarked that it wasn't convinced the settlement was a good outcome for the class, but that neither Petri nor anyone else was challenging that.

Florida Panel Finds Attorney Fee Error in Irma Coverage Suit

May 19, 2022

A recent Law 360 story by Ben Zigterman, “Fla. Panel Finds Atty Fees Error in Irma Coverage Suit” reports that a Florida state appellate panel reversed a lower court's award of attorney fees to counsel for homeowners suing underwriters at Lloyd's of London for coverage of damage from Hurricane Irma in 2017.  Instead of being paid for more than 550 hours of work to get a $52,000 jury verdict for Roniel Candelaria and Amelia Padura, the three-judge panel agreed with the underwriters that the homeowners' attorney fees should be recalculated based on 480.5 billed hours.

The panel said Judge Martin Zilber should have gone through the time records of the homeowners' counsel line by line, but instead applied an arbitrary 15% cut.  The judge awarded the homeowners' counsel a lodestar amount of $312,000, applying a 1.8 multiplier to that amount and adding other legal costs, for a total award of more than $600,000.

"The lodestar amount is not supported by competent substantial evidence because the trial court did not make 'specific findings' as to its determination," Judge Kevin Emas wrote for the panel.  While the homeowners' expert suggested a 7.5% billing hours cut, the judge instead applied a 15% cut, according to the opinion.

"The insureds' expert did not conduct a line-by-line analysis of the billing," Judge Emas wrote.  "The trial court adopted plaintiff's expert's arbitrary methodology.  Indeed, in the instant case the trial court did not merely adopt the expert's methodology but added its own across-the-board reduction of 15%."  The panel said its previous decisions require "specific findings as to disputed time entries" and "particularized reductions."

"The trial court's comments at the conclusion of the hearing reveal that it had only examined 'several' of the timesheets," instead of making a line-item review, Judge Emas wrote.  The panel also said the trial judge improperly applied the 1.8-contingency multiplier.  The trial judge lacked "competent substantial evidence to address whether the attorney was able to mitigate the risk of nonpayment in any way — specifically, whether the client could afford to pay a retainer or hourly fees," Judge Emas wrote.

Second Circuit: Bankruptcy Court Can Award Attorney Fees

May 18, 2022

A recent Law 360 story by Clarice Silber, “2nd Circ, Rules Bankruptcy Court Can Award Attorney Fees” reports that a Second Circuit panel has overturned a district court's decision and sent a suit filing for Chapter 7 back to bankruptcy court, finding that a bankruptcy judge has the authority to award damages and attorney fees.  The three-judge panel said that because bankruptcy judges have the power to impose contempt sanctions, they also have the jurisdiction to award those other fees.

"Bankruptcy court has the power to impose contempt sanctions, which traditionally includes the authority to award damages and attorneys' fees," U.S. Circuit Judge Richard J. Sullivan wrote for the panel in the ruling.  "This authority carries with it the ability to award appellate attorneys' fees."

The judges vacated the district court's judgment and remanded the case to the bankruptcy court to consider whether appellate fees should be awarded.  The decision stems from a case in which the appellant, the Law Offices of Francis J. O'Reilly Esq., had challenged the U.S. District Court for the Southern District of New York's order affirming a bankruptcy court's denial of the law firm's request for appellate attorney fees from the appellee, Selene Finance LP.

The U.S. Bankruptcy Court for the Southern District had originally denied O'Reilly's request for appellate fees because it decided that it lacked the authority to award them.  Carlos Cuevas, an attorney representing O'Reilly, told Law360, "It's a very important decision for the bankruptcy bar because it has ensured that if a party is in contempt, that an attorney who successfully dissents that contempt order on appeal has the opportunity to be compensated for his or her services."

"And that's especially important if you're representing a debtor, because debtors most of the time lack the resources to fund an appeal, to pay for the printing of an appellate brief, an appendix and the attorney's services that are involved," Cuevas added.  The debtor, Bret DiBattista, filed a Chapter 7 bankruptcy petition in July 2009, and won an order from the bankruptcy court preventing creditors from trying to collect on debts.  Despite this, Selene, the servicer of DiBattista's mortgage, made dozens of phone calls trying to collect on his delinquent mortgage payments, behavior the court called "absolutely egregious."  In 2019, DiBattista filed a motion for contempt sanctions against Selene, which the court granted.

Judge Sullivan wrote that DiBattista, who was represented by O'Reilly in 2019, had racked up appellate fees because of Selene's contempt.  "Indeed the record reflects that the appellate fees were more than $28,000, dwarfing the $17,000 in compensatory damages the bankruptcy court awarded to DiBattista," Judge Sullivan wrote.

Insurer Asks Judge to Reduce Attorney Fees in Coverage Win

May 17, 2022

A recent Law 360 story by Ben Zigterman, “Insurer Asks Judge To Nix Cleveland Bar’s Atty Fee Request” reports that Auto-Owners Insurance Co. told an Ohio federal judge that the attorney for a Cleveland bar should not be awarded $293,000 in fees and expenses it requested after winning a $1.2 million jury verdict over coverage for fire damage.  At most, the insurer argued in the filing, Daniel Shimko should get $91,000 for representing Blues to You Inc., which does business as Wilbert's Food & Music.

In April, a jury ruled in favor of Blues to You on its claims that Auto-Owners breached its contract and acted in bad faith, awarding the bar $1.2 million, including $375,000 in punitive damages.  The bar had accused Auto-Owners of failing to properly investigate and not fully covering its claims for fire, smoke and water damage from a 2019 fire, as well as water damage from a 2020 fire in a unit above the bar.

While the bar said the insurer made a "pitifully low offer" and "dragged its feet," the insurer argued that Blues to You misrepresented the value of its claims by duplicating losses from the first fire in its losses from the second.  After the jury ruled in its favor, the bar asked for more than $271,000 in attorney fees based on 706.2 hours of work at $385 an hour, plus about $21,000 in legal expenses.

"More than a little skill and experience in this field is paramount to successfully represent an insured in such a legal proceeding," the bar wrote earlier this month. "Plaintiff's counsel went beyond proving bad faith.  Plaintiff successfully proved that Auto-Owners acted with ill will in the manner in which it adjusted plaintiff's two claims."  In response, Auto-Owners questioned whether Shimko really spent 700 hours on the suit, noting that its attorneys only spent about 504 hours on it.  "For plaintiff's counsel to allege that he spent 200 more hours is inconceivable and suggests that plaintiff's counsel's stated time is overstated," the insurer wrote.

It also argued that Shimko's proposed hourly rate is excessive for solo practitioners in Ohio and that the jury didn't provide for litigation expenses to be recovered.  The insurer also disputed that any attorney fees should be granted, arguing that the evidence did not back up an award for punitive damages.  "There is absolutely no evidence in the record of conduct on behalf of defendant that can be remotely categorized as being malicious," Auto-Owners wrote.  It also has filed a motion for a new trial, arguing that the jury's verdict "should have shocked the conscience of the court."

Client Drops Attorney Fee Dispute Against Law Firm

May 16, 2022

A recent Law 360 story by Caroline Simson, “Taiwanese Co. Says It Won’t Arbitrate Fisch Sigler Fee Dispute” reports that a Taiwanese manufacturer of smartphone camera lenses is pressing a DC federal court to quash arbitration initiated by intellectual property boutique Fisch Sigler LLP seeking millions in additional fees for its work on a "meandering, inconclusive" and expensive patent lawsuit that settled last year.  Largan Precision Co. Ltd. told the court in the lawsuit filed May 10 that it never gave its informed consent to arbitrate the dispute with Fisch Sigler, which is set to be heard by the DC Bar Attorney/Client Arbitration Board, or the ACAB.

The company noted that while the DC Court of Appeals requires any attorney who is a DC Bar member to submit to arbitration before the ACAB if a client chooses that venue to pursue a fee dispute in matters with some connection to DC, there has never been any such rule for clients.  Largan argued that since it intends to challenge the validity of an arbitration agreement that was "quietly added" to its engagement agreement with the firm near the end of their negotiations, that question should be left to the court.

"[G]overning precedent makes plain that only a court, and not an arbitration panel, can decide the threshold issue of whether a valid agreement to arbitrate exists, unless there is clear and unmistakable evidence that the parties agreed to have that question decided by the arbitrators," the company wrote.  "There is nothing here to suggest that the parties ever discussed, let alone agreed to, the ACAB deciding the specific issue of arbitrability."

Largan alleges in the litigation that the firm has already gotten $4.5 million in "fixed fee" payments.  It's now seeking an additional $5.6 million in success fees — despite the fact that Largan agreed to settle the litigation in Texas due to the outcome of parallel litigation in Taiwan that Fisch Sigler had not worked on, according to the brief.  The underlying dispute for which Largan engaged Fisch Sigler involved another Taiwanese company called Ability Opto-Electronics Technology Co. Ltd., which Largan accused of misappropriating its trade secrets in 2013.

While litigation was ongoing in Taiwan, Largan hired Fisch Sigler to file a patent infringement lawsuit in the U.S. against Ability Opto-Electronics Technology and two other entities in Texas.  Largan alleges that while the lawsuit was ongoing, Fisch Sigler charged a fixed fee despite not doing all the work that was supposed to be included under that fee.  That included depositions and a hearing in mid-2020 that Largan says never took place.

Largan won some $50 million in the Taiwanese litigation in early 2021, and it subsequently approached Fisch Sigler about settling the Texas litigation.  The company claims that the litigation had gone poorly, and that there was no reason to continue with it at that point.  It was then that the firm attempted to collect the success fee "based on the resolution of a litigation in Taiwan in which it had no role — and despite achieving nothing resembling success from the meandering, inconclusive, yet very expensive litigation it had pursued for Largan against [Ability Opto-Electronics Technology] and others in Texas and, later, California," according to the suit.