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Article: Actual and Necessary: A Guide to Keeping Time So You Get Paid

June 6, 2021

A recent ABI Journal article by Brittany B. Falabella and Allison P. Klena, “Actual and Necessary: A Guide to Keeping Time So You Get Paid,” reports on good billing practices in large Chapter 11 bankruptcy.  This article was posted with permission.  The article reads:

Billing time is one of the most dreaded aspects of private practice in any field of law, but not because it is hard or overly time-consuming. The extra step of recording discrete, detailed time entries is much more than an annoyance. For bank­ruptcy practitioners employed under §§ 327, 1103 and 1051 of the Bankruptcy Code and certain credi­tors’ counsel,2 it is a step that cannot be done in a sloppy, haphazard way — at least, if the attorney wants to be paid.

In non-bankruptcy areas of practice, an attorney may have to explain generic, unclear and blocked billing to a client. However, a bankruptcy practi­tioner’s bills are subject not only to this review, but also to that of multiple other parties, including the U.S. Trustee’s Office, debtors, committees, interest-holders and, most importantly, the court, before the practitioner will be awarded compensation under §§ 330 and/or 331. Developing proper billing habits from the start will pay for itself — literally.

Although most new attorneys who enter an established bankruptcy practice will have standard forms for fee applications, taking the time to under­stand the law informing a court’s analysis is the first step in understanding how to effectively and proper­ly keep time for easy approval. The first part of this article discusses the Code sections and cases that likely apply to every fee application. The second part discusses the common pitfalls that can result in a court reducing a fee request, and easy and practi­cal tips to avoid them. By making proper billing a habit rather than a dreaded task, the foundation will be laid to get paid in full.

The Laws of Getting Paid: Section 330 of the Bankruptcy Code

Under § 330, after notice and a hearing an attor­ney may be awarded (1) “reasonable compensa­tion for actual, necessary services rendered” and (2) “reimbursement for actual, necessary expens­es.”4 On the court’s own motion or that of any party-in-interest, a court can, however, reduce the com­pensation requested.5 In making the determination of whether and how much to reduce a request, the court is directed to

consider the nature, the extent, and the value of such services, taking into account all rel­evant factors, including —

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were neces­sary to the administration of, or ben­eficial at the time at which the service was rendered toward the completion of, a case under this title;

(D) whether the services were per­formed within a reasonable amount of time commensurate with the com­plexity, importance, and nature of the problem, issue, or task addressed;

(E) with respect to a professional per­son, whether the person is board cer­tified or otherwise has demonstrated the skill and experience in the bank­ruptcy field; and

(F) whether the compensation is rea­sonable based on the customary com­pensation charged by comparably skilled practitioners in cases other than cases under this title.6

In addition, the court “shall not allow compensation for — (i) unnecessary duplication of services; or (ii) services that were not (I) reasonably likely to benefit the debtor’s estate, or (II) necessary to the administration of the case.”

The Lodestar Method

The lodestar method is a court’s starting point for deter­mining whether fees billed were reasonable. The “lodestar” equals a reasonable amount of time for the matter multiplied by a reasonable hourly rate.8 Reasonable time is the time that the court believes a billing attorney should have spent on the matter. Then, a “reasonable hourly rate” is calculated with reference to a billing attorney’s experience and skill, as well as prevailing rates in the community for similar services provided by reasonably comparable attorneys. The sum (i.e., the lodestar) may then be adjusted to account for the specific demands of the case, often with reference to some or all of the 12 Johnson factors.

The Johnson Factors

The Johnson factors are derived from the Fifth Circuit’s decision in Johnson v. Georgia Highway Express Inc.,9 and consist of the following: (1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skill required to properly perform the legal services rendered; (4) the attorney’s opportunity costs in pressing the instant litigation; (5) the customary fee for like work; (6) the attor­ney’s expectations at the outset of the litigation; (7) the time limitations imposed by the client or circumstances; (8) the amount in controversy and the results obtained; (9) the expe­rience, reputation and ability of the attorney; (10) the unde­sirability of the case within the legal community in which the suit arose; (11) the nature and length of the professional relationship between attorney and client; and (12) attorneys’ fee awards in similar cases.

However, courts have not taken a uniform approach to the Johnson factors. Some courts view the factors as already subsumed into the lodestar method,10 while others apply the lodestar method and then look to the Johnson factors to decide whether the lodestar amount should be modified.11 Still other courts consider the Johnson factors in conjunction with calculation of the lodestar.12 Although these distinctions may matter in some cases, the one- and two-step processes will often generate essentially similar results, especially given that enhancement of the lodestar is a rare occurrence.

Biggest Pitfalls and Strategies to Avoid Them

Even with an understanding of the law, unless time records are maintained in anticipation of bankruptcy court review, a practitioner will often fall into some of the pitfalls discussed below. In many cases, a simple fix can nip errors in the bud. This avoids the headache of reviewing and editing voluminous invoices at the end of a fee-application period or the end of a case, and, most importantly, permitting the court to allow fees in full and without objection.

Not Enough Detail/Excessive Billing

Vague time entries are virtually always a problem. A gen­eral, shorthand description might be easy to understand for the time-keeper doing the work and making a contemporane­ous record (it goes without saying to always keep contem­poraneous time). However, the court and other parties who analyze vague, generic time entries do not have the benefit of the billing attorney’s on-the-spot thoughts.

Time entries should be drafted with an eye toward explaining and justifying why the work was “reasonable and necessary,” and how it benefited the estate or a constituent. Entries such as “reviewed emails” are certainly insufficient, but even additional details, such as “conference with X con­cerning research and strategy” or “conference with X con­cerning pending matter related to debtor” might not provide enough detail for a court to determine whether the time was justified.14 Vague entries can cause the court to spend time attempting to decipher the context, conduct an evidentiary hearing,15 or simply deny the compensation.

While courts frequently complain that counsel have engaged in excessive billing, the heart of the issue is fre­quently that the court does not understand how the amount of time billed was “reasonable and necessary.” In other words, the billing entry was not specific or detailed enough to explain to the court that the full amount of time delegated to a task benefited the estate or was necessary to the admin­istration of the case. This issue is often remedied if detailed descriptions are crafted with an eye toward the benefit to the case as previously explained.

Vague and ambiguous entries are a common and costly mistake. No attorney, particularly a new associate, wants their entries to be the reason that the firm’s fee application is reduced or its approval delayed. Taking the time to carefully prepare time entries is essential, not optional.

Tip: Have an attorney or professional assistant who is not working on the case review the time entries. If that person cannot understand the value of the time billed or the task that was completed, more detail should be included until it becomes clear. If it becomes necessary to bill significant time to certain tasks, make sure the explanation is particularly thorough to explain the circumstances.

Block-Billing

Similar to time entries that are insufficiently detailed, time entries that are block-billed — multiple tasks com­bined in a one-time entry — do not establish for the review­er (1) how much time was spent on a particular task, or (2) whether the time spent on each task was reasonable. For example, if an attorney records 3.0 hours total for “review of a motion for approval of DIP financing; telephone call with debtor’s counsel concerning alternative financing sought; and email to client regarding financing options for debtor’s continued operation under chapter 11 and recommendation not to object to the filed DIP financing motion,” the court has no idea whether the review of the motion took 0.6 hours (presumably reasonable) or 2.7 hours (perhaps unreason­able absent additional undescribed factors). According to the U.S. Trustee’s guidelines, while block-billing is gener­ally not allowed, a single daily entry that combines de mini­mus tasks can be combined, provided that the entry does not exceed 0.5 hours.16

A consequence of block-billing is that the court may conclude that it lacks the information to trim excessive time from a particular task among those blocked, and may choose to reduce the total time billed by a discretionary percentage.17 The goal is to establish that your work was reasonable and necessary. Do not give a court an “excuse” to question the reasonableness of your time by block-billing.

Tip: Break up time entries so that each task corresponds to the amount of time spent on that task — even if the amount of time is modest. Making use of time-tracking software or timers and developing good habits can be quite helpful in mastering detailed task-billing.

Not Delegating to Proper Staff/Duplicative Billing

Whether certain tasks are properly completed by senior-level attorneys, lower-level attorneys or support staff is largely out of the control of an associate. Nevertheless, there will be times when tasks that would be more suitable for a junior-lev­el attorney must be completed by a senior attorney, or where an attorney may need to complete a task that would ordinar­ily be delegated to a staff person. Similarly, there are times when multiple attorneys must participate in the same hearing or conference, which reviewing courts often view skeptically.

In such situations, courts are more inclined to allow the “double billing” if the exigent circumstances are explained in the entry and such staffing situations are kept to a mini­mum.18 When matters are not explained or apparent from the time description, the court is left to question how the time and/or rates are reasonable and necessary.

Tip: While a junior associate might not have much con­trol over the delegation of tasks, associates typically draft the fee applications, so they should keep this issue in mind when reviewing bills and flag any issues with a supervising attorney prior to filing. A good-faith reduction for certain tasks might go a long way with the court and other parties-in-interest. At a minimum, make sure your own time is not subject to objection or reduction. If you find yourself bill­ing time to routine tasks, be sure the circumstances are fully explained in the entry.

Conclusion

Given the consequences of failing to record time properly, it is well worth the time to develop the habit ofrecording specific time entries that are separated by each task performed and that indicate that how the time spent was both reasonable and necessary. With such a “reason­able and necessary” standard as a guide, a professional can ensure that the court and other interested parties under­stand the value being added to the case and that the fees requested are fully warranted.

Article: What Attorneys Should Know About Fee Deferral

June 5, 2021

A recent Law 360 article by John Bair, “What Attorneys Should Know About Fee Deferral,” reports on attorney fee deferrals.  This article was posted with permission.  The article reads:

With current high-profile lawsuits like those involving product liability claims stemming from the use of Johnson & Johnson talc powder and 3M Co. earplugs, any dollar amounts plaintiffs are ultimately awarded in settlement will be widely publicized and discussed. And rightfully so — monetary verdicts or settlements are a major win for those affected by any defective products.

Lawyers, however, will likely also have another dollar amount on their minds: attorney fees.

It's common knowledge that for every corporate defendant brought to justice, the plaintiff trial lawyers who went up against them have earned themselves a payday in the form of attorney fees.

But what may not be such common knowledge is the fact that the IRS has afforded contingency fee attorneys the ability to make their fees work for them with attorney fee structures. And even if you've heard of this strategy before, read on, because the fee-structuring landscape is ever-changing.

What is an attorney fee structure?

An attorney fee structure is an investment strategy that allows contingency fee attorneys to decide how and when they receive their fees.

By implementing a pre-planned schedule of periodic payments, attorneys can elect to defer all or a portion of their fees, which are not taxed until receipt. Attorneys can defer an unlimited amount or portion of fees into an attorney fee structure, affording them tax advantages and income control.

For the purposes of this article, attorney fee structure, fee deferral and all variations of the like are synonymous.

Traditionally, attorney fee structures have been executed in the form of fixed indexed, traditional and/or secondary market annuities.

While these are still viable and stable options for fee structures, new options have been gaining popularity in recent years, including investment-backed structures, permanent whole life insurance and even private wealth portfolios. Each option touts unique benefits based on an attorney's personal goals.

Attorney fee structures are made possible for all contingency fee attorneys in the U.S. due to a series of court rulings in the 1990s, including the 1996 ruling in Childs v. Commissioner of Internal Revenue from the U.S. Court of Appeals for the Eleventh Circuit.

Their feasibility is based around the concept of constructive receipt — until an attorney physically receives her fees, they are not taxable as income.

In order to structure her fees, an attorney must ensure that the terms of settlement include the creation of a periodic payment obligation for some or all of the attorney's contingency fee, as well as direction for the fee to be paid into a previously established qualified settlement fund, or QSF.

As long as the money is initially directed to this fund, the attorney can plot out how and when she'd like to receive her income in the years to come.

Once the funds are issued directly into the QSF, the fee is considered deferred. And while it sits in the QSF waiting to be distributed, it can be invested and can grow tax-free.

Why should attorneys consider fee deferral?

There are countless benefits to structuring your attorney fees.

First, as mentioned above, it allows for unlimited tax deferral and, ultimately, the ability to pay less taxes. Until the money is physically received in the attorney's bank account, she is not taxed on that income. Structuring out a given fee into a years-long payment plan enables the attorney to stay in her existing tax bracket every year and never be taxed on the gross lump sum.

Another benefit is access to professional or self-directed investment management. As the money sits in the QSF awaiting distribution, attorneys can designate a financial adviser to manage and invest the funds into a diversified portfolio made up of equity-backed assets — think Apple Inc. or Google Inc. stock, the S&P 500, etc.

A final benefit of structuring attorney fees is the prioritization of security over assets. Note that the nuances of this benefit may vary based on the protections your financial adviser puts in place. Some things to look out for include the ability to cancel or void your agreement should you ever need to, as well as protections in the case of a debt event.

Are there instances where an attorney fee structure is not advisable?

Let's start with the caveat that it is always prudent to consult with your financial adviser when exploring a new wealth management strategy. Only they — and you — know your complete financial picture and are able to make recommendations and decisions accordingly.

Next, it's important to note that fee deferral is best suited for attorneys with excess income. If you need your fees now or in the immediate future to pay off bills or pay down debts, a fee deferral or structure likely isn't for you at this time.

Structuring your fees means exchanging liquidity for tax deferral, a unique option that all attorneys should know about, but only those who are financially established can truly take advantage of it.

Finally, if you are receiving a fee that is on the smaller side and would not catapult you into a higher tax bracket for the year, it may make sense to take the lump sum instead of deferring and structuring. Remember, this is a wealth and tax management strategy and should be utilized as such.

What do you need to know when exploring attorney fee structures for yourself?

If you are receiving a larger fee, the questions you're asking should be more about what type of attorney fee structure would best help you meet your goals. It's important to identify your personal and professional aspirations and use that information to inform your decision-making.

Here are some points to consider when determining which fee structure option would best suit you:

If you have a specific financial adviser you've used for years and love, consider a fee deferral in the form of a private wealth portfolio. With this option, you can retain your long-term financial planner and engage an administrator willing to work in professional collaboration.

Permanent whole life insurance could be your best deferral option if you're financially established and want to begin setting aside wealth for your children and grandchildren. You can incorporate your estate plan and reap the benefits of permanent whole life insurance's dividend-paying histories.

If you're a conservative investor with the luxury of time, consider fixed indexed, traditional or secondary market annuities as your strategy. This approach relies on advantages inherent in the marketplace, making it both a low-risk and low-maintenance wealth planning option.

In conclusion, proper implementation of attorney fee structures can help firms and their attorneys achieve long-term financial freedom, security and success. Often, the greatest barrier to adoption is lack of knowledge that this option exists.

John Bair is the founder and CEO of Milestone Consulting LLC.

Fifth Circuit: FDCPA Plaintiff Not Entitled to Attorney Fees Post-Settlement

April 22, 2021

A recent article by Christopher P. Hahn, “Fifth Cir. Holds FDCPA Plaintiff Not Entitled to Attorney’s Fees Following Settlement,” reports on a recent case involving the federal Fair Debt Collection Practices Act (FDCPA) and attorney fee awards.  This article was posted with permission.  The article reads:

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a trial court’s denial of an award of attorney’s fees to a debtor who settled his claims against a debt collector for purported violations of the federal Fair Debt Collection Practices Act and parallel state law consumer protection statutes.

In so ruling, the Fifth Circuit concluded that the fee-shifting provision under the FDCPA for a “successful action to enforce the foregoing liability” requires that a lawsuit generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA, 15 U.S.C. 1692, et seq., and that reaching settlement before any such end result does not entitle a plaintiff to an award of attorney’s fees under the statute.

A consumer sued a debt collector for purported violations of the FDCPA and parallel provisions of Texas state law.  After the parties’ cross-motions for summary judgment were denied on the basis that triable issues of fact existed, the parties reached a settlement before trial wherein the debt collector agreed to waive the outstanding debt (approximately $2,100) and pay $1,000 damages. 

After apprising the trial court of the settlement, the court entered sanctions against the debtor’s attorneys, ordering thousands of dollars in costs and fees and reporting them to the disciplinary committee of the U.S. District Court for the Western District of Texas for purportedly bringing the case in bad faith.  See Tejero v. Portfolio Recovery Assocs., L.L.C., 955 F.3d 453, 457. 

The debtor appealed, and the Fifth Circuit reversed the imposition of sanctions for abuse of discretion and remanded for the trial court to determine in the first instance whether the debtor’s favorable settlement entitled him to attorney’s fees under the FDCPA.  Id. at 462-463.  The district court said no, which led to the instant appeal.  In this appeal, the sole question before the Fifth Circuit was whether the trial court erred in refusing the debtor’s fee application under the FDCPA.

The United States generally employ the “American Rule” wherein “[e]ach litigant pays his own attorney’s fees, win or lose,” but this general rule can be altered or amended by statute or contract. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010).  As you may recall, the FDCPA authorizes fee shifting, allowing a plaintiff to recover reasonable attorney’s fees as determined by the court with costs “in the case of any successful action to enforce the foregoing liability.”  15 U.S.C. § 1692k(a)(3).

To determine whether such an award was merited here, the Fifth Circuit first turned to the dictionary definition of “successful” — a “favorable outcome,” or favorable end result.  Successful, American Heritage Dictionary 1740 (5th ed. 2011); Outcome, Id. at 1251.  “Successful” modifies the word “action” in the statutory language—the “lawsuit” in this case—thus requiring a favorable end or result from a lawsuit, not merely success in vacuo.  Next considering the infinitive phrase “to enforce the foregoing liability,” “enforce” expresses the purpose of the “successful action,” and thus, the action must succeed in its purpose of enforcing FDCPA liability. 

Read together, the Fifth Circuit stated that a “successful action to enforce the foregoing liability” means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA.  Here, the appellate court determined that because settlement was reached before the lawsuit reached any end result, let alone a favorable one, the debtor won no such relief, and the debt collector avoided a formal legal command or decree from the lawsuit. 

The debtor argued that his “action” was “successful” because he settled for $1,000, which are the statutory damages allowed by the FDCPA.  The Fifth Circuit rejected this alternative interpretation because it was resolved by settlement agreement that did not “enforce” FDCPA “liability” because it did not compel the debt collector to do anything.  Adopting such a position would improperly rewrite Congress’s statute to authorize fee-shifting “in the case of any successful plaintiff.”

The Fifth Circuit also declined to apply the catalyst theory to the FDCPA’s fee-shifting provision, as a “successful action” under 15 U.S.C. § 1692k(a)(3) notwithstanding its inapplicability to “prevailing party” statutes.  As you may recall, the catalyst theory posits that a plaintiff succeeds “if it achieves the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct” (Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Hum. Res., 532 U.S. 598, 601 (2001)). 

The Fifth Circuit declined to adopt that interpretation here because “prevailing party” and “successful party” are synonymous phrases carrying similar legal salience, requiring a formal lawsuit, success in that lawsuit, and some form of judicial relief (as opposed to private relief) that enforces the winner’s rights (Prevailing Party, Black’s Law Dictionary 1232), and such an interpretation would also disrupt recent circuit precedent and the Supreme Court’s mandate that fee-shifting statutes must be interpreted consistently.  Buckhannon, 532 U.S. at 603.

Because the debtor’s lawsuit was not a successful FDCPA action as defined by section 1692k(a)(3), the Fifth Circuit held that the trial court correctly determined that he was not entitled to fees, and its denial of attorney’s fees was affirmed.

Article: When Are Outside Fee Experts Required to Prove Attorney Fees?

April 21, 2021

A recent Daily Business Review article by Jonathan Mann, "Appellate Brief: When Expert Testimony is Required to Obtain an Award of Attorney Fees," reports on whether a party seeking an award of attorney fees needs an expert witness to testify in support of the reasonableness of fees requested in Florida.  This article was posted with permission.  The article reads:

Whether a party seeking an award of attorney fees needs an expert witness to testify in support of the reasonableness of the fees requested has been the subject of much discussion and many written legal opinions in Florida.  The answer depends on the type of case, against whom fees are being sought, and in what area of the state the case is proceeding.

The general rule is that a party seeking an award of attorney fees from the other party to litigation must introduce the testimony of an expert witness in support of the request.  Family law proceedings under Chapter 61 are a notable exception, as the statute expressly provides that expert testimony of a fee witness is unnecessary to seek an award of attorney’s fees from the other side in proceedings under that chapter.  The general rule requiring expert testimony appears to hold true when seeking fees in the same proceeding pursuant to a charging lien.  See, Roshkind v. Machiela, 45 So.3d 480 (Fla. 4th DCA 2010).  But things are more uncertain when an attorney seeks unpaid attorney fees from the attorney’s own client or former client.

The Fourth DCA held in Valentin Rodriguez v. Altomare, 261 So. 3d 590 (Fla. 4th DCA 2018) that expert fee witness testimony was unnecessary in a separate breach of contract suit by an attorney against his former client.  The attorney sued his former client for unpaid legal fees under a flat fee contract in a criminal case.  Notably, the case involved a flat fee arrangement.  The former client did not dispute the amount of the fee, and had even acknowledged the debt by executing a promissory note for the unpaid balance.

The Fourth DCA recently reaffirmed and clarified its position on the issue of the necessity of expert fee witness testimony in separate breach of contract actions in Ramblewood East Condominium Association v. Kaye Bender Rembaum, 294 So. 3d 923 (Fla. 4th DCA 2020).  Robin Bresky assisted in presenting oral argument for the appellee before the Fourth DCA in the Ramblewood appeal, and the appellee successfully defended the award of attorney fees.  In that case, the Fourth DCA relied upon Rodriguez in affirming an award of attorney fees for a law firm that filed a separate breach of contract action to collect unpaid attorney fees even though the firm did not present expert testimony as to the reasonableness of fees.  The fee agreement at issue in Ramblewood was not a flat fee like the one in Rodriguez.

The Third DCA also recently followed Rodriguez in Law Offices of Granoff & Kessler v. Glass, 305 So. 3d 345 (Fla. 3d DCA 2020). In Granoff, a law firm sued its former client for unpaid attorney fees incurred in a dissolution of marriage proceeding by bringing a separate breach of contract claim against the former client under the attorney-client fee agreement.  The Third DCA held that expert fee witness testimony is not necessary when an attorney files a separate breach of contract suit as long as the attorney testifies regarding the fees and submits the billing invoices into evidence.  The court noted that in such a case, the fees are sought from a former client who agreed to pay them rather than an adverse party who did not.

In so ruling, the Third DCA certified conflict with Snow v. Harlan Bakeries, 932 So. 2d 411 (Fla. 2d DCA 2006) and the case went to the Florida Supreme Court.  The Granoff & Kessler case was fully briefed and awaiting disposition in the Florida Supreme Court until March 26.  However, on that date the Supreme Court entered an order determining that it should decline to exercise jurisdiction.

As a result, the apparent split that currently exists among Florida DCAs on the issue of whether an attorney pursuing fees from a former client in a separate proceeding must introduce the testimony of an expert fee witness remains.  Thus, whether a party seeking attorney fees requires diligent attention to the facts and circumstances of the particular situation.  For now, it appears that expert fee witness testimony is unnecessary to pursue attorney fees in a separate action in the circuit courts within the Third and Fourth Districts, whereas the opposite is true in the Second and Fifth Districts.  The answer is unclear in the First District, but the cautious practitioner would always be wise to introduce such testimony in support of the request for attorney fees to avoid any possibility of a challenge on such grounds on appeal.

Jonathan Mann is a senior associate at Bresky Law.  Prior to joining the firm, Mann worked as a judicial staff attorney to Judge George A. Shahood at Florida’s Fourth District Court of Appeal.  In this role, Mann managed civil and criminal appeals and gained extensive experience in the appellate process and procedural rules.

Sixth Circuit: No Authority to Award Attorney Fees Post-Arbitration

April 15, 2021

A recent article by Brendan Gooley, “Sixth Circuit Concludes District Court Lacked Authority to Award Attorney Fees’ Following Arbitration,” reports that the Sixth Circuit recently reversed a district court’s decision to award attorneys’ fees after the Circuit concluded that the claim on which the fees were awarded was subject to mandatory arbitration, and noted that the arbitrator had not awarded any fees for that claim.  This article was posted with permission.  The article reads:

Members of the UAW union sued TRW Automotive U.S. LLC for breach of contract and violations of ERISA claiming that TRW violated a collective bargaining agreement (CBA) when it changed their health care coverage.  The district court compelled arbitration pursuant to a clause in the CBA that provided in relevant part that arbitration “shall be the exclusive remedy for the enforcement by [the union] of any claim against the Company.”  The arbitrator ruled in favor of the union workers.

The district court then granted in part a motion the union filed seeking statutory attorneys’ fees for their ERISA vesting claim, a claim that the district court found was not before the arbitrator and was instead before the court.  Specifically, the court “declined to award any ERISA attorney’s fees and costs incurred through the date of the arbitration award because ‘the ERISA claim was not addressed prior to or at arbitration’” but “granted [the union workers’] request for attorney’s fees and costs related to their ERISA claim incurred after the arbitration award.”

The Sixth Circuit reversed.  In short, the Court concluded that the district court “lacked the authority” to award fees or otherwise make rulings on the union workers’ ERISA vesting claim “because the ERISA vesting claim and ERISA attorney’s fee claim . . . were both subject to mandatory arbitration under the CBA, allowing only limited court review for issues of legality or enforcement.”  The Court explained:  “Once the arbitrator finds a merits violation, the parties are responsible for raising any remedy issues in their remedy demands during arbitration. . . .  The parties do not have to return to the district court once a merits violation is found just to seek permission to present ‘ripe’ remedy issues to the arbitrator.  Plaintiffs’ position, presented without any supporting legal authority, would lead to an untenable result where the arbitrator performs fact-finding but the district court issues the remedy.  Not only would this contradict the CBA’s declaration that arbitration is the exclusive remedy for any dispute, but it would also defeat the purpose of arbitration if the parties still have to litigate remedy issues in federal court.”