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Article: Courts Are Right to Reject Insurer ERISA Attorney Fee Awards

May 9, 2022

A recent Law 360 article by Elizabeth Hopkins, “Courts Are Right To Reject Insurer ERISA Atty Fee Award” reports on ERISA attorney fee awards.  This article was posted with permission.  The article reads:

As the U.S. Supreme Court has often recognized, the Employee Retirement Income Security Act is remedial legislation that is primarily intended to protect plan participants and beneficiaries, promote their interests and ensure that they receive the benefits they are promised.  According to the U.S. Court of Appeals for the Ninth Circuit's 1984 ruling in Smith v. CMTA-IAM Pension Trust: "An important aspect of that protection is to afford [plan participants and beneficiaries] effective access to federal courts."

And one of the ways that this access is promoted is through ERISA's fee-shifting provision, which grants courts in actions brought by plan participants and beneficiaries the discretionary authority to allow a reasonable attorney fee and cost of action to either party.  Despite these protective statutory goals, individual ERISA claimants face uphill battles in attempting to reverse adverse benefit determinations.  They are not entitled to anything like a full trial in federal court, but are instead normally stuck with a trial on the record that was assembled by the decision-making fiduciary, who is in many instances entitled to great deference.

And the only recovery they can hope to achieve if they are successful is full payment of the benefits that they were always entitled to and perhaps some interest on this amount.  Given all these hurdles and limitations to recovery, it shouldn't come as a surprise that it is not always easy for ERISA plaintiffs to obtain counsel, especially when there is only a small amount of benefits at stake.

For this reason, as the Ninth Circuit explained in Smith, "without counsel fees the grant of federal jurisdiction is but a gesture for few [plaintiffs] could avail themselves of it."  Plan participants and beneficiaries who successfully challenge benefit denials or bring successful fiduciary breach suits against plan fiduciaries do invariably seek and almost always are awarded some attorney fees under this provision.

The Supreme Court made clear in 2010 in Hardt v. Reliance Standard Life Insurance Co., that participants need not even be prevailing parties in an ERISA action to qualify for fees, so long as they have had "some degree of success on the merits."  Once the success threshold has been met, to determine whether a discretionary award of fees is warranted, courts apply a five-factor test first developed in 1993 by the U.S. Court of Appeals for the Fourth Circuit in Quesinberry v. Life Insurance Co. of North America — factors that clearly and intentionally favor successful plaintiffs.

But a potent new threat to the ability of plan participants and beneficiaries to bring suit is looming.  Increasingly, insurance companies are seeking attorney fee awards against claimants who are partially or wholly unsuccessful in overcoming deference and other substantive and procedural advantages to the plan decision makers, and are thus unable to have a denial of benefits reversed.

For the most part, courts continue to reject attorney fee applications from insurance companies that successfully defeat lawsuits seeking plan benefits.  A November 2021 decision in Martin v. Guardian Life Insurance Co. of America from the U.S. District Court for the Eastern District of Kentucky is instructive of both the heavy-handed tactics of insurance companies seeking fees from claimants and one court's reaction.  In Martin, the insurance company that insured disability benefits sought nearly $138,000 against the claimant, the father of a minor child whose only income was roughly $756 a month in veterans benefits and who had only $1,500 in his bank account.

The court seemed especially put off by Guardian's argument that Martin declined to participate in an independent medical examination and that this indicated bad faith, finding, to the contrary, that his attested reasoning for hesitation about the examination was a concern with going to an unknown medical facility during the COVID-19 pandemic.  And the court noted that granting Guardian's motion for attorney fees "would tend to create a chilling effect on other plaintiffs seeking redress under ERISA."

Other courts have expressed similar concerns in denying fee applications asserted by insurance companies against disability plaintiffs.  For instance, in December 2021, the U.S. District Court for the Western District of Washington in Amoroso v. Sun Life Assurance Co. of Canada, declined to order the plaintiff to pay $66,000 in attorney fees to the insurance company simply because it "completely prevailed on the merits."

Noting that application of the five factors that courts apply in determining whether fees are warranted very frequently suggests that attorney fees should not be charged against ERISA plaintiffs, the court concluded that was certainly true with respect to Sun Life's application for fees in that case.  With respect to the first factor, the Amoroso court concluded that there was nothing approaching bad faith in the record.  The court found the second factor weighed strongly against a fee award because Sun Life did not show that Amoroso had sufficient assets to pay an award, and the facts that his home was valued at over $1 million and that he had a medical practice was simply irrelevant with respect to his ability to pay.

Addressing Sun Life's most revealing argument — that the third factor weighed in its favor because awarding fees would deter other participants from brining unsuccessful benefit suits — the court disagreed, reasoning that deterring disabled plan participants from suing for plan benefits was flatly inconsistent with ERISA's policy and with ERISA's fee-shifting provision.

Likewise, the court rejected out of hand Sun Life's argument that awarding fees would benefit all other participants and beneficiaries of the plan by saving the insurance company money and perhaps leading to lower premiums.  The court found instead that such an award "would deter insureds from seeking such benefits at all, and it would only embolden insurers in denying claims at the administrative level."

Considering the relative merits of the parties' positions — the final factor — the court declined to "force a losing ERISA plaintiff to pay an insurer's attorneys' fees based solely on the fact that he lost," reasoning that to do so "would not be consistent with ERISA, the better-reasoned cases decided under it, equity, or common sense."

In the court's view, such a fee award in favor of an insurer would only be justified in unusual circumstances not presented by Amoroso's case.  Numerous other recent decisions have had no trouble denying insurers' requests for attorney fee awards against unsuccessful benefit claimants.

At this point, it appears that the recent and sharp uptick in fee applications from insurance companies seeking fees against plan participants and beneficiaries who are unsuccessful in reversing a denial of benefits is meeting with little or no success in the courts.

Application of the Quesinberry test, along with a healthy reluctance to punish disabled, sick or retired plan participants for seeking to obtain plan benefits, has quite correctly led courts in all but the most unusual circumstances to reject these fee applications.  Let's hope these kinds of decisions discourage insurance companies from engaging in this unfair tactic.

Elizabeth Hopkins is a partner at Kantor & Kantor LLP in Northridge, CA.

Article: Do We Really Need An Attorney Fee Expert?

April 18, 2022

A recent article by William F. Cobb, “Do We Really Need An Attorney Fee Expert?” discusses the need to hire an attorney fee expert.  This article was posted with permission.  The article reads:

In 2002, the Fourth District Court of Appeal issued a decision in Island Hoppers Ltd. v. Keith 820 So. 2d 967 (Fla. 4th DCA 2002) discussing whether or not expert testimony should be required to support an award of attorney’s fees to a prevailing party.  The decision questioned the necessity and wisdom of the longstanding judicially-created requirement.

Justice Polen, who authored the opinion in Island Hoppers, recognized that an award of attorneys’ fees must be supported by competent substantial evidence and Florida courts have required testimony by the attorney performing the services, together with testimony by an expert fees witness as to the time and value of those services.  The expert in that case spent a scant three hours in preparation of his opinion in this wrongful death case and is accused of lacking a sufficient factual predicate to form an opinion.  Although Justice Polen and the court allowed the testimony, claiming the testimony went to the weight of the evidence and not its admissibility, the opinion questions whether the longstanding rule requiring the corroborative testimony of an expert fees witness is always the best or most judicious practice. 

The opinion recognizes that expert witnesses are presented to assist with guidance to the trier of fact and fails to see what “guidance” if any a fees expert provides to judges who see various levels of skill and experience in the courtroom on a regular basis.  The opinion does recognize the expert may provide some assistance to the court in terms of a multiplier determination in the market, but distinguished the more fundamental issues of determining appropriate hours expended and rates charged and states the trial judge has greater insight and understanding regarding what is reasonable.   The Island Hoppers decision prompted a Florida Bar Journal article, authored by Robert J. Hauser, Raymond E. Kramer III and Patricia A. Leonard, of Beasley & Hauser, P.A., in January 2003 regarding the same topic, (Vol. 77, No. 1, page 38) essentially agreeing the requirement should be revisited and perhaps eliminated.  In virtually every case decided by the Florida Supreme Court, both before and subsequent to the Island Hoppers decision, the Court has found, or at least commented upon, the requirement for an expert to testify regarding the reasonableness of the time and amount of attorney’s fees being sought, together with a multiplier determination in the relevant market area, especially where there was a fee-shifting provision involved. 

In Roshkind v. Machiela, decided in 2010, the Fourth District Court of appeal again addressed the long-standing requirement of independent expert witness testimony to support a claim for attorney’s fees.  The Court recognized generally “where a party seeks to have the opposing party in a lawsuit pay for attorney’s fees incurred . . . independent expert testimony is required” and “case law throughout this state has adhered to the requirement of an independent expert witness to establish the reasonableness of fees, regardless of whether a first or third party is responsible for payment.”  Although the opinion recognizes Island Hoppers and the previously questioned judicially-created requirement of independent expert testimony to establish the reasonableness of attorney’s fees, it ruled the judicially-created requirement “remains etched in our case law.”  The Fourth District certified a question to the Florida Supreme Court regarding whether or not an expert witness is required to testify to establish attorney’s fees, seeking a final determination of the issue.  The Florida Supreme Court initially accepted jurisdiction but later issued an opinion “upon further consideration, we have determined to deny review and discharge jurisdiction” thereby denying a review and ruling on the issue.

In 2007, In re Amendments to Florida Rules of Civil Procedure, The Florida Bar Civil Procedure Rules Committee recommended adding Rule 1.526 to The Florida Rules of Civil Procedure.  The proposed rule was entitled “Expert Opinion Testimony on Costs and Attorneys’ Fees” and included “[e]xpert opinion is not required to support or oppose a claim or an award of costs, attorneys’ fees, or both, unless by prior order of the court.”  Essentially, the proposed rule would leave it to the trial judge to determine whether or not he or she would require “guidance” in the form of an expert’s opinion regarding the determination of attorneys’ fees.  In rejecting the proposed rule, the Florida Supreme Court opined “that the issue of whether expert opinion testimony is required in this context is not one that is appropriately addressed in a rule of procedure” and declined to adopt the proposed rule.

From a review of the foregoing, although at least one District Court of Appeal has questioned the judicially-created requirement for and independent attorneys’ fee expert to testify in a fee determination hearing, it is clear the Florida Supreme Court consistently has supported and recognized the longstanding requirement and has further refused to adopt a rule of procedure that would allow the trial court to determine the need for expert testimony.  In order to support an award of attorney’s fees, the attorney for the party seeking the fees, whether first or third party obligation for payment is present, is required to retain the services of an expert to offer testimony regarding the reasonableness of the hours expended and amount being sought in recovery in order to prevail.

William F. Cobb is a Partner at Cobb Gonzalez in Jacksonville, FL.

Article: The Holder Rule and Attorneys’ Fees

February 24, 2022

A recent article by Alan D. Wingfield, David Anthony, Timothy St. George, Ethan Ostroff, Scott Kelly, and Sarah Siu of Troutman Pepper LLP, “The Holder Rule and Attorneys’ Fees: The FTC Speaks” reports on attorney fees and the FTC’s Holder Rule.  This article was posted with permission.  The article reads:

On January 20, the Federal Trade Commission (FTC) issued an advisory opinion on the impact of the Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses (Holder Rule) on the recovery of attorneys’ fees and costs above the amount paid on a consumer receivable arising out of a financed sale of goods or services.  Siding with consumers and rejecting the reading put forward by loan holders, the FTC declared that the Holder Rule does not prevent a plaintiff from recovering attorneys’ fees and costs against a “loan holder” where another state, local, or federal law permits the recovery.

The Holder Rule is a regulation issued by the FTC that allows consumers to bring any legal claims against the “holder” of a retail installment sales contract or other credit contract that it could assert against the original seller of the good or service, even if the claim springs from the seller’s misconduct alone.  This situation frequently arises in auto finance litigation or litigation under state deceptive acts and practices laws — for example, where a consumer sues both the car dealer as the seller and the bank as the loan provider and “holder” of the retail installment sales contract, for the seller’s failure to disclose a defect or repair the vehicle.  The Holder Rule, however, states that a plaintiff’s recovery from the holder for those claims “shall not exceed amounts paid by the debtor” under the sales contract.

Multiple courts nationwide have ruled that the Holder Rule’s recovery cap prevented courts from requiring holders to pay a plaintiff’s attorneys’ fees and costs over and above the plaintiff’s previous payments to the seller.  See, e.g., Reyes v. Beneficial State Bank, No. BCV-17-100082 (Cal. Sup. Ct., Kern Co., Dec. 5, 2019), appeal docketed, No. F080827 (Cal. Ct. App. Feb. 13, 2020); State ex rel. Stenberg v. Consumer’s Choice Foods, Inc., 276 Neb. 481, 495–96 (2008).  But other courts have disagreed.  See In re Stewart, 93 B.R. 878 (Bankr. E.D. Pa. 1988); Home Sav. Ass’n v. Guerra, 733 S.W.2d 134 (Tex. 1987).  The California Supreme Court is currently considering an appeal of one recent decision that rejected a Holder Rule cap in Pulliam v. HNL Automotive, Inc., No. S267576 (Cal. 2021).

The FTC’s new opinion sides with courts that have refused to automatically cap attorneys’ fees and costs, stating that applying the Holder Rule to preempt state laws and limit recovery of fees and costs “misconstrues” the FTC’s prior statements.  The FTC previously voted 5-0 to issue a confirmation of the Holder Rule in 2019, which noted that several commenters had asked whether the Holder Rule’s limitation on recovery to “amounts paid by the debtor” allows consumers to recover attorneys’ fees above that cap.  The rule confirmation stated, “The Commission does not believe that the record supports modifying the Rule to authorize recovery of attorneys’ fees from the holder, based on the seller’s conduct, if that recovery exceeds the amount paid by the consumer.”  Three of those five commissioners are still serving on the FTC.

Now, in a 180 degree turn, the FTC has voted 4-0 (including aye votes from the three commissioners who were already serving in 2019) to adopt this opinion that if the applicable state or federal law allows an attorneys’ fee award against any defendant, whether holder or seller, then the Holder Rule places no limit on the amount of fees and costs the plaintiff may recover from a holder.  For example, if the law allows the prevailing party to recover fees from any party that opposes its claims, and the holder opposed the prevailing plaintiff’s claims, the Holder Rule would not cap a plaintiff’s recovery of attorneys’ fees and costs.  Additionally, even if the law in question allows attorneys’ fee awards against the seller exclusively and expressly, the Holder Rule allows the plaintiff to recover those fees from the holder instead, though that award would be subject to the Holder Rule cap and limited to the amounts the consumer had previously paid.

In other words, litigants will have to narrowly examine the language and framing of the various state and federal statutes allowing recovery of attorneys’ fees to determine whether the Holder Rule’s cap will apply to fees and costs under the applicable statute, and courts may interpret broader fee recovery statutes that do not expressly apply only to sellers to allow unlimited fee recovery from holders as well.  This advisory opinion thus raises holders’ risk exposure and potential costs in litigation where the dealer has not indemnified the holder or the dealer is judgment proof.  It also will likely impact the California Supreme Court’s forthcoming decision on this question in Pulliam.

Article: No Need to Panic – Attorney Fee Provisions in Florida Are Safe

November 6, 2021

A recent article by Gregg I. Strock, “No Need to Panic – Attorney Fee Provisions in Florida Are Safe” reports on attorney fee provisions in Florida.  This article was posted with permission.  The article reads:

Earlier this month in Levy v. Levy, No. SC20-1195, 2021 WL 4614308 (Fla. Oct. 7, 2021), the Supreme Court of Florida issued a ruling that section 57.105(7) of the Florida Statutes did not apply to the attorney’s fee provision in a divorced couple’s property settlement agreement (“PSA”).  Section 57.105(7) of the Florida Statutes converts by law a unilateral prevailing party fee provision into a reciprocal fee provision.  Simply put, this means that if a contract provides that only one party has the right to attorney’s fees if it prevails in court, then both parties are granted that right regardless of the unilateral language in the contract.  As one might imagine, the ruling against attorney’s fees in Levy sent shivers down the spines of transactional and litigation attorneys alike.  Is every attorney’s fee provision in every contract and settlement agreement at risk?  Fear spread and some publications even recommended that every fee provision going forward must expressly state which party it is in favor of (defendant or plaintiff)—but that simply is not true.  Levy is, in reality, a very limited holding, and most fee provisions are safe from its effect.

First, Levy does not radically change contractual fee provisions in Florida. As the Court stated in its decision, section 57.105(7) of the Florida Statutes applies only to unilateral fee provisions.  So, if a contract already includes a reciprocal prevailing party fee provision, then section 57.105(7) does not apply. Therefore, reciprocal attorney’s fee provisions in contracts are not affected by Levy. 

Second, and more importantly, the prevailing party in Levy (the ex-wife) was not denied attorney’s fees because section 57.105(7) did not apply, she was denied because she did not satisfy the requirements of the PSA to prove her entitlement to the fee award.  The PSA provided, in part, that “the party who is found to be in violation of this Agreement shall pay to the other party who prevails in said action, the prevailing party’s reasonable expenses incurred in the enforcement of this Agreement” (emphasis added).  Thus, not only did a party need to prevail to be entitled to its attorney’s fees under the PSA, it must have proved that the losing party also violated the PSA.  The prevailing party, though she prevailed, failed to prove a violation of the PSA.  With that express contractual limitation in mind, the Court denied the fee award and held that even if section 57.105(7) did apply, it only “levels the playing field, but does not expand it.”  In other words, even if the statute could be used in Levy, it could not entitle the prevailing party to attorney’s fees that the other party to the contract would not be entitled to if it had prevailed.  The statute could not delete the language from the PSA that required a prevailing party to prove that the losing party violated the PSA. 

At the end of the day, the parties in Levy got exactly what they bargained for and the Levy holding should yield the same result for other contracting parties.  If a contract provides for reciprocal prevailing party attorney’s fees, then the language of the contract shall control when those fees are awarded (provided that the contract and provision are legal).  If, on the other hand, the contract provides for unilateral prevailing party attorney’s fees, then section 57.105(7) of the Florida Statutes will operate to make those fees reciprocal, but the language of the contract will still control when those fees are awarded (provided that the contract and provision are legal).  In sum, there is no need to spend the next month staying up late to amend all of your agreements.  The only reason Levy may give you pause is if you realize you included language in a contract that might limit an entitlement to fees, such as requiring the prevailing party to also prove that the losing party violated the agreement.   

Article: Bad Faith Prosecution in Trade Secrets May Lead to Fee Award (Or Not)

November 5, 2021

A recent article by Keith Paul Bishop, “Bad Faith Prosecution of Trade Secrets Theft May Lead to Attorney Fee Award (Or Not),” reports on bad faith and the prosecution of trade secrets theft and attorney fee awards in California.  This article was posted with permission.  The article reads:

In 1984, the California legislature decided to curb "specious" actions for misappropriation of trade secrets by enacting Section 3426.4 of the California Civil Code.  Cal. Stats. 1984, ch. 1724.   That statute provides:

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees and costs to the prevailing party.  Recoverable costs hereunder shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.

In 2006, the legislature amended the statute to add "and costs" in the first sentence and to add the second sentence.  Cal. Stats. 2006, ch. 62.

Not all theft of trade secrets claims are made in made faith, however, and such was the case in Dr. V Productions, Inc. v. Rey, 2021 Cal. App. LEXIS 752.   The case involved an attempted appeal from an order denying a motion for attorney's fees after a voluntary dismissal of a misappropriation of trade secrets claim.   The Court of Appeal held that the order was not separately appealable.