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Category: Fee Jurisprudence

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.

Lodestar Multiplier Sought in Landmark $508M Title VII Win

May 10, 2022

A recent Law 360 story by Craig Clough, “Attys in Historic $508M Title VII Win Want Bigger Lodestar” reports that attorneys representing a class of 1,100 women in a long-running lawsuit against Voice of America asked a D.C federal judge to grant them a lodestar enhancement, arguing the extraordinary legal work that spanned four decades and resulted in a record $508 million settlement calls for such a boost.

U.S. District Judge Amit Mehta previously blocked the attorneys' bid for an additional $34 million in fees that would have brought their total award to $75 million.  Since that 2020 ruling, the parties have reached a deal on a $19 million lodestar fee award, but the class attorneys asked the court to grant an enhancement up to 4.5 times that amount.

The extraordinary if not unprecedented circumstances of the lawsuit and the record-breaking settlement amount for a case brought under Title VII of the Civil Rights Act supports the enhancement, class attorneys at Steptoe & Johnson LLP said in the motion.  Steptoe & Johnson is one of many firms that represent the class.

"If ever such a case for enhancement was presented, it is this one where, through superior lawyering and incredible determination, counsel was able to achieve — by far — the largest class-wide recovery and largest individual class member recoveries for employment discrimination in the history of the Civil Rights Act," the class attorneys said.

A group of journalists in 1977 sued Voice of America and its former parent agency, the U.S. Information Agency, in a case that eventually covered discrimination claims between 1974 and 1984 and more than 1,000 plaintiffs.  The government disputed the accusations for more than 20 years ahead of the 2000 settlement.

Bruce Fredrickson of Webster & Fredrickson PLLC led the representation of the class for more than four decades. The lodestar motion said he was assigned to the case as a young associate at Hudson Leftwich & Davenport fresh out of law school, and he has remained on the case ever since. He drafted the initial complaint for lead plaintiff Carolee Brady Hartman and first motion to certify the class before losing at trial in1979, according to the motion.  When Hudson Leftwich declined to take up the appeal, Fredrickson represented the women in his spare time until he formed his own firm in 1982.  He eventually reversed the trial outcome on appeal, according to the motion.

"Hartman went on to become the most successful employment discrimination case in history," the class attorneys said in the motion.  "While ultimately requiring additional lawyers engaged in decades of hard work and the resources of additional firms to achieve this result, it was Mr. Fredrickson, with his commitment to excellence, his brilliant strategic decisions, his tenacity in facing off against the best-financed defendant that obstinately refused to accept the judgment of liability, and his sheer perseverance that made this extraordinary success possible."

The class attorneys cited several U.S. Supreme Court cases on lodestar enhancement, including 2010's Perdue v. Kenny A. and 1984's Blum v. Stenson, which said rare and exceptional legal representation can support an enhancement.  "After decades of hard-fought litigation and unsurpassed results, it is clear that this is the rare and exceptional case which unambiguous Supreme Court precedent firmly establishes as appropriate to compensate plaintiffs' counsel for superior lawyering by awarding an enhancement above their lodestar fees," the class attorneys said.  The motion concluded with the class attorneys saying, "The greatest result in the history of Title VII deserves nothing less."

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.