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Category: Defense Fees / Costs

Texas Court Rules in Insurer’s Right to Control Defense Fees

September 7, 2023

A recent Law.com story by Adolfo Pesquera, “3 Lawyers? One’s Enough, Court Rules in Insurer’s Fight Over Attorney Fees”, reports that a Texas state district court was found to have erred in denying an insurer’s summary judgment motion in an attorney fees dispute, where plaintiffs alleged more than one attorney was needed to avoid a “potential” conflict of interest.

The Ninth District Court of Appeals reversed a ruling of the Montgomery County 457th District Court in a case where a government entity and two elected officials depended on a Directors and Officers policy from Mid-Continent Casualty Co. to provide for their defense when a losing candidate filed suit alleging election irregularities.

Insurer Right to Control Defense

The reversal hinged on Mid-Continent’s right under the policy to control the defense, and whether there was an actual conflict of interest that the insurer formally recognized.  In the underlying suit, third-place candidate Edgar Clayton sued Harris County Municipal Utility District No. 400 and the two candidates who placed ahead of him, Ann Marie Wright and Cheryl Smith.

The court ultimately dismissed the lawsuit with prejudice, but the parties disagreed about how many lawyers the insurer should provide the district.  James Stilwell of Stilwell, Earl & Apostolakis, based in The Woodlands, Texas, and acting for the district responded to Mid-Continent’s letter agreeing to defend but preserving its reservation of rights.  Stilwell told Mid-Continent that was a “possibility of a conflict of interest in representation regarding Mid-Continent’s desire to have a single attorney represent all three defendants.”

Stilwell and the district were informed by a claims adjuster for Mid-Continent that it was the opinion of coverage attorney Brent Cooper of Cooper & Scully that Mid-Continent had the right to select defense counsel “because the facts to be adjudicated are not necessarily the same facts that control coverage,” and the Houston attorney Britt Harris had been retained by Mid-Continent as their counsel.

Instead, Stilwell’s subsequent correspondence informed Mid-Continent that the elected officials would be represented by Houston-area attorneys and Bruce Tough and Kenna Seiler, and the district by its general counsel, Chris Skinner of Schwartz, Page & Harding.

Conflict of Interest?

Stilwell asserted the potential conflict had to do with Wright and Clayton having run on the same slate against Smith, as well as the district’s desire to defend the election through trial, whereas the individual directors possibly wanting a do-over or settlement.

Mid-Continent attorney Mark Lewis cut a check made out to the district for $4,290 in attorney fees, which covered the period up to Mid-Continent’s offer to assume the defense.  Stilwell, in a pre-suit demand letter asked for attorney fees of $151,750 for the Clayton suit defense, plus $5,600 attorney fees for defending the wrongful denial.

Referring to the Texas Disciplinary Rules of Professional Conduct, the Ninth District court noted a lawyer may only represent multiple clients if he reasonably believes each client will not be materially affected, and each client consents after full disclosure of possible adverse consequences of common representation.

The deposition testimony and affidavit generally averred that the defendants discussed material conflicts at a board meeting and would not waive those conflicts, and they requested separate counsel, the opinion stated.  Nevertheless, the Ninth District held that the district’s “arguments are without merit.”

“We note that the information on which appellees rely falls outside the eight-corners of the pleadings and the insurance policy,” the court said.  In addition, the court said Stilwell’s responses to Mid-Continent referred only to “potential” conflicts, but never stipulating actual conflicts.

“We conclude that Clayton’s petition did not allege facts that would necessitate separate counsel. Clayton does not allege anything in his petition that would make the interests of Wright, Smith, or MUD 400 adverse to the interests of each other,” the court said.

Article: How NY SLAPP Defendants Can Recover Attorney Fees

September 6, 2023

A recent Law 360 article by Theodore Boutrous, Lee Crain, and Randi Kira Brown of Gibson Dunn LLP, “How NY SLAPP Defendants Can Recover Fees in Fed. Court”, reports on attorney fee recovery in New York SLAPP suits in federal court.  This article was posted with permission.  The article reads:

Meritless defamation lawsuits have long plagued media defendants.  These strategic lawsuits against public participation, often called SLAPP suits, are designed to chill speech.  States across the country have been experimenting with statutes to address this problem for over 30 years. New York — a jurisdiction that many newspapers, magazines, publishing houses and television networks call home — did not have a strong solution to this problem for many years, but the 2020 amendments to New York's anti-SLAPP law were meant to change that.

Among other things, New York's anti-SLAPP law protects defamation defendants by raising the standard of proof on defamation claims for plaintiffs and by providing for fee shifting, allowing victorious defamation defendants to recover the costs they spent in their defense.  Fee-shifting provisions are essential components of anti-SLAPP laws, as the purpose of SLAPP suits is often to punish and chill the exercise of speech rights by imposing litigation costs.

There is so far no federal anti-SLAPP law. Defamation defendants therefore often must consider whether, and to what extent, state anti-SLAPP laws apply in federal court.  If not, a litigious SLAPP plaintiff need only forum-shop to try to avoid any of the provisions of state anti-SLAPP statutes, including state anti-SLAPP fee-shifting rules.  In other words, if that plaintiff files a defamation claim in federal court, she can argue she is no subject to the specter of fee-shifting because the anti-SLAPP law only applies in state court.

Federal courts have been split as to whether certain anti-SLAPP laws apply in federal court under the U.S. Supreme Court's Erie doctrine from the 1938 case Erie Railroad Co. v. Tompkins.  Under that doctrine, courts consider whether an anti-SLAPP law is procedural or substantive and, if procedural, whether it conflicts with the Federal Rules of Civil Procedure.  

New York's anti-SLAPP law was specifically designed to avoid this problem.  How?  Legislative innovation.  Unlike other anti-SLAPP laws, New York law doesn't only create a motion-based procedural vehicle for a defendant to defeat a defamation claim and recover attorney fees.  Instead, a key innovation New York adopted to help SLAPP defendants was to establish a substantive cause of action for defendants to seek fee shifting for SLAPP lawsuits — effectively an anti-SLAPP tort.

Specifically, New York's fee-shifting provision provides a defendant the right to "maintain an action, claim, cross claim or counterclaim to recover damages, including costs and attorney's fees, from any person who commenced or continued [a SLAPP] action," according to Section 70-a(1) of the New York Civil Rights Law.

So far, though, federal courts in New York have not consistently allowed parties to recover these fees, seemingly due to confusion about how the statute works and the best ways to invoke it in federal court.  For example, in Executive Park Partners LLC v. Benicci Inc. in May, the U.S. District Court for the Southern District of New York refused to apply the fee-shifting provision of the anti-SLAPP statute, holding that the plaintiff cannot file a motion for fees in federal court.

An anti-SLAPP motion, brought under Rule 3211(g) of the New York Civil Practice Law and Rules, conflicts with the Federal Rules of Civil Procedure, the court said, and is thus inapplicable in federal court.  By contrast, in 2021, the U.S. District Court for the Northern District of New York applied the fee-shifting provision in Harris v. American Accounting Association, though without addressing the difference between an anti-SLAPP fee-shifting motion and a cause of action to seek those same fees.

The Southern District of New York appears to have suggested last year in Carroll v. Trump that even a counterclaim is not cognizable in federal court because a Section 3211(g) motion is inapplicable, though the court failed to specifically address why a substantive claim was subject to the same Erie analysis as a state-law motion.  By contrast, in March, the Southern District of New York expressly recognized in Max v. Lissner that an anti-SLAPP claim is cognizable in federal court, even if an anti-SLAPP motion is not.

Given this conflicting backdrop and the state of uncertainty, defamation defendants seeking to invoke New York's anti-SLAPP law in federal court need to tread carefully in deploying it.  Simply filing a motion under the statute for fees may well result in a denial under Erie.  But New York law doesn't limit defendants to mere motion practice.  When a defendant prevails on a defamation claim, they should invoke their rights under the anti-SLAPP statute to counterclaim or bring a new action entirely under the statute to recover their fees — as the New York anti-SLAPP statute expressly allows.

And bringing such a substantive cause of action — essentially a substantive anti-SLAPP tort — will effectuate the Legislature's intent to ensure that the anti-SLAPP statute's protections are available in federal or state court.  It will ensure that courts will see the New York anti-SLAPP statute for what it is: A statute that confers substantive rights on defendants that plaintiffs can't try to forum-shop their way out of simply by filing in federal court.

Insurer Must Pay Full Defense Fees, Can Impose Future Rate Reductions

August 16, 2023

A recent Law 360 story by Hailey Konnath, “’SoCal Edison’s Insurer Ordered To Pay Wildfire Attorney Fees”, reports that the insurer for Southern California Edison Co. must pay in full the counsel fees stemming from a number of negligence suits over the September 2020 Bobcat Fire that the carrier initially refused to defend, a move that was a breach of its insurance contract, a California federal judge ruled.

U.S. District Judge John F. Walter granted in part and denied in part SoCal Edison's motion for summary judgment, agreeing with the utility that Greenwich Insurance Co. forfeited the right to limit counsel fees associated with those cases when Greenwich refused to defend them.  However, the insurer can indeed rely on California law to impose lower billable rates on future defense fees incurred in three cases that Greenwich agreed to defend earlier this year, the judge held.

"There is no evidence that Greenwich has breached its duty to defend as to the three lawsuits tendered on Jan. 13, 2023, and May 11, 2023," Judge Walter said.  "As such, it has not forfeited its rights and may take advantage of the rate limitations set forth in California Civil Code [Section] 2860."

The dispute centers on a slew of suits against SoCal Edison and its parent company, Edison International, following the devastating Bobcat Fire in the Angeles National Forest in September 2020.  The plaintiffs in those suits claimed that the fire was likely caused by tree branches and other vegetation that came into contact with SoCal Edison's conductors.

The utility sought coverage from Greenwich under a commercial general liability policy that the insurer issued to Utility Tree Service LLC, which SoCal Edison hired to provide vegetation services where the fire started.  But the insurer repeatedly denied its duty to defend.

Last year, SoCal Edison filed suit against Greenwich, asking the court to declare that the insurer owes coverage under the CGL policy and asserting breach of contract and bad faith claims.  Greenwich argued that it has no defense obligations to the utility company because the underlying suits don't accuse UTS of negligence.  However, in January, the court held that SoCal Edison clearly established that Greenwich has a duty to defend.

The utility lodged its motion for partial summary judgment in June, arguing that Greenwich has failed to reimburse its fees in full following that order.  Instead, it told the utility it planned to pay only a fraction of the fees by significantly reducing the hourly rate of SoCal Edison's defense counsel, it said at the time.

Article: Making the Most of Defense Attorneys’ Fee Awards

August 1, 2023

An article, “Making the Most of Defense Attorneys’ Fee Award,” in DRI’s For the Defense, by Adam M. Koss and Heather A. Barnes reports on attorney fee awards for prevailing defense counsel.  This article was posted with permission.  The introduction reads:

As defense lawyers, we often think of attorneys’ fee clauses and statutes as a hindrance to settlement and a liability for our clients after judgment.  This is because, more times than not, plaintiffs retain their attorneys on a contingency fee basis, and thus pay nothing out of pocket to their attorneys, yet assume they will recover damages and attorneys’ fees.  Meanwhile, our clients are paying hourly and incurring substantial fees, increasing their expectations as to the savings they should achieve through settlement.  This type of thinking can and should be turned on its head. 

If a case proceeds to judgment and the defense wins, defendants are generally entitled to fees under the same standard as plaintiffs, regardless of whether they originally paid hourly, on a flat fee, below-market rate, or not at all.  Understanding the situations in which fee awards are recoverable and how such awards are calculated can also greatly assist in encouraging settlement.  In that regard, this article will look at the two main issues which often come up in fee awards sought by the defense: (1) who is entitled to seek an award; and (2) how is the award calculated.

Adam M. Koss is the principal at Koss Law APC in Walnut Creek, CA and Heather A. Barnes is a shareholder at Murphy Pearson Bradley & Feeney PC in Sacramento, CA.

Judge: Bad Faith Needed for Defense Fees in BIPA Class Action

July 31, 2023

A recent Law 360 story by Celeste Bott, “BIPA Defendants Must Show Bad Faith For Fees, Judge Says”, reports that an Illinois federal judge has rejected Christian Dior's argument that it should be the first defendant awarded attorney fees under Illinois' biometric privacy law, finding that a threshold showing of a plaintiff acting in bad faith would be required for such an award and that the luxury retailer couldn't meet that burden.

U.S. District Judge Elaine Bucklo in February dismissed the Illinois Biometric Information Privacy Act suit brought by lead plaintiff Delma Warmack-Stillwell, holding that an exemption under BIPA for data captured "from a patient in a health care setting" freed Christian Dior Inc. from the suit over its online tool for users to virtually try on sunglasses.

In May, Dior argued that Judge Bucklo should award it attorney fees and costs, saying BIPA's plain language makes clear that a "prevailing party" may recover its attorney fees and that the Illinois Supreme Court has held that prevailing parties include defendants.  But Judge Bucklo noted that the only way to enforce compliance with BIPA is through the statute's private right of action, and forcing plaintiffs who don't act in bad faith to foot the bill for a defendant's attorney fees would contradict that intent.

"Exposing plaintiffs bringing BIPA suits in good faith, even if ultimately unsuccessful, to attorneys' fees would unduly chill the sole enforcement mechanism for a law the legislature clearly intended to protect critical privacy interests and would defy BIPA's remedial purpose," the judge said.

Dior failed to establish Warmack-Stillwell had acted in bad faith by bringing her complaint, Judge Bucklo said, despite its arguments that she should have known better given two other similar lawsuits against other companies that were dismissed by Illinois federal judges under the same health care exemption — one before Warmack-Stillwell's case was filed and one tossed about a week after hers was filed.

Those district court rulings were not binding, Judge Bucklo said.  "Neither the Seventh Circuit nor the Illinois Supreme Court has expressed guidance on the matter, so it was not unreasonable for plaintiff to pursue her case," she said.  Judge Bucklo said it was "unnecessary" to decide whether BIPA allowed defendants to win attorney fees at all, because the law would still require a showing of bad faith, which Dior failed to meet.