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Category: Defense Fees / Costs

Mass. Justices Told Attorney Fee Award Must Be Covered

April 4, 2022

A recent Law 360 story by Ganesh Setty, “Mass. Justices Told Atty Fee Award Must Be Covered” reports that the Massachusetts Supreme Judicial Court heard oral arguments on whether an attorney fee award constitutes damages "because of" bodily injury, with the dispute appearing to hinge on whether a reasonable policyholder would interpret their policy that way in light of a narrow, inapplicable exclusion exception for such payments.

Vermont Mutual Insurance Co. argued the attorney fee award against its insureds falls outside its "because of" causation standard with respect to bodily injury claims.  The recipient of the yet-to-be-paid award, Phyllis Maston, meanwhile highlighted how the policy did not specifically define the term "damages."  The Massachusetts high court appeared hesitant to side with Maston, given the award originated from a state consumer protection statute, and Vermont Mutual's policy is a standard form insurance contract used nationwide.

According to court documents, Vermont Mutual insured Paul and Jane Poirier, franchisees of damage restoration chain Servpro, under a business owners policy between December 1998 and December 2001.  Phyllis Maston and her late husband, Douglas, hired Servpro to clean out their basement, and Phyllis Maston later suffered a nasal infection she attributed to the cleaning solution Servpro used.  The Mastons sued Servpro, and a trial court ultimately found in 2009 that Servpro violated Massachusetts' consumer protection law, Chapter 93A, through its breach of warranty.

As part of Chapter 93A, which empowers consumers to sue businesses for unfair or deceptive practices, a successful petitioner can recover their own attorney fees.  The law treats attorney fee awards as separate from awards for damages.  Vermont Mutual paid nearly $700,000 to Maston, but refused to cover her award of more than $215,000 in attorney fees, along with another $21,600 in attorney fees following Servpro's unsuccessful appeal of the original judgment, according to court documents.

The insurer subsequently filed a lawsuit against the Poiriers and Maston seeking a court declaration that the total attorney fee award is not covered since it does not constitute insured damages "because of" bodily injury as required by its policy.  A lower court sided with Maston in July 2016, noting there are no other cases in Massachusetts directly addressing a coverage dispute like Vermont Mutual's.  The court instead pointed to the 2010 Ohio Supreme Court decision in Neal-Pettit v. Lahman, which involved language similar to Vermont Mutual's policy, and found that attorney fees do qualify as damages because of bodily injury.

Vermont Mutual maintained in its high court briefs that since the policy used "because of," rather than a broader term like "arising out of," the attorney fee award is not covered, especially since Chapter 93A treats damages and attorney fee awards as separate remedies.  The insurer further argued that an exception to a contractual liability exclusion in the policy explicitly treats an attorney fee award as damages because of bodily injury only when there's an insurance contract between its insured and another party, and the parties can be jointly represented in a civil dispute.

While a policyholder reading the policy may initially think an attorney fee award constitutes covered damages, "you can't find ambiguity just because you stopped reading," Peter E. Heppner, counsel for the insurer, told the high court's seven justices.  Although inapplicable, the exclusion exception illustrates that the policy did not intend to broadly treat attorney fees as damages because of bodily injury, he said.  Justice Scott L. Kafker asked Heppner, with respect to Maston's attorney fee award: "I understand that it's two or three steps removed, but it all arises out of the fact that there's an injury, doesn't it?"

"'Arises out of' is an interesting choice of words," Heppner responded. "When the policy has 'arising out of' in several exclusions, and then 'because of' here — and we know that the Supreme Court has said 'because of' is 'but for' — there has to be a distinction between those words."

When asked by Justice Dalila Argaez Wendlandt why the exclusion exception didn't put a reasonable insured on notice that the attorney fees may not otherwise be covered, Timothy P. Wickstrom, an attorney representing Maston, said the exclusion exception was inapplicable to the case to begin with.  It only concerns defense costs for the insured and the other party it contracts with, not attorney fee awards adverse to an insured, he argued.  If Vermont Mutual wanted to broadly bar coverage for attorney fees, one sentence stating so would have sufficed, he added.  The insurance policy at issue is a standard form insurance policy, Justice Kafker further noted. "That's where it gets me nervous."

"Here [in] Massachusetts, we've got this particular 93A attorney fee provision that's idiosyncratic, and we're applying it to these nationwide forms, right?" he asked.  The coverage dispute is not about Chapter 93A's separate treatment of damages and attorney fees, but whether attorney fees are covered under the policy, Wickstrom responded. Wickstrom further highlighted that part of the total attorney fee award under Chapter 93A includes Servpro's unsuccessful appeal of the judgment in the underlying case.

"In a situation where Vermont Mutual had a duty to defend, had a duty to indemnify — the defendants, their insureds, were on the hook for the appeals court fees," he said.  "How unfair is that?"  "Just create all the complexities of 93A attorneys fees, which probably no one ever thought about when they created this sort of extra remedy for everybody," Justice Kafker quipped.

Insurer Can’t Recoup Defense Costs in Discrimination Suit, Say Firms

March 30, 2022

A recent Law 360 story by Eli Flesch, “Property Cos. Says Insurer Blew Notice to Recoup Suit Costs” reports that a Markel unit can't recoup costs it spent defending a property owner and manager in a discrimination suit because the insurer failed to properly reserve their right for reimbursement, the real estate companies told a California federal court.  In a trial brief, Winstar Properties LLC and Manhattan Manor LLC said Evanston Insurance Co. sent its first explicit reservation of rights letter on the eve of a trial over coverage for the discrimination suit, which alleged the companies increased rents only for immigrant-headed households in Southern California.  That lack of timeliness should bar Evanston from being able to recoup its defense costs, Winstar and Manhattan said.

"Had Winstar and Manhattan knew that Evanston was going to deny coverage, they would have had the opportunity to seek independent counsel, or made other settlement decisions," the real estate companies wrote in their four-page brief to the court.  Evanston sued the companies in September 2018, stating it had no duty to defend them in the underlying suit because the discrimination occurred before the policy's effective date.  The discrimination suit was filed two days before the start of the policy, which ran from June 30, 2016, to June 30, 2017, according to court records.  The insurer said it received notice of the suit from the companies on July 17, 2017, and sent a letter three days later acknowledging receipt and reserving its rights to recoup defense costs.

The insurer won a summary judgment in October 2019, which the Ninth Circuit upheld in May 2021, ruling Evanston was not required to defend the companies. However, the appellate court noted there was insufficient evidence that the July 2017 letter had been sent, which would affect the insurer's ability to recoup costs it paid before Feb. 16, 2018 — the date on which the companies claim they received the first letter from Evanston.

In their brief, Winstar and Manhattan said there was an abundance of evidence showing Evanston never sent a letter on July 20, 2017.  It was months later, on February 16, 2018, that the insurer first attempted to reserve its rights for a reimbursement of costs, the real estate companies argued, noting Winstar didn't even receive that letter until two days after it was signed, on February 18, 2018.

In December, U.S. District Court Judge R. Gary Klausner sanctioned the law firm representing the two property companies, the Wilshire Law Firm, when he decided that the firm's own motion for sanctions against the insurer was unfounded.  To deter the firm from future frivolous sanctions requests and to compensate Evanston for time spent combating the unwarranted motion, the judge ordered the defendants to pay the insurer's attorney fees associated with their cross-motion for sanctions.

Some Defense Fees are Shifted in Flawed IP Case

February 21, 2022

A recent Law 360 story by Jeff Montgomery, “Some Defense Fees Are Shifted to Wi-LAN for Case Flaws” reports that Wi-LAN Inc. must pay a substantial share of the defense costs Vizio Inc. and Sharp Electronics Corp. incurred while fighting needlessly prolonged patent infringement claims that Wi-LAN knew were unsupportable, a Delaware federal judge has ruled. 

In a decision, U.S. District Court Judge Leonard P. Stark found that the conduct of Canada-based intellectual property licensing venture Wi-LAN was "exceptional" in its unacknowledged weaknesses and unreasonable pursuit of litigation from at least April 2018 to the final judgment against Wi-LAN on Sept. 12, 2019.

"The Court's fee award reflects the unnecessary effort defendants had to expend to continue defending claims that Wi-LAN knew or should have known by no later than the date I identified, rested on unreliable, insufficient, and inadmissible evidence," Judge Stark said in an 11-page memorandum order.

At issue were U.S. Patent Nos. 6,359,654; 6,490,250; and 5,847,774, but Judge Stark found that only Wi-LAN's handling of the '654 patent pushed the company's conduct into the orbit of Title 35 of the U.S. Code, Section 285, which allows fee awards to prevailing parties in "exceptional" circumstances.

The ruling will oblige Wi-LAN to pay Sharp's and Vizo's reasonable attorney fees incurred in fighting the '654 patent infringement claims from the date of the last third party declarations, April 26, 2018, through the court's entry of final judgment on the patent, Judge Stark said.

Gianni Cutri of Kirkland & Ellis LLP, lead counsel for Sharp and the attorney who led briefing on the motion to declare the case exceptional, said the legal team was pleased with the victory.  "We are also gratified that the court agreed with our view that it was unreasonable for Wi-LAN to continue to press its infringement claims and further ordered Wi-LAN to pay a substantial portion of Sharp Electronics Corporation's attorneys' fees because of this exceptional conduct," Cutri said.

Insurer Doesn’t Need to Cover Legal Fees in Dish Copyright Suits

December 22, 2021

A recent Reuters story by Barbara Grzincic, “Insurer Off the Hook for Legal Tab in Dish’s Copyright Battles,” reports that Dish Network Corp is stuck with the legal bills it ran up defending its Hopper and commercial-skipping “AutoHop” features in a four-year copyright battle with networks ABC, CBS, Fox and NBC, a federal appeals court held in a win for Ace American Insurance Co.  The 2nd U.S. Circuit Court of Appeals said Ace had no duty to defend Dish in the litigation because its policy clearly excluded coverage for copyright violations “committed by an insured whose business is ... broadcasting,” and under the “plain and ordinary meaning” of the term, broadcasting “is precisely the nature of Dish’s business.”

Dish’s legal team at Orrick, Herrington & Sutcliffe argued that regulatory and industry sources, including the Federal Communications Commission and the Federal Communications Act, do not consider it a “broadcaster” because users must buy a subscription and use special equipment to access its content.  However, “[i]f the parties had intended ‘broadcasting’ to take on a definition assigned by the FCC or the FCA, they could have easily pointed to those sources,” Circuit Judge Denny Chin wrote, joined by Circuit Judges John Walker Jr and Pierre Leval.

Adam Stein of Cozen O'Connor, who represented Ace along with Johnathan Hacker and others at O'Melveny & Myers, praised the court for its “straightforward” opinion.  The last of the suits settled in 2016.  Although none of the settlements required Dish to pay any money, the company then sued Ace in federal court in Manhattan to recover its legal fees.  The lower court ruled for Ace in 2019, adopting the reasoning of the 10th Circuit – the only other appeals court to have considered the question. Dish said the 10th Circuit had gotten it wrong.

Defense ‘Prevailing Party’ in DVPA Case Dropped by Plaintiff

October 9, 2021

A recent Metropolitan News story, “Defendant Was ‘Prevailing Party’ in Action Under DVPA Where Plaintiff Dropped Case,” reports that a judge erred in finding that a defendant was not the “prevailing party” in a civil action brought to impose a domestic violence restraining order on him, the Court of Appeal for this district has held, proclaiming that he did prevail even though the circumstances were that the plaintiff dismissed her petition after gaining such an order in a separate criminal proceeding.

But, Justice Anne H. Egerton of Div. Three said in an unpublished opinion, that does not mean that the order by Los Angeles Superior Court Judge Jonathan L. Rosenbloom denying an award of attorney fees to the defendant in the civil case need be reversed.  Such an award is discretionary, she noted, and, under Art, VI, §13 of the state Constitution, reversal is called for only where an error has resulted “in a miscarriage of justice” which, she declared, did not occur.

Burbank attorney David D. Diamond—a two-time unsuccessful candidate for the Los Angeles Superior Court who has announced his candidacy in the 2022 election—represented defendant Joshua Nathaniel Rivers in the trial court and on appeal. In seeking an award of $6,300 in attorney fees in favor of his client, sued by Marcia Bennett under the Domestic Violence Prevention Act (“DVPA”), Diamond said in an April 2, 2019 notice of motion that his client was “was compelled to respond to and defend a frivolous action,” and set forth in his memorandum of points and authorities: “Petitioners case was adjudicated in favor of Respondent. On November 20, 2018 the Petitioner asked for an additional hearing date to retain an attorney.  On December 10, 2018, the new hearing date, she failed to appear.”

He added in a declaration: “It is my belief that Petitioner should pay for the Respondent’s attorney’s fees because she [sic] is the prevailing party.”  In an opposing declaration dated May 29, 2019, Northridge attorney Bernal P. Ojeda (who also represented Bennett in the appeal) protested:

“The Respondent’s claim as a prevailing party is misleading.  Respondent at the present time has a four year criminal restraining order against him, not mentioned in the current motion….[T]his was the reason Petitioner did not appear for the hearing in the instant case. The criminal case is a related case and the criminal protective order should have been mentioned to this court but was not.  Given the fact that there is an existing restraining order against Respondent and protecting Petitioner, Respondent cannot claim he is a prevailing party nor can he have that status.”  (Los Angeles Superior Court Judge Peter Mirich granted the restraining order on Nov. 30, 2018, 10 days before the hearing at which Bennett did not appear.)

Ojeda said in his memorandum of points and authorities: “The criminal action now pending is a related case, involving the same parties, same incident and set of facts.”  The minute order of the June 4 hearing before Rosenbloom on the motion for attorney fees simply recites: “The Court finds Respondent is not the prevailing party.  “Motion Hearing re attorney fees is denied with prejudice.”

In her opinion upholding the outcome, Egerton said: “Rivers has not demonstrated the trial court’s erroneous prevailing party determination resulted in a miscarriage of justice….[B]ecause Rivers was the respondent on Bennett’s petition for a domestic violence restraining order, the trial court had discretion to deny his request for prevailing party attorney fees under [Family Code] section 6344, subdivision (a).”

She continued: “On the record before us, it is not reasonably probable that the court would have awarded Rivers the attorney fees he requested, even if the court had properly deemed him the prevailing party on the petition. And, based on this record, we cannot say the court’s denial of prevailing party attorney fees would have been an abuse of discretion.”  The judge went on to say: “And, given that Bennett dismissed her petition only after already obtaining the protection she sought under the DVPA, we cannot say the trial court’s denial of attorney fees on this ground would have been an abuse of discretion.”

Harvard Sues Insurer Over Attorney Fees

September 20, 2021

A recent Law 360 story by Eli Flesch, “Harvard Sues Insurer For Legal Fees in Affirmative Action Suit,” reports that Harvard University sued Zurich American Insurance Co. for excess coverage of...

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