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Category: Fee Denial

Class Counsel Denied $12M in Fees in Nonmonetary Settlement

May 8, 2021

A recent Law 360 story by Dave Simpson, “Attys Denied $12M Fees From ‘Modest At Best’ Facebook Deal,” reports that a California federal declined a bid for $12 million in fees for lawyers representing a class of Facebook users that reached a non-monetary settlement over a data breach suit, calling the outcome "modest as best and cosmetic at worst."  U.S. District Judge William Alsup gave final approval to the settlement but nixed the present bid for fees from counsel at Tadler Law LLP, Cohen Milstein Sellers & Toll PLLC and Morgan & Morgan Complex Litigation Group, instead tasking a special master with reviewing the attorneys' billing information and reducing fees to a "reasonable amount," noting that they would not be receiving a bonus.

"The settlement is really little more than what Facebook would have done anyway," Judge Alsup said.  "In the preliminary settlement approval and in their supplemental briefing, both parties explained that Facebook voluntarily adopted most of the security measures upon the recommendation of a working group created in 2018."  The users sued Facebook in California federal court in 2018 following a data breach that affected roughly 29 million individuals, alleging the company negligently allowed the cyberattack.

In 2019, Judge Alsup certified a class of users who sought to change Facebook's security practices to avoid further harm to users but denied two other classes seeking monetary compensation.  A non-monetary settlement resolved the case last year, and Judge Alsup gave it his blessing in November.

Under the deal, Facebook has agreed to take a series of steps that the court believes will help the company avoid a repeat of the 2018 cyberattack, in which hackers exploited a security flaw in Facebook's "View As" feature, which allows users to preview how their profiles appear to the public or other users, to access personal data.  Facebook agreed to reform its security protocols and allow an independent third party to both monitor its compliance through 2026 and provide class counsel and the court with annual reports.

"Two of the settlement terms were practices Facebook had been using even before the breach occurred," Judge Alsup said.  "The only truly novel element of the settlement agreement is the involvement of the court, class counsel, and an independent monitor in ensuring that Facebook maintains the security measures they would have implemented anyway."

Facebook slammed the attorney fee bid in March, saying that the class' attorneys refused to provide detailed time records and that the figures they did provide show that their side of the litigation wasn't handled efficiently.  Facebook also slammed class counsel for including time spent on unsuccessful litigation efforts.  At a hearing in late April, Judge Alsup said he was disturbed that class counsel "farmed out" work in the litigation, telling them to trim their $12 million request for attorney fees and expenses or he wouldn't approve it.

But earlier this month, class counsel moved forward with their bid anyway.  The attorneys asked Judge Alsup to approve their bid for nearly $12 million in fees and costs, including a $2.1 million bonus, arguing that the non-monetary settlement provides a significant benefit to the public, as it requires the world's largest social media platform to improve its security practices and be subject to independent oversight for five years.

Judge Alsup ripped into their argument.  "Class counsel waxed poetic about the complexity, technicality, and novelty of the data security issues presented in this case, but note well the settlement calls for only pocket change to the monitor who will ensure that Facebook abides by the settlement terms," he said.  "That amount is merely $15,000 over five years.  This is further evidence of a cosmetic settlement."

In a companion order, Judge Alsup appointed a special master and gave instructions as to how billing should be reviewed.  He'd previously threatened the attorneys with such an appointment, saying their $12 million ask was too much money to not go over with "bone-crushing" thoroughness.

TX Justices Toss Class Action Fee Award in Insurance Cases

April 18, 2021

A recent Texas Lawyer story by Greg Land, “Texas Justices Toss Class Action Ruling Against Insurer and $3.5M Fee Award,” reports that the Texas Supreme Court has ruled an insurer that stopped issuing “all risk” homeowners policies because it was paying out too much in mold claims did not violate the contracts of some 400,000 policyholders, and does not have to pay more than $3 million in attorney fees and nearly $487,000 in costs a jury awarded to the plaintiffs lawyers. 

Ruling in a class action that’s been percolating through the courts for nearly 20 years, the justices sent the fee award back to a Jefferson County judge with instructions to consider what is “equitable and just” to Farmers Insurance, given that the named plaintiff and class “have not prevailed in any regard and have obtained no favorable results.”  The April 9 ruling written by Justice Jimmy Blacklock overturns a 2019 ruling by the Thirteenth Court of Appeals that upheld the fee award and also said the plaintiffs in separate, though related litigation should have been allowed to intervene in order to seek their own fees. 

Farmers is represented by a team of Norton Rose Fulbright lawyers including Houston-based partners Layne Kruse, Carlos Rainer, Katherine Mackillop and Scott Incerto.  Lawyers for plaintiff Sandra Geter and the class are John Werner of Reud Morgan & Quinn and DeWayne Layfield of the Law Office of L. DeWayne Layfield, both in Beaumont.

As detailed in the order and other filings, the case began in 2000 when Farmers and other insurers sought permission from the Texas Department of Insurance to stop writing the all-risk policies and instead offer a less comprehensive “named peril” policy.  A Farmers executive told the TDI the move was necessary because of “dramatic increases that we have experienced for water, mold and foundation claims, and the resultant underwriting losses.”    

The decision was approved, and in 2002 Farmers sent all holders of the policies a notice that they would not be renewed but that the named peril policy would still be offered.  In 2002, policyholder Geter filed a class action seeking declaratory judgment that Farmers’ non-renewal violated the clause of her policy stating: “We may not refuse to renew this policy because of claims for losses resulting from natural causes.”

She also argued that the non-renewal notice was void because it “was based on a prohibited reason for non-renewal.”  The trial court granted Geter summary judgment, ruling that Farmers breached the contract by not renewing the policies.  Also in 2002, another class action was filed in Travis County claiming that Farmers “wrongfully raised premiums despite offering less coverage when it replaced the HO-B policy” with the slimmed-down coverage.  Claims mirroring Geter’s were later added to that suit as well.  In 2016 the Travis County suit settled with Farmers agreeing to compensate policyholders in “a package valued at over $100 million.”  But the non-renewal claims were carved out of that litigation, and the Geter case continued with both sides filing for summary judgment.  

The trial court granted summary judgment to the plaintiffs, ruling that Farmers breached its agreement by not renewing the policies and that each member should be allowed to renew their HO-B policy at a premium set by the trial court.  While that decision was on appeal, in 2016 the trial judge held a jury trial on attorney fees that ended with a jury awarding the plaintiffs lawyers $3,046,247 in fees and $486,790 in expenses.  The plaintiffs in the Travis County action filed to intervene for their attorney fees, arguing that their case benefitted the Geter class members.

The trial judge denied the motion, and both they and Farmers appealed.  The court of appeals affirmed the trial court’s holding that Farmers had breached its policyholders’ contracts and the fee award, but reversed the rulings denying the Travis County plaintiff’s motions to intervene and ordering Farmers to issue HO-B policies at a determined premium. 

Blacklock’s opinion said the key to the case was the interpretation of the policies’ bar to renewal “for losses resulting from natural causes.”  “The dispute comes down to what paragraph 6(a) of the policy means by ‘claims for losses,’” Blacklock wrote.  “If the language refers to ‘claims’ and ‘losses’ of the individual policyholder, then Farmers is correct that the policy does not preclude an insurer from terminating the policy’s use statewide because of systemic losses that make continued use of the policy financially untenable,” he said.  “If ‘claims’ and ‘losses’ also refers to statewide or systemic ‘claims’ and ‘losses,’ then Geter is correct that the policy prohibited Farmers from deciding to non-renew.”

The justices find it “highly implausible” that Farmers or the TDI would agree to language that would “undermine TDI’s regulatory authority to react to changing circumstances in the insurance industry and would bind Farmers to suffer statewide underwriting losses in perpetuity.”

“Because the individual plaintiff and class members were not entitled to a renewal of their HO-B policies, all the plaintiffs’ claims fail, and summary judgment for Farmers was proper,” the opinion said.  It follows, Blacklock wrote, that neither Geter nor the would-be intervenors are entitled to any award of fees. 

Court Holds Insured Fee Multiplier is Unsupported By Relevant Market in Florida

March 27, 2021

A recent article by Derek R. Lenzen, “Florida Appellate Court Holds Insured’s Attorneys’ Fee Award Multiplier Is Unsupported By Requirements,” reports that a Florida appellate court held attorneys’ fee award excessive and that the fee multiplier was not necessary in order for an insured to obtain competent counsel in the relevant market.  Deshpande v. Universal Prop. & Cas. Ins. Co., 45 Fla. L. Weekly D2511a (Fla. 3d DCA November 12, 2020).  This article was posted with permission.  The article reads:

The insured filed a claim under a homeowners’ policy.  The insurer denied coverage and the insured filed suit.  After minimal discovery, the insurer served a proposal for settlement exclusive of attorneys’ fees and costs.  The insured accepted the proposal and the parties litigated the amount of reasonable attorneys’ fees.  The insured’s counsel produced invoices for 469 hours among five attorneys and one paralegal, and the insurer provided a line-item response with objections to the invoices.  The insured’s fee expert confirmed the invoices but did not prepare a line-item analysis.  Instead, the insured’s expert applied a blanket 10% reduction of hours from 469 to 422 and stated that a 2.0 multiplier was reasonable. The insurer’s fee expert prepared a full line-item analysis and stated that the market does not require a fee multiplier for insureds to obtain competent counsel.  The trial court adopted the insured’s fee expert’s conclusions without explanation, awarded the fees, and applied the multiplier.

The appellate court reversed, holding that the trial court did not consider the required eight criteria in determining the amount of attorneys’ fees to be awarded, including specific findings as to the number of hours and reduction or enhancement factors.  The appellate court held that the insured’s counsel did not present evidence that it was reasonable to spend 469 hours on a first-party property insurance case that settled after minimal discovery and without significant motions.  Further, the court found that there was no evidence that the insured could not have obtained other competent counsel in the relevant market absent the availability of a contingency fee multiplier.  The appellate court remanded to the trial court with directions to enter an amended final judgment as per the appellate court’s opinion.

Sixth Circuit Reverses UAW’s Attorney Fee Award

March 15, 2021

A recent Law 360 story by Braden Campbell, “6th Circ. Reverses UAW’s Fee Win in Retiree Health Care Suit, reports that the Sixth Circuit wiped out a $180,000 fee award for the United Auto Workers in a suit alleging an auto parts maker illegally eroded retirees' health benefits, saying a Michigan federal judge usurped the arbitrator who initially decided the dispute.  The unanimous panel said the Eastern District of Michigan did not have the power to award the fees or find that TRW Automotive U.S. LLC violated the Employee Retirement Income Security Act when it replaced retirees' health plans with health reimbursement accounts, because these issues were the arbitrator's to decide.

The panel rejected the union's argument that the arbitrator left these issues unresolved and so teed them up for the court.  While the arbitrator only purported to opine on the underlying contractual dispute, the ERISA claim was inextricably linked to this central issue, the panel said.  "The relationship between the ERISA and [contract] claims and the parties' arguments during arbitration reveals that the arbitrator did in fact decide the ERISA claims," the panel said.  "His decision that TRW breached the CBA meant that TRW also committed an ERISA violation."

The ruling is the Sixth Circuit's second in the long-running case, which concerns a shift in health coverage for retirees from a shuttered Michigan plant.  The UAW sued TRW in late 2011 alleging the benefits change breached the parties' collective bargaining agreement and violated ERISA.  The court sent the dispute to arbitration, per the CBA, and the arbitrator found TRW breached the contract and ordered the company to restore the prior plan.  Though the union raised ERISA claims, the arbitrator framed the issue as "whether the adoption of the [health reimbursement accounts] structure as implemented by TRW constitutes a breach of contract," according to a portion of the decision discussing case background.

The company then challenged the arbitrator's ruling in the Eastern District of Michigan.  Meanwhile, the union asked the court to award fees and grant summary judgment on the ERISA claim.  The court affirmed the award and granted the union summary judgment, and the company appealed.  In its first order, the Sixth Circuit said the arbitrator exceeded his authority, but it did not resolve the ERISA issue because the district court had yet to award fees.  The order follows the district court's subsequent order granting fees to the union.

The union insisted the district court had jurisdiction to issue judgment and award fees despite contract language directing such issues to arbitration, arguing that the arbitrator did not resolve the ERISA claims.  The panel ruled otherwise, saying the arbitrator's finding that TRW breached the contract resolved the ERISA claims because they likewise "turned on the CBA provisions guaranteeing certain health insurance benefits."  Sixth Circuit precedent holds that violations of health provisions in CBAs double as violations of welfare plans under ERISA, the panel added.

Article: When is ‘No Fee’ a Reasonable Fee?

March 6, 2021

A recent article by Karen M. Morinelli and Samantha E. Dunton-Gallagher, “When Is ‘No Fee’ a Reasonable Fee? 11th Circuit’s Guidance on Reasonableness in FLSA Attorneys’ Fees Cases,” reports on a recent FLSA fee ruling in the Eleventh Circuit Court of Appeals.  This article was posted with permission.  The article reads:

On February 1, 2021, in an unpublished opinion resolving a Fair Labor Standards Act (FLSA) attorney’s fees dispute, the Eleventh Circuit Court of Appeals, in Batista v. South Florida Womans Health Associates, Inc., struck another blow against unreasonable plaintiffs’ counsel seeking “reasonable” fees.  Mitzy Batista appealed the district court’s finding that it would be unreasonable to award her counsel, Elliot Kozolchyk, any attorney’s fees given his conduct during litigation filed under the FLSA.  Ultimately, the Eleventh Circuit remanded the case to the district court to make necessary findings of fact and to issue its ruling regarding whether the employer had mailed a replacement check.  However, in doing so, the Eleventh Circuit provided additional analysis as to when reasonable attorneys’ fees in an FLSA case may be no fee at all.

Background

Mitzy Batista was employed for slightly over two weeks in January 2018 by South Florida Woman’s Health Associates, Inc., when she was discharged for missing work.  Batista claimed that she never received her last paycheck and was owed $275.50 for the 38 hours she worked.  South Florida Woman’s Health Associates claimed that Batista’s last paycheck was mailed to her last known address and that because the check was not returned, and because Batista did not contact the company, South Florida Woman’s Health Associates assumed that all was well.  Batista, however, claimed that she called her former employer’s office the day after she was fired and asked for her final paycheck.  She alleged that at first she was told she would be paid by direct deposit, only to be told a few days later by the receptionist that the owner of the clinic, Edward D. Eckert, was not going to pay her at all.

Batista met with her counsel, Kozolchyk, three weeks after her employment was terminated.  But in the three months that followed, neither Batista nor Kozolchyk contacted her former employer to ask about the missing check.  In May 2018, Batista sued her former employer, raising claims under the FLSA including violations of the minimum-wage provision, liquidated damages, and attorneys’ fees and costs.  After receiving notice of the lawsuit, Eckert offered to send Batista a check for her unpaid wages but not her attorney’s fees.  Kozolchyk ignored Eckert’s initial offer.  When the counsel for South Florida Woman’s Health Associates and Eckert himself reached out again, they offered to clear up the matter and offered to pay the unpaid wages and court costs.

Kozolchyk initially ignored their communications and about a month later rejected the settlement offer.  Kozolchyk insisted on receiving attorney’s fees in an amount greater than what Eckert believed to be reasonable, stating, “my client cannot agree to shoulder the fees in this case … [for] those are recoverable against the defendants above and beyond the value of the claim.”  Kozolchyk then demanded his fees in the amount of $3,200, and Eckert counteroffered $1,100 in attorney’s fees.  Ultimately, the parties settled and agreed that Batista was to be paid $551 in unpaid wages, liquidated damages, and costs in the amount of $523, and that “the task of deciding the question of reasonable attorney’s fees” would be left to the district court.  The settlement was approved and Batista filed her motion for attorneys’ fees, seeking $10,675 in fees for the 30.5 hours Kozolchyk claimed to have expended litigating the case.  The district court referred the motion to a magistrate judge for a report and recommendation.

The magistrate judge, although “acknowledging the general requirement that prevailing plaintiffs in FLSA actions receive some award of attorney’s fees,” recommended that the court deny Batista’s motion and not award her attorney’s fees.  “Specifically, the magistrate judge found that (i) Defendants timely issued and mailed Plaintiff her final paycheck to the address she provided, (ii) Kozolchyk made no effort to contact Defendants to inform them that Plaintiff had not received her check before suing, and (iii) had he done so, he would have discovered that Defendants had sent Plaintiff’s paycheck to her address and were willing to issue another.”  Accordingly, the magistrate judge deemed Batista’s fee demands to be “excessive relative to the minimal work [i.e., a brief phone call] necessary to resolve the matter and make his client whole.”  The district court adopted the factual determinations and legal conclusions contained in the report and recommendation and rejected Batista’s objections, which included an affidavit in which she averred that she had telephoned someone in South Florida Woman’s Health Associates’ payroll department to request her last paycheck.  South Florida Woman’s Health Associates did not provide an affidavit to support its own allegations.

The Court’s Analysis

In determining whether the district court abused its discretion when it determined that a reasonable attorney’s fee in the case was no fee, the Eleventh Circuit reviewed guidance provided by analogous case law in the Southern District of Florida—including cases where plaintiffs were also represented by Kozolchyk.

Initially, the court discussed the “seminal district court case” of Goss v. Killian Oaks House of Learning, which was decided in 2003.  There, the plaintiff was a former employee who alleged she was owed two days of pay.  The former employer had issued a check and told her to pick it up, but instead of doing so, she hired a lawyer who sued the former employer for failure to pay wages.  The plaintiff’s lawyer asked for over $16,000 in attorneys’ fees where the matter settled for slightly over $300 for unpaid wages.  The Goss court stated that regardless of “the FLSA’s provision for a mandatory award of attorney’s fees for a prevailing plaintiff, ‘an entitlement to attorney’s fees cannot be a carte blanche license for Plaintiffs to outrageously and in bad faith run up attorney fees without any threat of sanction.’”  The Goss court “concluded that there are ‘special circumstances’ that can render the award of attorney’s fees unjust and that ‘so-called nuisance settlements represent such a circumstance.’”

The Eleventh Circuit also discussed Nelson v. Kobi Karp Architecture & Interior Design, Inc., a 2018 case in which “the [district] court denied in its entirety a fee request by counsel in [the] case, Mr. Kozolchyk.”  The plaintiff in Nelson had sued for two days of unpaid wages equaling $116, and after settlement, Kozolchyk had sought more than $9,000 in attorney’s fees.  In Nelson, the employer had immediately tried to resolve the matter after suit was filed by paying the unpaid wages at issue, plus $1,500 in attorney’s fees and costs, which Kozolchyk declined.  The employer, through counsel, then physically tendered the money in question and offered $2,000 in fees and costs, but Kozolchyk still declined.  The Nelson court ultimately determined that ‘Kozolchyk’s “sole intent [at that point] was to run up his bill.’”  Therefore, the Nelson court concluded, awarding any attorney’s fees would be “unreasonable, unjust, and inequitable.”

Similarly, in the 2019 case of Olguin v. Florida’s Ultimate Heavy Hauling, after Kozolchyk had filed suit, “the employer unconditionally tendered to Kozolchyk all the wages requested by the plaintiff, but Kozolchyk refused to accept the tendered paycheck” and lengthy litigation ensued on a separate claim, which he ultimately abandoned.  Kozolchyk ultimately sought attorney’s fees of over $36,000.  The Olguin court denied the request for attorney’s fees, finding that Kozolchyk’s “conduct was part of a strategy to churn the file and create unnecessary attorney’s fees.”

The Eleventh Circuit, analyzing the prior case law, clarified that the absence of any inquiry by counsel notifying an employer prior to filing an FLSA action was not in and of itself sufficient to deny attorney’s fees.  Specifically, the court noted that although it had denied fees in Sahyers v. Prugh, Holliday & Karatinos, P.L., a 2009 case in which the plaintiff’s counsel had filed a lawsuit without contacting the prospective defendants to resolve the matter extrajudicially, the holding was limited to the facts of that case—“an FLSA suit filed against fellow attorneys as defendants.”  Indeed, the court emphasized that an attorney is required under the Federal Rules of Civil Procedure “to make reasonable inquiry into the facts underlying a claim.”  That is, “litigation in which the defendant-employer has done what it should reasonably do to get payment to a former employee, but in which the employee or her attorney has made no pre-suit effort to inform the employer that the payment was never received creates a scenario fitting into the … ‘nuisance litigation’ category.”

Ultimately, the Eleventh Circuit remanded the case because the primary reason for the district court’s holding that attorney’s fees should not be awarded rested on “the finding that Defendants had actually mailed a final check to Plaintiff prior to her lawsuit.”  However, the record lacked evidence to support this finding because “Defendants had never supported their factual position with an affidavit, [so] their assertions were likewise insufficient to create an adequate evidentiary basis for findings that Plaintiff ultimately contested.”

Key Takeaways

The decision provides helpful guidance to employers.  In instances in which an employee is seeking unpaid wages where the amount of wages sought is partly or fully contested, the employer may want to consider tendering payment in full pre-suit where such sum is nominal.  Providing full tender of the payment may assist in preventing an overinflated award of attorneys’ fees and costs where the employee’s counsel’s primary intent is to “churn the file” and gain fees in bad faith.  When considering their options, employers may want to take heed that FLSA cases are fact-specific.

Karen Morinelli is the Office Managing Shareholder of Ogletree Deakins’ Tampa office.  As a former General Counsel and Vice President of Human Resources, she brings a strong business perspective to both client relations and in her approach to manage client issues.  She counsels employers in all aspects of labor and employment law including employer/employee relations, litigation, and alternative dispute resolution.

Samantha Dunton-Gallagher is Of Counsel in Ogletree Deakins’ Miami office and represents employers in cases that involve, among other things, alleged wrongful termination, harassment, discrimination, wage and hour violations and unfair business practices.  She regularly interacts with state and federal agencies, such as the U.S. Department of Labor and the Equal Employment Opportunity Commission (EEOC).

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm representing management, and is reprinted with permission.  This information should not be relied upon as legal advice.