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Category: Fee Denial

$43M Trust Not on the Hook for Attorney Fees in Georgia

March 12, 2024

A recent Law 360 story by Emily Johnson, “Ga. Panel Finds $43M Trust Not On Hook For Legal Fees”, reports that the Georgia Court of Appeals rejected a request from beneficiaries of a $43 million furniture fortune, finding that the trust's ex-trustees should not be saddled with attorney fees and litigation costs while the trust's beneficiaries sued them for allegedly mishandling the trust and overpaying themselves.

At the same time, an appellate panel said that former trustees Phillip Faircloth and Ted Sexton were not faced with a threat of irreparable injury, so the lower court erred in granting the interlocutory injunction that ordered the trust to pay for Faircloth and Sexton's attorney fees while the trust sues them.  The lower court's interlocutory injunction required the current trustees to take up the cost of the former trustees' legal battle, including attorney fees and litigation costs.  "In sum, the record lacks evidence to support a finding that the interlocutory injunction is necessary to prevent an irreparable harm having no adequate legal remedy," the appellate panel said.

Beneficiaries of a trust tied to furniture tycoon Sherwin Glass, who founded Farmers Furniture Co., sued Faircloth and Sexton in 2017.  The appellate court panel found that because the trust has been lending money to Faircloth and Sexton for their legal costs, they were not harmed, a requirement for an interlocutory injunction.  "Due to the loan by Farmers, they have not been harmed by going unrepresented, and any monetary harm can be remedied by repayment of interest paid pursuant to the loan," the appellate panel said.

The appellate panel left in place a lower court's rejection of the request that the former trustees reimburse the trust about $4.6 million in legal fees that had already been paid.  This is the third time the case has been before the state's Court of Appeals, according to the decision.

Counsel for the Glass Dynasty Trust told the panel in September that the injunction required the trust to pay 50% of attorney fees and costs incurred by two of the firms representing Faircloth and Sexton, as well as 100% of the fees incurred by another, within 14 days of receiving an invoice.

Representing Faircloth and Sexton, J. Randolph Evans, partner at Squire Patton Boggs LLP, told Law360 Pulse on Monday that the court's decision is one of the biggest decisions this year in the state, saying this has "turned indemnity/insurance law on its head."

"The whole purpose of us having [a] duty to defend is so we don't have to front money to the lawyer," Evans said. "They pay the lawyer. Now they're saying, you pay the lawyer, and sue the insurance company and get back the money."  Evans said that the decision means that the former trustees and others won't be able to enforce a duty to defend from insurance carriers or indemnitors unless you can't pay for your defense.

The implications of the panel's decision for Georgia are enormous, he said.  "They went one step further, which made people really react," Evans said. "It's not just that you don't have the money; if you can borrow the money, you can't enforce the duty to defend."

Second $185M Attorney Fee Request Called ‘Indefensible’

March 6, 2024

A recent Law 360 story by Jack Karp, “Quinn Emanuel’s 2nd $185M Fee Bid Blasted as ‘Indefensible’”, reports that Quinn Emanuel Urquhart & Sullivan LLP's second attempt to win $185 million in attorney fees in $3.7 billion litigation over the Affordable Care Act still fails to justify the "indefensible" amount and barely pays "lip service" to a reevaluation ordered by the Federal Circuit, health insurers told the federal claims court.

The Federal Circuit already wiped out the $185 million attorney fee that the U.S. Court of Federal Claims awarded to Quinn Emanuel and directed the claims court to reexamine objecting class members' insistence that the firm hadn't justified its fee request, Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. said.

"Despite this clear direction, class counsel's second petition again fails to justify its lodestar and again seeks to avoid a lodestar cross-check.  It instead asks the court to rubberstamp the same $185 million award," the health insurers said in their opposition to the firm's latest motion for approval of its fee request.

That motion for approval fails to support the 10,000 hours Quinn Emanuel says it spent on the case, suggests that the firm double-counted hours by including time spent on a separate multibillion-dollar class, and tries to skew its rates higher by seeking 2023 rates, even though its first fee petition was filed in 2020, according to the insurers.

"Trying to reverse-engineer defenses for its indefensible fee demand, class counsel uses inflated and unproven hours, multiplies those alleged hours by unprecedented rates, and then proposes a multiplier that is miles outside accepted norms.  That is akin to applying no cross-check at all," the insurers said.

Quinn Emanuel and a group of healthcare plan insurers the firm represents have insisted the firm used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But objectors Kaiser Foundation, UnitedHealthcare and others have argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

A Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, in 2021 finding that a lodestar cross-check was unnecessary.  But that conclusion "was legal error," according to the Federal Circuit, which vacated the award in 2023.

That $185 million amount was inconsistent with promises made in class opt-in notices, and the "extraordinarily high award" wasn't justified, the three-judge panel ruled, ordering the fees to be recalculated.  But Quinn Emanuel's renewed request for $185 million "does little more than pay lip service" to the Federal Circuit's order, according to the insurers.

While the insurers still think their original $8.8 million fee request is reasonable, they are willing to agree to a fee award between $11.77 million and $23.14 million in "the interest of finality," they told the claims court.  "[T]he objectors sincerely want class counsel to be handsomely rewarded.  $11.77 [million] to $23.14 million represents an incredibly large fee award that also fulfills class counsel's promise of a lodestar cross-check," the insurers said.

SCOTUS Passes on Attorney Fee Awards in Copyright Cases

March 5, 2024

A recent Law 360 story by Ivan Moreno, “Justices Pass On Hasbro’s Atty Fee Fight in Copyright Win”, reports that the U.S. Supreme Court denied Hasbro Inc.'s appeal to review the First Circuit's refusal to award its lawyers nearly $2 million in attorney fees for prevailing in a copyright suit over the Game of Life. 

The toy-making company had argued in its November certiorari petition to the high court that the First Circuit uses a highly restrictive test to determine whether prevailing parties in copyright disputes are entitled to costs and attorney fees.  The First Circuit holds that fees are available "only if the plaintiff's position was 'objectively quite weak,'" Hasbro said in its petition.  That standard differs from other circuits, Hasbro said.

In refusing to award $1.9 million in attorney fees, a three-judge panel of the First Circuit concluded last year that the copyright claims brought against Hasbro and heirs of game developer Reuben Klamer were not objectively "unreasonable" and thus ineligible for the requested fees.

Lorraine Markham, widow of game developer Bill Markham, and her husband's company, Markham Concepts Inc., had sued Hasbro and Klamer's heirs for royalties for the iconic 1960s board game and control of its intellectual property.  Lorraine Markham and Markham Concepts filed their lawsuit against Hasbro and the Klamer heirs in October 2015, claiming Bill Markham invented the Game of Life and reached a deal with Link Research Corp. to market it to Milton Bradley, which later merged with Hasbro.

A federal judge in 2019 found too many people could claim inventorship of the game.  Bill Markham and his employees created the physical prototype of the game, but Klamer funded the project, according to court documents. Funding the project entitled Klamer to the game's copyright and designated him under the act's "work-for-hire" exception as the only person who could terminate the game's copyright.

Hasbro argued in its petition that Section 505 of the Copyright Act says courts "may" award fees to prevailing parties.  The Supreme Court has twice offered guidance on applying that standard, Hasbro said, but argued that "the circuits remain hopelessly divided."

"Two circuits unequivocally hold that courts should hew toward awarding fees.  Two circuits hold that courts should not lean one way or the other," Hasbro said.  "And one circuit, the circuit in which petitioners won on the merits, cautions district courts against awarding fees — applying the very rule this court has previously rejected.

Law Firm Can’t Collect Fees From Los Angeles County

February 26, 2024

A recent Law 360 story by Craig Clough“Quinn Emanual Can’t Collect On LA County’$280K Legal Bill”, reports that a Los Angeles judge dismissed Quinn Emanuel Urquhart & Sullivan LLP's lawsuit seeking to collect more than $280,000 in legal bills from Los Angeles County, saying the claims should have been filed in a counter-suit after the defendants sued the firm several years ago.

Los Angeles Superior Court Judge Jon R. Takasugi issued a tentative opinion ahead of a morning hearing that outlined a plan to dismiss the suit claiming the county is refusing to pay the firm for defending former Sheriff Alex Villanueva when the Board of Supervisors sued him over the rehiring of a deputy accused of misconduct.

The judge wrote in the tentative opinion that the suit is blocked by California's compulsory counterclaim statute, which "provides that any cause of action 'related' to a complaint must be brought as a cross-complaint or else not brought at all."  After hearing arguments from attorneys from both sides, including on if he should allow leave to amend the suit, the judge sustained the county's demurrer to the complaint without leave to amend by making his tentative opinion final.

"I'm very convinced that the tentative is correct," Judge Takasugi said.  "And I don't think we can get around the leave to amend forever because we're in a finite universe here."  "I don't think giving you leave to amend is going to make any difference because everything is already done," he added.

Quinn Emanuel's August suit against the county, the Los Angeles County Sheriff's Department and Villanueva claims it provided legal services to the former sheriff in a lawsuit over his decision to rehire a deputy.  The law firm claims the county blocked it from receiving a $280,075 payment for the "first few months of legal services."

The dispute stretches back to February 2019, when county counsel informed Villanueva that he would need to select independent counsel to represent him in a lawsuit filed by the Board of Supervisors over his decision to rehire Deputy Caren Carl Mandoyan after he had been fired over alleged personal and professional misconduct, according to the suit.

Villanueva then retained Quinn Emanuel, which drew up a written agreement effective March 4, 2019, the complaint states.  It included anticipated billing rates ranging from $695 per hour to $1,400 per hour, but also acknowledged that the Board of Supervisors had agreed to pay an unspecified amount of the sheriff's and LASD's legal bills, according to the suit.

After the county sought a temporary restraining order, Quinn Emanuel appeared at the hearing on March 6, 2019, on behalf of the sheriff and the LASD, the suit states. While there, none of the county's attorneys objected to Quinn Emanuel's representation, nor did they suggest that a contract between the Board of Supervisors and Quinn Emanuel was required, according to the complaint.

After litigating the case for about a month, county counsel suddenly demanded that Quinn Emanuel enter into a contract with it in order to be paid, the complaint states.  Quinn Emanuel eventually substituted out of the case in January 2020, according to the complaint.  Payment of several invoices for the first few months of legal services was approved internally by the county, but its counsel interceded and blocked payment to Quinn Emanuel, the suit stated.

The suit included claims for breach of contract and services rendered, among others. It sought compensatory damages, interest, attorney fees and litigation costs.

Judge Rejects $5.2M Fee Request in Poultry Farm Loan Suit

February 21, 2024

A recent Law 360 story by David Minsky, “Judge Rejects $5.2.M Atty Fee Bid In Poultry Farm Loan Suit”, reports that a New York federal judge rebuffed attorneys' attempt to collect a nearly $5.2 million fee for representing an affiliate of two billionaire brothers that accused an investment adviser of fraudulently inducing the affiliate to provide a loan for a Russian poultry operation, saying the adviser wasn't improperly defending himself.

In the order, U.S. District Judge Victor Marrero denied an attorney fee motion by Reed Smith LLP lawyers representing Bloomfield Investment Resources Corp., which accused adviser Elliot Daniloff of needlessly stretching out the firm's lawsuit against him over the course of several years before he was ultimately ordered to pay millions in compensatory and punitive damages.

Bloomfield — a British Virgin Islands company and affiliate of billionaire brothers David and Simon Reuben — sued Daniloff in 2017 and a judgment of more than $34 million was entered against him in 2023, a year after a bench trial was held, court records show.

"To prevail on a motion to shift fees, the moving party must provide 'clear evidence' that the losing party's claims were (1) 'entirely without color,' and (2) 'were made in bad faith,'" Judge Marrero said in his order.  "The court finds that Bloomfield has not established that Daniloff engaged in the sort of dilatory and vexatious litigation tactics that satisfy the standard for the 'bad faith' exception in this circuit."

In the 2017 case, the plaintiff accused Daniloff of misdirecting $25 million intended as a loan into a bank account opened for the Russian poultry farm and failing to return the money.

Following the judgment, in June 2023, Reed Smith attorney Steve Cooper filed a motion seeking attorney fees from Daniloff.  In the accompanying memo, Cooper said Daniloff failed to show credible evidence of his theory, which is that "Bloomfield made an investment in the Synergy Hybrid Fund as an investor and that the $25 million did not represent a loan."

"Daniloff's actions led to prolonged and expensive litigation," Cooper stated in his motion.  "He caused the collection, review and/or production of almost 150,000 pages of documents, and the taking or defending of 13 depositions.  He made numerous frivolous motions and appealed the dismissals of his first action to the Second Circuit twice."

Opposing the attorney fee motion, Daniloff said that the plaintiff couldn't show that his defense wasn't "colorable" and used for an "improper purpose."

"Efforts to delay proceedings are not sufficient to establish that the litigant is acting with an 'improper purpose' as required for the 'bad faith' exception," Daniloff said in his July opposition filing.  "Moreover, any assertion that Mr. Daniloff was defending against Bloomfield's claims to give himself leverage in resolving the dispute would be insufficient to establish that Mr. Daniloff litigated this dispute with an improper purpose."

The court found Daniloff's arguments "legally and factually baseless," according to Judge Marrero, who also noted that the "court found that Daniloff persisted in making baseless arguments without support and in conflict with the clear evidence showing that he (and Bloomfield) always understood the $25 million would be a loan and not an equity investment."

While Judge Marrero acknowledged Bloomfield's arguments that Daniloff convinced the parties to engage in lengthy negotiations that delayed the case and ultimately failed, he added the court wasn't persuaded that these tactics amounted to bad faith dealings.

Judge Marrero cited the "American rule" in which parties pay their own attorney fees, "absent statutory authority or by contract," but recognized that these costs can be shifted in limited circumstances.  One deviation from the rule is the "bad faith exception," the judge said, in which the non-prevailing party's actions are conducted "vexatiously, wantonly or for oppressive reasons."

The judge, however, found that Bloomfield hadn't established the required "high degree of specificity" in showing Daniloff litigated with the intent to harass or delay, saying that it has never been held in his circuit that a "frivolous position may be equated with an improper purpose."

"Without such evidence, the court cannot conclude that Daniloff's actions were taken with an improper motive," Judge Marrero said.  "Courts in this circuit have consistently declined to award attorneys' fees simply on the basis that the defendant improperly delayed the proceedings, even when the delay was accompanied (or even caused) by meritless legal positions."