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Category: Fee Doctrine / Fee Theory

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."

Delaware High Court Clarifies Fee-Shifting in Public Interest Cases

January 31, 2024

A recent Law 360 story by Rose Krebs, “Del. Justices Clarify Fee-Shifting in Public Interest Cases”, reports that, in a decision offering guidance on attorney fee-shifting in public interest cases, Delaware's Supreme Court reversed a decision that awarded fees to nonprofit organizations that successfully challenged the use of outdated tax assessments in determining funding for the state's public schools.

In a 49-page ruling, the state's high court undid a Chancery Court order from last year that awarded roughly $1.5 million in fees to Delawareans for Educational Opportunity and the NAACP Delaware State Conference of Branches.  Left in place was the award of roughly $73,000 in legal expenses to the two groups, which hadn't been contested by the litigation parties.  "The parties in this appeal raise important questions regarding fee-shifting in the public interest litigation context," Justice Karen L. Valihura wrote for the court.

At issue were legal fees awarded after the two nonprofit organizations brought several lawsuits "that sought increased funding for Delaware's public schools," the Supreme Court said.  "The suits were brought against multiple Delaware public officials in their official capacities, some of whom were responsible for tax collection in Delaware's three counties," Justice Valihura wrote.

In a May 2020 opinion, Vice Chancellor J. Travis Laster ruled in favor of the two organizations, agreeing that the counties' tax assessment methods, which had relied on values from as far back as 46 years ago, treated owners of similar properties unequally.  "Appellees filed suit against the defendants because they believed that Delaware public schools were not providing an adequate education to disadvantaged students," the Supreme Court ruling said. "Appellees pointed to a broken system for funding public schools as one of the reasons why Delaware's public schools have fallen short."  The Supreme Court decision explained that in the state, "approximately one-third of funding for public schools is derived from local taxes levied by individual school districts."

"When school districts in Delaware levy local taxes, they use the county assessment rolls prepared by New Castle County, Kent County, and Sussex County," the ruling said.  "If there are deficiencies or problems with the counties' tax assessment rolls, those deficiencies or problems will affect the school districts' ability to levy taxes."  In his ruling, Vice Chancellor Laster said that "owners whose properties have appreciated more pay a lower effective rate than owners whose properties have appreciated less."

"The counties' outdated assessments conceal a reality of non-uniformity beneath a cloak of uniformity," the vice chancellor said.  His ruling came after the Chancery Court had bifurcated the litigation into a "County Track" to handle claims against county defendants, and a "State Track" to adjudicate claims against state officials, according to the Supreme Court opinion.

The "County Track" litigation was further divided, the Supreme Court said, including a "merits" phase that went to trial in 2019, leading to the vice chancellor's post-trial decision.  As proceedings continued following Vice Chancellor's Laster's ruling, an agreement was reached by the parties "pursuant to which each county agreed to conduct a general tax reassessment," according to the Supreme Court's decision.  The two nonprofit organizations sought an award of attorney fees and expenses in May 2021, and in two separate decisions, the Chancery Court first determined that the groups were entitled to the costs and then subsequently awarded the amounts to be paid by the defendants, the Supreme Court said.

In its ruling, the Supreme Court relied on two of its prior decisions, in Dover Historical Society v. Dover Planning Commission, in 2006, and Korn v. New Castle County, in 2007. In the Dover decision, the Supreme Court "rejected fee-shifting in a non-taxpayer, public interest suit that ultimately caused a government entity to 'perform properly,'" the opinion said.  "In Korn, fees were awarded under the 'common benefit exception' to the American Rule because the plaintiffs created for all taxpayers a tangible benefit that was both 'substantial' and 'quantifiable,'" the Supreme Court said.

The American Rule, which originated in the U.S. Supreme Court's 1796 decision in Arcambel v. Wiseman, provides that "litigants are generally responsible for paying their own legal fees absent certain limited exceptions," the Supreme Court said.  Exceptions for which fees can be shifted include cases in which a litigation party has acted in bad faith or the litigation "creates a common benefit," the high court's opinion said.

The two nonprofit organizations had argued in a filing that the Chancery Court had correctly determined they were entitled to fees and expenses for obtaining benefits "beyond the social good of making the government comply with the law."  Among those benefits were increasing annual tax benefits for school districts due to the agreement to perform updated tax reassessments, as well as "fixing deficiencies in the state equalization funding system," the groups asserted.

In an opening brief, the public officials argued that the Chancery Court had "ignored" Dover and incorrectly applied Korn, and that the court had ordered "defendants to pay fees for benefitting parties with whom those defendants have no identity of interest, which is both unprecedented and unwarranted."  The Chancery Court's "expansion of fee-shifting in public interest litigation should be curtailed," they argued.

In an amicus brief, the Delaware League of Local Governments urged the Supreme Court to reverse the Chancery Court's decision, arguing that it "improperly created a newfound common law exception to the American Rule by allowing fee-shifting ... for 'public benefit' litigation," the Supreme Court said.  On its website, the league describes itself as "a non-partisan, non-profit organization comprised of local government leaders."

The league had argued that a "mere social benefit does not justify an exception to the American Rule and it is up to the legislature, not the courts, to determine whether fee-shifting is appropriate in public interest litigation," the Supreme Court's decision said.  In its ruling, the justices agreed with the public officials and the league, saying the Chancery Court's decision exceeded "the bounds of Dover."  The Chancery Court's decision "omits any discussion of the guidance we offered in Dover as to the narrow parameters of the exception in the public interest context," the court ruled.

"Viewing this litigation through the prism of Dover's guidance, we conclude that the benefits achieved fall within Dover's 'perform properly' bounds," the Supreme Court said.  "Accordingly, we hold that the trial court erred in determining that the common benefit doctrine applied."  The high court said it was "not persuaded that the other benefits identified" warranted an award of fees and called some of the purported benefits "speculative."

The Chancery Court also erred by determining that the Korn decision "was not limited to taxpayer suits, but rather, it applied more broadly to public interest suits," the Supreme Court's ruling said.  "We decline to extend Korn beyond taxpayer suits that confer a quantifiable, non-speculative benefit to all taxpayers," the justices said.

New Castle County Executive Matt Meyer said in a statement: "We are proud that we just saved taxpayers $1.48 million, a substantial portion of which would have been paid to out of state New York lawyers.  This decision, from Delaware's highest court, means countless public funds will be at considerably less risk in future lawsuits against towns, cities, counties and local governments across Delaware."

Why Federal Circuit Affirmed Patent Attorney Fee Award

January 2, 2024

A recent Law 360 article by Thomas Makin, David Cooperberg, and Adi Williams, “Why Fed. Circ. Affirmed Attorney Fee Award in PeronalWeb”, reports on the recent patent attorney fee award in PersonalWeb Technologies case before the U.S. Court of Appeals for the Federal Circuit.  This article was posted with permission.  The article reads:

In the recent majority opinion In re: PersonalWeb Technologies, the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. District Court for the Northern District of California entry for a $5.2 million award of attorney fees pursuant to Title 35 of the U.S. Code, Section 285.  Federal Circuit Judges Jimmie V. Reyna, Timothy B. Dyk and Judge Alan D. Lourie reviewed the district court's exceptional case determination and fee award calculation and found no abuse of discretion.

This article explores the ramifications of the Federal Circuit's Nov. 3 decision and underscores district courts' discretion to sanction unreasonable arguments and litigation tactics.

Section 285, provides that, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."  Attorney fees, however, are not awarded merely for "failure to win a patent infringement suit," as per the U.S. Supreme Court's 2014 Octane Fitness LLC v. ICON Health & Fitness Inc. decision.

According to the Federal Circuit's 2017 Checkpoint Systems Inc. v. All-Tag Securities SA decision, "The legislative purpose behind § 285 is to prevent a party from suffering a 'gross injustice,'" such as having to defend itself against baseless claims, and not to punish a party for losing.  But according to Octane, "The Patent Act does not define 'exceptional.'  [However, the Supreme Court has construed it] in accordance with [its] ordinary meaning."

The Supreme Court has further explained in Octane that an exceptional case is

simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated [and] District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.

When reviewing an exceptional case, the Federal Circuit is "mindful that the district court has lived with the case and the lawyers for an extended period ... and [it is] not in a position to second guess the trial court's judgment," as per the Federal Circuit's 2011 Eon-Net LP v. Flagstar Bancorp decision. 

PersonalWeb is the owner of U.S. Patent Nos. 5,978,791; 6,928,442; 7,802,310; 7,945,544 and 8,099,420 — collectively, the true name patents.  These patents are generally directed to what the inventors termed the "true name" for identifying data items.  True names are unique identifiers that depend on the content of the data item.

The activities that led to the Nov. 3 exceptional case determination started in 2011, when PersonalWeb sued Amazon.com Inc. in the U.S. District Court for the Eastern District of Texas, alleging that Amazon's Simple Storage Service, or S3, cloud technology infringed PersonalWeb's true name patents.  After the district court construed the claim terms, PersonalWeb stipulated to a dismissal, resulting in the district court dismissing with prejudice the infringement claims against Amazon and entering final judgment against PersonalWeb.

Seven years later, in 2018, PersonalWeb asserted the same true name patents against 85 Amazon customers across the country for their use of Amazon's S3 technology.  Amazon intervened and filed a declaratory judgment action against PersonalWeb.  The declaratory judgment action sought an order, barring PersonalWeb's infringement actions against Amazon and its customers based on the Texas action.

The declaratory judgment action and customer cases were then consolidated into a multidistrict litigation and assigned to the Northern District of California.  Upon consolidation, PersonalWeb represented that if it lost its case against Twitch, a customer case, it would not be able to prevail in the other customer cases.  The California district court then stayed the other customer cases and proceeded with Amazon's declaratory judgment action and the Twitch customer case.

In the declaratory judgment action, PersonalWeb counterclaimed against Amazon, alleging that Amazon's S3 technology infringed its true name patents and later added claims against another Amazon product, CloudFront.  The district court granted summary judgment of noninfringement as to the S3 product in favor of Amazon, based on both the Kessler doctrine and claim preclusion.

The Kessler doctrine generally precludes a patentee from pursuing follow-on infringement suits against the customers of a manufacturer that previously prevailed against the patentee on the same allegedly infringing products.  The district court later granted summary judgment of noninfringement as to the CloudFront product based on PersonalWeb's concession that it could not meet its burden of proving infringement under the district court's claim construction.

The Federal Circuit affirmed both decisions.  The district court then granted Amazon and Twitch's motion for attorney fees and costs, pursuant to Title 35 of the U.S. Code, Section 285.

In determining that the case was exceptional, the district court found that:

  •     PersonalWeb's infringement claims related to Amazon S3 technology were objectively baseless and not reasonable when brought, because they were barred due to a final judgment entered in the Texas action;

  •     PersonalWeb frequently changed its infringement positions to overcome the hurdle of the day;

  •     PersonalWeb unnecessarily prolonged the litigation after claim construction foreclosed its infringement theories;

  •     PersonalWeb's conduct and positions regarding the customer cases were unreasonable; and

  •     PersonalWeb submitted declarations that it should have known were inaccurate.

PersonalWeb appealed to the Federal Circuit, contending that the district court erred as to each of its exceptional case findings.  The Federal Circuit addressed each argument, starting with PersonalWeb's alleged objectively baseless infringement claims.

Objective baselessness relates to "[t]he substantive strength of a party's litigating position" and can "independently support an exceptional-case determination," according to Octane — with these factors also cited in the Federal Circuit's 2017 Nova Chemicals Corp. (Canada) v. Dow Chemical Co. decision.  Thus, according to Octane, "a case presenting ...  exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award."

In this regard, the Federal Circuit said, quoting Octane, in the 2015 SFA Systems LLC v. Newegg Inc decision: "It is the 'substantive strength of the party's litigating position' that is relevant to an exceptional case determination, not the correctness or eventual success of that position."

At the Federal Circuit, PersonalWeb argued that, with respect to objective baselessnes, the reach of Kessler had not been a well-settled issue and that the Federal Circuit's affirmance of the district court's summary judgment decision extended Kessler to cover cases against manufacturers that had been dismissed with prejudice pursuant to stipulation without adjudication of noninfringement.

The majority rejected PersonalWeb's arguments, and reiterated that the Kessler doctrine precludes a patentee who is first unsuccessful against the manufacturer from then suing the manufacturer's customers for those acts of infringement that post-dated the judgment in the first action. 

The majority opined that a straightforward application of Kessler barred PersonalWeb's claims because the order in the Texas action dismissing with prejudice all claims against Amazon and its S3 product operated as an adverse adjudication on the merits of PersonalWeb's infringement claims.

The Federal Circuit likewise found that claim preclusion rendered claims of customer infringement prior to the final judgment in the Texas action objectively baseless.  The Federal Circuit's remaining exceptional case analysis relates to litigation conduct.  And under the Supreme Court 's Octane Fitness standard, "a district court may award fees in the rare case in which a party's unreasonable conduct — while not necessarily independently sanctionable — is nonetheless so 'exceptional' as to justify an award of fees."

On appeal, with respect to the district court's finding regarding PersonalWeb's "frequently changing infringement positions," PersonalWeb argued that its conduct constituted zealous advocacy.

The Federal Circuit disagreed because the record showed that PersonalWeb's alternative infringement theories were constantly changing throughout the case, ranging from emphasizing one, or the other, or both.  The Federal Circuit found that PersonalWeb's pattern of flip-flopping infringement theories made the case "stand out from others with respect to the substantive strength" and "the unreasonable manner in which the case was litigated."

PersonalWeb challenged the district court's finding that PersonalWeb unnecessarily prolonged litigation on the basis that the district court had expressly credited PersonalWeb's efforts to streamline the case post-claim construction.

The Federal Circuit disagreed, holding that the district court's finding was not an abuse of discretion because:

  •     PersonalWeb refused to immediately stipulate to noninfringement despite an adverse claim construction and an obligation to continually assess the soundness of its claims; and

  •     PersonalWeb's offering of expert opinion relying on alleged ambiguity in the district court's claim construction amounted to an impermissible attempt to relitigate claim construction.  The Federal Circuit further noted that, while PersonalWeb may have taken other actions that did not prolong the case, the above misconduct sufficiently supported the district court's finding.

PersonalWeb challenged the district court's finding that PersonalWeb's conduct and positions regarding the issue of customer case representatives were unreasonable on the basis that it was only during discovery, in July 2019, that PersonalWeb discovered that Twitch was not representative of certain categories of the customer cases.

The Federal Circuit rejected this argument.  The court said PersonalWeb could not change horses in February 2020, after PersonalWeb had represented that it could not prevail against other customers if it could not prevail against Twitch, and after the district court granted summary judgment of noninfringement in favor of Amazon and Twitch.

The Federal Circuit also concluded that PersonalWeb's seven-month delay in raising its allegedly newly discovered nonrepresentativeness issue was unreasonable.  PersonalWeb also challenged the district court's finding that two inaccurate declarations submitted on behalf of PersonalWeb in support of its opposition to summary judgment were relevant to the exceptionality analysis.

The Federal Circuit agreed with the district court that the testimony was contradicted by the record and supported a finding of unreasonable litigation conduct.  The Federal Circuit dismissed PersonalWeb's argument that the testimony was not inaccurate as frivolous.

The appellate court concluded its analysis of the district court's exceptional case determination with an admonition that counsel, as officers of the court, "are expected to assist the court in the administration of justice, particularly in difficult cases involving complex issues of law and technology." 

The Federal Circuit found no clear error in the district court's finding that PersonalWeb's counsel fell short of this expectation by litigating with "obfuscation, deflection and mischaracterization" to make the case exceptional under Section 285.

With respect to the calculation of $5.2 million in attorney fees, which PersonalWeb also challenged on appeal, the Federal Circuit found no abuse of discretion in the district court's calculation.  The Federal Circuit found that the district court thoroughly analyzed the extensive record, considered conduct that both supported and detracted from its award of attorney fees, and explained the award's relation to the misconduct.

In a dissenting opinion, Judge Dyk contended that PersonalWeb's position on Kessler could not be objectively baseless because — in an amicus brief to the Supreme Court — the solicitor general agreed with PersonalWeb that the dismissal with prejudice of the Texas action should not trigger the Kessler doctrine. 

As Judge Dyk put it, "[T]he solicitor general is not in the habit of making objectively baseless arguments to the U.S. Supreme Court."  Judge Dyk asserted that the majority effectively punished PersonalWeb for making an argument on which it did not succeed rather than one that was unsupported.

Despite the dissent, this case underscores district courts' discretion to sanction unreasonable arguments and litigation tactics under Section 285.  Attorneys should be mindful when zealously representing their clients not to present to the court cases that may be deemed "exceptional" under Section 285.

When deciding to prosecute a patent infringement lawsuit, attorneys should conduct adequate pre-suit investigation, ensuring that each and every element of the claim is likely present in the accused product or process, either literally or as an equivalent, and that a prospective plaintiff is not barred from bringing suit.

The pre-suit investigation should also include researching and staying current on the controlling authority for the suit's specific fact pattern.  It naturally follows that attorneys should not ignore or mischaracterize evidence or controlling authority that undermines their clients' claims.

After filing suit, attorneys have a responsibility to dismiss the suit if subsequent developments foreclose the possibility of victory.  Importantly, attorneys should always remember that, while advocates for their clients they are also officers of the court, and owe the court a duty of candor and must abide by court rules and assist the court in the expeditious administration of justice.  Losing sight of these obligations risks exposing clients to an award of fees and costs under Section 285.

Pursuant to Section 285, a court may look to the totality of the circumstances, using, as per Octane, a "'nonexclusive' list of 'factors,' including 'frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.'"

Parties should be aware that while an individual argument or litigation tactic might be characterized as mere zealous advocacy, an award of attorney fees may be supported when that conduct is viewed under the governing totality of circumstances standard.

Thomas R. Makin is a partner, David Cooperberg is a special attorney and Adi Williams is an associate at Shearman & Sterling LLP.

Article: How Plaintiffs’ Counsel Can Avoid Common Benefit Fund Fee Disputes

December 14, 2023

A recent article by Judge Marina Corodemus and Mark Eveland, “Four Ways Plaintiffs’ Firm Can Prevent Common Benefit Fund Fee Disputes”, reports on ways plaintiffs’ firms can prevent common benefit fund fee disputes.  This article was posted with permission.  The article reads:

Common benefit funds (CBFs) ensure fairness and equity in the distribution of legal fees and expenses in aggregate and complex litigation, including class actions, mass torts, trust and securities, and multidistrict litigations (MDLs), where the litigation is prosecuted by either an ad hoc or judicially appointed committee or team of attorneys.  Their primary purpose is to recognize and compensate the plaintiffs’ attorneys who contribute their time, expertise, and resources to advancing the interests of most, if not all, of the plaintiffs in a particular litigation, including litigants who are not their clients but are benefited by the attorneys’ work product prosecuting the suit.

CBFs provide a compensation mechanism that enables large scale, highly expensive complex class actions and mass torts to proceed.  They provide the financial incentive for plaintiffs’ attorney groups to organize and then collect and centralize financial contributions and disbursements necessary to fund critical litigation activities like document management and reviews, scientific or factual investigations, expert recruitment, and, where needed, retention of specialized legal experts (such as bankruptcy, tax, and transactional practitioners).  CBFs help ensure that no single attorney or firm shoulders the entire financial burden of the legal work that puts the plaintiffs in complex litigation in position to resolve the litigation favorably.  When appropriately managed, CBFs reward attorneys and firms for doing work that benefits the greater good.

Certainly, attorneys who take on the risks and leadership roles in complex litigation deserve fair compensation for their efforts.  But lately, there seems to be a larger number of disputes over disbursements from CBFs among the plaintiffs’ firms involved in complex litigation (so called “Common Benefit Attorneys”) when and where such disbursements are forthcoming.  These disputes often garner public attention, perpetuating a narrative that plaintiffs’ attorneys are motivated solely by greed and self-interest.  Certain defense firms whose clientele often are mass tort defendants and advocacy organizations—the entities most responsible for creating this narrative in the first place—are happy to use those disputes as part of their public relations efforts supporting “tort reform.”

The pelvic mesh MDL, established in 2010 and which involved over 100,000 female plaintiffs suing seven companies in what is undoubtedly one of the most complicated MDLs in history because it is a series of seven MDLs (MDL nos. 2187, 2325, 2326, 2327, 2387, 2440 and 2511) consolidated in the U.S. District Court for the Southern District of West Virginia, is an example of how a highly publicized CBF dispute can cast a shadow on the legal profession.  That dispute, like so many other CBF disputes, centered on whether certain law firms deserved the allotted fees from the CBF that the members of the plaintiffs’ executive committee in that litigation allocated to them.

And, just this past August, the Ninth Circuit settled a dispute—for now—in the Bard IVC filters litigation, In Re Bard IVC Filters Products Liability Litigation, MDL No. 2641 (D. Ariz.), established in 2015, regarding whether plaintiffs’ attorneys who agree to contribute to common benefit funds in MDLs are bound by those deals if they settle cases that were not part of an MDL.

In our view, there are four principal causes of CBF disputes.  We list them below, along with strategies for preventing them.

1.  A lack of billing standards and concurrent billing and time/expense review can be readily avoided through precise case management orders (CMOs) and clear billing guidelines.

Many CBF disputes are caused by the absence of well-defined requirements and standards for billing common benefit time and expenses.  Ambiguity surrounding billing practices leads to inconsistencies in the way attorneys record and submit their costs, giving rise to misunderstandings and disputes when fees are allocated.  Additionally, the lack of a standardized framework and mechanics for billing and expenses complicates attorneys’ perceptions of the fairness and validity of fee requests, in turn potentially eroding trust among plaintiffs’ firms.  Without clear and precise billing standards in place, and an evenhanded administration of those standards, it becomes challenging to objectively gauge the contributions of each attorney and firm.

Implementing comprehensive case management orders (CMOs) and clear billing guidelines can prevent CBF disputes.  CMOs should not only specify the tasks that qualify for compensation but also the allowable rates and expenses.  In doing so, they will provide an independent standard to reference when disputes arise.

For instance, a standardized CMO might include a provision stating that research tasks directly related to the case, such as reviewing medical records or consulting with expert witnesses, are billable, while unrelated tasks, like administrative work, are not.  (Of course, in highly complicated cases requiring extensive coordination and collaboration, administrative work may certainly be deemed permitted billable time.)  In addition, it is well established that there is a hierarchy of value for work that has a greater impact on the litigation and generates more “common benefit.”  Such work deserves greater compensation.  A CMO and related agreements can specify this hierarchy, providing guidelines for determining what kind of work generates a common benefit, and calculating the fees to be paid for this work.

CMOs and agreements as to billing guidelines are binding and provide clarity needed during fee allocation in MDL cases, potentially preventing major fee disputes.

For example, the CBF dispute in the pelvic mesh litigation arose in part because of a disagreement over what work provided more of a common benefit: the settlement of cases quickly and for relatively small dollar amounts or high-dollar jury verdicts.  Ultimately, Judge Joseph R. Goodwin of the Southern District of West Virginia granted a request from a fee and cost committee in that litigation that deemed the former to provide more common benefit than the latter.

The Bard IVC filters litigation provides another useful illustrative case.  There, some plaintiffs’ attorneys moved to reduce and exempt their clients’ recoveries from common benefit and expense assessments, arguing that no assessment should be paid by clients whose cases were filed in federal court after the MDL closed, were filed in state court, or were never filed in any court. U.S. District Judge David G. Campbell of the District of Arizona denied this motion.  As we noted above, the Ninth Circuit affirmed Campbell’s ruling, holding that these attorneys, who had agreed to pay a share of their fees to the MDL leaders, were required to abide by those agreements even if they settled cases outside of the consolidated proceeding.

Agreed-upon CMOs that set forth procedures, guidelines, and limitations for submitting applications for reimbursement of litigation fees and expenses inuring to the claimants’ common benefit can be instrumental in resolving or avoiding CBF disputes.

2.  The problems caused by late submissions of billing records can be avoided by requiring attorneys to make regular, contemporaneous submissions.

Another frequent cause of CBF disputes is attorneys delaying their submission of billing records.  Too often, attorneys and their support teams, engrossed in all-consuming complex litigation, fail to timely submit their time and expense records.  Attorneys sometimes submit crucial billing details months or even years after the fact, making it necessary for others to “forensically” reconstruct this information, a practice that not only jeopardizes the accuracy of time and expense submissions but may result in crucial work being overlooked or submitted without adequate supporting documentation. 

Delayed submissions also prevent courts and plaintiffs’ leadership teams from performing comprehensive and accurate assessments of work described in billing submissions.

CMOs or fee committees that mandate the regular submission of time and expense records can put an end to this problem.  As was the case in the pelvic mesh MDL, adopting CMOs that include specific provisions requiring attorneys to submit their time and expense records at regular intervals throughout a litigation significantly enhances efficiency and transparency.  These CMOs may, for instance, stipulate that detailed records must be submitted monthly or quarterly, with a reduction in potential compensation for any submissions beyond agreed-upon deadlines. 

This practice ensures that time and expense records are submitted relatively promptly after attorneys perform the work described in them, capturing the most accurate information (and fresh memories).  The regular submission of records also enables the court and MDL leadership to compare billing records with case calendars to determine if the work completed and the time spent completing it is consistent with expectations of when that work should have been completed and how long it should have taken.

3.  The lack of independent oversight can be remedied by bringing on a neutral.

When plaintiffs’ leadership teams collect, review, and approve CBF allocations, and stand to benefit personally from those decisions, it is easy to see how this lack of independent oversight can cause CBF disputes and give rise to accusations of conflicts of interest and self-dealing.  Appointing a neutral third party to oversee time and expense submissions to the CBF and mediate disputes can remedy this problem. 

This impartial overseer should be an independent legal expert or mediator with no vested interest in the litigation outcome, which should preclude accusations of conflicts of interest and self-dealing.  This neutral party should also be empowered to enforce deadlines for submissions, review and evaluate the reasonableness of time and expenses submissions, disallow submissions containing excessive time and expenses, and swiftly address any discrepancies that arise during the allocation process.

Some attorneys and judges are satisfied with handing off the issues at the center of a CBF dispute to an accountant.  We would suggest that the calculations necessary to resolve such a dispute require more than a bookkeeping background.  We believe hiring a neutral who is experienced in mass torts litigation and awarding attorneys’ fees, and who recognizes the worth of litigation roles, is a superior selection method.

4.  Disputes caused by an opaque process could be reduced by making it more transparent.

Inadequate transparency is a major cause of CBF disputes.  Those attorneys and firms that are not in leadership positions often have limited knowledge of the fees and expenses incurred as the litigation progresses, which could make them feel blindsided when their allocated fees are less than those they submitted.  Without ongoing and timely communication regarding billing submissions and allocations, attorneys and firms outside the leadership circle may question the fairness and reasonableness of both.

The solution to this problem is simple.  Leadership committees in complex litigation should provide all law firms that pay assessments into the CBF with regular reports that explain time and expense submissions.  In addition, every firm could ask questions of the people responsible for submitting those bills and allocating distributions from a CBF.

Attorneys whose inquiries are addressed by leadership and a court-appointed neutral throughout the process are far less likely to contest fee allocations at the conclusion.  Plus, increased transparency enhances confidence among plaintiffs’ firms, fostering greater trust and a more cooperative environment.

Simple solutions to a complex problem?

Given the time plaintiffs’ attorneys spend litigating complex litigation, it is not surprising that they want to ensure they are paid for the work they did that went to the common benefit of the plaintiffs in a litigation.  But given the number of attorneys and firms representing clients in these litigations, and the sizes of CBFs in complex litigation today—the CBF in the Vioxx litigation, In re Vioxx Products Liability Litigation, MDL No. 1657 (E.D. La.), established in 2005, was $315 million—disputes over whether those attorneys’ contributions are fairly reflected in their CBF allocation are practically inevitable.

In our view, the core four causes of CBF disputes can be reduced in frequency and severity, if not outright eliminated, by implementing standardized billing practices, promoting timely billing submissions, and instituting impartial oversight and increasing transparency concerning the CBF allocation process.

Unless plaintiffs’ attorneys can eliminate CBF disputes, the positive social change they can bring about through complex litigation will be overshadowed by what the public—thanks in part to the corporate defense bar and advocacy organizations—will perceive as greedy attorneys bickering over millions of dollars.  That, in and of itself, should motivate more plaintiffs’ leadership teams to adopt these methods for reducing CBF disputes.

Judge Marina Corodemus is a former New Jersey Superior Court judge who helped establish New Jersey Mass Torts court (MCL).  She is now the managing partner of the ADR practice at Corodemus & Corodemus.  She has served as a special master in numerous MDLs and complex litigation in federal and state courts.  Mark Eveland is the CEO of Verus, a leading mass tort litigation support services firm.

Article: Understanding Attorney Fee-Shifting to Mitigate Risk

December 5, 2023

A recent Business Insurance article by Iran Valentin and Allison Scott, “Perspectives: Understanding Attorney Fee Shifting to Mitigate Exposures”, reports on the importance of understanding attorney fee-shifting in litigation to mitigate risk.  This article was posted with permission.  The article reads:

The availability of attorneys fees is a significant concern to policyholders.  Without the potential to recover the fees, most dubious claims and suits related to employment law and consumer protection, for example, would not be pursued.  The potential of a fee recovery also drives up the cost of resultant litigation, settlements and awards.  Thus, a double-headed monster emerges: an increase in the number of claims and an increase in exposure, which can eventually drive up the costs of insurance.

An existential threat that exists for corporations is a “nuclear verdict,” or a runaway jury award.  These huge verdicts grew in the face of incessant legal advertising by plaintiffs attorneys and the resultant slanted narrative effectively desensitized potential jurors to the value of money and preemptively taints prospective jury pools.

Within this context, it is more important than ever for insurance professionals and defense counsel to understand the significance of attorney-fee shifting.  When crafting a defense strategy, many factors are considered, including the nature of the alleged loss, the profiles of the litigants, the reputation of the claimants’ counsel, recent jury verdicts and the jurisdiction.  Equally as important should be considering the effect of fee-shifting, to develop strategies to mitigate that exposure.

Remedial legislation

Basically, fee-shifting requires a losing party in litigation to pay a prevailing party’s attorneys fees.  It represents a departure from the “American Rule,” which generally provides that each party to a litigation will bear their own fees.  However, fee-shifting statutes have continued to grow, especially in the areas of employment and consumer protection, or so-called remedial legislation.

One of the purposes of remedial legislation is to introduce policies intended to benefit the public good, including anti-discrimination, anti-retaliation and consumer protection.  The policies enable fee-shifting provisions so alleged victims have access to competent legal representation.  It is not always the alleged victims who seek vindication, but rather lawyers who make a market in an area where attorneys fees are available.

Fee-shifting is sometimes a misnomer, as the availability of fees under enabling law is often limited to a prevailing plaintiff, as opposed to a prevailing defendant.  Under those laws, legislators seek to avoid the creation of a “chilling effect,” in dissuading potential plaintiffs and their lawyers from pursuing a claim.

Some laws allow for more traditional fee-shifting, by allowing prevailing defendants to recover defense fees for claims that lack merit or are brought in bad faith.  While a prevailing party may be awarded fees under a fee-shifting law, there is often attendant litigation over who constitutes a “prevailing party.”  Generally, a prevailing party is one who achieves a substantial proportion of the relief sought, whether or not that party actually obtains a verdict.  Courts have held that parties may not only prevail by judgment but also by compromise or settlement. 

In at least one jurisdiction, fee-shifting has also been made available in the professional liability context.  In New Jersey, the precedential 1996 case of Saffer v. Willoughby allowed a successful plaintiff to recover attorneys fees in prosecuting a legal malpractice action.  The New Jersey Supreme Court held that a negligent attorney is responsible for resulting legal fees and costs.  Interestingly, those fees were not considered fee-shifting, but “consequential damages” flowing from the attorney’s negligence.  New Jersey courts also allow recovery of fees by a third-party if the attorney intentionally breaches a recognized duty owed to a non-client, such as when serving as a fiduciary. 

The “common fund” and “substantial benefit” doctrines are also court-created fee-shifting mechanisms.  The common fund doctrine applies where litigation has created or preserved a common fund for the benefit of a group of people — such as a class action — and, accordingly, an attorney may be awarded attorneys fees out of that fund.  The substantial benefit doctrine applies if a judgment confers a substantial benefit on a defendant, such as in a corporate derivative action, which could lead to the payment by the defendant of the attorneys fees incurred by the plaintiff. 

Outside of the statutory and court-created fee-shifting framework, parties to a contract may agree to fee-shifting provisions.  Commercial contracts quite commonly contain default provisions that call for the payment of attorneys fees to a prevailing party in a dispute to enforce the terms of the agreement.

In most jurisdictions, attorneys fees that are awarded pursuant to a fee-shifting statute are calculated by setting a “lodestar,” which is the number of hours reasonably expended by an attorney multiplied by a reasonable hourly rate in the jurisdiction. Courts have the flexibility to adjust the lodestar considering certain factors, such as the results obtained by the attorney; the time and labor required to obtain that result; the attorney’s skill; the attorney’s customary fee; the amount of money involved in the claim; and awards in similar cases.

If the prevailing party has only achieved partial or limited success, the requested lodestar may be considered excessive and reduced.  Moreover, the attorney’s presentation of time billed must be set forth with sufficient detail, based on appropriate rates and in compliance with the jurisdiction’s ethical requirements.

Determining exposure

When a claim arises, insurance professionals and defense counsel should determine whether the policyholder is exposed to any court rule, statute, regulation or case law that allows fee-shifting or an award of attorneys fees.  They should also conduct an early assessment of liability and damages and consider early avenues to resolution to mitigate the exposure to fee-shifting.  Depending on the jurisdiction, defense counsel may be able to craft strategies designed to cabin the availability of attorneys fees, helping to drive resolution.  These are good faith strategies and methods employed during a case to drive resolution and also mitigate the exposure to attorneys fees. 

Often, a reasonable settlement curbing increased fees and costs is the second-best result outside of obtaining an early dismissal.  However, it is important to take care during settlement negotiations and the drafting of settlement agreements, releases and stipulations resolving litigation to account for attorneys fees and costs.  Lack of attention or poor drafting could result in unintended consequences, including the imposition of a fee award. 

When an adverse judgment calls for the imposition of an award of attorneys fees, strategies can still be employed to curb a disproportionately excessive fee claim, by relying on mitigation strategies employed at the outset designed to limit the recovery of fees; exposing the limited success of a claimant; exposing an adversary’s wastefulness during the dispute; questioning the proofs submitted in support of the fee claim; and otherwise contesting the reasonableness of the fee claim.

Iram Valentin is co-chair of the professional liability practice group in the Hackensack, New Jersey, office of Kaufman Dolowich LLP.   Allison Scott is an associate at the firm.