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Category: Fee Doctrine / Fee Theory

Eleventh Circuit Upholds Fee Award in Chinese Drywall MDL

June 10, 2021

A recent Law 360 story by Carolina Bolado, “11th Circ. Upholds Fee Award in Chinese Drywall MDL,” reports that the Eleventh Circuit ruled that court-appointed class counsel in the defective Chinese drywall multidistrict litigation could receive 45% of the total fees paid to attorneys who negotiated settlements for 497 Florida plaintiffs because their work on the common case helped lead to the individual recoveries.  The appeals court said U.S. District Judge Marcia G. Cooke did not abuse her discretion when she awarded class counsel $5.8 million of the more than $40 million paid by Taishan Gypsum Co. Ltd. to end claims over shoddy drywall imported from China.

The class counsel includes firms Colson Hicks Eidson, Lieff Cabraser Heimann & Bernstein LLP, Morgan & Morgan, Herman Herman & Katz LLC and Seeger Weiss LLP.  The Eleventh Circuit said that although the attorneys for the 497 plaintiffs had worked hard to get the deal, their work "did not exist in a vacuum."

"They benefited from the decade of foundational work that class counsel exerted in this groundbreaking MDL, which involved evasive defendants in China, complex jurisdictional challenges requiring two trips to the Fifth Circuit, decertification attempts and liability determinations," the appeals court said.  "That class counsel has otherwise been compensated for this work does not prevent them from continuing to reap the rewards of their efforts."  The 497 plaintiffs were part of 1,734 Florida cases remanded in 2018 from the MDL in Louisiana to Judge Cooke in the Southern District of Florida for further proceedings.

Following the settlement with the 497 plaintiffs, class counsel said that much of their foundational work was used to secure the deals, entitling them to 20% of the total settlement.  After a global settlement was approved in January 2020 between Taishan and the remaining class members, the class counsel amended their award request to 60% of the attorney fees paid out to the individual plaintiffs, according to the opinion.  In May 2020, Judge Cooke awarded them a 45% cut.

The counsel for the individual plaintiffs appealed the decision, arguing that common benefit fees are only appropriate when there is a common fund from which to award them.  In this case, there is no common fund or judicial supervision of a fund, they said.  They also argued that class counsel have already been highly compensated for their common benefit work by the MDL court.

But the Eleventh Circuit said that particularly in complex litigation, courts have broad managerial power and discretion to award fees.  "The district court had control over the funds pursuant to the agreement of the parties to litigate common benefit fees in the SDFL and the actions taken by the court after the settlement agreement was first filed," the appeals court said.  "Awarding a portion of these fees to class counsel was therefore within the district court's power."  The appeals court added that preventing appointed counsel from recovering fees when their work leads to settlements down the road would make it more difficult for courts to find competent lawyers to take on that work.

Jimmy Faircloth, who represents the attorneys who worked on the individual settlements, told Law360 the ruling conflicts with Eleventh Circuit precedent by allowing contractual attorney fees to be used as a fund for purposes of the common benefit doctrine.  "[The ruling] allows MDL authority to reach even deeper into the jurisdiction of a transferor court following a remand," Faircloth said.  "This creates a slippery slope with negative consequences for the class action device."

Patrick Montoya, who represents the class counsel, said he was pleased the Eleventh Circuit affirmed Judge Cooke's "well-founded opinion recognizing class counsel's efforts in this decade-long, hard-fought case."  "The settlement obtained by class counsel was an unprecedented result against Chinese companies and the first of its kind in the United States," Montoya said.  "Judge Cooke and the Eleventh Circuit prevented a group of splinter lawyers from doing an end-around and unfairly benefitting from the class counsel's monumental efforts and the excellent results obtained for class members by class counsel."

Fifth Circuit: FDCPA Plaintiff Not Entitled to Attorney Fees Post-Settlement

April 22, 2021

A recent article by Christopher P. Hahn, “Fifth Cir. Holds FDCPA Plaintiff Not Entitled to Attorney’s Fees Following Settlement,” reports on a recent case involving the federal Fair Debt Collection Practices Act (FDCPA) and attorney fee awards.  This article was posted with permission.  The article reads:

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a trial court’s denial of an award of attorney’s fees to a debtor who settled his claims against a debt collector for purported violations of the federal Fair Debt Collection Practices Act and parallel state law consumer protection statutes.

In so ruling, the Fifth Circuit concluded that the fee-shifting provision under the FDCPA for a “successful action to enforce the foregoing liability” requires that a lawsuit generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA, 15 U.S.C. 1692, et seq., and that reaching settlement before any such end result does not entitle a plaintiff to an award of attorney’s fees under the statute.

A consumer sued a debt collector for purported violations of the FDCPA and parallel provisions of Texas state law.  After the parties’ cross-motions for summary judgment were denied on the basis that triable issues of fact existed, the parties reached a settlement before trial wherein the debt collector agreed to waive the outstanding debt (approximately $2,100) and pay $1,000 damages. 

After apprising the trial court of the settlement, the court entered sanctions against the debtor’s attorneys, ordering thousands of dollars in costs and fees and reporting them to the disciplinary committee of the U.S. District Court for the Western District of Texas for purportedly bringing the case in bad faith.  See Tejero v. Portfolio Recovery Assocs., L.L.C., 955 F.3d 453, 457. 

The debtor appealed, and the Fifth Circuit reversed the imposition of sanctions for abuse of discretion and remanded for the trial court to determine in the first instance whether the debtor’s favorable settlement entitled him to attorney’s fees under the FDCPA.  Id. at 462-463.  The district court said no, which led to the instant appeal.  In this appeal, the sole question before the Fifth Circuit was whether the trial court erred in refusing the debtor’s fee application under the FDCPA.

The United States generally employ the “American Rule” wherein “[e]ach litigant pays his own attorney’s fees, win or lose,” but this general rule can be altered or amended by statute or contract. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010).  As you may recall, the FDCPA authorizes fee shifting, allowing a plaintiff to recover reasonable attorney’s fees as determined by the court with costs “in the case of any successful action to enforce the foregoing liability.”  15 U.S.C. § 1692k(a)(3).

To determine whether such an award was merited here, the Fifth Circuit first turned to the dictionary definition of “successful” — a “favorable outcome,” or favorable end result.  Successful, American Heritage Dictionary 1740 (5th ed. 2011); Outcome, Id. at 1251.  “Successful” modifies the word “action” in the statutory language—the “lawsuit” in this case—thus requiring a favorable end or result from a lawsuit, not merely success in vacuo.  Next considering the infinitive phrase “to enforce the foregoing liability,” “enforce” expresses the purpose of the “successful action,” and thus, the action must succeed in its purpose of enforcing FDCPA liability. 

Read together, the Fifth Circuit stated that a “successful action to enforce the foregoing liability” means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA.  Here, the appellate court determined that because settlement was reached before the lawsuit reached any end result, let alone a favorable one, the debtor won no such relief, and the debt collector avoided a formal legal command or decree from the lawsuit. 

The debtor argued that his “action” was “successful” because he settled for $1,000, which are the statutory damages allowed by the FDCPA.  The Fifth Circuit rejected this alternative interpretation because it was resolved by settlement agreement that did not “enforce” FDCPA “liability” because it did not compel the debt collector to do anything.  Adopting such a position would improperly rewrite Congress’s statute to authorize fee-shifting “in the case of any successful plaintiff.”

The Fifth Circuit also declined to apply the catalyst theory to the FDCPA’s fee-shifting provision, as a “successful action” under 15 U.S.C. § 1692k(a)(3) notwithstanding its inapplicability to “prevailing party” statutes.  As you may recall, the catalyst theory posits that a plaintiff succeeds “if it achieves the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct” (Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Hum. Res., 532 U.S. 598, 601 (2001)). 

The Fifth Circuit declined to adopt that interpretation here because “prevailing party” and “successful party” are synonymous phrases carrying similar legal salience, requiring a formal lawsuit, success in that lawsuit, and some form of judicial relief (as opposed to private relief) that enforces the winner’s rights (Prevailing Party, Black’s Law Dictionary 1232), and such an interpretation would also disrupt recent circuit precedent and the Supreme Court’s mandate that fee-shifting statutes must be interpreted consistently.  Buckhannon, 532 U.S. at 603.

Because the debtor’s lawsuit was not a successful FDCPA action as defined by section 1692k(a)(3), the Fifth Circuit held that the trial court correctly determined that he was not entitled to fees, and its denial of attorney’s fees was affirmed.

Article: ERISA’s Fee-Shifting Provision Allows Fees Against Parties, Not Attorneys

April 14, 2021

A recent article by Laura Smithman, “ERISA’s Fee-Shifting Provision Permits Awards Against Parties, Not Attorneys,” reports on ERISA’s fee-shifting provision.  This article was posted with permission.  The article reads:

Does ERISA’s fee-shifting provision, 29 U.S.C. § 1132(g)(1), permit a court to award fees against a party’s counsel?  Deciding this issue of first impression that has divided district courts within and without the Eleventh Circuit, the court in Peer v. Liberty Life Assurance Co. of Boston, 2021 WL 1257440 (11th Cir. Apr. 6, 2021), held that it does not.  Although the fee-shifting statute provides that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party,” the Eleventh Circuit determined that the statute is best understood to authorize fee awards against parties and not their counsel.

The plaintiff in this case had an ERISA-governed insurance policy, with life insurance benefits insured by the defendant.  The policy provided that disabled policyholders are entitled to a waiver of policy premiums for the duration of their disability.  The defendant insurer denied the plaintiff this benefit upon determining that she was not disabled from “any occupation.”  The plaintiff hired an attorney to appeal the adverse benefits determination, but the decision was upheld.  The plaintiff then filed a lawsuit against the defendant.  In the meantime, however, the defendant reinstated the plaintiff’s coverage and the waiver of premium benefit retroactive to the original termination date.  Following this, the district court denied the plaintiff’s motion for summary judgment as moot with leave to file an amended complaint.

After the plaintiff filed two amended complaints (which contained exactly the same counts as the original complaint) and responded to interrogatories issued directly from the district court, the district court held a status conference.  At that conference, the district court held that Count I was moot and Count II was not ripe for review, where the plaintiff sought an advisory opinion about her rights if the defendant were to render an adverse benefits determination in the future.  The Eleventh Circuit affirmed, in an opinion by Judge Andrew Brasher.

On remand, both parties moved for attorney’s fees under § 1132(g)(1) and the district court granted both motions in part.  The district court awarded attorney’s fees to the plaintiff for the work she performed up until the defendant reinstated her policy and awarded attorney’s fees to the defendant for work performed after it reinstated the policy.  Significantly, the court directed the defendant to pay the plaintiff’s fees, and the plaintiff’s counsel to pay the defendant’s fees.  The court entered the fee award against plaintiff’s counsel for two specific reasons: (1) if he had brought the claims with clarity, the case would have ended much earlier, and (2) he had 30 years of ERISA experience and should have known that the case was moot.

Following this, the plaintiff filed a motion to alter the judgment.  The district court denied it within the hour and without a response from the defendant, and the plaintiff appealed.  The defendant cross-appealed, arguing that attorney’s fees should have been assessed against both the plaintiff and her attorney. 

In holding that ERISA’s fee-shifting statute does not permit a court to impose a fee award against a party’s attorney, the court cited five reasons based in “precedent, common sense, and principles of statutory interpretation” to establish its holding.  First, the court reasoned that its reading of the statute accords with common law principles informing its interpretation of the statute.  Noting that fee-shifting statutes must be read strictly and with a presumption favoring long-established legal principles, including the American Rule, the court considered Title VII of the Civil Rights Act.  The court recalled its decision from nearly 40 years prior, in which it held that Title VII’s fee-shifting provision did not support an attorney’s fee award against counsel.  Similar to ERISA’s fee-shifting provision, that statute provided for a fee award without identifying who must pay.  Because ERISA is also silent about who must pay, the court reasoned that the statute does not permit a court to award fees against counsel.  The court noted that this remained true, even though ERISA’s fee-shifting provision does not create a presumption in favor of awarding fees, unlike Title VII.

Second, the court reasoned that this reading is consistent with its reading of ERISA generally.  The court determined that the caselaw establishes that ERISA is “not primarily about punishing misconduct.” Reviewing the five-factor test to determine whether to award fees under ERISA, the court concluded that the factors focus on the parties, not their attorneys, and nothing in the test indicated that an attorney should be liable for paying a party’s fees.  The court found no benefit to creating “a special sanctions regime for ERISA lawyers,” and noted that such a standard would undermine ERISA by making it more difficult for beneficiaries and insurance plans to hire counsel wary of the personal risk associated with taking ERISA cases.

Third, the court found that its holding minimizes any disruption to the attorney-client relationship, which could be compromised by potential spinoff fee litigation like the case at hand.  Fourth, the court reasoned that its holding is in alignment with the longstanding rule that “clients are responsible for the actions of their lawyers, not the other way around.”  Fifth, the court held that interpreting the statute to allow fee awards against attorneys would circumvent procedures to sanction attorney misconduct.

Ninth Circuit Doubles Fee Award in California Medicare Litigation

April 8, 2021

A recent Metropolitan News story, “Ninth Circuit Ups Attorney Fee Award Against California From $4 Million to $8.2 Million,” reports that the Ninth U.S. Circuit Court of Appeals has decided that a District Court judge, at the tail end of years-long litigation to bar slashes in California’s Medicare program, short-changed a law firm in her award of attorney fees by reducing its hours and declining to employ a multiplier, with the appeals panel declaring that the firm is entitled to nearly $8.2 million.

The action was brought in Los Angeles Superior Court on April 22, 2008, and the state removed it to the U.S. District Court for the Central District of California on May 19, 2008.  Plaintiffs are the Independent Living Center of Southern California, two branches of the Gray Panthers, and several pharmacies and pharmacists, along with individual Medicaid recipients.  “Litigation in this case spanned twelve years and included argument at every level of the federal courts,” the Ninth Circuit’s latest opinion in the case notes.

The case, which spawned a U.S. Supreme Court opinion in 2012, was settled in 2014.  District Court Judge Christina A. Snyder of the Central District of California ruled on July 6, 2015 that California Code of Civil Procedure §1021.5, the private attorney general statute, “cannot support an award of attorneys’ fees in this case”; the Ninth Circuit vacated her order and remanded on Nov. 21, 2018; on Jan. 24, 2020, Snyder awarded the Los Angeles law firm of Stanley L. Friedman $2,731,800, saying:

“This amount reflects the product of the $628/hour rate that the Court found to be a reasonable lodestar rate for the Friedman firm, and the 4.350 hours that the Court found to be a reasonable lodestar for the total number of hours spent by the Friedman firm litigating this case.”  The intervenors’ counsel did most of the work, she remarked, concluding: “The Friedman firm’s supporting role during the merits stage of this case simply does not support a fee enhancement.”

The Ninth U.S. Circuit Court disagreed.  “Here, the district court inadequately justified awarding Friedman only fifty percent of his requested hours, while awarding Intervenors’ counsel one hundred percent of theirs,” the opinion says.  It adds that in light of the usual factors militating in favor of a multiplier, “the need to ensure that, in the future, lawyers are not dissuaded from taking up claims that will benefit the public interest,” Snyder “erred by failing to apply a multiplier.”

The court, itself, set the amount the firm is to receive, saying: “Because of the district court’s thorough fact-finding, we are able to modify the attorney’s fees award on appeal, conserving judicial resources by avoiding the need to remand for further proceedings.  Pursuant to the foregoing, we hold that the Friedman Firm is entitled to payment for seventy-five percent of its billed hours, at the rates set forth by the district court.  We further hold that the Friedman Firm is entitled to a multiplier of 2.  The Friedman Firm billed 8.699 hours.  Seventy-five percent of this amount, multiplied by the hourly rate of $628 yields an award of $4,097.229.00.  With a multiplier of 2, the Friedman Firm is entitled to $8,194,458.00 pursuant to California Code of Civil Procedure § 1021.5.”

Working Paper: Judicial Guide to Awarding Attorney Fees in Class Actions

March 7, 2021

A recent Fordham Law Review working paper by Brian T. Fitzpatrick, “A Fiduciary Judge’s Guide To Awarding Fees in Class Actions (pdf),” considers the fiduciary role of judges in awarding attorney fees in class action litigation.  This article was posted with permission.  Professor Fitzpatrick concludes his article:

If judges want to act as fiduciaries for absent class members like they say they do, then they should award attorneys’ fees in class actions the way that rational class members who cannot monitor their lawyers well would do so at the outset of the case.  Economic models suggest two ways to do this: (1) pay class counsel a fixed or escalating percentage of the recovery or (2) pay class counsel a percentage of the recovery plus a contingent lodestar.  Which method is better depends on whether it is easier to verify class counsel’s lodestar (which favors the contingent-lodestar-plus-percentage method) or to monitor against premature settlement (which favors the percentage method) as well as whether it is possible to run an auction to determine the market percentage for the contingent-lodestar-plus-percentage method.  The (albeit limited) data from sophisticated clients who hire lawyers on contingency shows that such clients overwhelmingly prefer to monitor against premature settlement, since they always choose the percentage method.  Whether the percentage should be fixed or escalating depends on how well clients can do this monitoring.  Data from sophisticated clients shows both that they choose to pay fixed one-third percentages or even higher escalating percentages based on litigation maturity just like unsophisticated clients do, and they do so even in the most enormous cases.  Unless judges believe they can monitor differently than sophisticated corporate clients can, judges acting as good fiduciaries should follow these practices as well.  This conclusion calls into question several fee practices commonly used by judges today: (1) presuming that class counsel should earn only 25 percent of any recovery, (2) reducing that percentage further if class counsel recovers more than $100 million, and (3) reducing that percentage even further if it exceeds class counsel’s lodestar by some multiple.

Brian T. Fitzpatrick is a professor of law at Vanderbilt University Law School in Nashville.