A recent Law.com story by Emily Saul, “’Policyholders May Recoup Attorney Fees If Insurer Fails in Contesting Duty to Indemnify”, reports that an insurer defending a policyholder in litigation must also reimburse the insured party’s coverage action costs if the insurer loses a legal challenge to its indemnity obligation, a judge has ruled.  Manhattan Supreme Court Justice Gerald Lebovits, in a case without a definitive decision from the state’s highest court, affirmed that when an insured “is cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,” and the insured party then prevails, the policyholder may recover attorney fees “incurred in defending against the insurer’s action.”  Little New York appellate precedent exists on this specific fee issue, Lebovits noted in his 10-page order, issued.  The decision increases insurance companies’ risk, should companies seek to deny coverage.

The underlying litigation—which continues—involves construction in two mixed-use commercial and residential buildings in Manhattan.  Plaintiffs sued defendants Crystal Curtain Wall System Corp. and other affiliated entities in 2011 over water damage caused by alleged construction defects.  Utica Mutual Insurance Company and Utica National Assurance Company sued their policyholder Crystal entities in 2022, asking a judge to define the scope of its duty to indemnify the client.

Crystal subsequently moved to dismiss the action not yet ripe and sought an award of attorneys fees, should their motion prevail. Utica cross-moved for partial summary judgment, asking the court to find it had no duty to indemnify Crystal as to the costs of repair or replacement of the curtain wall.  “This attorney fee request implicates a legal question about the parameters of a prevailing insured’s entitlement to attorney fees from its insurer that New York appellate courts appear not to have considered,” the judge wrote.

“The parties do not cite, and this court has not found, any decision of the Court of Appeals or the Appellate Division discussing whether a prevailing policyholder is entitled to attorney fees when the insurer has acknowledged a duty to defend but contested the duty to indemnify,” the order states.  Absent precedent, Lebovitz said the court concludes for itself that a policyholder is entitled to attorneys fees when it prevails in an action brought by the insurance company challenging its duty to indemnify.

“New York doctrine in this area rests on the insurer’s duty to defend its insured in ‘any action arising out of the occurrence, including a defense against an insurer’s declaratory-judgment action.’ (City Club Hotel, 3 NY3d at 598 [emphasis added].)  This is true when an insurer contests both the duty to defend and to indemnify,” the judge wrote.  “No logical reason exists why it should be different—why an insurer’s duty to defend its insured should suddenly cease—when the insurer disputes only the duty to indemnify.  And the Court of Appeals’ holdings in this area have always been phrased in broad terms that would encompass an insurer’s indemnification-only challenge: They permit recovery by the insured that prevails against ‘the legal steps an insurer takes in an effort to free itself from its policy obligations,’ period—not merely the insurer’s policy obligation to defend.”

A recent Law 360 story by Katie Buehler, “’Petition Watch: NLRB GC Authority, Copyright Atty Fees”, reports that Toy maker Hasbro Inc. asked the justices in a Nov. 20 petition to reverse a First Circuit panel's June refusal to award its lawyers $1.9 million in attorney fees after defeating a copyright suit over the Game of Life.  The appellate panel found the copyright claims brought against Hasbro and heirs of the game developer Reuben Klamer were not objectively "unreasonable," and therefore didn't warrant the requested attorney fees under Section 505 of the Copyright Act.

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.  The First Circuit panel uses a highly restrictive test to determine whether prevailing parties in copyright lawsuits are entitled to attorney fees and costs, Hasbro argued in its petition.  Unlike the Fifth, Seventh, Eighth and Ninth circuits, the First Circuit views fees as available "only if the plaintiff's position was 'objectively quite weak,'" according to the company's petition.

The Supreme Court should address this circuit split and determine the proper standard for reviewing attorney fee requests under Section 505 of the Copyright Act, Hasbro said.  "The conflict is intractable, and the only resolution is this court's intervention," the company said.  Lorraine Markham and Markham Concepts haven't filed a response to the Hasbro and Klamer high court petition yet.

At the First Circuit, the Markham entities argued against the attorney fee awards by pointing to a Rhode Island federal judge's ruling, which sided with Hasbro and found the game was made on a "work for hire" basis, but also found the claims "objectively reasonable."

The case is Hasbro Inc. et al. v. Markham Concepts Inc. et al., case number 23-565.

A recent Law 360 story by Kelly Lienhard, “Traxcell Asks High Court To Review Atty Fee Fight”, reports that Traxcell Technologies LLC has asked the U.S. Supreme Court to take up an appeal concerning attorney fees owed to Sprint and Verizon after the telecommunication companies beat its infringement suit, arguing that the alleged "exceptional" litigation conduct occurred before a final ruling.

A  petition for a writ of certiorari from Traxcell, which filed for bankruptcy earlier this year, claimed that the Federal Circuit erred when it affirmed attorney fee awards to units of Sprint Corp. and Verizon Communications Inc. based on so-called "baseless" litigation conduct from Traxcell's attorney, William Ramey III of the Houston firm Ramey LLP, as the conduct in question occurred before the court adopted a magistrate judge's ruling.

"It is black letter law that a Magistrate's ruling is not final until approved by a district court.  It was [an] error for the Panel to base its fee award entirely upon rulings that were not final and could not have been final until December 11, 2019," Traxcell said.  "None of the conduct that was found to be "exceptional" under [federal law] occurred after the Magistrate Judge's recommendation was made final on December 11, 2019."

Texas-based Traxcell, which has been accused of being a "patent troll" by groups like the Electronic Frontier Foundation, is on the hook for about $784,000 in fees owed to Sprint and $132,000 in fees owed to Verizon, after the companies won rulings that Traxcell's patent lawsuits were legally frivolous.  AT&T Inc., which had also been named in those lawsuits, did not request any fees, as it ended its litigation with Traxcell back in 2019.  A panel of Federal Circuit judges ruled in July without comment that the lower court was right to order Traxcell to pay legal fees incurred by lawyers for the major telecom firms.

Traxcell is now appealing that decision based on arguments that the Federal Circuit departed from typical proceedings and court precedent by issuing fee awards based on conduct that occurred before U.S. Magistrate Judge Roy Payne's ruling in a separate, but related, case was finalized.

Traxcell is asking the high court to either vacate or reverse the attorney fees granted to both Sprint and Verizon and find that the case was not exceptional.  Verizon and Sprint, the latter now owned by T-Mobile, moved to dismiss the bankruptcy attempt, telling the court that it was filed in bad faith.

A recent Law 360 story by Kelly Lienhard, “’Daiichi Awarded $46M Fees in Cancer Drug Patent Arbitration”, reports that Japanese drugmaker Daiichi Sankyo Ltd. has scored nearly $46 million in fees and costs in an arbitration initiated by rival Seagen in the companies' patent dispute over cancer drug technology after the arbitrator found that the U.S. biotech company did not file its infringement claims within the six-year statute of limitations.  According to documents filed in a federal court in Washington state, Daiichi was awarded $43.7 million in attorney fees, in addition to $1.9 million, plus ¥169,076 — or around $1,145 — in reasonable costs, for a total of just under $45.6 million.

Former Chief U.S. District Judge Garrett Brown Jr. served as an arbitrator in the dispute and sided primarily with Daiichi, with the exception of granting the company a full award for reasonable costs.  The final arbitration award made no changes to the August 2022 interim award, according to court documents, except to address Daiichi's request for attorney fees and costs.

In the interim award, Judge Brown rejected Seagen's arguments that it owned the patents in question since Daiichi had relied on Seagen's proprietary know-how to develop certain improved technology used in the drugs that the Japanese company had then sought to patent.  Judge Brown said in the final award that both Seagen's quiet title and breach of contract claims failed because they were outside the six-year statute of limitations.

According to Judge Brown, Washington state law requires Seagen to have filed its initial demand for arbitration before Oct. 11, 2018.  However, the biotech company didn't file until over a year later, on Nov. 12, 2019.  Judge Brown added that Seagen was unable to show that anything occurred in the case to merit an exception to the statute of limitations.  The judge said there was no evidence showing that Seagen had any procedures in place that would have flagged Daiichi's "improvement IP" and added that Seagen only began investigating Daiichi's new tech developments once it found out the company was likely to receive U.S. Food and Drug Administration approval.

"The arbitrator is not persuaded that those facts reasonably demonstrate diligence on Seagen's part. … Stated simply, the foregoing landscape does not support an exception to the six-year statute of limitations," Judge Brown said.  However, while Judge Brown found Daiichi to be the prevailing party in arbitration, he partially denied the company's request for reasonable costs.  Daiichi had requested a total award of around $58.1 million, plus ¥3.4 million, according to court documents, while Seagen argued that the award should be at most $10.2 million and ¥169,076.  Judge Brown said he found Daiichi's request reasonable, with the exception of its request to recover a total of $10.2 million and ¥3.3 million, about $22,163, in expenses related to arbitration.

According to the judge, Daiichi's expenses reimbursement request for items like airfare, lodging and meals does not match up with a reasonable understanding of arbitration costs.  Daiichi itself categorized arbitration costs in a March document as funds spent on invoices from the International Centre for Dispute Resolution, Judge Brown said.  Ultimately, Judge Brown ruled that Seagen had to pay Daiichi only $244,500 in arbitration costs.

A recent Law.com article, “’Exploring the American Rule on Attorney Fees”, reports on the American Rule doctrine and the limits of the offer of judgment rule in New Jersey.  The article reads:

In the recent J.P. Electric, Inc. v. LPMG Construction Management, LLC case, approved for publication on Nov. 2, a trial judge granted defendant’s motion for involuntary dismissal at the conclusion of plaintiff’s proofs.  Prior to trial, defendant had made an offer for judgment to be taken against it under the offer of judgment rule, R.4:58.  After dismissal of plaintiff’s case, defendant filed a motion to have plaintiff pay its fees and costs.  The trial judge denied the motion, holding that where a plaintiff’s claim is dismissed, without plaintiff having secured a favorable verdict and money judgment, as required by the rule, defendant had no right to collect its fees from the plaintiff. Defendant appealed the court’s denial of its fee application.

The Appellate Division opinion, affirming the trial judge, held that for a defendant who has invoked R.4:58 by offering to have judgment taken, it would be necessary for plaintiff to have recovered a money judgment to compare the amount of the judgment with the monetary offer made by defendant.  That comparison requirement is specifically set forth in R.4:58-2 and R.4:58-3 but, of course, there was no money judgment because of the dismissal as a matter of law.

The Appellate Division’s two-page opinion affirming the trial court contained emphatic language: “Lest there be any doubt, a mid-trial involuntary dismissal does not entitle a defendant offeror to fee-shifting under the Rule.”  No doubt the reason for a two-page opinion to be published.  A forceful reminder to trial courts and trial bar of the specific limitations of the offer of judgment rule.

The appellate court held that the policy reasons inherent in the rule’s language would be undermined if such fee shifting were permitted, because the rule is not one designed to transform an offer of judgment into a general fee-shifting rule.  Further, R.4:58-3(c) also provides that no allowances shall be granted if a plaintiff’s claim is dismissed or if a no-cause verdict is returned.

Of course the Supreme Court by rule or the Legislature by statute could provide that in an offer-of-judgment context, dismissal of plaintiff’s case after an offer of judgment is made might also allow defendant to recover fees and costs on post-trial application to the trial judge by creating a new exception to the American Rule of fee payment.

Under the American Rule, the prevailing party is ordinarily not entitled to collect fees from the adversary.  This is based upon the policy that, “Sound judicial administration will be best advanced if litigant’s bear their own counsel fees.” See, Guarantee Insurance Co. v. Saltman, 217 N.J. Super. 604, 609-610 (App. Div. 1987), which furnishes a concise history of the rule and its application.  There are some exceptions to the ordinary application of the American Rule, as when it is permitted by court rule or statute; or pursuant to the terms of a contract; or when counsel fees are a traditional element of damages in the action; or where an insured has incurred counsel fees in defending an action under a disclaimed liability or indemnity policy.

The first reported case in which counsel for plaintiff made application for fees from the insurer after plaintiff’s success in requiring the insurer to defend and indemnify a workers’ compensation claim against its insured because of convoluted policy language was Gerhardt v. Continental Ins. Co., 48 N.J. 291 (1966).

In Gerhardt, Justice Jacobs, writing for a unanimous court, rejected arguments that Ms. Gerhardt should qualify for reimbursement of her fees in the successful coverage action under the inherent equitable power of the court and by analogy to fee payments where a coverage claim on a liability policy had been successful.  Justice Jacobs pointed out that exceptions to the American Rule, that each party bear its own fees, generally rests on statutory provisions which have no counterpart in New Jersey law.  He wrote that when the New Jersey rules were originally adopted, they embraced the view that sound judicial administration would be best advanced by having each litigant bear counsel fees incurred, except in a few specially designated instances.

The American Rule and its exceptions have been argued to the court over the years.  The argument for awarding fees to a successful plaintiff is based on equitable considerations, i.e., to give the successful party full benefit of the sums to which it was found entitled. Sears Mortgage Corp. v. Rase, 134 N.J. 326, 3540356 (1993); Shore Orthopedic Group v. Equitable Life Assur. Soc., 199 N.J. 310 (2009); In re Estate of Vayda, 184 N.J. 115 (2005).  “The American Rule prohibits recovery of counsel fees by the prevailing party against the losing party … The purposes behind the American Rule are threefold: (1) unrestricted access to the courts for all persons; (2) ensuring equity by not penalizing persons for exercising their right to litigate a dispute, even if they lose; and (3) administrative convenience.” Occhifinto v. Olivo Constr. Co., 221 N.J. 443, 449 (2015).

On through the years and to present, the courts as indicated have expressed their support of the American Rule.  If there are proceedings in J.P. Electric seeking relief from the Supreme Court, chances for success are indeed bleak based on the judicial history of New Jersey.

A recent Law.com story by Allison Dunn, “Judge Rejects Quinn Emanuel’s $1700 Hourly Rate Request, Slashing Fees for Virginia Settlement By Nearly 80%”, reports that a federal judge in Virginia...

Read Full Post

A recent Law 360 story by Dorothy Atkins, “’Alcon’s $1.2M Sanctions Fee Bid For Its MoFo Attys Slashed”, reports that a New York federal judge slashed Alcon Vision's $1.17 million fee request...

Read Full Post

A recent Law.com story by Riley Brennan, “Ohio Courts Clarify ‘Prevailing Party’ Owed Attorney Fees in Deceptive Trade Practices Case”, reports that, in a question of first impression for...

Read Full Post

A recent Law 360 story by Rose Krebs, “Software Investor Gets $100K ‘Mootness’ Fee For Attys in Del.”, reports that a vice chancellor in Delaware's Chancery Court has awarded $100,000 in...

Read Full Post