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Category: Fee Shifting

Federal Circuit Weighs in on EAJA Fee Awards in Partial Wins

April 29, 2021

A recent Law 360 story by Hailey Konnath, “Fed. Circ. Weights in on EAJA Fees in Partial Wins,” reports that the Federal Circuit issued a precedential decision clarifying that the government is still obligated to cover attorney fees stemming from initial case reviews for litigants who prevail against it in civil actions, even if the litigants did not succeed on all their claims. 

According to the underlying case, U.S. Army veteran Robert L. Smith partially won an appeal of a U.S. Department of Veterans Affairs decision on his benefits.  He then asked that his attorney fees for the appeal be covered under the Equal Access to Justice Act, which requires the government to pay attorney fees for those who prevail against it in court.

The Court of Appeals for Veterans Claims held that he should indeed receive an award, but reduced the portion of his award that stemmed from the time his attorney spent on an initial review of the case.  The court held that the reduction was needed because Smith only prevailed on one of the issues in his appeal.

But the Federal Circuit said that the veterans court had undervalued the importance of the initial review of Smith's case, holding that the review was "necessary before appellate counsel could determine what bases, if any, existed for an appeal."  The three-judge panel reversed in part and affirmed in part the veterans court's decision and remanded the case for an award consistent with its opinion.

The Veterans Court should have determined whether the time Smith's attorney spent reviewing the record could be reasonably understood as preparation for bringing the successful claim, the Federal Circuit said.  But instead, the court "assumed that, because such time must have been spent on both successful and unsuccessful claims, it therefore required a reduction in those hours," the panel said.

"This was an error," the panel said.  Specifically, the Veterans Court misinterpreted 28 U.S. Code § 2412, which governs the government's costs and fee obligations in civil actions brought against it, according to the decision.  "There is no statutory requirement that time reasonably expended in initial record review must be reduced, merely because there were eventually both successful and unsuccessful claims pursued in the case," the panel said.  "To the contrary, the law requires that Mr. Smith's counsel be compensated for time that was necessarily expended on the initial review of the record, regardless of whether some of the claims that came from that review ultimately were found not to prevail, if that time was necessary for a successful appeal."

The Federal Circuit noted that if Smith had only brought his successful claim before the court, his attorney would have been fully compensated for the 18 hours she spent on her initial review of the 9,389-page record.  "There may be instances in which the time spent on reviewing the record is unreasonable or could be apportioned.  This is not one of them," the panel added.

Harold Hoffman, who works for Veterans Legal Advocacy Group and represented Smith in the action, told Law360 that the non-profit organization relies on Equal Access to Justice Act fees to help disabled veterans.  "We are happy that the Federal Circuit recognized the importance of good representation for veterans forced to appeal bad VA decisions to the federal courts," Hoffman said.

Rachel Bayefsky, an attorney with Akin Gump Strauss Hauer & Feld LLP, added that the Federal Circuit opinion "laid down important principles for the Veterans Court to follow in this case and in the future."  "The Federal Circuit correctly recognized that the standards of proper appellate advocacy apply equally to veterans, and that attorney's fees should be awarded accordingly," she said.

Citing his partial victory, Smith requested a fees award of about $10,200 for 50 hours of attorney work, per the order.  The hours total included the 18 hours his attorney spent reading and taking notes on the administrative record for the case.

In November 2019, the Veterans Court granted Smith's request but only awarded him fees for six of those 18 hours spent reviewing the record.  At the time, the court reasoned that "[b]ecause counsel's review of the [record before the agency] in this case 'presumably pertained to both the prevailing and nonprevailing [sic] issues,' the court concludes that reductions are warranted to account for time spent reviewing and taking notes regarding evidence related to the six unsuccessful claims."

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.

Fee Dispute Sent to Arbitration Despite Illegal Fee Clause

March 31, 2021

A recent Law 360 story by Carolina Bolado, “Atty-Client Spat Sent To Arbitration Despite Illegal Fee Clause, reports that a Florida state appeals court ruled that a woman's suit against her former attorney for erroneously wiring funds to a hacker's account number is subject to an arbitration clause in their retention agreement, even though a fee-shifting provision in the agreement was deemed invalid.  Florida's Third District Court of Appeal said that the arbitration clause in the agreement between Valeria Sessa and Natalie Lemos of Leinoff & Lemos PA is valid, and that it unambiguously covers Sessa's tort claims against her former attorney for sending half of her divorce settlement to a hacker's bank account.

Sessa had argued that the disputes subject to the arbitration clause in the agreement are limited to claims of fee disputes and legal malpractice, not generalized tort claims like hers, but the appeals court disagreed.  "The duty Lemos owed to Sessa, and allegedly breached by Lemos, is simply not the type of duty generally owed to others besides the contracting parties," the appeals court said. "It is, rather, a duty 'created by the parties' unique contractual relationship.'"

The agreement also included a severability provision, which the appeals court said allowed it to divorce the enforceable arbitration clause from the invalid provisions that require the client to advance any arbitration costs in the event of a dispute and to pay for the firm's attorney fees and costs.  The appeals court said Florida lawyers are barred from agreements with clients that prospectively limit their liability for malpractice.

"While the subject provisions in the arbitration clause are certainly not the type of exculpatory clauses expressly prohibited by the rule, in practice the two provisions erect a significant barrier to a client seeking recourse against her lawyer," the Third District said.  Sessa hired Lemos in June 2018 to represent her in her divorce.  In 2019, Sessa and her ex-husband negotiated a settlement that required him to make two lump-sum payments to her, according to the opinion.

The first payment was made directly to Sessa's brokerage account, but the second was made to Lemos' trust account so that she could deduct any outstanding fees and costs before wiring the balance to Sessa, according to the opinion.  But someone hacked into either Sessa's or Lemos' email accounts, and Lemos received fraudulent wiring instructions. She wired the balance of the second payment to a phony bank account and the money was never recovered.  Sessa then filed a lawsuit and Lemos asked for the court to compel arbitration. The trial court denied that request after finding that the arbitration clause was ambiguous and unenforceable because of the invalid fee-shifting provisions in the agreement.

Fee Request Reduced in Hospital Whistleblower Action

February 23, 2021

A recent Law 360 story by Nathan Hale, “Hospital Whistleblower’s $1M Fees Award Falls Short of Goal, reports that a whistleblower whose complaint against now-defunct hospital chain Health Management Associates Inc. helped the federal government secure more than $260 million to settle fraud charges will receive less than one-twelfth of his $12 million attorney fees request but may get more for himself, a Florida federal judge ruled.  Fort Myers-based U.S. District Judge John E. Steele's award of $952,480 to relator Bradley Nurkin, who was previously chief executive officer of the HMA-owned Charlotte Regional Medical Center, ended Nurkin's lengthy fight with HMA over how much Nurkin should recover under the fee-shifting provision of the False Claims Act.

"The Supreme Court has stated that 'a request for attorney's fees should not result in a second major litigation.'  That ship sailed long ago in this case," Judge Steele said.  In a 51-page order, the judge rejected HMA's argument that he should eliminate the fees award as a sanction against Nurkin for alleged "grossly excessive" or "outright fictitious" billing estimates, but also rejected several of Nurkin's arguments for how to calculate the proper amount.

"While the court will make reductions to the requested attorney fees and expenses, it will not do so as a sanction under its inherent authority," the judge said.  But the court also rejected the position taken by Nurkin and his lead counsel Edward Sanders that any award should go directly to Nurkin's attorneys.

"If Nurkin owes Sanders fees for services not encompassed by the FCA representation, then obviously he may use any of his resources, including these awarded fees, to pay his obligations.  However, this award of attorney fees does not belong to Sanders, but to Nurkin, as the relator," Judge Steele said.

"By all accounts, the recovery made by the government attributable to Nurkin's case was excellent.  The resulting dollar amount of Nurkin's share was substantial enough to result in a contingent attorney fee which was ample and did not need to be supplemented to arrive at a 'reasonable' amount," the judge added, explaining why this case was not one where the award belongs to the relator's counsel.

Nurkin, who received just under $15 million of the $93.5 million the government attributed to his specific case from the 2018 settlement — it had consolidated eight cases against HMA as a multidistrict litigation — already has paid his attorneys one-third of that amount, more than $4.9 million, under a contingency fee contract, according to the order.  In his motion, he presented the court with three figures based on it awarding fees using either a contingency fee basis, a lodestar or and enhanced lodestar method.

His request under the contingency fee basis came out the highest at more than $11.9 million, which represented 15% of the $79.5 million recovered by the government after paying Nurkin his share, but Judge Steele said the U.S. Supreme Court has ruled that courts should use the lodestar method to calculate a reasonable attorney fee in FCA cases.

Judge Steele also pointed out that Nurkin's contingency fee request, based on an expert witness's suggestion, would be grossly excessive, coming out to an hourly rate of $2,581 based on the number of hours he estimated his lawyers worked on the case — on top of the nearly $5 million they already received from him.  Under the lodestar method, in which a court determines a prevailing market billing rate and then multiplies that by a reasonable number of hours expended on the case, Nurkin requested $4.1 million and also suggested applying a multiplier of 2.23 for an "enhanced lodestar" request of $9.2 million.

Judge Steele rejected Nurkin's argument for $894 as a reasonable hourly rate, which he based on the case having been transferred to the District of Columbia, where it was settled, and instead found it should be based on Fort Myers, where it was first filed and the majority of his attorneys' work was performed.

The court instead concluded on a rate of $400 an hour for Sanders and co-counsel Robert Branning and $300 for Bethany Johnson, a younger attorney who helped prepare the application for attorney fees.  Judge Steele declined the HMA's request to reduce the hourly rate for work that a larger firm would have assigned to an associate, saying he would make any needed adjustments on the number of hours allowed.

On that front, Judge Steele broke down Nurkin's total request of 4,618.55 hours into the periods spent prior to filing the complaint, litigating prior to the government's intervention, after government intervention and on the attorney fee application, looking at specific tasks within those periods.  In total, the court approved 2,391.2 hours.  In terms of the time spent preparing the attorney fee application, the judge allowed 40 hours out of 457.8 asserted by Nurkin.

Judge Steele also denied Nurkin's request for a multiplier, saying he found the lodestar calculation "takes into account all factors which may be properly considered in this case."  The judge also declined to award prejudgment interest on the fees award. He awarded $7,232.70 in cost and expenses.  While far from the high point of Nurkin's request, Judge Steele's award still was several times the $229,544 suggested by HMA, according to the order.