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Category: Fee Shifting

Article: Absent Explicit Statutory Language? The American Rule Still Applies

September 6, 2021

A recent article by Jiaxiao Zhang, “Absent Explicit Statutory Language? The American Rule Still Applies,” reports on attorney fee entitlement in patent litigation.  This article was posted with permission.  The article reads:

The U.S. Court of Appeals for the Federal Circuit vacated a district court’s award of attorney’s fees under the prevailing party rule but affirmed the district court’s denial of the U.S. Patent & Trademark Office’s (PTO) request for expert witness fees under 35 U.S.C. § 145. Hyatt v. Hirshfeld, Case Nos. 20-2321;–2325 (Fed. Cir. Aug. 18, 2021) (Hughes, J.).  The case involved prolific inventor Gilbert Hyatt and the latest chapter in his battles with the PTO.

Mr. Hyatt is known for his prolific patent and litigation filings (including hundreds of extraordinarily lengthy and complex patent applications in 1995 alone) and for often “’adopt[ing] an approach to prosecution that all but guaranteed indefinite prosecution delay’ in an effort to submarine his patent applications and receive lengthy patent terms.”  After the PTO denied some of his patent applications, Mr. Hyatt elected to pursue a district court appeal under 35 U.S.C. § 145 to challenge the PTO’s decisions.  The district court ordered the PTO to issue some of the patents and awarded Mr. Hyatt attorney’s fees as the prevailing party.  The PTO spent millions of dollars examining Mr. Hyatt’s applications and sought, under §145, reimbursement of its expert witness fees from the case.  The district court denied the PTO’s request for expert witness fees, holding that its shifting of “[a]ll the expenses of the proceedings” to the applicant does not overcome the American Rule presumption against shifting expert fees. The PTO appealed.

The PTO challenged both the award of attorney’s fees and the denial of expert fees.  In an earlier appeal by the PTO, the Federal Circuit held that the PTO correctly asserted prosecution laches as a defense against Mr. Hyatt, which “render[s] a patent unenforceable when it has issued only after an unreasonable and unexplained delay in prosecution that constitutes an egregious misuse of the statutory patent system under a totality of the circumstances.”  Accordingly, the Court vacated the district court’s decision ordering the issuance of patents, and in this appeal, the Court vacated the district court’s holding that Mr. Hyatt is entitled to attorney’s fees—since he is no longer the prevailing party—and remanded for further proceedings.

According to the statute, in an action under § 145, “[a]ll the expenses of the proceedings shall be paid by the applicant.”  However, the Federal Circuit agreed with the district court that the statutory language was not sufficiently explicit to overcome the presumption against fee-shifting under the American Rule and that litigants pay their own fees “unless a statute or contract provides otherwise.”  In doing so, the Court looked at statutory phrasing, dictionary definitions (e.g., Black’s and Webster’s), legislative history, relevant case law and similarly phrased statutes to confirm whether expert fees were specifically and explicitly contemplated as being included by US Congress in the statute.  The Supreme Court of the United States’ 2019 NantKwest decision (that “expenses” under §145 does not invoke attorney’s fees with enough clarity to overcome the American Rule) guided the Court’s analysis as did the many statutes that explicitly list “costs and fees” separately, suggesting that the legislature could have explicitly referenced fees should they have intended.  Having found this high bar to overcome the American Rule not met, the Court affirmed the district court’s denial of expert fees.

Jiaxiao Zhang is an associate at McDermott Will & Emery in Orange County, CA.

More Doubt if ’Exceptional’ Patent Fees Include PTAB Work

September 2, 2021

A recent Bloomberg Law story by Matthew Bultman, “Doubts Deepen if ‘Exceptional’ Patent Fees Include PTAB Work,” reports that companies that win an “exceptional” patent lawsuit can be reimbursed for their attorneys’ fees—but they can’t count on recouping money spent fighting at the Patent Trial and Appeal Board.  Patent law allows the winning side to collect fees from the losing side when a district court judge finds that the lawsuit is “exceptional,” as outlined in Section 285 of the Patent Act.  Courts are split on how the law applies to PTAB expenses.

Some courts have found the fees can include money companies spent challenging a patent at the PTAB after being sued.  Recently, however, other judges, including a magistrate judge in Delaware, have indicated those are likely sunk costs.  The U.S. Court of Appeals for the Federal Circuit has yet to provide a definitive answer, but “it is pointing in the direction, perhaps, that awards are not going to be given for proceedings that are outside of the district court case,” Akin Gump Strauss Hauer & Feld LLP attorney Rubén Muñoz said.

While PTAB reviews are a less expensive way to challenge a patent’s validity, the proceedings can still cost hundreds of thousands of dollars. In the Delaware case, a judge said PTAB fees may account for a significant portion of the $1.1 million and $1.5 million Dish Network LLC and Sirius XM Radio Inc. spent in the litigation, respectively.  For smaller businesses, in particular, that’s not an insignificant expense.  A bar on recovering those fees could be a consideration in their litigation strategies.

‘Optional’ Proceedings

Questions about whether Section 285 allows companies to recover costs at the patent office predate the 2011 America Invents Act, the law that created the popular inter partes reviews at the PTAB.  In 1988, the Federal Circuit ruled Celanese Polymer Specialties Co. could recoup fees spent opposing PPG Industries Inc.’s reissue patent applications at the agency.  Celanese had been sued for infringement, and the court said its participation in the agency proceeding wasn’t optional.  The court also said the patent office proceeding “substituted for the district court litigation” on certain issues.

How the Federal Circuit views “the relevance of that case may drive its ultimate decision on whether or not fees can be awarded for PTAB work,” said Sandip Patel, an attorney at Marshall Gerstein & Borun LLP.  Without deciding the question, the Federal Circuit said last year in the Dish and Sirius cases it saw “no basis in the Patent Act for awarding fees under § 285 for work incurred in inter partes review proceedings that the Appellants voluntarily undertook.”

While the statement wasn’t binding, Magistrate Judge Jennifer Hall in the District of Delaware agreed. In a recent report, the judge emphasized Dish and Sirius weren’t required to challenge Dragon Intellectual Property LLC’s patent at the PTAB, but rather that they chose to do so.

Some attorneys say the realities of patent litigation mean PTAB reviews aren’t that optional.  Most of the patents challenged at the PTAB are brought by a defendant that has been sued in district court on the patent, a 2016 study found.  “Because most IPRs are filed because there’s a parallel district court action and because it’s common sense to have an inexpensive determination of validity, rather than a ridiculously expensive evaluation of it, it’s not so voluntary,” Patel said.  “It’s practical,” Patel said, “and that’s the way people proceed.  That’s the way business is conducted in patent litigation after the AIA passed.”

Substituting Work

Some district courts have been more willing to allow defendants to recover fees spent at the patent office.  A judge in the Eastern District of Texas, for example, said in 2017 that My Health Inc. owed companies almost $60,000 for work on an IPR petition because the “defendants never would have sought IPR if they had not been sued for allegedly infringing.”  In another case involving Southwest Airlines Co., a judge in the Southern District of California said the airline could recover fees for reexamination proceedings at the patent office because the proceeding “essentially substituted for work that would otherwise have been done before this court.”

Hall acknowledged the My Health and Southwest cases, but said their reasoning wasn’t persuasive.  While Dish and Sirius argued they were effectively being punished for choosing the more “efficient route,” Hall said to take it up with Congress.  “Federal courts don’t make policy,” Hall wrote, recommending the companies’ fee award be limited to what they spent in the district court.

Dish and Sirius XM have objected to Hall’s report, which will be reviewed by a district court judge.  The companies argue, among other things, that inter partes reviews aren’t optional because defendants sued for infringement have one year to file for inter partes review - “a non-extendable deadline to act.”

Revisiting PPG

Questions about PTAB fees have put a spotlight on the Federal Circuit’s decision in PPG. Some legal scholars say the court took a wrong turn in its decision, and skipped an important step by looking at whether the proceedings were optional.  Megan La Belle, a law professor at Catholic University of America who studied the subject, said the U.S. Supreme Court has established a clear framework for recovering fees for work in administrative tribunals.

The first step is to look at the language of the relevant statute.  Section 285 states that courts “in exceptional cases may award reasonable attorney fees to the prevailing party.”  Administrative proceedings, like PTAB reviews, generally aren’t viewed as “cases,” La Belle said.  “You only get to that second step if there’s an argument that administrative proceedings are captured by the language of the statute,” La Belle said.  “I think clearly they’re not under 285.”

Another avenue for companies could be to pursue fees directly at the patent office.  The PTAB has the power to sanction a party for misconduct at the board, which can include frivolous arguments.  But La Belle suggested in a 2016 article that Congress pass legislation allowing for recovery of PTAB fees in exceptional cases in district court.  “From a policy perspective, to me it seems obvious that the Congress that passed the AIA, if they thought about this and if they were asked the question, ‘Can you recover fees for AIA proceedings?,’ I don’t see why they would ever say ‘No,’” La Belle said.

Article: Who Pays For Attorney Fees in Litigation?

August 23, 2021

A recent article by Julie Pendleton, “Who Pays For Attorney Fees in Litigation?,” reports on who covers attorney fees in litigation in Washington.  This article was posted with permission.  The article reads:

One of the first questions asked of me by clients when considering litigation is, “Can I make the other side pay for my attorney’s fees?”  In Washington State, the answer to that question is generally no.  This is referred to as the “American Rule.”

Courts have reiterated their support for the American Rule because (1) litigation is inherently a risky proposition, and a party should not be penalized for merely participating in a lawsuit; (2) those without means would be unduly discouraged from pursuing their legal rights if they feared that losing the case would also cost them their opponents’ legal fees; and (3) the cost of proving the amount of legal fees would pose an undue burden on judicial administration.  Blue Sky Advocates v. State, 107 Wn.2d 112, 123, 727 P.2d 644 (1986).

However, there are three exceptions to this rule and Courts can award attorney’s fees where: (1) there is a contractual provision for attorney’s fees, (2) a statute allows for the award of attorney’s fees, and (3) equity allows for attorney’s fees.

Contractual Attorney’s Fees

A litigant can recover attorney fees if the dispute involves a contract that includes a provision that the prevailing party is entitled to recover attorney fees.  It is quite common to see an attorney’s fee provision in adhesion contracts.  The good news is that in Washington, attorney’s fee provisions have to be applied bilaterally, or in other words, even if the contract only provides attorney’s fees provision if Party A wins, the Courts will apply it equally, so whichever party prevails will be entitled to have their attorney’s fees reimbursed by the other side.

While contractual attorney’s fees are enforced as a matter of course in Washington, they do require a “win” to apply.  In some cases where the case ends in a draw or a tie, where both sides lose a little and win a little, the Court may refuse to award fees.  In addition,  most courts will only award “reasonable” attorney’s fees, so an attorney’s fee provision in the Contract should not be treated as a blank check to direct your attorneys to overwork the case.  .

Statutory Attorney’s Fees

In Washington, a party can recover its attorney fees against another party if a law or statute that governs the case provides for the recovery of attorney fees.  There are many types of statutes that include these types of provisions. Examples include parties prevailing on: a Consumer Protection Act claim, an unpaid salary or wages claim, or a discrimination claim. However, each statute is different and should be read carefully.  Some statutes are mandatory while others allow the court to exercise discretion in deciding whether or not to award fees.  Further, some other statutes may only allow a winning plaintiff to recover fees, but not a winning defendant.  For example, if an employer is sued for minimum wage act violations and successfully prevails against the employee, while the employee probably requested the court to pay their fees under the minimum wage act, the employer would not be entitled to a reimbursement of fees at this stage.

Many clients are particularly interested in the frivolous lawsuit statute, which provides for fees and costs if a lawsuit is brought and continued for an improper purpose and is not grounded in fact.  RCW 4.84.0185.  This statute provides attorney’s fees if a litigant is subjected to a lawsuit that is either brought solely to harass or burden the defendant or otherwise is completely fanciful.  However, the standard is high to recover these sort of attorney’s fees as the litigant is required to prove  that the other side was either solely motivated by malice or another improper purpose or that the lawsuit had no chance of winning under any circumstances.  Receiving  attorney’s fees under the frivolous lawsuit statute is difficult, and should never be considered a guaranteed method of recovery.

Equitable Attorney’s Fees

In rare cases, a party can recover attorney’s fees from a party who engages in bad faith litigation conduct.  There are three types of bad faith litigation conduct: (1) pre-litigation misconduct, where a party engages in bad faith conduct that wastes private and judicial resources and forces a legal action to enforce a clearly valid claim or right; (2) procedural misconduct, where a party engages in bad faith conduct during the course of the lawsuit; (3) substantive bad faith, where a party intentionally brings a frivolous clam, counterclaim or defense for an improper motive such as harassment.  While most litigants believe that the other side has engaged in bad faith conduct in some form or another, recovering under this provision is extremely rare.

How does this Impact my Case?

If there is a method to recover attorney’s fees in a case (either by contract or statute), this is vital to discuss early on in the case with an attorney.  Not only can attorney’s fees provisions be used to drive early settlement, but they should also be considered when determining whether or not to bring a lawsuit or counterclaims.

Julie Pendleton is an attorney at Lasher Holzapfel Sperry & Ebberson PLLC in Seattle and a member of the firm’s Business Litigation and Trusts and Estates Litigation practice groups representing individuals and small companies throughout various stages of litigation and dispute resolution.

Article: CA Ruling Shows That Prevailing Party Wins Can Be Pyrrhic

August 22, 2021

A recent Law 360 article by Warren Jackson, “Calif. Ruling Shows That Prevailing Party Wins Can Be Pyrrhic,” reports on a recent court ruling in California on prevailing party issues in fee-shifting litigation.  This article was posted with permission.  The article reads:

In the 1992 buddy movie, "White Men Can't Jump," Rosie Perez's character, Gloria Clemente, said, "Sometimes when you win, you really lose, and sometimes when you lose, you really win."  It provides a rambling life lesson: Victories can be pyrrhic, and even taking an "L" may not make you a loser.

In an interesting and novel recent opinion that would make Gloria proud, a California state appeals court, in affirming an order denying attorney fees to a self-described prevailing party, reaffirmed in a commercial litigation context that determining who's prevailed and is entitled to fees is not always clear.  The case, Harris v. Rojas, was decided on July 20 in the Court of Appeal of the State of California, Second Appellate District.  Justice John Shepard Wiley Jr., who authored the opinion, also gave a special, well-deserved shout-out to the alternative dispute resolution profession.

It's not unusual, particularly in individual discrimination, harassment, and wage and hour cases, for the potential attorney fees award to be substantially greater than the economic damages, e.g., in cases with a plaintiff who is a low-wage earner or who has successfully mitigated damages.  As a result, the settlement value is not simply economic damages, but attorney fees as well.

The policy goals behind statutory awards of attorney fees or fee-shifting provisions are clear.  A virtual guarantee of attorney fees to the prevailing plaintiff, even if the damages are nominal, is a powerful incentive for the plaintiffs bar to represent employees who have fewer means and less power, but were allegedly treated unfairly.  To put a finer point on it, that incentive is also not diminished by what's generally the case — no downside of having to pay a prevailing employer's fees.  More on this dynamic and its impact on mediating cases later, but first, the opinion.

George Harris leased commercial space from Abel Rojas, and the lease had a clause for attorney fees to the prevailing party in the event of litigation.  Harris sued Rojas for breach of contract, among other claims, and Rojas cross-complained for ejectment, breach of contract and nuisance.  There was also a separate unlawful detainer case by Rojas against Harris.  After nearly three years of litigation and a seven-day jury trial, the jury awarded $6,450 to Harris on his breach of contract claim (rather than his requested $200,000). Rojas also was awarded $6,450 against Harris on his negligence claim, and Harris was awarded $500 on his negligence claim against Rojas.

The harm was apportioned at 15% for Harris and 85% for Rojas, so when all the math was done, a net judgment was entered in Harris' favor for $5,907.50 or $5,882.50 — a discrepancy between the actual math result and the judgment, which only the court noticed.  Thereafter, Harris moved for an award of attorney fees under the lease, seeking $296,744.68.  The trial court — California Superior Court in Los Angeles County — denied Harris' motion, ruling there was no prevailing party, citing the California Supreme Court’s 1995 decision in Hsu v. Abbara — if a party obtains a "simple, unqualified victory" in an action with an attorney fee clause, the court is obliged to make an award, but where there is "good news and bad news" for each party in the outcome, there's discretion.  Harris appealed this order.

Justice Wiley, also relying upon Hsu v. Abbara, seized on the obvious: "When the demand is $200,000 and the verdict is $6,450 or less ... the 'victory' is pyrrhic and nobody won."  He went on to clarify, "Reaping merely five or six thousand dollars after spending three years pursuing $200,000 drastically falls short of the goal." Thus, the trial court properly exercised its discretion.

Justice Wiley had an alternative and novel theory for affirming the denial of attorney fees.  Looking to the result in Rojas' unlawful detainer action, where he was awarded some $13,000 or $17,000, "depending on the moment at which one calculates the rent and interest," Justice Wiley aggregated the two results, opining, "This war had two battles.  Harris decisively lost the war."  As Gloria Clemente remarked, "Sometimes when you tie, you actually win or lose."

Writing what could be characterized as a nod to mediators everywhere, Justice Wiley dogmatically declared: Determining a party's true litigation objective is no mean feat.  When the case is strictly about money, the litigation objective is a dollar figure.  The true value of a case is a matter of opinion, and parties normally conceal their true opinion on this vital topic.  That is why we call that look a poker face.  What economists call a reservation price usually is a carefully guarded secret; if the other side perceives this closeted sum, it will offer that amount in settlement negotiations and nothing more. So each side typically bluffs while searching the other side for clues.  Successful mediators use sustained efforts in a confidential setting to extract this private information from both sides.  By discovering previously hidden common ground, a mediator can settle the case.  But this exploration is often difficult, which is why successful mediators can command premium rates.

As mentioned above, courts have waded into the waters of who's a prevailing party in employment cases over the years.  In the seminal Chavez v. City of Los Angeles decision in 2010, the California Supreme Court upheld a trial court's rejection of a fee application under California Fair Employment and Housing Act, where the plaintiff recovered damages of $11,500 — less than the $25,000 that could have been recovered in a limited civil case — and sought an attorney fee award of $870,935.50.

Noting that under FEHA, the prevailing employee should ordinarily be awarded fees unless special circumstances would render such an award unjust, the court held that where a plaintiff brings an unlimited civil case but fails to recover $25,000, the trial court has discretion under Code of Civil Procedure Section 1033 (a) to deny an attorney fees application.  While Chavez is often cited where a verdict is substantially dwarfed by the attorney fee application, in my opinion it has not shifted the landscape dramatically.  Fee applications can be denied in their entirety.  However, more often the result is a reduction in the fee request.

Turning back to the challenge of mediating cases where attorney fee awards are available to a plaintiff, we mediators routinely hear from defense counsel that some plaintiffs lawyers have been incentivized to increase the settlement value of cases by aggressively working them up.  Of course, what may seem like overworking a case to counsel can simply be opposing counsel's diligence and due care.  Justice Wiley seems to suggest successful mediators have a secret sauce for settling cases. While past success can portend future success, unfortunately, there's no guaranteed formula.  One key to success is a tactic that parties often employ — early mediation.  By mediating a case early before significant attorney fees have been incurred, the fee-shifting issue is less problematic.

Of course, early mediations have their drawback in terms of equality of pertinent information or discovery and analysis, so parties should evaluate the relative merits of proceeding early versus later-stage scheduling.  In addition, defense counsel often employ the strategy of threatening or filing a California Code of Civil Procedure Section 998 offer to potentially place the attorney fee award at risk if the recovery at trial is less than the offer and the offer was properly drafted.

My experience, however, is that employers prefer a settlement to a 998 offer, and plaintiffs prefer a reasonable settlement over protracted or scorched-earth litigation.  Finally, the only secret sauce in getting difficult cases resolved might be the four Ps: patience, perseverance, persuasion and proposals from mediators.  But all parties should recognize that the logic and holding of Harris v. Rojas have implications in the employment law context.  And the case should be a reminder that verdict size and prevailing party determinations are necessarily intertwined, and that Gloria Clemente was more lucid that we thought.

T. Warren Jackson is a mediator and arbitrator at Signature Resolution.

AIG Unit Denied Attorney Fees in $7.2M Coverage Win

August 6, 2021

A recent Law 360 story by Ben Zigterman, “AIG Unit Denied Fees Following $7.2M Coverage Win”, reports that an AIG subsidiary has lost its New York federal court bid to have its reinsurer pay more than $300,000 in attorney fees, following a ruling last year that the reinsurer must cover $7.2 million of a $20 million payment to Dole Food Co. to settle pollution claims.  The Insurance Co. of the State of Pennsylvania had sought the fees from London-based reinsurer Equitas Insurance Ltd. under English law, but U.S. District Judge Laura Taylor Swain adopted a magistrate judge's recommendation that the fees are not permitted by New York law.

On U.S. Magistrate Judge Sarah L. Cave's recommendation last month, ICSOP said it wouldn't object in an effort to speed up Equitas' appeal of the $7.2 million judgment, which is now up to $8.4 million with prejudgment interest.  After ICSOP covered the $20 million settlement of claims over lingering petrochemical pollution at a Dole subsidiary's housing development in California, it asked Equitas to pay $7.2 million of that under two reinsurance policies it had with Equitas.  Judge Swain upheld that request last year under English law.

Because the case was decided under English law, ICSOP asked the court to also apply it to the insurer's attorney fees of about $348,000, as British courts generally require the losing party to pay them, according to the insurer's motion.  ICSOP also said that its attorney fees were "eminently reasonable" compared to the total judgment and that it paid discounted hourly rates of $566.40 and $380 to the two attorneys working on the case.

But while the reinsurance policies were interpreted under English law, Judge Cave found that the question of attorney fees is a procedural matter that should be interpreted under the procedures of the court where the suit was filed.  Under New York law, losing parties in a lawsuit don't pay attorney fees unless a law or contract states otherwise, which was not the case with these reinsurance policies, she said.

"While it may have been predictable that, because the reinsurance policies were sold in the London market, English law would govern their interpretation, the reinsurance policies do not dictate that litigation be brought in an English court, contain a fee-shifting provision, or provide that the English Rule would apply in a United States court in which the parties chose to litigate," Judge Cave wrote.