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Category: Fee Shifting

Should Judges Police The Gender Hourly Rate Disparity?

June 1, 2022

A recent Law 360 story by Andrew Stricker, “Should Judges Police The Legal Industry Pay Gap?” reports that as the pay gap between male and female attorneys persists despite industry pledges to do better, the power of judges to potentially bridge the divide is coming into sharper focus.  Following an unusual decision by a federal magistrate, some members of the Philadelphia bar have endorsed the idea that other judges should follow suit and help police gender pay inequities, or at least call them out from the bench.

U.S. Magistrate Judge Timothy R. Rice recently issued the order critiquing elements of a notable employment firm's request and awards that put attorney "status" over performance.  "I don't think it's always my role, but in this instance, I felt I had to set the rates based on the performance of the attorneys who really tried the case, and not a rate that was maybe based more on age or seniority," Judge Rice told Law360 Pulse.

In April, Judge Rice was overseeing the last stage of an age discrimination case brought by Alison Ray, a former sales director at AT&T Mobility Services who was let go at age 49 after more than two decades at the company.  Following a five-day trial, Ray last year secured a $2.3 million award after a jury determined that a company restructuring plan had targeted older employees as "surplus."

In February, lawyers at the firm representing Ray, Console Mattiacci Law LLC, asked for $847,945 in "shifted" fees from AT&T.  That lodestar calculation, based on a 40% contingency agreement, was justified by the complexity of the plaintiff's case, Ray's counsel argued, as well as a "complete and total victory" on her claims that AT&T had willfully violated federal age discrimination law.  The fee petition included nearly 1,570 hours from partners Susan Saint-Antoine and Laura C. Mattiacci, a highly experienced lead trial counsel, and associate Daniel S. Orlow. Saint-Antoine and Mattiacci, who have practiced since 1989 and 2002, respectively, both listed their "usual and customary" rate of $730 an hour. Orlow, who has practiced since 2011, was at $320 an hour.

The petition also included 37 hours contributed by firm principal Stephen G. Console. Console, a nationally recognized employment law expert, charged $900 an hour for consulting on strategy decisions and filings, as well as settlement demands and other key elements of the case.  In an order granting a handful of reductions totaling about $83,000, Judge Rice said Saint-Antoine and Mattiacci should be entitled to the same per-hour rate as Console, who has been practicing for three decades.

"Historically, women in law earn less than their male counterparts, a discrepancy that may reflect hidden bias," he said, citing a 2020 report that found widening pay discrepancies at large law firms.  Referring to a fee schedule used widely in the Third Circuit to determine market rates for Philadelphia-area lawyers, Judge Rice said Saint-Antoine and Mattiacci should be in line for a "premium" over those numbers that put them in line with Console.  Even if the fee schedule "serves as a useful guide on setting hourly rates, its reference to experience should not serve as a cap that precludes exceptionally talented trial lawyers from receiving fair compensation simply because of age or gender," Judge Rice said.

The legal industry pay gap, and its role in women reaching firm leadership and a lack of diversity in many areas of the profession, has been under intense scrutiny for years, but without much in the way of real progress.  In the 2020 report cited by Judge Rice, legal recruiting firm Major Lindsey & Africa found that partner compensation soared between 2010 and 2018.  But in that same period, the pay disparity between male and female equity partners widened significantly, from 24% to 35%.

Nancy Ezold, a veteran Philadelphia employment lawyer, said it was "absolutely" appropriate for Judge Rice to consider rate disparities for lawyers in his court, even though AT&T counsel hadn't raised the issue in its fee-award opposition.  "I don't know of anything in the law that says you have to consider what a law firm pays people," Ezold said.  "But Judge Rice looks at the bigger picture and asks, 'Am I going to do something to perpetuate an inequality and authorize a fee for a male partner over two female partners who really handled this case?'"

Ezold, who once sued her own former law firm in the late 1980s for denying her a partnership based on her gender, argued that fee petitions often provide a substantive overview of who did what work over the history of a litigation.  Depending on the nature of the case, they can also be an opportunity for judges to compare requested rates across different firms and legal teams comprising different gender and experience makeups.

"Here the judge couldn't overlook a difference between male and female in this case because it related directly to the responsibility to decide what would be allowed for each of these attorneys," Ezold said.  "Judges speak out on a lot of things, and I don't see why this should be any different."  Judge Rice served as an assistant U.S. attorney for the Eastern District of Pennsylvania before being appointed as a federal magistrate in 2005.  He retired in April, just after issuing the Ray opinion.

In an interview with Law360 Pulse, Judge Rice said the timing was coincidental, noting that the issue of male-female pay disparities had never before been "so squarely presented" to him in a fee petition.  "From the [fee] affidavits I see, and from all I know about law firm pay structures, I do think the pay gap is huge, and there are just so many variables out there that have cut against giving women equal pay," such as lack of trial experience and other opportunities to advance, he said.

"When I see lawyers perform in an exemplary fashion, it's appropriate they be paid at higher rates commensurate with their skills, not just based on the years they've practiced," Judge Rice added.  Alice Ballard, another veteran Philadelphia employment lawyer who provided a fee affidavit in the Ray case, said Judge Rice's prior time as a trial lawyer was evident in the opinion, including in his positive assessment of the hours Console Mattiacci dedicated to mock trial runs and other "essential" advocacy preparation.

Judge Rice "really understands what it means to prepare for a trial like this, and everyone on my beat really appreciates that," she said.  But Ballard took issue with Judge Rice's ultimate reliance on what she described as an outdated fee schedule, rates that don't well reflect the special skills of trial work, Mattiacci's successful track record or the contingency fee model.

She also cautioned against reading the opinion as a critique of the hourly rate request for Console, whom she called a "lion" of the city's employment bar.  Regarding his reference to the legal industry's gender pay disparities,"it's great that he took the opportunity to bring it up, but I just don't think it has much to do with this specific case," Ballard said.

FTC’s ‘Holder Rule’ Doesn’t Bar Attorney Fee Award

May 31, 2022

A recent Metropolitan News story, “FTC’s ‘Holder Rule’ Doesn’t Bar Attorney Fee Award” reports that the Federal Trade Commission’s “Holder Rule”—under which an assignee of a consumer credit contract cannot be held liable for a breach by the seller for more than what the purchaser has paid—does not preclude the award of attorney fees in excess of that amount under California’s “lemon law,” the California Supreme Court held.

Justice Goodwin H. Liu authored the opinion which affirms a Jan. 29, 2021 decision by Div. Five of this district’s Court of Appeal. Div. Five, in an opinion by Presiding Justice Laurence D. Rubin, upheld a $169,602 award of attorney fees against TD Auto Finance, LLC, declaring that “the Holder Rule does not limit the attorney fees that a plaintiff may recover from a creditor-assignee.”  Yesterday’s opinion resolves a conflict among the courts of appeal.

Under a provision of the Code of Federal Regulations, a consumer credit contract must include this notice: “Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.”

The contract that Tania Pulliam signed when she purchased a used Nissan from HNL Automotive Inc. in Beverly Hills contained that language.  Dissatisfied with the vehicle she purchased, Pulliam sued HNL and the assignee of the contract, TD Auto Finance, under the Song-Beverly Consumer Warranty Act (the “lemon law”) and was awarded $21,957.25 in damages.  TD insisted that the award against it of attorney fees, under the act’s fee-shifting provision, was improper because Pulliam was entitled to nothing in excess of what she had paid under the credit contract.

Disagreeing, Liu wrote: “We conclude that the Holder Rule does not limit the award of attorney’s fees where, as here, a buyer seeks fees from a holder under a state prevailing party statute.  The Holder Rule’s limitation extends only to ‘recovery hereunder.’  This caps fees only where a debtor asserts a claim for fees against a seller and the claim is extended to lie against a holder by virtue of the Holder Rule.  Where state law provides for recovery of fees from a holder, the Rule’s history and purpose as well as the Federal Trade Commission’s repeated commentary make clear that nothing in the Rule limits the application of that law.”

Before the FTC enacted its rule in 1975, Liu recited, a consumer was liable to the holder in due course of a note even for goods that were not delivered.  The rule places the holder in the shoes of the seller, subjecting it to all claims against, and defenses available to, the seller, limiting damages against the seller, and consequently against the assignee, he explained.  In formulating the rule, Liu said, “the FTC had damages in mind when limiting recovery under the Rule, and there is no indication that attorney’s fees were intended to be included within its scope.”

Attorney fees, in California, where awardable, are costs, not an element of damages, he noted.  The FTC, itself, has issued an advisory opinion declaring, “the Holder Rule does not limit recovery of attorneys’ fees and costs when state law authorizes awards against a holder,” Liu said.  The justice pointed out: “Were attorney’s fees part of the Holder Rule’s limit on recovery, the effective result for many, if not most, consumers would be the same as their options were under the holder in due course rule that the FTC sought to supplant.”

UK Authorities May Feel Sting From ‘Loser Pays’ Ruling

May 27, 2022

A recent Law 360 story by Christopher Crosby, “Authorities May Feel The Sting From Loser Pays Ruling” reports that the U.K. Supreme Court opened the door to public authorities being forced to pay defendants' costs from failed enforcement actions, but attorneys say it is too soon to know whether that risk will deter agencies from bringing cutting-edge cases.  Britain's highest court has ruled that the Competition and Markets Authority might have to cover the legal costs of drugmaker Pfizer and a distributor, Flynn Pharma, after the watchdog's market abuse case against the two companies fell short.

Britain's highest court ruled, in a unanimous 55-page decision handed down, that costs could follow a failed enforcement action because there is no automatic presumption that authorities do not pay for legal fees when they lose cases.  Businesses and trade organizations have applauded the development, which they say will help defendants with small budgets recover their legal fees if they can prove that an enforcement case was groundless.

But the ruling, written by Justice Vivien Rose, does not mean that regulators will always be on the hook for costs — that issue will be determined by the trial court or tribunal on a case-by-case basis.  But the justices said the Court of Appeal was wrong to assume that costs automatically have a chilling effect on regulators in every case.  "The Court of Appeal had created an unhelpful precedent, which puts a potential appellant in the unenviable position of being forced to pay the CMA's legal costs if their appeal failed yet prevented them recovering their own legal costs if their appeal succeeded," Robert Vidal, a competition partner at Pinsent Masons LLP, said.

The competition watchdog fined the drug companies £84.2 million ($106 million at today's rates) in 2016. A three-year investigation had concluded the companies had overcharged the National Health Service for the anti-epilepsy drug phenytoin sodium.  But the Competition Appeal Tribunal found errors in the regulator's analysis in 2020 and ordered it to reassess the fairness of the prices.  Those findings were upheld by the Court of Appeal.  The tribunal then ordered the CMA to pay part of Flynn and Pfizer's multimillion-pound costs after concluding that the default position in cases involving regulators was that the loser bears the burden of costs.

Although the losing side in litigation usually pays the winner's costs, the Court of Appeal disagreed with the tribunal.  The appellate court ruled in 2019 that the "starting position" is that public agencies should not be made to pay for trying to do their job — even if they are unsuccessful in court.  Overturning the lower court's findings, the justices said the Court of Appeal was wrong to overturn the Competition Markets Authority's costs ruling and instructed that there would be no order about costs.

The appellate court had looked at a line of cases beginning with Bradford Metropolitan District Council v. Booth in 2000 and found that the starting assumption for courts was that all public bodies are protected from costs when they lose a case.  Justice Rose said that, even though those cases created a strong preference against deterring regulators, it cannot be assumed that every case involving every regulator carries that risk.

In the case of the CMA, the watchdog can offset its litigation costs against the penalties it imposes, the Supreme Court said.  The competition authority incurred £2 million in legal costs during the last year, which it covered with £56.7 million in penalties handed out, justices noted.  Justice Rose said the "way that the functions of the CMA are funded dispels any plausible concern that its conduct will be influenced by the risk of adverse costs orders."

Robert Vidal said that the CMA "already has all the financial and legal resources of the state behind it, so it was difficult to understand why the Court of Appeal felt it needed to provide the CMA with an additional advantage on exposure to legal costs."  Stijn Huijts, a former CMA director and partner at Geradin Partners, said that it was a "bridge too far" for justices to accept that a public body like the CMA should be shielded from adverse cost awards.

"It's important to recognize that this doesn't mean all costs of litigants like Pfizer will fall to the CMA from now on," Huijts said.  "Nevertheless, the CMA will be in a position where it will need to challenge costs claimed in individual cases and, in most cases that it loses, it will at least need to pay part of the litigants' costs from public money."  Sophie Lawrance, a Bristows partner who acted for two pharmaceutical groups in the CMA case, said the issue was of particular concern to companies active in the pharmaceutical industry, which may have been discouraged against appealing future infringement decisions by the watchdog.

In the last year the CMA has fined several drugmakers in complex medication-pricing cases, finding in February that the cost for anti-nausea medication and thyroid medication was excessive.  In one case, Advanz Pharma Corp. and two private equity firms, Hg and Cinven, have asked the Competition Appeal Tribunal to annul a £100 million ($126 million) fine over Liothyronine tablets, which are used to treat thyroid hormone deficiency.

Drugmaker Allergan and four other pharmaceutical companies are also appealing against a record £260 million fine from the competition watchdog for allegedly abusing their market dominance over an adrenal drug.  Lawrence said that the Supreme Court's decision "ensures that meritorious appeals — which can result in crucial guidance for the sector as a whole — are not deterred."

The Supreme Court Justices highlighted the fact that costs have not prevented the CMA from investigating large companies such as Google and Apple.  The regulator is looking into whether their duopoly on the "mobile ecosystem" threatens competition for digital services, setting up potential enforcement actions.  "Whether this will have a chilling effect on the CMA will in reality probably depend on how it fares in a number of high-profile cases making their way through the courts now, and in investigations against digital giants like Apple and Google," Huijts said.  "Win most of those, and this chapter will be easily forgotten. Lose the majority, and the watchdog may grow more timid."

Article: Courts Are Right to Reject Insurer ERISA Attorney Fee Awards

May 9, 2022

A recent Law 360 article by Elizabeth Hopkins, “Courts Are Right To Reject Insurer ERISA Atty Fee Award” reports on ERISA attorney fee awards.  This article was posted with permission.  The article reads:

As the U.S. Supreme Court has often recognized, the Employee Retirement Income Security Act is remedial legislation that is primarily intended to protect plan participants and beneficiaries, promote their interests and ensure that they receive the benefits they are promised.  According to the U.S. Court of Appeals for the Ninth Circuit's 1984 ruling in Smith v. CMTA-IAM Pension Trust: "An important aspect of that protection is to afford [plan participants and beneficiaries] effective access to federal courts."

And one of the ways that this access is promoted is through ERISA's fee-shifting provision, which grants courts in actions brought by plan participants and beneficiaries the discretionary authority to allow a reasonable attorney fee and cost of action to either party.  Despite these protective statutory goals, individual ERISA claimants face uphill battles in attempting to reverse adverse benefit determinations.  They are not entitled to anything like a full trial in federal court, but are instead normally stuck with a trial on the record that was assembled by the decision-making fiduciary, who is in many instances entitled to great deference.

And the only recovery they can hope to achieve if they are successful is full payment of the benefits that they were always entitled to and perhaps some interest on this amount.  Given all these hurdles and limitations to recovery, it shouldn't come as a surprise that it is not always easy for ERISA plaintiffs to obtain counsel, especially when there is only a small amount of benefits at stake.

For this reason, as the Ninth Circuit explained in Smith, "without counsel fees the grant of federal jurisdiction is but a gesture for few [plaintiffs] could avail themselves of it."  Plan participants and beneficiaries who successfully challenge benefit denials or bring successful fiduciary breach suits against plan fiduciaries do invariably seek and almost always are awarded some attorney fees under this provision.

The Supreme Court made clear in 2010 in Hardt v. Reliance Standard Life Insurance Co., that participants need not even be prevailing parties in an ERISA action to qualify for fees, so long as they have had "some degree of success on the merits."  Once the success threshold has been met, to determine whether a discretionary award of fees is warranted, courts apply a five-factor test first developed in 1993 by the U.S. Court of Appeals for the Fourth Circuit in Quesinberry v. Life Insurance Co. of North America — factors that clearly and intentionally favor successful plaintiffs.

But a potent new threat to the ability of plan participants and beneficiaries to bring suit is looming.  Increasingly, insurance companies are seeking attorney fee awards against claimants who are partially or wholly unsuccessful in overcoming deference and other substantive and procedural advantages to the plan decision makers, and are thus unable to have a denial of benefits reversed.

For the most part, courts continue to reject attorney fee applications from insurance companies that successfully defeat lawsuits seeking plan benefits.  A November 2021 decision in Martin v. Guardian Life Insurance Co. of America from the U.S. District Court for the Eastern District of Kentucky is instructive of both the heavy-handed tactics of insurance companies seeking fees from claimants and one court's reaction.  In Martin, the insurance company that insured disability benefits sought nearly $138,000 against the claimant, the father of a minor child whose only income was roughly $756 a month in veterans benefits and who had only $1,500 in his bank account.

The court seemed especially put off by Guardian's argument that Martin declined to participate in an independent medical examination and that this indicated bad faith, finding, to the contrary, that his attested reasoning for hesitation about the examination was a concern with going to an unknown medical facility during the COVID-19 pandemic.  And the court noted that granting Guardian's motion for attorney fees "would tend to create a chilling effect on other plaintiffs seeking redress under ERISA."

Other courts have expressed similar concerns in denying fee applications asserted by insurance companies against disability plaintiffs.  For instance, in December 2021, the U.S. District Court for the Western District of Washington in Amoroso v. Sun Life Assurance Co. of Canada, declined to order the plaintiff to pay $66,000 in attorney fees to the insurance company simply because it "completely prevailed on the merits."

Noting that application of the five factors that courts apply in determining whether fees are warranted very frequently suggests that attorney fees should not be charged against ERISA plaintiffs, the court concluded that was certainly true with respect to Sun Life's application for fees in that case.  With respect to the first factor, the Amoroso court concluded that there was nothing approaching bad faith in the record.  The court found the second factor weighed strongly against a fee award because Sun Life did not show that Amoroso had sufficient assets to pay an award, and the facts that his home was valued at over $1 million and that he had a medical practice was simply irrelevant with respect to his ability to pay.

Addressing Sun Life's most revealing argument — that the third factor weighed in its favor because awarding fees would deter other participants from brining unsuccessful benefit suits — the court disagreed, reasoning that deterring disabled plan participants from suing for plan benefits was flatly inconsistent with ERISA's policy and with ERISA's fee-shifting provision.

Likewise, the court rejected out of hand Sun Life's argument that awarding fees would benefit all other participants and beneficiaries of the plan by saving the insurance company money and perhaps leading to lower premiums.  The court found instead that such an award "would deter insureds from seeking such benefits at all, and it would only embolden insurers in denying claims at the administrative level."

Considering the relative merits of the parties' positions — the final factor — the court declined to "force a losing ERISA plaintiff to pay an insurer's attorneys' fees based solely on the fact that he lost," reasoning that to do so "would not be consistent with ERISA, the better-reasoned cases decided under it, equity, or common sense."

In the court's view, such a fee award in favor of an insurer would only be justified in unusual circumstances not presented by Amoroso's case.  Numerous other recent decisions have had no trouble denying insurers' requests for attorney fee awards against unsuccessful benefit claimants.

At this point, it appears that the recent and sharp uptick in fee applications from insurance companies seeking fees against plan participants and beneficiaries who are unsuccessful in reversing a denial of benefits is meeting with little or no success in the courts.

Application of the Quesinberry test, along with a healthy reluctance to punish disabled, sick or retired plan participants for seeking to obtain plan benefits, has quite correctly led courts in all but the most unusual circumstances to reject these fee applications.  Let's hope these kinds of decisions discourage insurance companies from engaging in this unfair tactic.

Elizabeth Hopkins is a partner at Kantor & Kantor LLP in Northridge, CA.

Honeywell Wants Workers to Cover Attorney Fees in ERISA Suit

May 4, 2022

A recent Law 360 story by Abby Wargo, “Honeywell Wants Workers To Cover Atty Fees in ERISA Suit” reports that Honeywell International Inc. told a Michigan federal judge to grant it attorney fees after it won a retirement benefits suit against its former workers, saying the workers' unnecessary prolonging of the suit caused the company to expend additional resources that should be reimbursed.  The corporation asked U.S. District Judge Denise P. Hood to approve its request for a "carefully limited" sum of $263,485 after winning a decade-long suit against the United Autoworkers of America and Honeywell retirees.

Honeywell asked the court to approve only the payment of fees incurred during a period of several months in 2018 and early 2019, rather than the full 11 years of the lawsuit, which it told the judge is a reasonable request compared to the millions of dollars spent throughout the suit.  "Having defeated all of plaintiff's claims, Honeywell should be awarded a narrow portion of its attorneys' fees.  Specifically, the court should award Honeywell's fees most related to plaintiff's second summary judgment filing, as well as the unsupportable vesting claims that plaintiff pursued on appeal," according to the motion for attorney fees.

Honeywell said that it is proposing "voluntary concessions" to its requested award, such as excluding fees paying for the time of noncore legal team members and reducing the rates of the award to less than what Honeywell was actually paying for its lawyers.  If the award is granted, it would be only a small fraction of the millions of dollars Honeywell spent fighting the lawsuit, it said.

But Honeywell said that the plaintiffs were "unpersuaded" by the rulings and moved for summary judgment again, though they still lost. Regardless, the company's attorneys had to spend hundreds more hours on the case than was necessary, it said in the fee motion.