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Category: Fee Statute

Article: New Ruling Considers Hourly Rates in Chapter 11 Cases

November 8, 2022

A recent Law 360 article by Tyler Brown, Jason Harbour and Justin Paget of Hunton Andrews Kurth LLP, “How Ch. 11 Ruling Ends War Between National, Local Rates” reports on a recent ruling on hourly rates in Chapter 11 cases.  This article was posted with permission.  The article reads:

On Oct. 18, the U.S. Bankruptcy Court for the Eastern District of Virginia approved the professional fee applications in the Nordic Aviation Capital bankruptcy cases, including the rates of each of the professionals as appropriate market rates.  This settles any remaining uncertainty in how professionals' hourly rates will be considered for approval in bankruptcy courts in the district. In particular, the bankruptcy court noted that

[m]uch ink has since been spilled differentiating so-called "local" rates from "national" rates. The distinction is much ado about nothing.  The market for professional services cannot be predetermined by geography alone.

Instead of relying on geography alone, the bankruptcy court stated that

the plain language of the Bankruptcy Code directs the Court to consider the "customary compensation charged by comparably skilled practitioners in cases other than cases under [Title 11]."  The Court must, therefore, look at whether the rates charged are consistent with those set in the relevant market.

To determine the relevant market, the court noted that the market rate will be set for the most part by the amount clients are willing to pay for professional services.  The factors clients may consider in the selection process might include the reputation of the professional, the specialization of the professional, the need for the professional's experience and expertise, the stakes of the transaction and the time pressures of the engagement.

The court also stated that a good understanding of the relevant market in any given case could be gleaned from the rates of professionals other than those engaged by:

    The debtor;

    Debtor-in-possession financing budgets;

    Monthly operating reports of the debtor;

    Information required by the U.S. trustee program guidelines; and

    The checks and balances built into the fabric of the reorganization process to police the market.

The bankruptcy court also reiterated that the applicable factors for approving professional fee applications are those enumerated in Title 11 of the U.S. Code, Section 330(a)(3), and the Johnson factors.

Additionally, the bankruptcy court noted that in applying the Johnson factors, "it must heed the Fourth Circuit's admonition against per se rules beyond those legislatively mandated," noting that the court cannot "abdicate the equitable discretion granted to it by establishing rules of broad application which fail to take into account the facts of a particular case and the overall objectives of the bankruptcy system."[6]

After identifying the applicable legal standard, the bankruptcy court addressed the evidence that was relevant to the approval of the professional fee applications, including the rates of the professionals.  As the fee applications were uncontested, the court stated that it issued the memorandum opinion to provide guidance to practitioners on the facts they need to develop in support of fee applications filed in bankruptcy cases pending before that court.

In taking the unusual step of issuing a lengthy memorandum opinion for uncontested fee applications, the bankruptcy court put to rest what one commentator recently suggested was a war between national and local rates in the Eastern District of Virginia in mega Chapter 11 cases.  The issue arose in connection with the appeal of the plan confirmation order in the Mahwah Bergen Retail Group Inc. cases on unrelated grounds.

After vacating confirmation in that case, the U.S. District Court for the Eastern District of Virginia ordered that the bankruptcy court issue proposed findings of fact and conclusions of law on any further fee applications in the case and questioned whether attorney rates should exceed the prevailing market rates in the Richmond division of the Eastern District of Virginia.

The district court's order created uncertainty as to how the bankruptcy court might subsequently analyze the rates of professionals from outside the Richmond division.  That uncertainty was short-lived.  Importantly, the memorandum opinion represented one of the bankruptcy court's first opportunities to address professional fee applications in a large Chapter 11 case since the entry of the district court order adopting the bankruptcy court's report and recommendation in the Mahwah Bergen bankruptcy cases.

In the memorandum opinion and the bankruptcy court's report and recommendation, two bankruptcy judges from the Eastern District of Virginia have extensively detailed the legal precedent in the U.S. Court of Appeals for the Fourth Circuit and the appropriate factual predicates for approving market rates.

In sum, the memorandum opinion provides comfort to all practitioners, including those from outside the Eastern District of Virginia, that the appropriateness of attorney rates in cases filed in the district will continue to be assessed through application of the factors identified in Section 330(a)(3) and the Johnson factors on a case-by-case basis, without any additional requirements or per se rules.

First Circuit Deepens Circuit Split on SSA Fee Award Timing

November 3, 2022

A recent Law 360 story by Hayley Fowler, “Abortion Protesters Keep Atty Fees in 4th Circ. Picketing Row” reports that the First Circuit deepened a circuit divide on how long attorneys have to seek fees in district court after winning a Social Security Administration benefits dispute, adopting a "reasonable time" standard also used in the Tenth Circuit rather than a more rigid limit used in four other circuits.  The court affirmed a finding that the attorney in question waited too long under either approach to seek fees for successfully representing a client in a benefits dispute with the agency.

But in a matter of first impression for the circuit, the court said fee petitions brought under 42 USC § 406(b), for representation in court on disability benefits challenges must be brought within a reasonable time.  That puts the First and Tenth Circuits on one side of a divide opposite the Second, Third, Fifth and Eleventh circuits, which say such fee petitions must be brought within 14 days of judgment.

The problem with that 14-day time limit is that after a district court decides a benefits dispute, often the case is remanded to the agency for a benefits determination, making it impossible to know how much the client will recover and thus impossible to calculate a contingency fee, the court noted in an opinion written by Judge O. Rogeriee Thompson.  "In scanning the out-of-circuit precedent, we have observed that in practice, accomplishing justice in most § 406(b) cases seems to inevitably require some exercise of the district court's discretion and powers in equity," the court said.

Some of the circuits that follow the 14-day rule toll that deadline until the SSA makes a final benefits determination.  Others recognize the district court's power to grant discretionary relief from that strict deadline.  The First Circuit said it makes more sense to use the "reasonableness" standard applied to fee motions made under Federal Rule of Civil Procedure 60(b) – the rule for relief from a final judgment – rather than the 14-day time limit that comes from Federal Rule of Civil Procedure 54(d)(2), the rule for judgments that include attorney fees.

Attorney fees in disability benefits cases are not comparable to "loser pays" types of attorney fee awards typically addressed in motions for judgment under Rule 54(d)(2), the court said. Instead, the disability benefits statute allows for attorney fees of up to 25% of the awarded benefits, in what the First Circuit said "implies that the fees are awarded as a part of a district court's judgment for the claimant, rather than as a separate judgment allowing the party to recuperate costs underlying the action."  "Here it is clear to all parties that, in the event of success before the agency on remand, a subsequent amendment to the district court's judgment to award attorneys' fees is highly likely," the court said.

The dispute arose from Green & Greenberg's successful representation of a client in court and before the SSA who eventually was recognized to have a disability and awarded benefits.  The firm represented client Jose Pais on a contingency basis for 25% of his award.  After he won, the SSA set aside just over $29,000 for potential legal fees.  When the firm sought to collect its fees through the SSA, it claimed only about $7,000 for its work at the administrative level. During oral argument, the firm's David Spunzo told the court a paralegal mistakenly claimed 25% of the money available for fees, rather than 25% of the total award.

The SSA then several times notified the firm that it was continuing to retain about $22,000 from Pais's total award as the contingency fee.  By the time the firm sought the remaining amount of the available attorney fees for its work in court, 26 months after the SSA notified Pais of the benefits award, the district court determined it was too late.  The SSA did not take a position in the litigation on which approach to the timing of fee motions is correct, in-house counsel Timothy Bolen told the court during oral argument.  Bolen said the agency's role is to act as quasi-trustee for the claimant and reserve 25% of the award for potential payment of attorney fees, while the question of how much in fees to award is left to the district court.

Seventh Circuit Upholds Attorney Fee Win in FMLA Action

August 25, 2022

A recent Law 360 story by Caleb Drickey, “7th Circ. Upholds Teacher’s Win In FMLA Suit” reports that the Seventh Circuit upheld a pair of lower courts' decisions to declare that a Wisconsin governmental entity violated the Family and Medical Leave Act by de facto demoting a concussed teacher, and to grant her attorney fees for her bench trial victory.  In a published opinion, a three-judge panel ruled that the lower court was within its authority to issue a damages-free declaration that the Cooperative Educational Service Agency 5 violated the FMLA by taking away teacher Sarah Simon's work responsibilities after she returned from medical leave. The panel further held that the law mandated the payment of attorney fees in the case of a judgment in favor of workers.

"If this case involved an accomplished neurosurgeon returning from leave to a position that required only tracking the hospital's inventory, we doubt that anyone would question whether the surgeon suffered prejudice," U.S. Circuit Judge Thomas Kirsch said on behalf of the panel. "Simon … suffered harm for which the FMLA provides a remedy."

The opinion stems from the Cooperative's retraction of Simon's job responsibilities after she returned to work in the wake of a workplace concussion.  Although the Cooperative, which provides staff and equipment to 35 school districts in the state, maintained Simon's previous salary, a district court found that Simon's effective demotion to a support staffer prejudiced her, and it granted her a declaratory judgment and roughly $60,000 in attorney fees after a bench trial.

The panel ruled that a court-issued declaration of FMLA violations absent any monetary damages or injunctions to re-hire Simon, who has since taken another job, was within scope of the relief promised by the law.  The FMLA authorized courts to dispense "equitable relief," an undefined term that courts have interpreted to encompass binding orders to hire or promote workers.

The authority to grant declaratory judgments, the panel therefore concluded, could reasonably be inferred.  "It would make little sense for the FMLA to permit courts to grant these heavy-handed remedies yet bar them from using a lighter touch through entry of a declaratory judgment," the panel held.

The panel also affirmed the lower court's finding that the Cooperative prejudiced and harmed Simon even without suffering any cuts to her pay or benefits.  Citing the U.S. Supreme Court's 2002 decision in Ragsdale v. Wolverine World Wide Inc. , the panel held that the demotion of workers returning from medical leave to positions for which they were overly qualified caused injury.

The Commission's remission of Simon's ability to plan lessons and lead classes, the panel therefore concluded, unfairly created a gap in her resume, prejudiced her, and put her employer on the hook for remedies including declaratory judgments and the payment of attorney fees.

The panel affirmed the lower court's separate order of a $59,773.62 attorney fee bill, too.  That fee bill was not an improper imposition of punitive damages, the panel ruled, but was required by the text of the FMLA in the case of a judgment in favor of workers.  "The district judge merely applied the FMLA as written, which expressly requires attorney's fees after a judgment entered in the plaintiff's favor," the panel held.

Feds Ordered to Pay Attorney Fees to Reimburse NY Hospital

August 18, 2022

A recent Law 360 story by Anna Scott Farrell, “Gov’t Ordered To Reimburse NY Hospital $1.7M in Legal Fees” reports that the U.S. Court of Federal Claims ordered the government to reimburse NewYork-Presbyterian Hospital $1.7 million in attorney fees for defending itself against doctors who claimed their payroll taxes were wrongly withheld and eventually settled.  The court's decision answered "a unique question of law" about whether a statute requiring the government to reimburse employers for payroll-tax claims extends to the employer's cost to litigate or negotiate such claims, according to the decision published.  "The short answer is that it does," the court said.

At the center of the decision was a textual parsing of Section 3102(b) of the Internal Revenue Code, which requires the government to indemnify employers against claims for taxes withheld under the Federal Insurance Contributions Act.  The law, as written by Congress, reads, "Every employer required so to deduct the tax shall be liable for the payment of such tax, and shall be indemnified against the claims and demands of any person for the amount of any such payment made by such employer."

The court disagreed with the government's position that the phrasing of "any such payment" should apply in a limited context to the payment for "claims and demands" made by the employer. It sided with the hospital's "most natural reading," which included the last part of the sentence — that the payment should apply to "any such payment made by such employer."  Further, the court said, "the plain meaning of 'indemnified' clearly encompasses attorneys' fees and costs."

The decision is a mile marker in a long battle that started in 2013, when three doctors who had worked as residents at the hospital blamed the hospital for the loss of tens of thousands of dollars in FICA payroll taxes on their wages when they were trainees.  The Internal Revenue Service had recently given the trainees a window of time to claw back their tax contributions for the years when they were considered students who weren't required to pay those taxes.  In their suit against the hospital, the doctors said it should have helped them recover the wages in time by filing protective FICA tax refund claims on their behalf, according to court filings.

The hospital settled with the residents in 2015, agreeing to pay them $4.5 million toward their lost wages plus their attorney's fees, bringing the total settlement amount to $6.6 million.  A year after the settlement, the hospital sued the IRS, seeking reimbursement of the $6.6 million it had paid the residents.  The Court of Federal Claims initially rejected the hospital's bid for reimbursement, but a three-member panel on the Federal Circuit overturned that ruling, saying the hospital was entitled to reimbursement from the government.

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.”