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Category: Fees & Arbitration

NJ Law Firm Wins Challenge to Attorney Fee Award

May 4, 2021

A recent Law 360 story by Nick Muscavage, “Genova Burns Beats Ex-Client’s Challenge To Fee Award,” reports that a New Jersey appellate court has found that Genova Burns LLC is still entitled to a roughly $73,000 judgment for unpaid legal services after the firm's former client tried to convince the panel that its attempts to vacate the judgment were wrongly blocked by a lower court.  Newark, New Jersey-based Genova Burns was awarded a $73,335 judgment from an arbitrator for legal services provided to the Morris Canal Redevelopment Area Community Development Corp. and its executive director, June Jones.

The appellate panel, in its opinion issued April 28, found that the lower court was correct when it determined the Morris Canal redevelopment corporation could not escape the judgment because it failed to establish "excusable neglect" on behalf of Genova Burns.  The judgment was awarded in a June 2018 arbitration hearing that was held after 13 adjournments over the course of a year.  Neither the Morris Canal corporation nor its counsel appeared at the arbitration, according to the appellate opinion.

An attorney for the Morris Canal corporation filed a demand for a trial de novo a month after the arbitrator's decision, but because it had not appeared at the arbitration, the corporation was "deemed to have waived the right to demand a trial de novo."  The corporation also filed a motion to vacate the arbitration's default judgment.

Benjamin Morton, the attorney who filed the motion to vacate the arbitrator's judgment, claimed he was not able to attend the arbitration because he was working on another trial and had requested an additional adjournment, according to the appellate panel's opinion.  The lower court denied Morton's motion because it did not include an attorney certification, proposed form of order or certification service, and was also filed in an improper venue.  Additionally, Morton was not the counsel of record for the Morris Canal corporation at the time of the arbitration or when he filed the motion to vacate, according to the appellate opinion.

Sixth Circuit: No Authority to Award Attorney Fees Post-Arbitration

April 15, 2021

A recent article by Brendan Gooley, “Sixth Circuit Concludes District Court Lacked Authority to Award Attorney Fees’ Following Arbitration,” reports that the Sixth Circuit recently reversed a district court’s decision to award attorneys’ fees after the Circuit concluded that the claim on which the fees were awarded was subject to mandatory arbitration, and noted that the arbitrator had not awarded any fees for that claim.  This article was posted with permission.  The article reads:

Members of the UAW union sued TRW Automotive U.S. LLC for breach of contract and violations of ERISA claiming that TRW violated a collective bargaining agreement (CBA) when it changed their health care coverage.  The district court compelled arbitration pursuant to a clause in the CBA that provided in relevant part that arbitration “shall be the exclusive remedy for the enforcement by [the union] of any claim against the Company.”  The arbitrator ruled in favor of the union workers.

The district court then granted in part a motion the union filed seeking statutory attorneys’ fees for their ERISA vesting claim, a claim that the district court found was not before the arbitrator and was instead before the court.  Specifically, the court “declined to award any ERISA attorney’s fees and costs incurred through the date of the arbitration award because ‘the ERISA claim was not addressed prior to or at arbitration’” but “granted [the union workers’] request for attorney’s fees and costs related to their ERISA claim incurred after the arbitration award.”

The Sixth Circuit reversed.  In short, the Court concluded that the district court “lacked the authority” to award fees or otherwise make rulings on the union workers’ ERISA vesting claim “because the ERISA vesting claim and ERISA attorney’s fee claim . . . were both subject to mandatory arbitration under the CBA, allowing only limited court review for issues of legality or enforcement.”  The Court explained:  “Once the arbitrator finds a merits violation, the parties are responsible for raising any remedy issues in their remedy demands during arbitration. . . .  The parties do not have to return to the district court once a merits violation is found just to seek permission to present ‘ripe’ remedy issues to the arbitrator.  Plaintiffs’ position, presented without any supporting legal authority, would lead to an untenable result where the arbitrator performs fact-finding but the district court issues the remedy.  Not only would this contradict the CBA’s declaration that arbitration is the exclusive remedy for any dispute, but it would also defeat the purpose of arbitration if the parties still have to litigate remedy issues in federal court.”

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.

Sixth Circuit Reverses UAW’s Attorney Fee Award

March 15, 2021

A recent Law 360 story by Braden Campbell, “6th Circ. Reverses UAW’s Fee Win in Retiree Health Care Suit, reports that the Sixth Circuit wiped out a $180,000 fee award for the United Auto Workers in a suit alleging an auto parts maker illegally eroded retirees' health benefits, saying a Michigan federal judge usurped the arbitrator who initially decided the dispute.  The unanimous panel said the Eastern District of Michigan did not have the power to award the fees or find that TRW Automotive U.S. LLC violated the Employee Retirement Income Security Act when it replaced retirees' health plans with health reimbursement accounts, because these issues were the arbitrator's to decide.

The panel rejected the union's argument that the arbitrator left these issues unresolved and so teed them up for the court.  While the arbitrator only purported to opine on the underlying contractual dispute, the ERISA claim was inextricably linked to this central issue, the panel said.  "The relationship between the ERISA and [contract] claims and the parties' arguments during arbitration reveals that the arbitrator did in fact decide the ERISA claims," the panel said.  "His decision that TRW breached the CBA meant that TRW also committed an ERISA violation."

The ruling is the Sixth Circuit's second in the long-running case, which concerns a shift in health coverage for retirees from a shuttered Michigan plant.  The UAW sued TRW in late 2011 alleging the benefits change breached the parties' collective bargaining agreement and violated ERISA.  The court sent the dispute to arbitration, per the CBA, and the arbitrator found TRW breached the contract and ordered the company to restore the prior plan.  Though the union raised ERISA claims, the arbitrator framed the issue as "whether the adoption of the [health reimbursement accounts] structure as implemented by TRW constitutes a breach of contract," according to a portion of the decision discussing case background.

The company then challenged the arbitrator's ruling in the Eastern District of Michigan.  Meanwhile, the union asked the court to award fees and grant summary judgment on the ERISA claim.  The court affirmed the award and granted the union summary judgment, and the company appealed.  In its first order, the Sixth Circuit said the arbitrator exceeded his authority, but it did not resolve the ERISA issue because the district court had yet to award fees.  The order follows the district court's subsequent order granting fees to the union.

The union insisted the district court had jurisdiction to issue judgment and award fees despite contract language directing such issues to arbitration, arguing that the arbitrator did not resolve the ERISA claims.  The panel ruled otherwise, saying the arbitrator's finding that TRW breached the contract resolved the ERISA claims because they likewise "turned on the CBA provisions guaranteeing certain health insurance benefits."  Sixth Circuit precedent holds that violations of health provisions in CBAs double as violations of welfare plans under ERISA, the panel added.

Judge Orders Attorney Fee Dispute to Arbitration

March 9, 2021

A recent Law 360 story by Emma Whitford, “Atty Must Arbitrate Fee Dispute With Racehorse Trader,” reports that a California judge ordered an attorney to arbitrate her dispute with a U.K. racehorse auctioneer company, her former client, over fees allegedly due when she represented the company accusing a financier of failing to pay for a racehorse.  Attorney Diana Courteau of California claimed in her April complaint that Tattersalls Ltd., the racehorse company, failed to pay her $73,255.34 for the months of February and March 2020, after firing her that March.  The six-claim complaint also accused Tattersalls and Bracher Rawlins LLP, the company's English counsel, of fraud and intentional misrepresentation.

But Tattersalls and Bracher Rawlins pushed back with a motion to dismiss, pointing to an arbitration provision in their contract with Courteau and claiming that she failed to give them proper notice under the California Mandatory Fee Arbitration Act, which lays out rules for the handling of attorney-client fee disputes.  "Here, it is undisputed that [the] plaintiff did not provide the mandatory notice form to defendants," U.S. District Judge Dolly M. Gee ruled, adding that the case will be stayed while arbitration goes forward.

"Moreover," Judge Gee added, "the agreement between plaintiff and Tattersalls contains a broad arbitration provision governing the very dispute at issue."  Specifically, a "dispute over legal bills that alleges breach of contract and related claims."  Courteau had argued that Bracher Rawlins could not compel her to arbitrate because the firm is not a signatory to her agreement with Tattersalls.  But Judge Gee disagreed, saying that Bracher Rawlins will be part of the arbitration as an "agent" of Tattersalls.

It is "well settled that a nonsignatory may compel a signatory to arbitrate based on agency principles," Judge Gee wrote, adding that Bracher Rawlins "was only in a position to direct or authorize plaintiff to perform legal work for Tattersalls in its capacity as Tattersalls' agent."  The order is just the latest development in the litigious fallout of Tattersalls' working relationship with Courteau, who represented the company in various matters from 2011 until March of last year.

Last June, in the case Courteau worked for Tattersalls until they fired her, U.S. District Judge Karen S. Crawford ordered Courteau to pay $31,772.62 in sanctions to defendants Gerald Wiener and his entity Finance California Inc., court records show.  The sanctions covered attorney fees for a two-day deposition last January in which the court found that Courteau coached the witness, as well as the cost of preparing the sanctions motion, court records show.

Wiener and Finance California had also sought termination sanctions, a serious sanction that would have ended the case, for Courteau's alleged "abusive" and "hardball" tactics.  But Judge Crawford denied that motion, saying the "worst of this conduct has been addressed" and "monetary sanctions have been imposed which should be enough to deter future misconduct."  Courteau has yet to pay the sanctions, court records show.  Attorneys for Wiener filed a notice of lien in the instant suit on Jan. 15.

In a Feb. 4 declaration to the court, Courteau urged Judge Gee to proceed with a trial for her fee dispute or, in the alternative, send the case to "global mediation" along with the Wiener case, which is currently on appeal to the Ninth Circuit.  "Plaintiff is willing to stipulate (notwithstanding meritorious grounds for appeal) that ... the $31,772,62 (sanctions) can be paid from fees owed by defendants," Courteau wrote.