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Category: Fees & Bad Faith

Insureds Can’t Recover Attorney Fees for Work on Their Own Behalf

April 27, 2023

A recent Business Insurance by Judy Greenwald, “Insureds Can’t Recover Attorney Fees for Work on Their Own Behalf,” reports that, under California law, insureds may not recover attorneys fees for work they performed on their own behalf, a federal appeals court ruled in affirming a lower court decision in Travelers Cos. Inc. units’ favor.

Kathleen March and Patrick Bright, a married couple who are both attorneys and owners of Walking U Ranch LLC  in New Cuyama, California, were involved in an underlying property dispute with a neighbor for which Travelers Cos. units had a duty to defend under the insureds’ primary and excess agribusiness policies, according to court papers in The Travelers Indemnity Co. of Connecticut; Travelers Casualty Insurance Co. of America v. Walking U Ranch LLC, Katheen P. March; Patrick Bright.

The U.S. District Court in Pasadena ruled in Travelers’ favor on the couple’s bad faith breach claim and request for attorneys fees.  A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco affirmed the lower court ruling, saying, “Under California law … attorneys may not recover for work performed on behalf of themselves and another party with identical interests.”

Because Ms. March and Mr. Bright are married and Walking U Ranch’s sole owners, they “therefore all shared the same interest in the outcome of the underlying action.  “There is also no indication that March or Bright spent any extra time in the underlying action representing Walking U Ranch LLC rather than themselves,” the panel said in affirming the lower court’s summary judgment rejecting the bad faith claim.

Judge Recommends Gutting Attorney Fees in IP Case

April 11, 2023

A recent Law 360 story by Rachel Riley, “Ohio Judge Guts Counsel Fees in Archery Row IP,” reports that an Ohio federal magistrate judge has recommended slashing attorneys' request for fees and expenses by more than half when awarding an archery company for a default win in a bow patent and trademark dispute, saying the out-of-town lawyers were pricier than the district where they argued the suit.  U.S. Magistrate Judge Chelsey M. Vascura suggested that the court award Wisconsin-based MCP IP LLC about $109,000 in attorneys fees and some $1,500 in legal costs – a fraction of the nearly $240,000 total the company requested last month.

MCP alleged in a 2021 suit that Ohio outdoor retailer .30-06 Outdoors LLC and archery equipment brand Daibow Inc. ripped off more than a dozen of its bow patents for various designs and utilities and infringed its associated trademarks.  Last August, the federal district court ruled that the two accused archery companies had admitted to those allegations, by default, by failing to respond to the claims over the course of 18 months.  Judge Vascura agreed with MCP that the case met the "exceptional" threshold for awarding attorneys' fees in patent cases; however, the magistrate judge recommended cutting the proposed $168,631.95 attorney fee award by about $60,000 for two reasons.

First, Judge Vascura suggested a downward adjustment to the lodestar because the lead attorneys on the case, Kadie M. Jelenchick and Michelle A. Moran of Foley & Lardner LLP, are based in Milwaukee and thus charge more than average billing rates for intellectual property attorneys in the Southern District of Ohio.  Altogether, the legal team charged the plaintiffs for 314 hours of work on the case, with hourly rates between $330 and $700.

Second, Judge Vascura recommended reducing the lodestar because the lawsuit was only partially successful. MCP was awarded about $80,500 in damages – less than half of the $168,500 it sought — and the court denied the company's request for a preliminary injunction barring the defendants from further patent infringement, the judge said.

In a March 23 motion for attorneys' fees, MCP argued that the defendants' failure to appear in court and other bad-faith legal tactics made for exceptional circumstances.  Since the lawsuit was filed, the plaintiff alleged, .30-06 Outdoors' published a defamatory statement claiming the suit was racially motivated.  According to Judge Vascura's recent report, though, that statement was later deleted at the request of MCP's counsel.

Judge Vascura recommended that the court largely deny MCP's request for another $70,118.77 in litigation expenses, which MCP had only described as "consisting largely of professional services provided by local counsel and MCP IP's damages expert."  "Indeed, beyond a monthly total of fees paid to its damages expert and local counsel (along with modest expenses associated with mailing, parking, travel, and meals), Plaintiff provides no explanation of how these fees were calculated or the services for which these fees were incurred," Judge Vascura said.

If MCP sought reimbursement for fees paid to its local counsel, the company should have included those billing records with its attorneys fee request so the court could determine if they were reasonable, Judge Vascura said.  And though the law authorizes award of attorneys fees to winners of exceptional patent cases, it does not make the same allowance for expert witness fees, the judge said.  The attorneys fees already awarded should be enough to cover any additional costs created by the defendants' uncooperative behavior, Judge Vascura said.  She recommended standard expert witness fees of $40 a day for each day the damage expert spent attending a hearing plus any travel days, totaling $120.

Firm to Ninth Circuit: DOL Must Pay Attorney Fees After ERISA Loss

October 13, 2022

A recent Law 360 story by Katryna Perera, “Firm Says DOL Must Pay Atty Fees After Losing ERISA Suit” reports that an architecture firm urged the Ninth Circuit to force the U.S. Department of Labor to pay its attorney fees and costs after the agency lost its suit claiming the firm broke federal benefits law, saying the case should not have been filed to begin with since it was not based in fact or law.  Attorneys for Bowers + Kubota Consulting Inc. and its former owners filed a brief saying the DOL's suit, which claimed the firm overcharged for its employee stock ownership plan in violation of the Employee Retirement Income Security Act, was meritless and that the district court abused its discretion in finding the DOL secretary had not acted in bad faith.

"The absence of any credible evidence of the alleged ERISA violations at trial merits the conclusion that there was no substantial justification for the [DOL] Secretary's complaint and litigating this case in the first instance," the brief said.  According to B+K, the DOL secretary has the power to build an entire case and obtain expert advice and opinions before filing a complaint to ensure that the claims "meet the hurdle of substantial justification."  Therefore, the DOL acted in bad faith by filing the complaint and for "knowingly or recklessly" raising "frivolous arguments," the firm said.

The brief also stated that while the DOL's investigation into the firm may have been warranted, that does not justify the initiation of the suit.  "The fact that the Secretary's investigation was justified has no bearing under the law on the lack of substantial justification and bad faith of the secretary filing a complaint after the investigation concluded and prosecuting that complaint for more than three additional years," the brief stated.

The firm further argued that it is entitled to attorney fees and costs under the Equal Access to Justice Act and that the district court erred by not awarding approximately $28,000 to B+K to cover nine depositions of Labor Department officials.  "The district court's ruling in that regard was clearly based upon the mistaken and clearly erroneous belief that those deposition costs were incurred after the district court's March 12, 2021, order denying appellants' motion for summary judgment on limitations grounds," the brief stated.  "At the time each deposition was taken … appellants reasonably expected that each deposition would be used for purposes of trial and were used as evidence in the summary judgment motions."

B+K had asked a Hawaii trial court for more than $78,300 in taxable costs in addition to attorney fees and non-taxable costs.  Under the EAJA, courts can award fees to parties that win lawsuits against the government — unless the court decides the government's position "was substantially justified."  Because the trial court decided the Labor Department had legitimate reasons to be suspicious of the B+K transaction, the court awarded the defendants a reduced taxable costs award — but no attorney fees or non-taxable costs — after a five-day bench trial.

B+K's brief is in response to a brief the DOL filed in September, claiming it should not have to cover the firm's attorney fees.  The DOL pushed back against B+K's argument that the trial court should have awarded it fees because the found "absolutely no proof of wrongdoing" on B+K's part.  This is not true, the Labor Department said, arguing that the trial court decided the department brought its lawsuit in good faith based on evidence provided during the trial.  The trial court also denied B+K's motion for summary judgment on the merits, the department added.

Fifth Circuit Takes Up Attorney Fees in Failed IP Action

October 12, 2022

A recent Law 360 story by Lynn LaRowe, “5th Circ. Takes Up Atty Fees in Wrestler’s Failed IP Suit” reports that Activision Blizzard Inc. should be awarded attorney fees after a Texas jury found the company's Call of Duty character David "Prophet" Wilkes did not infringe pro wrestler Booker T's "G.I. Bro" copyright, the video game company told the Fifth Circuit during oral arguments.

After the issue of whether the Prophet character infringed Booker T's persona was decided in Activision's favor by a jury at the end of a four-day trial in June 2021,  Activision appealed U.S. District Judge Robert Schroeder III's decision to let both sides bear their own costs, arguing the judge abused his discretion by failing to properly analyze the merits of Booker T's lawsuit.

Activision attorney Jessica Lanier of Durie Tangri LLP argued Judge Schroeder was out of bounds when he ruled that it was reasonable for Booker T to have brought the suit, which led the panel to point out the case had survived numerous pretrial motions, including a motion to dismiss Judge Schroeder denied in February 2020.

Lanier also argued Judge Schroeder should have based his decision regarding fees on more than just the objective reasonableness of the factual and legal elements of the case, as established by the U.S. Supreme Court in Fogerty v. Fantasy Inc.  Fogerty provides a test for determining whether to award fees, which also provides for analyses based on frivolousness, motivation, and the needs for compensation and deterrence of bad faith litigation.

Patrick Zummo, an attorney representing Booker T, whose full name is Robert Booker Tio Huffman, argued the trial court had considered all of the Fogerty factors, but determined that the objective reasonableness component, which the trial court found weighed against awarding fees to Activision, was the most important in deciding the issue.  "First, we had a hearing," Zummo said, noting that hearings regarding attorneys fees in copyright cases are not routine.

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.