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Category: Fees & Bad Faith

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.

Article: Bad Faith Prosecution in Trade Secrets May Lead to Fee Award (Or Not)

November 5, 2021

A recent article by Keith Paul Bishop, “Bad Faith Prosecution of Trade Secrets Theft May Lead to Attorney Fee Award (Or Not),” reports on bad faith and the prosecution of trade secrets theft and attorney fee awards in California.  This article was posted with permission.  The article reads:

In 1984, the California legislature decided to curb "specious" actions for misappropriation of trade secrets by enacting Section 3426.4 of the California Civil Code.  Cal. Stats. 1984, ch. 1724.   That statute provides:

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees and costs to the prevailing party.  Recoverable costs hereunder shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.

In 2006, the legislature amended the statute to add "and costs" in the first sentence and to add the second sentence.  Cal. Stats. 2006, ch. 62.

Not all theft of trade secrets claims are made in made faith, however, and such was the case in Dr. V Productions, Inc. v. Rey, 2021 Cal. App. LEXIS 752.   The case involved an attempted appeal from an order denying a motion for attorney's fees after a voluntary dismissal of a misappropriation of trade secrets claim.   The Court of Appeal held that the order was not separately appealable.

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.