A recent Law 360 story by Caleb Symons, “Utah’s $100K Atty Fee Bid Excessive Construction Co. Says” reports that one of the federal contractors working on a Colorado gold mine when it ruptured in 2015 denies owing the state of Utah more than $100,000 in attorney fees for mishandling certain records, calling the request "unreasonable" because it avoided a harsher punishment for that infraction.  The sanctions dispute — part of multidistrict litigation over the Gold King Mine blowout, which released 3 million gallons of toxic waste — centers around Utah officials' claim that Harrison Western Construction Co. withheld documents detailing its construction plans at the mine.

U.S. District Judge William P. Johnson ruled earlier this year that Harrison Western must pay the state's attorney fees in those proceedings, but the company now seeks to substantially reduce an estimate of its obligation.  Noting that the judge declined to issue a more severe punishment, the Denver-based construction firm said last week that Utah should not be allowed to recoup its full legal bill after achieving only "relatively minimal success" on its March 7 sanctions request.

Rather than covering more than $100,000 in attorney fees — which includes Utah's estimate of future expenses in the ongoing spat — Harrison Western proposed paying the state less than $29,000 for those costs.  "Given Utah did not prevail on the two primary sanctions it sought, it should not be awarded fees on fees," the company said.  "At most, it should be awarded only one-third of the attorney fees and costs sought for preparation of its fee request, as it prevailed on only one of three sanctions sought."

State authorities asked Judge Johnson in early October to approve their $105,578 sanctions bill, claiming that Harrison Western "refused to participate in a good-faith effort to resolve this motion for an award of attorneys' fees without requiring judicial intervention."  The company responded that Utah is entitled to only a fraction of that sum because the judge had approved only the "least severe" of its sanction requests.

Moreover, the state's compensation formula — based on an hourly fee of $795 for partners and $550 for associates — is well above the typical rate in both New Mexico, where the MDL is located, and the Rocky Mountain region, according to Harrison Western.  Nor has Utah shared enough information about the hours worked by its King & Spalding LLP lawyers to prove an accurate accounting, the company added.

A recent Law 360 story by Andrew Karpan, “Quinn Emanuel Client Hit With $160K In Fees In IP Fight” reports that a China-based client of Quinn Emanuel Urquhart & Sullivan LLP was ordered to cough up over $160,000 in legal fees after its defense in a copyright case ran afoul of California's anti-SLAPP statute.  The amount that Northern District of California Judge Edward Chen ultimately arrived at was about $12,000 less than the final fee request from lawyers at the small San Francisco firm Tyz Law Group PC after they beat a dismissal bid in a copyright suit they leveled on behalf of Moonbug Entertainment. Moonbug is the company behind the children's educational brand CoComelon, which runs popular shows on YouTube and Netflix.

The suit accuses a Fuzhou City-based company called BabyBus (Fujian) Network Technology Co. Ltd. of building "its Super JoJo YouTube business by blatantly copying CoComelon."  BabyBus' lawyers at Quinn Emanuel responded last September with allegations that Moonbug's lawyers had been "using baseless [Digital Millennium Copyright Act] notices to effectively shut down BabyBus' lawful, competitive business."  DMCA notices are sent to companies like YouTube to ask them to take down content that infringes someone's copyright.

The legal fight is ongoing.  But Judge Chen had rejected outright BabyBus' contention that the way Moonbug pursued its case against BabyBus violated certain state laws, such as Section 17200 of the California Business & Professions Code.  This defense was legally hopeless, Judge Chen wrote last year: "No amendment can cure the fact that the state law counterclaims are preempted by the Copyright Act."

"Moonbug estimated it spent 'roughly' 324 hours in total, accounting for both compensable and non-compensable time spent on the joint motions to dismiss and strike," Judge Chen wrote.  According to the decision, the Moonbug lawyers had initially offered to settle the dispute over their legal bills for the whole effort for $96,152. BabyBus offered to pay just $15,580 instead.

The Moonbug lawyers then asked the court for $155,620 in fees but, in a later filing in the matter last year,  they beefed the number up to $173,553.  The new figure included an additional $17,933 in what the company's lawyers called "reasonable fees-on-fees" that were "not accounted for in its original fees-on-fees request," referring to legal work done in connection with the fee motion.  Judge Chen told BayBus to pay out $161,683.

"Moonbug's request for fees on fees is not unreasonable," Judge Chen decided.  He also rejected an argument from the BabyBus team that Tyz Law had deliberately overstaffed its legal response in order to collect more in fees.  "Moonbug's use of five attorneys of various levels of experience on its anti-SLAPP motions is nothing out of the ordinary," the ruling read.  The ruling did, however, trim out a little over 10 hours of work that Tyz Law had attached to the motion "for unnecessary work on a reply brief."

A recent Law 360 story by Jeff Montgomery, “Chancery Wants Skadden Affidavit in TransPerfect Fee Fight,” reports that Delaware's chancellor ordered Skadden to submit an affidavit attesting to the accuracy and reasonableness of custodian fees recently charged to TransPerfect Global Inc., saying it was in the interest of ending billing battles stemming from a rancorous court-ordered sale of the business.  Chancellor Andre G. Bouchard gave Skadden Arps Slate Meagher & Flom LLP and custodian Robert B. Pincus a week to submit the information after a half-day argument on three pending issues in the case.  Among them was a motion by Pincus for a discharge from his custodian's role with indemnification and nondisparagement protections, among other terms, opposed by TransPerfect and co-founder Philip R. Shawe.

Also at issue were claims by TransPerfect that Skadden had charged excessive and unsupportable fees on a range of matters, including "fees on fees" billings for Pincus' and Skadden's defense against fee claims, as well as a TransPerfect motion to block Pincus and Skadden from recovering fees for a contempt action.  While taking the overall issues, including Pincus' discharge, under advisement, the chancellor also directed Skadden to provide support in its affidavit for more than $200,000 in billings for what were alleged by TransPerfect to be "the administrative work" of sending a bill.

"Is it typical? I'm not aware of it happening," the chancellor said.  "I'm talking about [billing for] the actual generation of an invoice and, if you will, running that bill.  Give it thought.  If it's your position that it's ordinary and that it would be billed to a client ordinarily and permissibly, so attest" in the affidavit.  "If you want to carve that out. It might be prudent to do so."

Pincus was appointed custodian of TransPerfect after its two co-founders, Shawe and Elizabeth Elting, had a falling-out and could not agree on how to manage the company.  In May 2018, the Delaware Supreme Court affirmed the chancellor's February 2018 ruling that allowed Shawe to buy Elting's 50% stake in the company.  Chancellor Bouchard had also determined that Pincus' impartiality wasn't compromised by threats of litigation made against him by Elting or by Shawe's alleged interference in the sale process.

During the arguments, Jennifer C. Voss of Skadden, counsel to Pincus, said the expenses had been prompted by TransPerfect's and Shawe's actions, and were handled with the same diligence and efficiency as that given to all of Skadden's clients, at rates consistent with its practice.  "Mr. Shawe is an adjudicated serial litigator," Voss told the court while arguing for Pincus' discharge.  "Now, years out from closing [on the TransPerfect sale], he has filed a barrage of baseless, unprovoked attacks against Mr. Pincus and Skadden.  These attacks are meant to coerce Mr. Pincus. He has not succeeded, but they're also meant to harass him and his advisers."

Voss said TransPerfect and Shawe "weaponized access to billing statements" for a "punitive and protracted campaign of fee warfare," despite Pincus' right to recover costs as custodian and for litigation in disputes with TransPerfect and Shawe in the years after the sale.  Much of the dispute related to the custodian's authority to bill TransPerfect for the costs of responses to or defenses for challenges raised by the company and Shawe.

During the hearing, David B. Goldstein of Rabinowitz Boudin Standard Krinsky & Lieberman PC, counsel to Shawe, described the billing arrangements as a "fee merry-go-round," with filings by TransPerfect and Shawe generating billings from the custodian, objections to the bills and new bills for addressing the objections.  "The sale of TransPerfect Global closed almost three years ago," Goldstein said.  "At that point, TransPerfect had already been ordered to pay Skadden almost $13 million, and another $31 million to [Pincus'] handpicked advisers."

Fee and other disputes since then have pushed the total to $14 million for Skadden and $45 million for advisers, Goldstein said, with additional billings pending.  "Our position is these fees are really excessive," Goldstein said, arguing that the process appeared to have become a "billing frenzy" without end.  "I'm not telling the court or suggesting that Skadden should get zero," he said.  But "if they got nothing else, they would have gotten far more than a reasonable amount of fees."

Voss disputed TransPerfect's calculations of the billings and costs of the case, and said expenses had been driven by TransPerfect's and Shawe's frivolous arguments, haphazard and mistaken filings, and pressures for expedited court proceedings.  One billing alone, Voss noted, was answered with 100 pages of objections.

A recent Law 360 story by Nathan Hale, “Hospital Whistleblower’s $1M Fees Award Falls Short of Goal,” reports that a whistleblower whose complaint against now-defunct hospital chain Health Management Associates Inc. helped the federal government secure more than $260 million to settle fraud charges will receive less than one-twelfth of his $12 million attorney fees request but may get more for himself, a Florida federal judge ruled.  Fort Myers-based U.S. District Judge John E. Steele's award of $952,480 to relator Bradley Nurkin, who was previously chief executive officer of the HMA-owned Charlotte Regional Medical Center, ended Nurkin's lengthy fight with HMA over how much Nurkin should recover under the fee-shifting provision of the False Claims Act.

"The Supreme Court has stated that 'a request for attorney's fees should not result in a second major litigation.'  That ship sailed long ago in this case," Judge Steele said.  In a 51-page order, the judge rejected HMA's argument that he should eliminate the fees award as a sanction against Nurkin for alleged "grossly excessive" or "outright fictitious" billing estimates, but also rejected several of Nurkin's arguments for how to calculate the proper amount.

"While the court will make reductions to the requested attorney fees and expenses, it will not do so as a sanction under its inherent authority," the judge said.  But the court also rejected the position taken by Nurkin and his lead counsel Edward Sanders that any award should go directly to Nurkin's attorneys.

"If Nurkin owes Sanders fees for services not encompassed by the FCA representation, then obviously he may use any of his resources, including these awarded fees, to pay his obligations.  However, this award of attorney fees does not belong to Sanders, but to Nurkin, as the relator," Judge Steele said.

"By all accounts, the recovery made by the government attributable to Nurkin's case was excellent.  The resulting dollar amount of Nurkin's share was substantial enough to result in a contingent attorney fee which was ample and did not need to be supplemented to arrive at a 'reasonable' amount," the judge added, explaining why this case was not one where the award belongs to the relator's counsel.

Nurkin, who received just under $15 million of the $93.5 million the government attributed to his specific case from the 2018 settlement — it had consolidated eight cases against HMA as a multidistrict litigation — already has paid his attorneys one-third of that amount, more than $4.9 million, under a contingency fee contract, according to the order.  In his motion, he presented the court with three figures based on it awarding fees using either a contingency fee basis, a lodestar or and enhanced lodestar method.

His request under the contingency fee basis came out the highest at more than $11.9 million, which represented 15% of the $79.5 million recovered by the government after paying Nurkin his share, but Judge Steele said the U.S. Supreme Court has ruled that courts should use the lodestar method to calculate a reasonable attorney fee in FCA cases.

Judge Steele also pointed out that Nurkin's contingency fee request, based on an expert witness's suggestion, would be grossly excessive, coming out to an hourly rate of $2,581 based on the number of hours he estimated his lawyers worked on the case — on top of the nearly $5 million they already received from him.  Under the lodestar method, in which a court determines a prevailing market billing rate and then multiplies that by a reasonable number of hours expended on the case, Nurkin requested $4.1 million and also suggested applying a multiplier of 2.23 for an "enhanced lodestar" request of $9.2 million.

Judge Steele rejected Nurkin's argument for $894 as a reasonable hourly rate, which he based on the case having been transferred to the District of Columbia, where it was settled, and instead found it should be based on Fort Myers, where it was first filed and the majority of his attorneys' work was performed.

The court instead concluded on a rate of $400 an hour for Sanders and co-counsel Robert Branning and $300 for Bethany Johnson, a younger attorney who helped prepare the application for attorney fees.  Judge Steele declined the HMA's request to reduce the hourly rate for work that a larger firm would have assigned to an associate, saying he would make any needed adjustments on the number of hours allowed.

On that front, Judge Steele broke down Nurkin's total request of 4,618.55 hours into the periods spent prior to filing the complaint, litigating prior to the government's intervention, after government intervention and on the attorney fee application, looking at specific tasks within those periods.  In total, the court approved 2,391.2 hours.  In terms of the time spent preparing the attorney fee application, the judge allowed 40 hours out of 457.8 asserted by Nurkin.

Judge Steele also denied Nurkin's request for a multiplier, saying he found the lodestar calculation "takes into account all factors which may be properly considered in this case."  The judge also declined to award prejudgment interest on the fees award. He awarded $7,232.70 in cost and expenses.  While far from the high point of Nurkin's request, Judge Steele's award still was several times the $229,544 suggested by HMA, according to the order.

A recent New York Law Journal article by Julian D. Ehrlich, “The Attorney Fee Key to Unlocking Additional Insured Coverage” reports on a new decision awarding attorney fees in a declaratory judgment to the party successful in obtaining additional insured coverage which if followed, could change existing risk transfer preferences.  This article was posted with permission.  The article reads:

The two well-worn paths to risk transfer in tort cases are contractual indemnity and additional insured coverage.  Typically, contractual indemnity obligations run to owners and general contractors, often referred to as upstream parties, from tenants or lower tier contractors, the downstream parties.  In contrast, additional insured (AI) status can provide coverage to upstream parties to downstream parties’ insurers.

While the paths are not mutually exclusive, many upstream insurers are reluctant to start declaratory judgment (DJ) coverage actions to enforce AI rights because of concerns that their attorney fees will not be recoverable.  These insurers prefer instead to rely exclusively on contractual indemnity claims where recovery of attorney fees is thought to be easier.  However, there are distinct advantages of AI over contractual indemnity to upstream parties and emerging case law suggests that DJ attorney fees can be recoverable.

Attorney Fees Rules

The American rule is that, win or lose, each side in litigation pays its own attorney fees absent a right in statute or contract.  Thus, in U.S. tort litigation, claimants typically pay their own attorney fees.  However, recovery of attorney fees between defendants is common.  This is because contractual indemnity provisions usually require the downstream party to both defend and indemnify the upstream party.  Similarly, additional insured (AI) status on a downstream party’s policy status includes coverage for the upstream parties’ defense.  However, the rules for recovering defense costs are convoluted. See, Julian D. Ehrlich, “Recovering Attorneys’ Fees in Construction Site Cases,” NYLJ, (May 25, 2007).

For example, the indemnitee generally is not entitled to reimbursement of its fees for enforcing its contractual indemnity rights, i.e. “no fees for fees.” Hooper Assoc. v. AGC Computers, 74 N.Y.2d 487 (1989). However, there is an exception for costs incurred in “defensive” third party and cross claims against the indemnitor. Springstead v. Ciba-Geigy Corp., 27 A.D.2d 720 (2d Dept. 2006).

Similarly, the general rule is that attorney fees for pursuing AI coverage in a DJ action are not recoverable even if the DJ is ultimately successful, Mighty Midgets Inc. v. Centennial Ins. Co. 47 N.Y.2d 12, 21 (1979).  However, an insured is entitled to recover fees if it wins a DJ brought by an insurer seeking to avoid coverage, U.S. Underwriters Insurance Co. v. City Club Hotel LLC, 3 N.Y.2d 592 (2004).  However, there is noteworthy reasoning in a new decision awarding attorney fees in a DJ to the party successful in obtaining AI coverage which if followed, could change existing risk transfer preferences.

A New Approach

In Houston Cas. Co. v. Prosight Specialty Ins. Co., 2020 U.S. Dist. LEXIS 927 28 (S.D.N.Y. May 27, 2020), an injured E.J. Electric employee brought a Labor Law claim against the owner, construction manager Turner and Nouveau Elevator Industries alleging a fall due to a misleveled elevator.  E.J.’s insurer, Houston Casualty Co. (HCC) accepted AI coverage for the owner and Turner.  However, Prosight, the insurer for the elevator contractor, refused to provide AI coverage to those parties.  Accordingly, HCC brought a DJ action seeking a declaration that Prosight owed primary non-contributory AI coverage to the owner and Turner.  The court in Houston held that Prosight owed primary non-contributory AI coverage and awarded HCC’s attorney fees notwithstanding the American rule and existing caselaw.

The Reasoning

Houston relies on a “thoughtful and persuasive” 2019 Report and Recommendation by U.S. Magistrate Judge Paul Davidson which has now been cited in several reported decisions.  The report finds that an insureds’ right to D.J. attorney fees can be found in the policy’s coverage grant because an insurer’s duty to defend extends to any action arising out of the occurrence including a defense against the insurer’s coverage suit.

The report notes longstanding case law which permits a prevailing insured to recover attorney fees from an insurer when the latter starts a DJ seeking to free itself of its duty to defend under the policy.  The report then suggests that the fortuity of who starts the DJ should not matter for fee recovery if the litigated issue is the insurer’s duty defend an insured in an underlying tort case.

The court in Houston extends this reasoning to award one insurer fees from another insurer which “persistently, reflexively and sequentially” wrongfully denied tenders for AI coverage.  If the reasoning in Houston is followed by other courts, risk transfer may be clearer, and settlements facilitated in the future.

Impact

Although Houston is a trial level decision and an appeal was filed June 24, 2020, there is now authority in a reported federal case holding that the losing defendant must pay attorney fees to the winning plaintiff insurer in the AI DJ context.

Accordingly, Houston may help ease upstream insurers’ hesitancy to bring DJ’s for AI coverage. Moreover, if downstream insurers realize they may face more severe consequences for unreasonably resisting AI, they may accept more tenders leading to an overall net decrease in coverage litigation.

In addition, AI can have advantages over contractual indemnity to upstream parties.  For example, in states like New York upstream parties may insure away via AI coverage active negligence which may not be contracted away due to anti-indemnity statues, see e.g. General Obligations Law § 322.1.

Accordingly, a strategy of foregoing AI coverage can result in an upstream party losing out on rights which contractual indemnity alone cannot provide.  Moreover, questions regarding whether the upstream was actively negligent can delay risk transfer and settlements.

Tenders for AI coverage often go answered by downstream insurers and until now have not always been aggressively pursued by upstream insurers.  However, arguably, when it is clearer that risk transfer will result in the downstream party being legally and financial responsible in a case, it may also be easier to settle multi-defendant litigation with claimants.

Finally, attorney fees may be substantial and are often the last obstacle to resolve before a settlement can be reached.  To the extent Houston streamlines a path to resolutions, it is most welcomed.

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