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Category: Fees more than Damages

Third Circuit Bars Attorney Fees For ‘Limited Success’

June 12, 2021

A recent Law 360 story by Mike LaSusa, “3rd Circ. Bars Atty Fees For ‘Limited Success’ in NJ Wage Suit,” reports that the attorneys who won an unpaid wage suit on behalf of a pair of cooks in New Jersey can't recover nearly $120,000 in attorney fees after their "limited success" in the six-year case netted their clients less than $7,000, the Third Circuit ruled.  Attorneys from Troy Law PLLC had sought more than $118,000 for their work on behalf of Weigang Wang and Hailong Yu in their suit against fast-food chain company Chapei LLC, which does business as Wok Empire.  But the three-judge appeals panel said in a nonprecedential opinion that a lower court was right to block the plaintiff lawyers from shifting the burden of paying attorney fees to Wok Empire.

The lower court shot down Wang and Yu's claims under the federal Fair Labor Standards Act, which requires fee-shifting when plaintiffs win.  And although Wang and Yu won their claims under a New Jersey state wage and hour law, that statute only allows for but doesn't require fee shifting, the appeals panel said.  "Fee-shifting statutes can be abused by attorneys who over-litigate a case once they have confidence that their client will receive an award — no matter how small," the judges said. "Here, where the result was very limited success for the clients, and where the deficiencies identified by the district court compromised a meaningful review of the claimed fees under the lodestar method, it was not an abuse of discretion to deny fees altogether."

Wang and Yu brought the case in New Jersey federal court in 2015, seeking more than $180,000 in damages.  A bench trial eventually resulted in the dismissal of the workers' FLSA claims and their victory on claims brought under the New Jersey law.  The lower court awarded the workers about $6,600 in back wages and around $3,000 in costs, but declined to award any attorney fees, sparking the appeal to the Third Circuit.

The panel, however, said the lower court was "fully within its discretion" to block the attorneys' six-figure fee request, noting it amounted to about 18 times more money than their clients received.  "The declaration that accompanied the fee petition referred more to the plaintiff in [a] prior default judgment case than to the actual plaintiffs in this case.  Moreover, one of the attorneys had misstated his $350 hourly rate as $3550," the judges said.  "Most troubling was that one of the attorneys failed to provide a detailed bill for his time."

Heng Wang of Wang Gao & Associates, who represented Wok Empire, said he was excited by the ruling.  "The Third Circuit's ruling is a wakeup call to the plaintiff's bar," he said.  "There is no silver bullet for the plaintiff's lawyers to always obtain significant attorney's fees in wage-and-hour litigation."

Quinn Emanuel Wins $14M in Attorney Fees in $5M Trial Case

April 30, 2021

A recent Law.com story by Nate Robson, “Quinn Emanuel Wins $14M in Legal Fees for Client’s $5M Case,” reports that Quinn Emanuel Urquhart & Sullivan landed nearly $14 million in legal fees and costs for a client, nearly three times the $5.4 million in damages awarded at trial in the underlying dispute.  The fees, granted by a federal judge in Minnesota, cap off an especially litigious case that came after most other parties settled once another defendant mortgage lender was hit with a $28 million verdict in 2018.

The recent trial involved ResCap Liquidating Trust, which was created in the wake of the 2012 bankruptcy of Residential Funding Corp. after it faced billions of dollars in liabilities tied to residential mortgage-backed securities it sold leading up to the 2008 housing collapse.  ResCap was formed to sue banks and mortgage lenders that sold the loans bundled into those mortgage-backed securities.

In the ruling against mortgage lender Primary Residential Mortgage Inc., U.S. District Judge Susan Richard Nelson repeatedly noted that PRMI’s litigation tactics were responsible for inflating ResCap’s legal fees as the case went to trial.  The judge said PRMI was aware “the parties would not ‘split the tab’ or ‘go Dutch’ on attorney’s fees and costs,” given its contractual agreement at issue in the case and the legal fees awarded in the first trial.  “Given all of this notice, PRMI cannot credibly express indignation now,” Nelson wrote.  “Its own poor judgment in relitigating settled issues throughout this litigation significantly drove up ResCap’s attorney’s fees and costs.”

Nelson said PRMI, represented by a team from Williams & Connolly, challenged relatively miniscule claims for damages and reargued items that were handled in the first trial against another lender.  Nelson pointed to one claim on a loan involving $30,000 in damages as an example.  PRMI’s stance on that loan required discovery, motion practice, expert and fact witness deposition testimony, and then trial testimony.  “While PRMI argues that ResCap’s fee request is out of proportion to its damages award, PRMI overlooks its own practice of litigating aspects of plaintiff’s damages claim in ways that were out of proportion to the amounts at issue, thereby driving up ResCap’s attorney’s fees,” Nelson wrote.

Nelson also rejected PRMI’s claim that paying nearly $14 million in legal fees and costs on a $5.4 million award is disproportionate, noting ResCap was also granted nearly $2 million in prejudgement interest, bringing the total to $7.4 million in damages.  The ruling, granting $10.5 million in attorney fees and $3.5 million in costs, also notes that fees don’t have to be proportional to the award.

Isaac Nesser, the lead attorney on the case for Quinn Emanuel, said neither side had cited a similar instance where legal fees so outpaced the award given.  Nesser said a key to landing the fees was building a record during court appearances of how much work was going into the case because of PRMI’s litigation strategy.

“It was important to us to build a record that we were being forced to spend time and money litigating issues that seemed disproportionate to the actual amount of damages in the dispute,” Nesser said.  “As a result, we came to the view that it was important for us to communicate that information clearly to PRMI and Judge Nelson.  And so we made a record of that any chance we could.”

California Appeals Court Clarifies Law on Attorney Fees

March 13, 2021

A recent The Recorder story by Alaina Lancaster, “Appeals Court Rules on ‘Curious Gap’ in State Law Over Attorney Fees,” reports that a California appeals court ruling underlined “a curious gap” in the state law over the recoverability of unpaid fees when attorneys sue clients for breach of contract.  A decision from California’s Second District Court of appeal noted that in 1993, a state bar committee raised the issue of how Business and Professions Code Section 6148 clarifies that an attorney may recover a reasonable fee for services absent a valid fee agreement, but fails to set a standard for fees when clients breach a fee agreement.  Nearly a decade later, the appeals court said it was unable to find a clear standard in the statutory or case law.

In an opinion authored by Associate Justice Anne Egerton, the court held that the terms of the fee agreement control the amount of recoverable fees when an attorney sues a client for a breach of a valid and enforceable contract—even if it exceeds what a lodestar analysis, which measures the number of hours expended multiplied by the hourly rate, would consider a reasonable fee.

“The trial court correctly held a lodestar determination is not required in a breach of contract action where an attorney’s hourly rate is specified in a fee agreement,” wrote Egerton on behalf of Associate Justice Halim Dhanidina and Presiding Justice Lee Smalley Edmon.  “To hold otherwise would ignore the statutorily recognized difference between instances where the attorney has entered into a valid fee agreement with his or her client, and those where the attorney has failed to do so and is limited to a ‘reasonable fee’ under Section 6148.”

In the underlying case, Santa Monica, California, attorney Richard Pech sued owners of a mobile home park to recover more than $1 million in attorney fees and interest he claimed he was owed for representing them in several matters. Los Angeles Superior Court Justice Mary Strobel granted Pech’s applications for attachment of defendants’ assets on the grounds that the attorney had established the probable validity of his breach of contract claims.

The owners of the mobile home park contended that the fees were excessive and unreasonable and that the trial court should have considered the lodestar determination to determine the reasonableness of the fees.  Instead, the court decided to turn to the standard adopted by the 1993 bar committee, which was applied to mandatory fee arbitration, to address “this apparent gap in our law.”  The standard mandates that a fee agreement is not enforceable if it is unconscionable; the attorney’s performance must be consistent with the implied covenant of good faith and fair dealing; and a court must determine if the attorney used “reasonable care, skill, and diligence” in responding to the contract.

The ruling determines that the bar standard is consistent with Section 6148’s “implicit recognition” that an attorney and client can agree to a fee that might not be considered “reasonable,” as long as the rate and legal services are disclosed in the contract.  “The standard articulated in Advisory 1993-02 sensibly balances the competing interests that arise when a client breaches a fee agreement by refusing to pay an agreed upon fee,” the opinion states.

Joshua Furman of Joshua Furman Law, which represented the mobile home park owners, said, “While we are gratified that the Court of Appeal recognized the gap in the law concerning standards for attorney fee claims against former clients under written fee agreements, and largely adopted the position we argued—that the standards established by State Bar arbitration advisories should apply—we remain concerned that the standard as articulated by the court is both unclear and too low to effect the public policy of client protection.  Under the standards articulated in this decision, an attorney could bill any number of hours and obtain an attachment order against the former client’s assets without significant scrutiny as long as the hourly rate matched the rate in the fee agreement.  This unfairly disadvantages the client, who may be unable to defend against the attorney’s lawsuit while the client’s assets are subject to attachment.  We remain concerned that the court’s decision does not protect consumers from unscrupulous billing practices by attorneys and continue to evaluate our options moving forward.”

Facebook Challenges $12M Fee Request in Data Breach Case

March 11, 2021

A recent Law 360 story by Hailey Konnath, “Facebook Slams $12M Atty Fees Request in Data Breach Row, reports that Facebook opposed a $12 million attorney fees request from counsel representing users who settled a dispute with the company over a 2018 cyberattack, slamming the lawyers for accruing a hefty bill while pursuing claims that didn't win money for their clients.  The users sued Facebook Inc. in California federal court alleging it negligently allowed the cyberattack, which affected roughly 29 million individuals.  The social media giant and the class of users reached a nonmonetary settlement resolving the case last year, and U.S. District Judge William Alsup gave it his blessing in November.

Under the deal, Facebook agreed to reform its security protocols but not to pay monetary damages.  The users' attorneys at Tadler Law LLP, Cohen Milstein Sellers & Toll PLLC and Morgan & Morgan Complex Litigation Group asked for $12 million in fees and costs, including a $2.1 million bonus.  But Facebook said in its opposition that such a request for a settlement that yielded no monetary recovery to the class is not supported by law.  In just over 16 months, the users' attorneys managed to assemble a "very sizable bill" that they now ask be paid without scrutiny, according to Facebook's motion.

Notably, the class' attorneys have refused to provide project-level or even chronological time records, Facebook said.  But even the figures they have submitted show the dispute wasn't handled efficiently, it argued.  Facebook said that more than 100 timekeepers from 17 different firms billed the matter, with partners billing for tasks like "document management."

"This top-heavy staffing yields a blended hourly rate that is 35.8% higher than the average awarded in other recent data breach settlements, and stands in stark contrast to the court's instructions," Facebook said.  The company added that "there can be no doubt that substantial swaths of [the class counsel's] litigation efforts were unsuccessful." 

Named plaintiffs in the case went from 17 to one, only two out of 10 claims survived Facebook's dismissal bid, a star identify theft expert was struck from the record and no damages class was certified, Facebook said.  "Any award to class counsel should be commensurate with the reasonable level of effort necessary to secure the specific settlement achieved here -- and should not reward wasteful efforts that did not benefit the class," it said.

Article: When is ‘No Fee’ a Reasonable Fee?

March 6, 2021

A recent article by Karen M. Morinelli and Samantha E. Dunton-Gallagher, “When Is ‘No Fee’ a Reasonable Fee? 11th Circuit’s Guidance on Reasonableness in FLSA Attorneys’ Fees Cases,” reports on a recent FLSA fee ruling in the Eleventh Circuit Court of Appeals.  This article was posted with permission.  The article reads:

On February 1, 2021, in an unpublished opinion resolving a Fair Labor Standards Act (FLSA) attorney’s fees dispute, the Eleventh Circuit Court of Appeals, in Batista v. South Florida Womans Health Associates, Inc., struck another blow against unreasonable plaintiffs’ counsel seeking “reasonable” fees.  Mitzy Batista appealed the district court’s finding that it would be unreasonable to award her counsel, Elliot Kozolchyk, any attorney’s fees given his conduct during litigation filed under the FLSA.  Ultimately, the Eleventh Circuit remanded the case to the district court to make necessary findings of fact and to issue its ruling regarding whether the employer had mailed a replacement check.  However, in doing so, the Eleventh Circuit provided additional analysis as to when reasonable attorneys’ fees in an FLSA case may be no fee at all.

Background

Mitzy Batista was employed for slightly over two weeks in January 2018 by South Florida Woman’s Health Associates, Inc., when she was discharged for missing work.  Batista claimed that she never received her last paycheck and was owed $275.50 for the 38 hours she worked.  South Florida Woman’s Health Associates claimed that Batista’s last paycheck was mailed to her last known address and that because the check was not returned, and because Batista did not contact the company, South Florida Woman’s Health Associates assumed that all was well.  Batista, however, claimed that she called her former employer’s office the day after she was fired and asked for her final paycheck.  She alleged that at first she was told she would be paid by direct deposit, only to be told a few days later by the receptionist that the owner of the clinic, Edward D. Eckert, was not going to pay her at all.

Batista met with her counsel, Kozolchyk, three weeks after her employment was terminated.  But in the three months that followed, neither Batista nor Kozolchyk contacted her former employer to ask about the missing check.  In May 2018, Batista sued her former employer, raising claims under the FLSA including violations of the minimum-wage provision, liquidated damages, and attorneys’ fees and costs.  After receiving notice of the lawsuit, Eckert offered to send Batista a check for her unpaid wages but not her attorney’s fees.  Kozolchyk ignored Eckert’s initial offer.  When the counsel for South Florida Woman’s Health Associates and Eckert himself reached out again, they offered to clear up the matter and offered to pay the unpaid wages and court costs.

Kozolchyk initially ignored their communications and about a month later rejected the settlement offer.  Kozolchyk insisted on receiving attorney’s fees in an amount greater than what Eckert believed to be reasonable, stating, “my client cannot agree to shoulder the fees in this case … [for] those are recoverable against the defendants above and beyond the value of the claim.”  Kozolchyk then demanded his fees in the amount of $3,200, and Eckert counteroffered $1,100 in attorney’s fees.  Ultimately, the parties settled and agreed that Batista was to be paid $551 in unpaid wages, liquidated damages, and costs in the amount of $523, and that “the task of deciding the question of reasonable attorney’s fees” would be left to the district court.  The settlement was approved and Batista filed her motion for attorneys’ fees, seeking $10,675 in fees for the 30.5 hours Kozolchyk claimed to have expended litigating the case.  The district court referred the motion to a magistrate judge for a report and recommendation.

The magistrate judge, although “acknowledging the general requirement that prevailing plaintiffs in FLSA actions receive some award of attorney’s fees,” recommended that the court deny Batista’s motion and not award her attorney’s fees.  “Specifically, the magistrate judge found that (i) Defendants timely issued and mailed Plaintiff her final paycheck to the address she provided, (ii) Kozolchyk made no effort to contact Defendants to inform them that Plaintiff had not received her check before suing, and (iii) had he done so, he would have discovered that Defendants had sent Plaintiff’s paycheck to her address and were willing to issue another.”  Accordingly, the magistrate judge deemed Batista’s fee demands to be “excessive relative to the minimal work [i.e., a brief phone call] necessary to resolve the matter and make his client whole.”  The district court adopted the factual determinations and legal conclusions contained in the report and recommendation and rejected Batista’s objections, which included an affidavit in which she averred that she had telephoned someone in South Florida Woman’s Health Associates’ payroll department to request her last paycheck.  South Florida Woman’s Health Associates did not provide an affidavit to support its own allegations.

The Court’s Analysis

In determining whether the district court abused its discretion when it determined that a reasonable attorney’s fee in the case was no fee, the Eleventh Circuit reviewed guidance provided by analogous case law in the Southern District of Florida—including cases where plaintiffs were also represented by Kozolchyk.

Initially, the court discussed the “seminal district court case” of Goss v. Killian Oaks House of Learning, which was decided in 2003.  There, the plaintiff was a former employee who alleged she was owed two days of pay.  The former employer had issued a check and told her to pick it up, but instead of doing so, she hired a lawyer who sued the former employer for failure to pay wages.  The plaintiff’s lawyer asked for over $16,000 in attorneys’ fees where the matter settled for slightly over $300 for unpaid wages.  The Goss court stated that regardless of “the FLSA’s provision for a mandatory award of attorney’s fees for a prevailing plaintiff, ‘an entitlement to attorney’s fees cannot be a carte blanche license for Plaintiffs to outrageously and in bad faith run up attorney fees without any threat of sanction.’”  The Goss court “concluded that there are ‘special circumstances’ that can render the award of attorney’s fees unjust and that ‘so-called nuisance settlements represent such a circumstance.’”

The Eleventh Circuit also discussed Nelson v. Kobi Karp Architecture & Interior Design, Inc., a 2018 case in which “the [district] court denied in its entirety a fee request by counsel in [the] case, Mr. Kozolchyk.”  The plaintiff in Nelson had sued for two days of unpaid wages equaling $116, and after settlement, Kozolchyk had sought more than $9,000 in attorney’s fees.  In Nelson, the employer had immediately tried to resolve the matter after suit was filed by paying the unpaid wages at issue, plus $1,500 in attorney’s fees and costs, which Kozolchyk declined.  The employer, through counsel, then physically tendered the money in question and offered $2,000 in fees and costs, but Kozolchyk still declined.  The Nelson court ultimately determined that ‘Kozolchyk’s “sole intent [at that point] was to run up his bill.’”  Therefore, the Nelson court concluded, awarding any attorney’s fees would be “unreasonable, unjust, and inequitable.”

Similarly, in the 2019 case of Olguin v. Florida’s Ultimate Heavy Hauling, after Kozolchyk had filed suit, “the employer unconditionally tendered to Kozolchyk all the wages requested by the plaintiff, but Kozolchyk refused to accept the tendered paycheck” and lengthy litigation ensued on a separate claim, which he ultimately abandoned.  Kozolchyk ultimately sought attorney’s fees of over $36,000.  The Olguin court denied the request for attorney’s fees, finding that Kozolchyk’s “conduct was part of a strategy to churn the file and create unnecessary attorney’s fees.”

The Eleventh Circuit, analyzing the prior case law, clarified that the absence of any inquiry by counsel notifying an employer prior to filing an FLSA action was not in and of itself sufficient to deny attorney’s fees.  Specifically, the court noted that although it had denied fees in Sahyers v. Prugh, Holliday & Karatinos, P.L., a 2009 case in which the plaintiff’s counsel had filed a lawsuit without contacting the prospective defendants to resolve the matter extrajudicially, the holding was limited to the facts of that case—“an FLSA suit filed against fellow attorneys as defendants.”  Indeed, the court emphasized that an attorney is required under the Federal Rules of Civil Procedure “to make reasonable inquiry into the facts underlying a claim.”  That is, “litigation in which the defendant-employer has done what it should reasonably do to get payment to a former employee, but in which the employee or her attorney has made no pre-suit effort to inform the employer that the payment was never received creates a scenario fitting into the … ‘nuisance litigation’ category.”

Ultimately, the Eleventh Circuit remanded the case because the primary reason for the district court’s holding that attorney’s fees should not be awarded rested on “the finding that Defendants had actually mailed a final check to Plaintiff prior to her lawsuit.”  However, the record lacked evidence to support this finding because “Defendants had never supported their factual position with an affidavit, [so] their assertions were likewise insufficient to create an adequate evidentiary basis for findings that Plaintiff ultimately contested.”

Key Takeaways

The decision provides helpful guidance to employers.  In instances in which an employee is seeking unpaid wages where the amount of wages sought is partly or fully contested, the employer may want to consider tendering payment in full pre-suit where such sum is nominal.  Providing full tender of the payment may assist in preventing an overinflated award of attorneys’ fees and costs where the employee’s counsel’s primary intent is to “churn the file” and gain fees in bad faith.  When considering their options, employers may want to take heed that FLSA cases are fact-specific.

Karen Morinelli is the Office Managing Shareholder of Ogletree Deakins’ Tampa office.  As a former General Counsel and Vice President of Human Resources, she brings a strong business perspective to both client relations and in her approach to manage client issues.  She counsels employers in all aspects of labor and employment law including employer/employee relations, litigation, and alternative dispute resolution.

Samantha Dunton-Gallagher is Of Counsel in Ogletree Deakins’ Miami office and represents employers in cases that involve, among other things, alleged wrongful termination, harassment, discrimination, wage and hour violations and unfair business practices.  She regularly interacts with state and federal agencies, such as the U.S. Department of Labor and the Equal Employment Opportunity Commission (EEOC).

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm representing management, and is reprinted with permission.  This information should not be relied upon as legal advice.