A recent Law 360 story by Hayley Fowler, “Abortion Protesters Keep Atty Fees in 4th Circ. Picketing Row” reports that the First Circuit deepened a circuit divide on how long attorneys have to seek fees in district court after winning a Social Security Administration benefits dispute, adopting a "reasonable time" standard also used in the Tenth Circuit rather than a more rigid limit used in four other circuits.  The court affirmed a finding that the attorney in question waited too long under either approach to seek fees for successfully representing a client in a benefits dispute with the agency.

But in a matter of first impression for the circuit, the court said fee petitions brought under 42 USC § 406(b), for representation in court on disability benefits challenges must be brought within a reasonable time.  That puts the First and Tenth Circuits on one side of a divide opposite the Second, Third, Fifth and Eleventh circuits, which say such fee petitions must be brought within 14 days of judgment.

The problem with that 14-day time limit is that after a district court decides a benefits dispute, often the case is remanded to the agency for a benefits determination, making it impossible to know how much the client will recover and thus impossible to calculate a contingency fee, the court noted in an opinion written by Judge O. Rogeriee Thompson.  "In scanning the out-of-circuit precedent, we have observed that in practice, accomplishing justice in most § 406(b) cases seems to inevitably require some exercise of the district court's discretion and powers in equity," the court said.

Some of the circuits that follow the 14-day rule toll that deadline until the SSA makes a final benefits determination.  Others recognize the district court's power to grant discretionary relief from that strict deadline.  The First Circuit said it makes more sense to use the "reasonableness" standard applied to fee motions made under Federal Rule of Civil Procedure 60(b) – the rule for relief from a final judgment – rather than the 14-day time limit that comes from Federal Rule of Civil Procedure 54(d)(2), the rule for judgments that include attorney fees.

Attorney fees in disability benefits cases are not comparable to "loser pays" types of attorney fee awards typically addressed in motions for judgment under Rule 54(d)(2), the court said. Instead, the disability benefits statute allows for attorney fees of up to 25% of the awarded benefits, in what the First Circuit said "implies that the fees are awarded as a part of a district court's judgment for the claimant, rather than as a separate judgment allowing the party to recuperate costs underlying the action."  "Here it is clear to all parties that, in the event of success before the agency on remand, a subsequent amendment to the district court's judgment to award attorneys' fees is highly likely," the court said.

The dispute arose from Green & Greenberg's successful representation of a client in court and before the SSA who eventually was recognized to have a disability and awarded benefits.  The firm represented client Jose Pais on a contingency basis for 25% of his award.  After he won, the SSA set aside just over $29,000 for potential legal fees.  When the firm sought to collect its fees through the SSA, it claimed only about $7,000 for its work at the administrative level. During oral argument, the firm's David Spunzo told the court a paralegal mistakenly claimed 25% of the money available for fees, rather than 25% of the total award.

The SSA then several times notified the firm that it was continuing to retain about $22,000 from Pais's total award as the contingency fee.  By the time the firm sought the remaining amount of the available attorney fees for its work in court, 26 months after the SSA notified Pais of the benefits award, the district court determined it was too late.  The SSA did not take a position in the litigation on which approach to the timing of fee motions is correct, in-house counsel Timothy Bolen told the court during oral argument.  Bolen said the agency's role is to act as quasi-trustee for the claimant and reserve 25% of the award for potential payment of attorney fees, while the question of how much in fees to award is left to the district court.

A recent Law 360 story by Matthew Santoni, “Ex-Client Fights Buchanan Ingersoll’s $1.9M Fee Lien” reports that a former client of Buchanan Ingersoll & Rooney PC has said the firm isn't entitled to $1.9 million from a settlement in a patent dispute, but it offered to put a smaller amount aside while the parties litigate whether the firm overcharged for its work.  Best Medical International Inc. opposed Buchanan Ingersoll's motion for an attorney's lien on its settlement with Varian Medical Systems Inc., arguing in a brief to a Pennsylvania federal court that its former firm wasn't as instrumental as it claimed in securing the settlement and couldn't seek fees for the work while the reasonableness of those fees was at the heart of the current lawsuit.

"BIR has produced no evidence whatsoever that any settlement discussions began because of the quality of or the quantity of BIR's work," Best's reply brief said.  "Settlement discussions which resulted in an actual settlement did not result until after a substantial amount of additional work was done by other law firms once BIR withdrew from, or were substituted as to, representation of BMI in the Varian case."  Best urged the federal court to deny Buchanan Ingersoll's motion to enforce the $1.9 million lien and offered to put $700,000 in escrow with the court "as a good faith gesture, and without admitting liability in any amount."

Best had sued Buchanan Ingersoll in July 2020, alleging the Pittsburgh-based firm had overcharged for representing the medical device maker in a pair of patent disputes, including the fight with Varian.  Best broke off its relationship with Buchanan Ingersoll in March 2020.  Best and Varian announced a settlement in Delaware federal court April 18, and Buchanan Ingersoll filed a motion with the Pennsylvania court to enforce a lien on the settlement proceeds April 26, expressing concern that its former client would spend or otherwise dispose of the funds before the firm could claim its share.

Although the law firm claimed its engagement contract with Best included a clause saying it would be governed by Virginia law, Best argued that the Federal Rules of Civil Procedure regarding liens superseded the choice of law provision and that the law of the state where the lien was brought should apply.  And under Pennsylvania law, Best claimed that Buchanan Ingersoll had failed to make the necessary showing that its work contributed substantially to the settlement it sought the lien against.

Buchanan Ingersoll said it did most of the work on the Varian case in Delaware and on six "inter partes review" challenges that Varian had filed with the U.S. Patent and Trademark Office.  But Best countered that more was done by the successor law firms, including a "substantial amount of discovery, the taking and defending of depositions, significant briefing and oral argument before the USPTO … and appeals of the IPR final decisions to and currently pending in the U.S. Court of Appeals for the Federal Circuit."

"It is this substantial work by others, not BIR, that ultimately led to the Varian case settlement more than two years after BIR's representation was terminated," Best's reply said.  Even if the court agreed with Buchanan Ingersoll that Virginia law applied, the firm had not given all parties to the settlement — including Varian — that state's required notice that a lien might be applied to the settlement proceeds, Best said.

Moreover, Best said that Virginia law required Buchanan Ingersoll to show that the fees it sought to recover were reasonable, and the current lawsuit contended that they were not.  Best cited the Virginia Supreme Court's 1997 ruling in Seyfarth Shaw Fairweather & Geraldson v. Lake Fairfax Seven Limited Partnership to support its argument.

"Similar to issues in the instant case, the issues in Seyfarth involved the law firm expending an unreasonable amount of time in the performance of legal services and, therefore, the total amount of legal fees charged was unreasonable," Best's reply said.  "Any fees recoverable must be reasonable and … the party claiming legal fees has the burden of proving prima facie that the fees are reasonable and necessary.  Clearly, BIR has not met its burden of proof, nor has there been any adjudication, that the fees in dispute allegedly owed BIR were reasonable and necessary."

A recent Law 360 story by J. Edward Moreno, “Netflix Is Owed Atty Fees In Tossed IP Suit, Fed. Circ. Told,” reports that a Federal Circuit panel questioned whether Netflix is owed $400,000 in attorney fees after a California federal judge considered the streaming giant a "prevailing party" in a patent infringement case that was filed against it and then was voluntarily dismissed.  Texas-based Realtime Adaptive Streaming LLC is appealing a district court decision granting Netflix's motion for attorney fees, which Realtime contends was improper because it voluntarily dismissed its infringement suit against the streaming giant and so Netflix can't be considered the prevailing party.

At issue is whether Netflix can be considered a prevailing party in this case, which Realtime dismissed upon receiving an adverse ruling in a separate case enforcing the same family of patents.  Under Rule 41 of the Federal Rules of Civil Procedure, a prevailing party is established after a dismissal only if there is a "judicially sanctioned change in the legal relationship of the parties."  Netflix argues that any end to a plaintiff's case in the litigation or through the judicial process counts as a judicially sanctioned change in relationship.  Realtime, however, holds that because the case wasn't ended by a judge's ruling, Netflix doesn't count as a prevailing party.

In November 2017, Realtime filed a patent infringement suit against Netflix in Delaware alleging infringement of six data compression patents.  The magistrate judge issued a report and recommendation in December 2018 advising U.S. District Judge Colm F. Connolly to grant Netflix's motion to dismiss with regard to four of the patents, but deny it as to the remaining two.  Judge Connolly ruled in a parallel case in July 2019 that five related patents owned by Realtime's parent company were invalid. Realtime, who had relied on those patents to base its argument in the Delaware case, filed to dismiss the case it brought against Netflix days after Connolly's ruling.

Days later, Realtime refiled the underlying case in the Central District of California, challenging the same patents. Netflix had only filed a motion to transfer the case back to Delaware before Realtime voluntarily dismissed the case in November 2019.  According to Netflix, it's the prevailing party in this case and is therefore entitled to attorney fees from Realtime.  A California federal judge agreed with that argument in September 2020, granting Netflix $400,000 in attorney fees, noting in the ruling that the case was "exceptional" because of Realtime's "impermissible forum-shopping."

A recent Law 360 article by Jason Russell, Hilary Hamilton and Adam Lloyd of Skadden Arps, “9^th Circ. Ruling Signals Scrutiny of Class Settlement Fees,” reports on a recent ruling from the Ninth Circuit.  This article was posted with permission.  The article reads:

Despite the playful tone of the Briseño v. Henderson decision issued by the U.S. Court of Appeals for the Ninth Circuit in June, class action litigators should take the case seriously when structuring class action settlements.  Amid a thicket of pop-culture references, the Briseño panel held that under the revised Federal Rule of Civil Procedure 23(e)(2), federal courts must heavily scrutinize any settlement made on behalf of a class — whether pre- or post-class certification — to ensure that counsel for the defendant and the class have not colluded on an unfair distribution of settlement funds between recovery for the class and the fees for its attorneys.

Over a decade ago, in June 2011, the Briseño plaintiffs alleged that defendant ConAgra Foods Inc. misled consumers who wished to avoid consuming genetically modified organisms by placing a "100% Natural" label on its Wesson cooking oil brand, which allegedly contained GMO ingredients.  Notwithstanding the fact that the parties had been litigating the plaintiffs' false advertising claims for nearly 10 years, the Ninth Circuit rejected the parties' settlement that was negotiated after class certification, on grounds raised by a single objector.  The panel took significant issue with the class counsel's fee award, and found that the settlement "reek[ed]" of collusion.

The panel determined that the parties' settlement agreement and fee arrangement "raise[d] a squadron of red flags billowing in the wind and begg[ed] for further review," because (1) class counsel would receive disproportionately more money than the class; (2) the defendant agreed not to challenge class counsel's requested fee award (and any reduction in fees would revert to the defendant); and (3) the labeling-change injunctive relief that class counsel secured was "worthless," so it could not be used to justify class counsel's fee here.

The panel grounded its analysis in the history and text of Rule 23(e)(2), which was revised in December 2018, and requires a court to ensure that a class settlement is fair, reasonable and adequate.  Prior to the 2018 revision, however, Rule 23(e) did not provide guidance as to what was fair, reasonable or adequate.  So the Ninth Circuit filled in the gaps by providing several factors for district courts to consider, including the strength of the plaintiffs' claims and the risk and expense of further litigation at the stage of the proceedings.

The Ninth Circuit also was particularly wary of settlements reached on behalf of a class precertification — where it found that counsel may be most incentivized to maximize their own financial gain at the expense of the class members — and in 2011, provided an additional instruction for courts to watch out for what it called "subtle signs" that class counsel was putting their own self-interest before the class.

These signs included: (1) counsel receiving a disproportionate distribution of the settlement; (2) parties negotiating a "clear sailing arrangement," under which the defendant agrees not to challenge a request for an agreed-upon attorney fee; and (3) an agreement containing a "kicker" or "reverter" clause, that returns unawarded fees to the defendant, rather than the class.  In the Ninth Circuit, these are commonly known as the Bluetooth factors.

Then, in 2018, Rule 23 was amended to set forth specific factors for courts to consider when determining whether a class settlement was adequate, including "the costs, risks, and delay of trial and appeal"; "the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims"; and "the terms of any proposed award of attorney's fees, including timing of payment."

The Briseño panel focused on this last factor, and held that the new Rule 23(e) "indicates that a court must examine whether the attorneys' fees arrangement shortchanges the class" for all class settlements.  As a result, the panel found, district courts should apply the Bluetooth heightened scrutiny factors for both pre- and post-class certification settlements to "smoke out" potential collusion on attorney fee arrangements.

Applying the Bluetooth factors to the Briseño class counsel's fee arrangement here, the panel concluded that the fee arrangement "features all three red flags of potential collusion."  First, the panel noted the "gross disparity in distribution of funds between class members and their class counsel raises an urgent red flag," as counsel was set to receive nearly $7 million in fees, while the class received less than $1 million.

The panel found this disparity particularly problematic here because the parties knowingly structured a relatively common claims-made settlement, requiring class members to submit a claim to obtain a recovery, for a low-ticket item, which typically results in what the panel called "notoriously low" redemption rates. In this case, class members would recover 15 cents per unit of Wesson oil purchased during the class period.

Second, ConAgra agreed not to challenge the fees for class counsel, and the panel held that "the very existence of a clear sailing provision increases the likelihood that class counsel will have bargained away something of value to the class."  Third, the agreement provided that ConAgra was to receive any remaining funds if the district court reduced the agreed-upon attorney fees for class counsel, and the panel concluded that if a court determined the "full amount unreasonable, there is no plausible reason why the class should not benefit from the spillover of excessive fees."

Significantly, the panel also held that the settlement's injunctive relief component — ConAgra's agreement to no longer market Wesson oil as "100% Natural" — could not be used to justify the class counsel's excessive fee.  The panel panned the injunctive relief as "virtually worthless," "illusory" and "meaningless," because ConAgra had already decided to stop using the "100% Natural" label two years before the settlement agreement was reached — for reasons it stated were unrelated to the litigation — and no longer even owned the Wesson oil brand.

Although ConAgra's sale of the Wesson oil brand in Briseño clearly presents an uncommon circumstance, the panel made clear that going forward, courts must eliminate inflated valuations of injunctive relief "untethered to reality" that are used to justify excessive fee awards for class counsel.  Briseño's discussion of worthless injunctive relief will have significant repercussions for future settlement of many California federal class actions, as many companies often make labeling changes for business reasons before any complaints are even filed.

While the panel expressly stated that its decision did not mean that "courts have a duty to maximize the settlement fund for class members," and a "class does not need to receive much for a settlement to be fair when the class gives up very little," the practical effect of, and takeaway from, Briseño is that class counsel should expect significantly more resistance from defense counsel and courts to high attorney fee awards in class action settlements.

This will especially impact low-value and/or labeling claims arising from a plaintiff's subjective beliefs of purported harm — particularly when a defendant has already decided to make a labeling change for business reasons.  In such cases, the relief that counsel can secure for the class is likely to be limited, and Briseño plainly requires a commensurate fee award for class counsel.

Jason D. Russell is a partner, and Hillary A. Hamilton and Adam K. Lloyd are associates, at Skadden Arps Slate Meagher & Flom LLP.

A recent Law 360 story by Celeste Bott, “Chicago Firm, Attys Spar Over Fees Ahead of Ex-Client’s Trial”, reports that Chicago law firm Wood Phillips and one of its former attorneys suing an ex-client for payment for their two decades of work in a patent case are embroiled in a contentious dispute over how potential recovery would be allocated between them, and the firm is asking an Illinois federal judge to weigh in on the applicability of its contingency fee agreements ahead of trial.

Wood Phillips Katz Clark & Mortimer and named partner John S. Mortimer are seeking to file either a pretrial motion to resolve whether the parties are bound by those agreements or, alternatively, to add a cross-claim against former Wood Phillips attorney Dean Monco for anticipatory breach of contract.

The case is set to go to trial early next year, as the firm and attorneys seek to be compensated for more than 20 years of work for carbon fiber manufacturer Zoltek Corp.  The firm and Mortimer argue, in their motion for leave to file, that it would be unfair and would create "chaos and confusion" to have the plaintiffs arguing amongst themselves at trial.

But U.S. District Judge Martha M. Pacold appeared skeptical of those proposed procedural avenues during a status hearing, pushing the parties to address how a Rule 16 pretrial motion could resolve a substantive issue such as the applicability of the firm agreements, how it would impact how the trial would be conducted and whether a potential cross-claim is premature given there's no recovery to divvy up yet.  The judge also questioned whether a cross-claim against Monco was fair given the late stage of the litigation.

Acknowledging that resolving the intra-plaintiff dispute could assist in a potential settlement, the judge said that there still needs to be a legal basis for resolving the issue, not just a practical one.  "I don't think I have a kind of free-ranging power, even if I wish I might, to just decide random stuff," Judge Pacold said.  "There has to be a legal basis and legal hook for really every issue that is teed up.  So I certainly understand all those practical considerations, there just has to be a legal framework for resolving it."

Lee Grossman, an attorney representing Mortimer and the firm, told the court the vehicle for the pretrial motion could entail a jury instruction telling jurors to conduct the recovery for Monco, Mortimer, and the firm based on the formula laid out in the firm agreements at issue.  As for whether a cross-claim is premature ahead of a potential recovery at trial, Monco has already stated in interrogatories that he doesn't intend to honor the firm fee agreements, Grossman said.

"One party has already said, 'I'm not going to follow that contract,'" Grossman said. "In the interest of judicial economy, or whatever economy is left, I don't think it's a practical way to go."  But Monco argued to the court that Wood Phillips has made multiple improper attempts to adjudicate an unfiled and disputed contract claim against any future quantum meruit recovery from Zoltek, and that his former employer can't use Rule 16 to skip the required steps of filing a pleading and then a motion for summary judgment.

Paul Vickrey of Vitale Vickrey Niro & Gasey LLP, representing Monco, said allowing that avenue would lead to a "sideshow" at trial and would only invite confusion and delay. The firm agreements have nothing to do with the elements for determining quantum meruit under Illinois law, Vickrey said, and the firm can later challenge the results in state court if they so choose.

The calculations laid out in the agreements at issue are "hotly disputed," said Patrick F. Solon, another attorney for Monco. The contract claim that the firm is now trying to pursue was never filed, and there's been no pleading, no answers and no discovery on the matter, he said.  But Grossman countered that the fee agreements have been a cornerstone in the yearslong case.  "There's no discovery needed on these agreements," he said.  "They've been talked about in this case from day one."

Also, before the judge is a conditional bid by Monco to disqualify Grossman as counsel. Monco contends that if the firm is allowed to pursue its claim for his "anticipatory breach" of firm agreements, "using Grossman as their counsel [...] would result in Grossman suing his own former client in this very action."  Judge Pacold didn't rule on the pending motions immediately, saying she would either issue a decision after reviewing the materials and arguments or schedule another hearing for further discussion.

According to the 2017 complaint, Zoltek had hired Monco and Mortimer in 1996 to represent the manufacturer in a lawsuit against the federal government alleging that the B-2 bomber, which was developed by aerospace company Northrop Grumman Corp., infringed its patented method to produce carbon fiber sheets that help military aircraft avoid being detected by radar. Japanese conglomerate Toray Industries Inc. acquired Zoltek in 2014.

The litigation, which proved "extremely contentious and difficult," lasted 20 years, with the attorneys spending almost 13,000 hours representing Zoltek, the firm said.  But after a July 2016 strategy meeting in St. Louis, which Monco and Mortimer said led to their termination as counsel, the manufacturer then allegedly refused to pay the attorneys for overdue legal bills.

The manufacturer eventually settled the previous litigation for $20 million, but Wood Phillips and the attorneys got nothing, according to the complaint.  In July 2019, an Illinois federal judge said Monco and Mortimer can't pursue fees out of that settlement and must instead raise their claims against the company, with whom they had the attorney-client relationship.

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