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Category: SCOTUS

Article: Why the Catalyst Theory Matters in Class Actions

March 11, 2024

A recent Law.com article by Adam J. Levitt, “Arguing Class Actions: Why the Catalyst Theory Matters”, examines the catalyst theory in class action litigation.  This article was posted with permission.  The article reads:

The story presents a conundrum.  Plaintiffs file a class action, which the defendant initially resists.  Plaintiffs counsel spends hundreds of thousands of dollars (or more) in lodestar and costs prosecuting the case, but after potentially years of hotly contested litigation, the defendant issues a recall or announces a refund program that fixes the problem and then argues that the case is moot.  The question: Should those who filed this case, and consequently induced (or “catalyzed”) the defendant to fix the problem, be paid?

The right answer is obvious.  Of course the plaintiffs lawyers should be paid.  Without plaintiffs counsel’s actions and active litigation threat, the defendant would have never changed its behavior, ultimately for consumers’ benefit.  The law routinely rewards those who confer benefits on others, even in the absence of, say, a contractual guarantee (as with the doctrine of quantum meruit).  In short, nobody works for free.  Nobody, as some would have it, except plaintiffs lawyers.

The Rise and Fall of the Catalyst Theory

Rewarding lawyers for catalyzing a change used to be noncontroversial. See, e.g., Marbley v. Bane, 57 F.3d 224 (2d Cir. 1995) (“a plaintiff whose lawsuit has been the catalyst in bringing about a goal sought in litigation, by threat of victory … has prevailed for purposes of an attorney’s fee claim…”); Pembroke v. Wood Cnty., Texas, 981 F.2d 225, 231 (5th Cir. 1993) (recognizing viability of catalyst theory); Wheeler v. Towanda Area Sch. Dist., 950 F.2d 128, 132 (3d Cir. 1991) (same).

But the law became murkier in May 2001, with the U.S. Supreme Court’s decision in Buckhannon Bd. & Care Home v. W. Virginia Dep’t of Health & Hum. Res., 532 U.S. 598 (2001).  There, an assisted living facility sued West Virginia, arguing that a regulation violated the Fair Housing Amendments Act.  After the suit was filed, the Legislature removed the regulation, mooting the case.

In a 5-4 decision, the Supreme Court ruled that the plaintiff was not a “prevailing party” for purposes of the applicable fee-shifting statute.  Discarding the “catalyst theory,” it ruled that: “A defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change” sufficient to make the plaintiff a “prevailing party.” Id. at 605.  As Justice Ruth Bader Ginsburg explained in her dissent, the Buckhannon decision frustrates the goals of the catalyst theory because it “allows a defendant to escape a statutory obligation to pay a plaintiff’s counsel fees, even though the suit’s merit led the defendant to abandon the fray, to switch rather than fight on, to accord plaintiff sooner rather than later the principal redress sought in the complaint.” Id. at 622 (Ginsburg, J., dissenting).

The Catalyst Theory Today

Notwithstanding the Buckhannon decision, the catalyst theory remains a powerful tool outside of Buckhannon’s specific context.

First, Buckhannon has no bearing on state causes of action.  In California, Cal. Code Civ. Proc. §1021.5 allows a court to award fees to a “successful” party.  The California Supreme Court has explained it takes a “broad, pragmatic view of what constitutes a ‘successful party,’” Graham v. DaimlerChrysler, 34 Cal. 4th 553, 565 (2004), and explicitly endorsed the “catalyst theory [as] an application of the … principle that courts look to the practical impact of the public interest litigation in order to determine whether the party was successful.” Id. at 566.  In short, it disagreed with the U.S. Supreme Court regarding what it means to “prevail” or “succeed” in a litigation.

The catalyst theory has also largely survived in the context of favorable settlements.  For example, in Mady v. DaimlerChrysler, 59 So.3d 1129 (Fla. 2011), the Supreme Court of Florida considered an award of attorney fees to a consumer who accepted defendant’s offer of judgment, an offer that neither conceded liability nor plaintiff’s entitlement to fees, in a case filed under the Magnuson Moss Warranty Act (MMWA), which guarantees fees to a “prevailing party.” Id. at 1131.  Explicitly considering and distinguishing Buckhannon, the court found that a party may “prevail” with a settlement.  In doing so, it rearticulated the logic underpinning the catalyst theory:

[The plaintiff] achieved the same result with a monetary settlement only after being forced to bear all of the costs and expenses associated with litigation and facing the statutory penalty if the offer of judgment had not been accepted. DaimlerChrysler could have resolved this dispute during the “informal dispute settlement” phase, but instead waited until after [plaintiff] was forced to commence this action and incur the expenses of this litigation. Id. at 1133.

Further, even in federal court, attorney fees may be awarded under statutes other than those limiting such awards to “prevailing” parties.  For example, in Templin v. Indep. Blue Cross, 785 F.3d 861 (3d Cir. 2015), the Third Circuit explained that a fee may be awarded for an Employee Retirement Income Security Act claim under the catalyst theory, because ERISA does not limit fee awards to the “prevailing party.” 785 F.3d at 865.  Including the Third Circuit, at least five circuits have endorsed the catalyst theory under such statutes: Scarangella v. Group Health, 731 F.3d 146, 154–55 (2d Cir. 2013); Ohio River Valley Env’l Coalition v. Green Valley Coal, 511 F.3d 407, 414 (4th Cir. 2007); Sierra Club v. Env’l Protection Agency, 322 F.3d 718, 726 (D.C. Cir. 2003); Loggerhead Turtle v. Cty. Council, 307 F.3d 1318, 1325 (11th Cir. 2002).

Despite the ongoing recognition of the catalyst theory in many contexts, there remains the risk that courts may apply the catalyst theory narrowly, or that defendants may find a way around it. Consider Gordon v. Tootsie Roll Indus., 810 F. App’x 495, 496 (9th Cir. 2020), a “slack-fill” case in which the plaintiff alleged that the defendant’s boxes of Junior Mints were mostly air.  After the plaintiff moved for class certification, the defendant changed the box’s label.  The plaintiffs dismissed and moved for fees.

The fee application was denied because “Gordon’s theory of the case was that the size of the box was itself misleading, and that Tootsie Roll should either fill the Products’ box with more candy to account for the size of the box … or shrink the box to accurately represent the amount of the candy product therein[, and] Tootsie Roll did not make either of these changes.” Id. at 497 (internal quotation omitted).  Considering the disincentives (or, conversely, the moral hazards) that arise from this type of narrow application of the catalyst theory, courts should take a decidedly more equitable view when adjudicating this important issue.

A Way Forward

For practitioners, a few lessons come out of this case law and history.  First, in writing their complaint, attorneys must think through the various paths that a company might take to remedy the purported harm.  Recall that in Gordon, the plaintiff focused entirely on the misleading box, but not on the misleading labeling. Second, favorable settlements and offers of judgment remain viable tools, and may support a catalyst theory attorney-fee payment even if the defendant resists paying fees in the settlement itself.  Finally, despite Buckhannon, the catalyst theory remains readily available under a host of statutes (state and federal).  In relying on citing those statutes, plaintiffs should not shy away from the catalyst theory’s compelling logic.  Courts understand that basic fairness requires that attorneys be paid if their lawsuit ultimately confers a significant benefit.  Nobody should work for free.  Not even plaintiffs lawyers.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.  DiCello Levitt senior counsel Daniel Schwartz also contributed to this article.

SCOTUS Passes on Attorney Fee Awards in Copyright Cases

March 5, 2024

A recent Law 360 story by Ivan Moreno, “Justices Pass On Hasbro’s Atty Fee Fight in Copyright Win”, reports that the U.S. Supreme Court denied Hasbro Inc.'s appeal to review the First Circuit's refusal to award its lawyers nearly $2 million in attorney fees for prevailing in a copyright suit over the Game of Life. 

The toy-making company had argued in its November certiorari petition to the high court that the First Circuit uses a highly restrictive test to determine whether prevailing parties in copyright disputes are entitled to costs and attorney fees.  The First Circuit holds that fees are available "only if the plaintiff's position was 'objectively quite weak,'" Hasbro said in its petition.  That standard differs from other circuits, Hasbro said.

In refusing to award $1.9 million in attorney fees, a three-judge panel of the First Circuit concluded last year that the copyright claims brought against Hasbro and heirs of game developer Reuben Klamer were not objectively "unreasonable" and thus ineligible for the requested fees.

Lorraine Markham, widow of game developer Bill Markham, and her husband's company, Markham Concepts Inc., had sued Hasbro and Klamer's heirs for royalties for the iconic 1960s board game and control of its intellectual property.  Lorraine Markham and Markham Concepts filed their lawsuit against Hasbro and the Klamer heirs in October 2015, claiming Bill Markham invented the Game of Life and reached a deal with Link Research Corp. to market it to Milton Bradley, which later merged with Hasbro.

A federal judge in 2019 found too many people could claim inventorship of the game.  Bill Markham and his employees created the physical prototype of the game, but Klamer funded the project, according to court documents. Funding the project entitled Klamer to the game's copyright and designated him under the act's "work-for-hire" exception as the only person who could terminate the game's copyright.

Hasbro argued in its petition that Section 505 of the Copyright Act says courts "may" award fees to prevailing parties.  The Supreme Court has twice offered guidance on applying that standard, Hasbro said, but argued that "the circuits remain hopelessly divided."

"Two circuits unequivocally hold that courts should hew toward awarding fees.  Two circuits hold that courts should not lean one way or the other," Hasbro said.  "And one circuit, the circuit in which petitioners won on the merits, cautions district courts against awarding fees — applying the very rule this court has previously rejected.

Epic Games Calls Apple’s $73M Attorney Fee Request An Overreach

February 27, 2024

A recent Law 360 story by Bryan Koenig, “Epic Calls Apple’s $73M Fee Bid An Overreach”, reports that Epic Games blasted Apple for seeking $73.4 million in legal fees following the pair's California federal court antitrust battle over App Store payment fees, arguing that antitrust claims like Epic's are immune from legal fees and that Apple cannot wrap its demands in successful contract breach counterclaims.

Apple's fee bid, according to Epic, "overreaches at every turn" after the U.S. Supreme Court refused to consider a Ninth Circuit decision upholding a district court ruling largely siding with the iPhone maker, except on Epic's California state law claims targeting Apple rules barring app developers from steering users to alternative payment options.

"Apple seeks recovery of unrecoverable fees and costs incurred in defending against Epic's antitrust claims; it seeks recovery of fees and costs it incurred in defending against other plaintiffs' antitrust claims; and it seeks recovery of categories of expenditures that go beyond what the Ninth Circuit's ruling in this case permitted," Epic said in its opposition brief. "Apple even seeks its fees and costs incurred in seeking its fees and costs, even though the vast majority of those fees and costs it seeks are not recoverable and Apple made no effort to meet and confer with Epic to determine the scope of any dispute before filing the motion."

According to Epic, Apple's mid-January bid for legal costs is grounded in the latter's win on claims that Epic breached its developer program licensing agreement when offering users an in-app workaround for the up to 30% commission that Apple charges on in-app purchases, such as through Epic's Fortnite game juggernaut. Epic is only the most prominent of multiple plaintiffs to target those commissions.

The problem with a fees bid based on the contract breach claims, Epic said, is that a California state appeals court held in Carver v. Chevron USA Inc. that defendants, even ones who successfully defeat antitrust claims, cannot claim any fees incurred in that defense.  According to the brief, it doesn't matter that the developer program licensing agreement otherwise calls for plaintiffs to reimburse Apple.

"Moreover, any fees and costs that are 'inextricably intertwined' with those incurred in defending against antitrust claims also cannot be recovered, even if they were incurred also in connection with a breach of contract claim," Epic said.  "Apple may thus recover only those fees and costs it incurred specifically to litigate separable, non-antitrust claims — i.e., fees and costs attributable to work performed for Apple's contract claims that did not overlap with its defense against Epic's (or other plaintiffs') antitrust claims."

But Apple hasn't tried to separate or identify those costs, according to the brief. "To the contrary, Apple completely ignores this binding precedent and seeks primarily and specifically the unrecoverable fees and costs it incurred in defending against Epic's antitrust claims," it said.

Epic also assailed Apple for seeking to recover costs incurred in defending against other plaintiffs who'd also targeted the Apple rules leaving the App Store as the only way to get apps on iPhones.  It attacked Apple for going beyond the Ninth Circuit mandate to pursue only attorney fees; according to Epic, around 40% of the fees Apple has claimed cover costs for things like expert witness and consulting fees, travel and logistical support.  And it assailed Apple for seeking costs incurred from putting together the motion for costs.

"Moreover, Apple did not meet and confer with Epic prior to filing its motion as required by Civil Local Rule 54-5, and, as a result, incurred attorneys' fees and costs that it could well have avoided," Epic said.  "Specifically, Apple unilaterally engaged two experts and a team of nine analysts from an expert consulting shop to review its invoices, without so much as checking whether Epic intended to dispute any of its calculations or the reasonableness of the fees and costs it incurred."

Epic said it hasn't tried to assess the accuracy of Apple's fees bid, preferring to leave that issue until after the court determines the appropriate scope of any fees bid.  It further called a detailed review "wasteful when Apple has sought to sweep in much to which it is not legally entitled" and it assailed Apple for providing "only an incomplete set of materials just days before this opposition was due."

Roundup MDL Lead Counsel Defend Fee Allocations

February 19, 2024

A recent Law.com story by Amanda Bronstad, “Roundup MDL Lead Counsel Defend Fee Allocations: ‘Limited Funds Available’”, reports that lawyers doling out fees in Roundup litigation stood by their decisions on how to allocate the funds, despite objections raised by other firms.

The fee committee, which is comprised of the three lead plaintiffs firms in the Roundup multidistrict litigation, allocated 81% to themselves and the rest to four other firms, including those who helped win the only bellwether trial, which ended in an $80 million verdict in 2019.  Three of those firms objected to their share of the so-called common benefit fund, which totaled $20.23 million.

Lead counsel originally had sought an order that would have granted about $800 million in common benefit fees, enough for the firms to “each afford to buy their own island,” U.S. District Judge Vince Chhabria wrote in a 2021 order significantly trimming the scope of common benefit fees in the Roundup litigation.

Several firms had objected to the original request, which they called a “money grab,” but lead counsel insisted that Bayer, which owns Monsanto, would not have entered into settlements but for their work.  In 2020, Bayer announced it planned to settle about 125,000 Roundup claims for an estimated $10.9 billion, but thousands of cases remained unsettled.

The significant reduction in the common benefit fund appeared to influence the committee’s allocation amounts.  For instance, San Francisco’s Andrus Anderson, whose partner Lori Andrus served as co-liaison counsel in the Roundup multidistrict litigation, had wanted closer to $550,000, the amount the firm actually billed, rather than the allocated $200,000, or 1% of the common benefit fees.  The committee, in a response, acknowledged that Andrus Anderson’s request was reasonable.  “But, unfortunately, the limited funds available for distribution in this litigation do not allow this to happen,” the committee wrote.

The committee members are co-lead counsel Aimee Wagstaff, of Wagstaff Law Firm in Denver; Robin Greenwald, of New York’s Weitz & Luxenberg; and David Dickens, who took over following partner Michael Miller’s 2021 death, at the Miller Firm in Orange, Virginia.  Among the fee committee members, Wagstaff Law Firm is set to receive the most, with 30%.

‘Thousands of Hours of Common Benefit Work’

Common benefit fees are used in multidistrict litigation to compensate lead counsel for costs and fees associated with discovery, trials and settlements, while preventing “free riders,” or lawyers who collect fees on cases they generate but don’t necessarily litigate.  Lawyers with related state court cases, in past years, have challenged common benefit fees, which are funded through assessments against their settlements.

Chhabria, in the Northern District of California, called common benefit fees in multidistrict litigation “totally out of control,” sending shock waves through the mass tort bar.  In his Roundup order, he excluded a large amount of the legal work, including state court cases, from being reimbursed through common benefit fees.

Los Angeles-based Wisner Baum and its predecessor, Baum Hedlund Aristei & Goldman, focused heavily on Roundup cases in California state courts, where partner R. Brent Wisner won verdicts of $289 million, in 2018, and $2 billion, in 2019.  But the firm is set to receive 10% of the fees because “no other firm contributed more to the common benefit of the MDL,” according to the committee’s response, filed on Friday.

The allocation, the committee wrote, is based on Wisner Baum’s “good faith effort” to estimate its time.  But the firm didn’t have adequate billing records that divided up the hours tied to the multidistrict litigation versus state court cases.  The fee committee, as a result, was forced to reduce Wisner Baum’s requested amount.  “Applying such a reduction is consistent with how courts typically handle attorney fee determinations for firms that have failed to submit time records,” the committee wrote.

Jennifer Moore, of Moore Law Group, based in Louisville, Kentucky, was co-lead counsel with Wagstaff in the bellwether trial, which Monsanto appealed all the way to the U.S. Supreme Court.  Moore had argued that 6% was not enough given her work in that case or the $3.4 million her firm contributed to the common benefit fund, but the fee committee countered that the Miller Firm and Weitz & Luxenberg, both lead counsel firms, also anticipate receiving less than they paid.

“Moore Law contributed to the advancement of this MDL.  There is no question about that,” the committee wrote.  “But Moore Law also greatly benefitted from the thousands of hours of common benefit work that was done before it had any involvement in this MDL.”

Another objection came from David Diamond, of Diamond Law in Tucson, Arizona, who insisted he did not rely on lead counsel’s work in his Roundup cases.  He was joined by David Bricker, of Thornton Law Firm in Beverly Hills, California.  Diamond suggested returning the money to lawyers, like them, who took their own risks.

But the committee disputed his characterization.  “Diamond Law was able to resolve 300 MDL cases without having to draft and issue general discovery, brief and argue preemption and other general dispositive motions, depose a single Monsanto employee, or retain general experts in epidemiology, toxicology, pathology, and regulatory affairs,” the committee wrote.  “With this backdrop, it is difficult to comprehend how Diamond Law can boldly declare that it received no assistance from MDL leadership.”

Federal Circuit: More Fees Even With ‘Exceptional’ Ruling is ‘Nightmare’

February 16, 2024

A recent Law 360 story by Andrew Karpan, “Dish’s Bid for More Fees Called ‘Nightmare’ By Fed. Circ. Judge”, reports that a Federal Circuit judge told counsel for Dish Network LLC that to secure more fees after the cable giant defeated a patent case in district court that was found to be "exceptional" to cover the costs of challenging the patent at the patent board would create "an effing nightmare."

Dish had argued to the three-judge panel that it should be able to bill a shell patent company for expenses incurred challenging the patent through an inter partes review at the Patent Trial and Appeal Board after Dish defeated the related patent suit against it.  The patent company, Dragon Intellectual Property LLC, was also appealing the $1.45 million in fees that Dish already won, along with the $1.86 million won by attorneys for Sirius XM Radio Inc. in a different case over the same patent.

But the hearing was dominated by arguments over efforts by Dish's lawyers to score more money out of Dragon IP and potentially its lawyers — taking up over an hour of debate among the panel of judges.

In that endeavor, Dish had cited the 1989 Sullivan v. Hudson ruling from the U.S. Supreme Court, which gives the courts discretion to award fees to lawyers in a Social Security administrative proceeding.  According to the filings, Baker Botts LLP billed Dish for $673,905 in fees from patent board proceedings and wanted that money added to the $1.45 million. Sirius XM was hoping to clock $134,272 in additional fees.

U.S. Circuit Judge Kara Farnandez Stoll told Baker Botts lawyer Lauren Dreyer that she had a "practical" question about this argument.  "The district court is in the best position to determine whether or not something is exceptional or not because they're in the day-to-day running of the case.  That's not so with an IPR," she said. "The district court knows nothing about what happened at the IPR."  U.S. Circuit Judge Kimberly Moore was more wary of the possible effect of Dish's request in a legal climate where "every single patent litigation has a companion IPR now."

This would open up an entirely new avenue for victorious patent lawyers to litigate further, Judge Moore said.  "So, what you're now asking for is every time we're thinking about attorney's fees, anytime an IPR is successful, you're going to have the district court being put in what Judge Stoll was just articulating [is] the very awkward position of trying to evaluate the exceptionality of what was argued and decided, not in his or her forum but in an administrative forum," Judge Moore said. "That sounds like I'm creating an effing nightmare."

In response, Dreyer tried to argue that these motions would not come all the time if Dish succeeded just this once.  "I think [this case] is the exception; it's not the rule, and it only occurs in the rare cases in which there is frivolousness and an unreasonable manner of litigating," she said.  That didn't go down well with Judge Moore.  "With all due respect, every time you guys win, that's what you claim," Judge Moore told her, audibly annoyed at Dreyer's repetition of legalese.

U.S. District Judge Cathy Ann Bencivengo, on the panel by designation, acted to move the lawyers along in talking about "the circumstances in this case" and said there could be some general grounds for "sweeping the IPR" into a fee bid, as it "wasn't a waste of time [since] you didn't lose there."

Judge Bencivengo appeared occasionally mystified at the larger legal effort by Dish to go after Dragon in the first place.  "Basically, you have a hollow victory here if you win because plaintiff Dragon is a shell.  An empty shell. ... You can get zero.  They're judgment proof," she told Dreyer.

In addition to asking for more money, Dreyer said Dish was also hoping to get the appeals court to hold Dragon IP's lawyers liable for paying those fees.  But Dreyer made little headway again.  "All of what you discussed [with Judge Bencivengo] is not in this record.  You attempted to supplement this record with a deposition that would have brought to light all of those points.  They are not before this court, are they?" Judge Moore asked.

Dreyer acknowledged they were not.

"So we can't rely on any of that," the judge told her.

Judge Moore also took issue with how defense-side patent lawyers use "exceptionality" findings in federal courts.  "It feels like in a lot of these exceptional case findings, what really bothers me is that you all come in, and you complain that the district court should have done some sort of redo of all the things it didn't do in order to conclude that the originally asserted positions should have been deemed exceptional," she said.  "You're asking us to adopt a rule in which district court judges are now going to have to evaluate conduct, behavior and an outcome in a proceeding they had no involvement with and determine whether fees should be awarded for that in their forum, which would have evaluated the exact same issues under an entirely different burden of proof."