Ninth Circuit Overturns Attorney Fee Award Against the Government

Posted on January 29, 2010 by David J. McMahon

Court finds that the government did not act frivolously in conducting a factual investigation

In U.S.. v. Capener, 2010 DJDAR 392 (2010) the U.S. Court of Appeals for the Ninth Circuit, overturned a fee award, rendered against the government under the so called “Hyde Amendment.” 

The Hyde Amendment, 18 U.S.C. § 3006A note, permits the court to award attorneys fees to a defendant in a criminal prosecution where the government has acted in a manner that was “vexatious, frivolous, or in bad faith . . .”  

After conducting an investigation initiated by a health insurance carrier, the federal government prosecuted physician Mark Capener for alleged health care fraud. The government claimed that its investigation found indications that the doctor had billed patients for unnecessary and unperformed surgeries.

As a result of the investigation, the doctor was charged with numerous counts of fraud. The government relied on statements made by its retained expert. The expert concluded that certain pathology samples did not contain bone fragments, which would be present if certain surgeries were in fact performed. Further investigation revealed that the samples actually did contain bone fragments. At trial, the government presented the bone fragment theory to support the prosecution. 

After further proceedings, the charges against Capener were dismissed by the government and Capener moved to recover his fees under the Hyde Amendment. The district court found that portions of the government’s claims were frivolous, and awarded partial fees. Both the government and the defendant appealed.

The Ninth Circuit reversed in part. 

The court noted that under the Hyde Amendment, the court may award a prevailing party reasonable attorney fees where it finds that the government’s position violated the standards set forth in the Hyde Amendment. The Ninth Circuit stated that a failure to sufficiently investigate can rise to the level of frivolousness only when the government had some reason to know further investigation was needed. The court concluded that there were no facts in the record to support a conclusion that the government knew the “bone fragment theory” was wrong. 

On this basis the court concluded that the government’s reliance on its expert’s opinion did not rise to the level of misconduct necessary to recover fees under the Hyde Amendment.

Public Entity is Entitled to Hire Private Law Firm in Tax Assessment Proceedings

Posted on January 19, 2010 by David J. McMahon

In Priceline.com Inc. v. City of Anaheim the California Court of Appeals, Fourth District issued a decision interpreting the so called Clancy doctrine. 

In the California Supreme Court’s ruling in Clancy v. Superior Court, (1985) 39 Cal. 3d 740, 746-51 the Court provided a framework for, when, and if, a public entity has the authority to hire an attorney on a contingent fee basis to try a civil case. 

The Priceline litigation commenced when a private law firm working for the City of Anaheim informed Priceline.com Inc. that it was liable for failing to remit a local hotel tax. The tax was allegedly due for Priceline’s hotel room reservation service.

Priceline responded to outside counsel, and demanded to know whether the lawyer was working on a contingent fee basis. Anaheim answered in the affirmative, but stated that the private firm was acting as its co-counsel. 

Under the Clancy doctrine outside lawyers are allowed to assist government lawyers as co-counsel in “ordinary” civil litigation. Priceline then sought to compel Anaheim to litigate the matter without the outside counsel’s involvement, by petitioning for a writ of mandate. The trial court denied the petition and Priceline appealed.

The court of appeal affirmed, noting that a under Clancy, a government may hire an attorney on a contingent fee to try a civil case. However, some types of cases (only vaguely described in Clancy) require “a balancing of interests” and “a delicate weighing of values.” Under Clancy, it is clear that the use of outside counsel as the government’s sole litigator would have been prohibited.

In Priceline, the case was a tax assessment proceeding and for that reason the Court of Appeal concluded that it was an administrative action that did not require use of the balancing test or weighing of issues. 

As the disputed matter did not fall inside the barred class, the court concluded that Anaheim was not prohibited from hiring outside counsel on a contingent fee to try this case. The trial court was correct in denying Priceline’s petition.

Before You Request Your Fees from Your Opponent, Be Sure You Have Prevailed

Posted on January 11, 2010 by Gary A. Bresee

Although this sounds obvious, the Ninth Circuit recently illustrated, in Klamath v. Bureau of Land Management, No. 08-35463 (9th Cir., Dec. 15, 2009), that a plaintiff must have actually received some kind of relief on the merits of her claim before she can be said to have prevailed, and thereby be entitled to her attorneys' fees.  There must be a "material alteration" of the status quo, and the court's order must consist of relief, not merely a determination of legal merit.  There must be some kind of "judicial imprimatur," which first means, typically, a court order of some kind.  

The judicial imprimatur must also be an enforceable entitlement to relief: 

"To receive what one sought is not enough to prevail: the court must require one's opponent to give it."

Consequently, a lawsuit which brings about a voluntary change in defendant's conduct would "lack a judicial sanction or imprimatur."  In Klamath, Plaintiffs Klamath Siskiyou Wildlands Center, et al. ("Klamath") sued the Bureau of Land Mangement ("BLM") alleging that a timber sale in the Willy Slide area was illegal.  Klamath sought an injunction against the sale taking place.  During the pendency of the suit, however, the BLM vacated its earlier rulings and granted Klamath's protest of the Willy Slide timber sale.  

The BLM then moved to dismiss the case, and the District Court agreed, dismissing the action as unripe or moot due to BLM's voluntary actions.  Since this order did not conclude that Klamath was entitled to relief, it did not confer prevailing party status upon Klamath.  Because it did not "require one party to do something it otherwise would not be required to do," the District Court's grant of attorneys fees was reversed.

This seems to be a valid strategy.  If you find yourself a defendant in a suit where plaintiff would be entitled to her fees, consider a voluntary change to the status quo -- even if it occurs after the action has been commenced -- so long as it is prior to the plaintiff's ability to obtain a court order granting any kind of relief.  This would, if successful, avoid any claim for attorneys' fees from the plaintiff in the future.   

Carrier Responsible for the Insured's Fees Based Upon Attorney Contingency Fee Agreement

Posted on January 5, 2010 by Gary A. Bresee

The Ninth Circuit recently held an insurer liable for the insureds' attorneys fees when the insureds were forced to file litigation to establish coverage under their policies.  Moreover, the court held the insureds' contigency fee agreement could form the basis for the amount of fees owing, so long as reasonable under the circumstances.  

In Riordan v. State Farm, No. 08-35874 (9th Cir., 2009), the insured husband and wife were involved in an auto accident and tendered the claim to State Farm Mutual Auto Insurance Company under their uninsured motorists' coverage.  After filing suit against State Farm, and after State Farm paid the remaining benefits under the policies just before trial, the Riordan's sought their attorneys' fees from the carrier. 

First, the Ninth Circuit allowed the attorneys' fees claim to be raised for the first time on a motion, as opposed to being plead in the complaint, based upon Federal Rule 52(d)(2). 

Next, although Montana follows the "American Rule" that each party is obligated to pay its own attorney, Montana recognizes an exception to this rule when "the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract."  Mountain W. Farm Bureau  Mut. Ins. Co. v. Brewer, 69 P.3d 652, 660 (Mont. 2003).  (In California, these are known as "Brandt Fees," due to the Brandt v. Superior Court, 37 Cal.3d 813 (1985) California Supreme Court decision).

Finally, the Ninth Circuit also found that the District Court could award the full amount agreed upon under a contingency fee agreement so long as the ultimate amount of the fee is reasonable.