Attorney's Fees Award Against Counsel is Reversed for Lack of Statutory Authorization

Posted on June 17, 2009 by David J. McMahon

In Hyde v. Del Nero, 2009 DJDAR 8329 (2009), the Ninth Circuit clarified whether a lawyer for a party may be liable for fees under 15 U.S.C. Section 1692k(a)(3) of the Federal Debt Collection Practices Act (“FDCPA”) (pdf). In 2004, the plaintiffs filed suit against Midland Credit Management, Inc. (“MCM”) alleging violations of the FDCPA. Three months before trial, the law firm of Hyde & Swigart was retained to represent one of the plaintiffs after MCM settled with the other plaintiff.

The case was heard as a bench trial. The judge dismissed a number of the remaining plaintiff’s claims during trial and eventually rendered an award in favor of MCM. Plaintiff presented only one supporting witness at trial. The district court awarded MCM attorney’s fees and costs against the plaintiff and his lawyers, Hyde & Swigart, jointly and severally.

In support of the award, the district court wrote that plaintiff’s sole witness was “wholly without credibility” and the case was brought “in bad faith for the purpose of harassment” as defined in Section 1692k(a)(3) of the FDCPA. The law firm appealed the award of fees rendered against it. 

On appeal, the lawyers argued that attorney’s fees may not be awarded against a plaintiff’s attorney under Section 1692k(a)(3). The Ninth Circuit agreed and reversed. The court stated that under Section 1692k(a)(3), a court may award reasonable attorney’s fees for an action “brought in bad faith and for the purpose of harassment.” The court noted however, there is a general presumption that an attorney is not liable for fees unless a statute explicitly provides for such a liability. The court noted that Section 1692k(a)(3) is silent as to who is responsible for the actual payment of the award. On this basis, the court determined that an award under Section 1692k(a)(3) cannot be against the plaintiff’s attorneys as there was no authorization within the statute for such a result. The Ninth Circuit emphasized that although the trial court has discretion to determine reasonable attorney’s fees, it had no authority to shift the burden of payment on parties other than the plaintiff, without specific statutory authorization.

Trial Court's Expansive Ruling on Recovery of Counsel Fees is Upheld on Appeal

Posted on June 11, 2009 by David J. McMahon

In County of Sacramento vs. Sandison, 2009 DJDAR 7843 (2009), the Third Appellate District dealt with the interplay between Government Code § 25845 and C.C. § 1717 in a novel fee dispute. Under Government Code § 25845(b) the statute states:

In any action to abate a nuisance, whether by administrative proceedings, judicial proceedings, or summary abatement, the owner of the parcel upon which the nuisance is found to exist shall be liable for all costs of abatement incurred by the county, including, but not limited to, administrative costs, and any and all costs incurred in the physical abatement of the nuisance. Recovery of costs pursuant to this section shall be in addition to and shall not limit any prevailing party’s right to recover costs [under] . . . any other provision of law.

Section (c) of that statute states:

A county may, by ordinance, provide for the recovery of attorneys’ fees in any action, administrative proceedings, or special proceedings to abate a nuisance. If the ordinance provides for the recovery of attorney’s fees, it shall provide for recovery of attorneys fees by the prevailing party, rather than limiting recovery of attorneys’ fees to the county if it prevails . . . In no action, administrative proceedings or special proceedings shall an award of attorneys’ fees to a prevailing party exceed the amount of reasonable attorneys’ fees incurred by the county in the action or proceeding.

California Civil Code § 1717 (a) provides:

In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.

The county of Sacramento sued James and Julianne Sandison for maintaining a non-permitted dwelling on their property. The parties entered into a settlement agreement and stipulated to an injunction against the Sandison’s. The injunction enjoined the Sandisons from maintaining a second dwelling without the required permits. The settlement agreement stated that the prevailing party in an action brought to enforce the injunction would be entitled to attorney fees. Thereafter, the county attempted to enforce the injunction, and initiated a contempt proceeding against the Sandisons. The trial court found in favor of the Sandisons, who moved for their reasonable attorney fees, based on the provisions contained in the settlement agreement. The trial court awarded the Sandisons the $44,089 in fees requested which exceeded the limitations contained in Government Code Section 25845(c). The county appealed contending that the trial court issued a fee award which did not comply with the Government Code limitations.

On appeal the court noted that Government Code Section 25845(c) states that an award of attorney fees to a prevailing party shall not exceed the reasonable amount incurred by the county in an action. However, the court reasoned that the recovery of attorney fees authorized by contract is considered to be in addition to the prevailing party’s right to recover fees under Section 25845. Although the county argued that the amount of attorney fees should have been limited to the amount incurred by the county under Section 25845, the court found that the settlement agreement authorized the award of attorney fees in addition to any reasonable fees awarded under Section 25845. The court concluded that the trial court did not err in refusing to limit the attorney fee award and the Sandisons’ award was proper. 

The case illustrates a rather novel interplay between two statues which authorize an award of fees under California law.

 

Judge Makes Decision on the Necessity and Reasonableness of Fees And Costs In Lead Paint Toy Claims

Posted on June 8, 2009 by David J. McMahon

Federal Judge William Hart ruled that a liability insurer owed a defense to a seller of toys that were manufactured in China in ACE American Insurance Co. v. RC2 Corp. Inc. et al., 568 F. Supp. 2d 946 (N.D. Ill. 2008). The allegedly harmful toys involved, contained lead paint which gave rise to claims for bodily injury. In a subsequent ruling involving components of the claim for reimbursable defense costs, the court made reductions for voluntary payments and work it characterized as “non-legal.” ACE American Insurance Co. v. RC2 Corp. Inc. et al., 2009 WL 1137904 (N.D. Ill., April 23, 2009).

ACE insured RC2 under four consecutive liability policies in effect from 2004 to 2007. ACE argued there was no defense obligation based on the policy “coverage territory clause” and the fact that the lawsuits against RC2 and Learning Curve alleged harm to people or property in the United States. The argument raised the question of the construction of the occurrence language, with regard to the policies coverage territory provisions.

Ruling on cross motions for summary judgment, Judge Hart interpreted the relevant policy language. He construed the policy term “occurrence” as referring to the cause of the harm, reasoning that the resulting harm was not included in the definition of occurrence. He further concluded that the policies required only that the occurrence take place in the coverage territory, not that the harm also occur outside of the United States to trigger coverage.

In the subsequent ruling, Judge Hart examined the related question of reimbursable defense costs.   The judge held that certain costs incurred in defending two retailers that were named in underlying lawsuits were not owed because the insured did not obtain the prior consent of the carrier prior to assuming the obligations of the retailers. The court noted that the retailers were not insureds under the policies and the insured was obligated to tender to ACE documentation relating to defending the retailers prior to assuming their defense. The judge stated that: “Even if the insurer had denied a duty to defend and is not providing representation while pursuing a declaratory action, the insured still must comply with any additional notice requirements or other obligations under the policy.”

The court also held that certain work appearing to relate to press releases was not compensable defense costs and should not be reimbursed.  The judge also reduced numerous block-billing time entries by 10 percent on the basis that entries were unreliable. Other work related to reviewing press releases for inclusion of privileged communications did not constitute defense costs. Finally, the court ruled that an attorney’s time spend reading newspaper articles and Consumer Product Safety Commission (CPSC) publications was legal work, not public relations in nature and should be reimbursed.

The court’s ruling on compensable defense costs is generally in line with other case law construing the scope of an insurance carriers’ obligation to reimburse certain categories of legal work. An important lesson from this case is that an insured shall always promptly tender a claim for the carrier, prior to assuming the defense of a third party.

$55.1 Million Sought In Attorneys' Fees for 5 Months of Work

Posted on May 14, 2009 by John "Jack" S. Pierce

On April 13, 2009, the law firm of Weil, Gotchal & Manges filed an application for legal fees in the Lehman Brothers bankruptcy case seeking a total of $55.1 million for professional services rendered over the 5 month and 15 day period from September 15, 2008, through January 31, 2009.

Justification for the fees is set forth in an Application filed in support which, amongst other things, proclaimed, in a somewhat dramatic fashion:

As Lehman’s employees rushed out of Lehman’s offices with boxes and suitcases filled with their belongings, WGM attorneys rushed in.

During this time the Weil Gotchal lawyers clocked a total of 100,296 hours on Lehman-related work as counsel for Lehman Brother, the debtor in possession. While most firms in today’s economy are facing a shortage of billable hours, Weil Gotshal is apparently not.

A review of the petition provides some interesting observations:

  • Collectively the firm’s timekeepers (partners, associates, paralegals etc) averaged more than 700 billed hours per day, seven days per week.
  • Billing rates of at least 15 Weil Gotshal timekeepers were in excess of $1,000.00 per hour.
  • More than 19 attorneys billed at legal rates in between $900 and $975 per hour.
  • 68 other lawyers billed at legal rates between $800 and $890 per hour.
  • Recent 2009 bar admittees were billing at rates as high as $415 per hour.
  • Harvey R. Miller, the head of the firm’s restructuring practice, billed 794.8 hours at the rate of $950 an hour for a total of $755,060 for his fees alone during this 5 month period.
  • One Corporate associate, licensed in 2008, billed at $560 per hour and had his billing rate increased to $650 per hour during this same 5 month period.

 The Application for fees was submitted to the Court on April 13, 2009, and will be reviewed by the Trustee in Bankruptcy. All objections were required to be filed by May 6, 2009. To date there has been no ruling on the issue of Weil Gotshal’s fees.

Surprisingly there has been an absence of objections filed to date. The sole objection filed thus far is from a retired Arizona school teacher, Ms. Edith S. Hall, who had purchased $50,000 of Lehman’s AA-rated corporate bonds in 2005 for their security value, which, at the time she believed to be a “conservative investment”.

Ms. Hall has asked the court to carefully review the fees of Weil Gotshal to which she has objected on the grounds that their fee request was “exorbitant”. She also told the court that “when the economy is in crisis and executive bonuses are being questioned, I feel these fees are excessive and should be capped.”  Other potential objectors have, thus far, been suspiciously silent.

Weil isn’t the only firm seeking significant fees from Lehman’s Chapter 11 case. Milbank Tweed Hadley McCloy, which is advising Lehman’s official committee of unsecured creditors, is now seeking $12.1 million in fees for the period through the end of January.

Lazard, Lehman’s investment banker, is also asking for $6.6 million in fees.

Clarification Whether A Party Is Required To FileA Proposed Judgment Together With A Memorandum Of Costs In A Voluntary Dismissal Scenario

Posted on April 30, 2009 by David J. McMahon

In Fries v. Rite Aid Corp., 2009 DJDAR 5721 (April 24, 2009), the California Court of Appeal, First Appellate District clarified an issue concerning the procedure for properly filing a memorandum of costs where a plaintiff voluntarily dismisses an action. The court analyzed whether a party who seeks costs after a voluntary dismissal, is required to file a proposed judgment in addition to the memorandum of costs. The court concluded that there was no legal requirement that the party file a proposed judgment in addition to the cost memorandum.  The court clarified a procedural issue that has been pending for some time. The importance of this question from an attorney fee standpoint is that when any California statute refers to the award of “costs and attorneys fees,” the fees may be recoverable as a component of the costs to be awarded. Attorneys’ fees allowable as costs may be fixed upon noticed motion, at the time a statement of decision is rendered and/or, as in this case, on a cost memorandum supported by affidavit, made concurrently with a claim for other costs.

In Fries plaintiff filed a complaint against Rite Aid but soon thereafter filed a request for voluntary dismissal of the action. On the day that the plaintiff dismissed the case, Rite Aid filed a memorandum of costs. The plaintiff moved to strike or tax the costs arguing that the memorandum contained procedural defects because the defendant failed to file a proposed judgment or an order of dismissal simultaneously with the cost memorandum. The trial court disagreed with the plaintiff noting that the defendant complied with California rule of court 3.1700.

Under California rule of court 3.1700 a prevailing party who claims costs must serve and file a memorandum of costs within 15 days after the date of the mailing of the notice of entry of judgment or dismissal by the clerk under CCP § 664.5 or the date of service of written notice of entry of judgment or dismissal, or within 180 days after entry of judgment, whichever is first. A memorandum of costs must be verified by a statement of the party, attorney or agent that to the best of his or her knowledge the item of costs are correct and were necessarily incurred in the case.

The question framed by the Court of Appeal was whether as the plaintiff maintained, that the defendant was also required to file a proposed judgment along with their memorandum of costs. The court concluded that California Rules of Court 3.1700 does not require a party to do so. The plaintiff relied on a passage in a frequently relied on California practice guide for the proposition that “a prevailing party who claims costs shall serve and file a memorandum of costs after service of written notice of entry of judgment or dismissal.” The appellate court disagreed noting that the language in the practice guide referred to involuntary rather than voluntary dismissal because of the reference to CCP § 664.5.

Counsel should be guided by the clarification when filing a memorandum of costs seeking to recover either costs, attorneys’ fees or both in a voluntary dismissal scenario.

Helpful Tips to Ensure Compliance With Billing Guidelines

Posted on April 16, 2009 by David J. McMahon

A client should regularly review the bills of counsel to determine whether attorneys and other billers have complied with generally accepted billing practices and established billing guidelines. The regular review of bills often results in the identification of questions and possible deductions for invoice entries that fail to comply with guidelines or industry norms. Certain types of activity included in the bills, as well as the format of billing entries, can give rise to concerns. Categories of entries a client should review include: block billing, vague and ambiguous entries, administrative and clerical tasks, excessive conferencing and unnecessary travel.

The practice of pervasive “block billing,” also known as “bulk billing” or “aggregate billing,” has been discouraged by courts and prohibited by most billing guidelines. “Block billing” is the practice of lumping two or more tasks into a single billing entry. Time is not allocated between the tasks and a single total amount of time is stated for all tasks contained in the blocks. Where this billing style is utilized, the client may have difficulty in determining whether the time spent on each task was reasonable.

An attorney’s or paralegal’s time entries should also be recorded in sufficient detail so that the work performed is clearly described and precisely communicated in a meaningful way. Courts require such precision in evaluating the reasonableness of fees billed by counsel. Accordingly, clients often take an estimated percentage deduction for “vague” entries, where through no fault of its own, a client is unable to determine the nature and/or scope of services claimed. Entries such as “Work on documents” “Review documents” “Telephone conference” and “Research” should not be paid without more of an explanation. Where attorneys report various communications, it is appropriate to require the names of both parties involved and the subject of the exchange. Thus, a client is within its rights to question reporting “Call with Joe Smith” or “Meeting re: depositions.”

Billing by attorneys and paralegals for the performance of “clerical” or “secretarial” tasks is also inappropriate without prior approval. These activities are generally considered part of a law firm’s overhead expenses, which are factored into the firm’s hourly rates for professional services. Clerical activities are those that do not require legal acumen. Secretaries, file clerks, messengers and other nonprofessional staff can perform these tasks effectively. Similarly, computer-related charges should not appear on an invoice for legal services without prior approval from the client.

In addition, the client should review questionable staffing decisions that may result in unnecessary fees and costs. “Multiple attendance,” means attendance at events by several attorneys where one could reasonably get the job done. It may be appropriate to take deductions where a firm sends more than one partner to a routine motion hearing without prior approval. A related category is “unnecessary travel.” An attorney should not travel (at a client’s expense) if he or she could perform the same work via email, fax machine, and/or teleconferencing.

A close review of bills should also include the fronted costs and expenses for which the law firms seek reimbursement. At a minimum, attorneys should always provide backup documentation for the underlying invoices to support the costs they incur. As with attorneys’ fees, the test for evaluating disbursements is one of reasonableness. The expenditure must be necessary and the amount reasonable. General overhead expenses are not appropriate disbursements because the law firm should factor them into the attorneys’ hourly billing rates. 

A monthly bill review should also look at quality control items that might include unapproved billing rate increases, billing entries for incorrect matters, and math errors.  All of the foregoing are typically helpful in reducing client costs as well as increasing attorney accountability. Before starting the analysis however, the reviewer must determine the criteria to be utilized in analyzing the invoices and strive for consistency. We also recommend meeting with the law firm regularly to ensure the law firm billers understand the guidelines and the client’s expectations. The most favorable result is always to educate the parties and to foster a trusting, transparent relationship between the attorney and client.

The Basics for Preparing a Petition Seeking Attorneys' Fees

Posted on April 8, 2009 by David J. McMahon

Several issues should be considered by counsel prior to beginning the task of drafting a petition seeking an award of attorneys’ fees. Obviously, the applicant must be entitled to a fee award. Most frequently, entitlement to an award arises under a contract, a statute or case law granting the right to attorneys’ fees. Regardless of the authority for an award, it is critical for the applicant to understand that the burden of proof will lie with the petitioner in establishing the amount, necessity and reasonableness of the fees incurred. Under the Supreme Court authority of Hensley v. Eckerhart, 461 U.S. 424 (1983) the fee claimant has the burden of proving that the fees requested were both reasonable and necessarily incurred.

The fee petition is typically set up via a written motion. The motion should set forth the legal and factual basis for the award, including declarations establishing the foundational facts supporting the claim.

A successful fee petition is based on in part on a determination that the fees sought are reasonable. This is frequently referred to as the lodestar. The lodestar is described as the number of hours reasonably expended in the litigation multiplied by a reasonable hourly rate. This calculation provides the foundation for establishing the reasonableness of the lawyer’s services. The applicant must be aware that various factors will justify moving the award up or down depending on the success achieved and the capability of counsel handling the case. Particular attention should also be paid to the rates sought and whether they are in compliance for the type of case in the relevant community. 

The declarations submitted in support of the fee award will be scrutinized by the court and opposing counsel, particularly where numerous lawyers and paralegals participated in the case. In some cases it may also be prudent to retain an expert to provide testimony via declaration supporting the application. Where a fee request is not significant, retaining an expert may be hard to justify from an economic standpoint. However, where the fees are substantial an expert is particularly necessary to justify the award, particularly if the underlying record is not well developed.

Counsel should also expect that opposing counsel will retain their own expert to scrutinize the fee petition and the supporting declarations. Extra care should be made to establish, in the first instance, that the fees were necessary and reasonable. 

As a starting point to the entire process, it is fundamental that all of the billers keep accurate and contemporaneous time records of the fees incurred. In our experience, courts will either disallow or substantially reduce the fees sought where adequate and contemporaneous time records have not been maintained. The bills should demonstrate that time was recorded in specific detail, describing the work performed and tasks accomplished usually in one tenth of an hour increments.

The fee applicant should also keep in mind that a significant application for fees can often lead to a totally new round of litigation including writing discovery and depositions. The cost and potential recovery associated with the petition must be considered at the outset. 

A successful fee application begins at the outset of the representation. The manner in which time is recorded and the format and style of the bills will play a significant role in the outcome of the petition. It is extremely important that accurate and meaningful time entries be entered on a contemporaneous basis from the beginning to end of the litigation. This greatly enhances the possibility of obtaining a successful result.

Fee Shifting Statutes Under California Law

Posted on March 17, 2009 by David J. McMahon

Under California Law numerous exceptions exist to the traditional “American Rule” wherein each party is required to pay their own attorneys’ fees in litigation. The exceptions exist in three general categories.

  • Provisions provided by contract authorizing the award of fees
  • State statutes which authorize fee awards in particular actions including but not limited to CCP § 1021.5. The statute is known as the Private Attorney General Rule
  • Theories rooted in equity and fee awards for wrongful conduct

The potential for a fee award is a critical consideration for a party to consider when initiating or defending litigation. Obviously, the cost of litigation including a fee award, can become a substantial factor in developing litigation strategy. Therefore, in the initial planning for litigation, it is important to determine whether a statute, a common law theory, or a contractual provision might provide for some form of fee shifting. 

There are literally hundreds of California statues which provide for fee shifting in numerous areas including but not limited to the Government Code, civil rights, consumer protection, employment, general civil procedure, immigration and real property.

An important consideration on the topic of fee shifting is that such awards are constrained by ethical considerations. For example, California Rule of Professional Conduct 4-200 provides as follows:

A.     A member should not enter into an agreement for, charge, or collect an illegal or unconscionable fee.

B.      Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into . . . The following factors are considered:

1.        The amount of the fee in proportion to the value of the services performed.

2.        The relevant sophistication of the member and the client.

3.        The novelty and difficulty of the question involved and the skill required to perform the legal services properly.

4.        The likelihood, if apparent to the client, that the acceptance of a particular employment will preclude other employment by the member.

5.        The amount involved and the results obtained.

6.        The time limitations imposed by the client or by the circumstances.

7.        The nature and length of the professional relationship with the client

8.        The experience, reputation, and the ability of the attorneys performing the services.

9.        Whether the fee is fixed or contingent.

10.     The time and labor required.

11.     The informed consent of the client to the fee.

All of the factors noted here are important in calculating the amount of fee award. Counsel should also use care to avoid conflicts of interest when an attorney is settling the merits of a case and the fee award simultaneously. That scenario can create a situation creating adversity between the lawyer and the client.

Prevailing Parties Only Entitled to Fees Reasonably Incurred: Beware the Duplication of Efforts

Posted on March 6, 2009 by Gary A. Bresee

Last fall I served as an expert in a case which analyzed the loadstar claimed by the prevailing parties in City of Los Angeles v. County of Kern, Case No. CV 06-5094 GAF (VBKx) (September 3, 2008).  The written opinion by U.S. District Judge Gary Allen Feess has been cited as "must reading" on the methodology that can be used by a federal district judge to reduce the lodestar in civil rights cases.  See California Attorneys' Fees website.  The decision illustrates more than a few pitfalls which should be avoided by litigation counsel, particularly when there are multiple lawfirms billing to the file and the duplication of efforts that can result therefrom.  The decision also outlines an approach which can be utilized by anyone interested in how best to evaluate the reasonableness of attorney invoices before paying.  To read the full decision, click here, or click on the column to the left under "Links."